<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1998
REGISTRATION NO. 333-66711
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- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
MTL INC.
AND THE GUARANTORS IDENTIFIED IN FOOTNOTE (1) BELOW
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 4213 59-3239073
(STATE OF OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
3108 CENTRAL DRIVE
PLANT CITY, FLORIDA 33567
(813) 754-4725
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
ROBERT KASAK
GENERAL COUNSEL
3108 CENTRAL DRIVE
PLANT CITY, FLORIDA 33567
(813) 754-4725
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
MORTON A. PIERCE
DOUGLAS L. GETTER
DEWEY BALLANTINE LLP
1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019
(212) 259-8000
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being 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. [_]
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(1) The following domestic direct or indirect wholly owned subsidiaries of MTL
Inc. are Guarantors of the Notes and are Co-Registrants, each of which is
incorporated in the jurisdiction and has the I.R.S. Employer Identification
Number indicated: Montgomery Tank Lines, Inc., an Illinois corporation (36-
2590063); Quality Carriers, Inc., a Virginia corporation (54-0643157);
Lakeshore Leasing, Inc., an Indiana corporation (36-2950680); Mexico
Investments, Inc., a Florida corporation (59-3433851); MTL of Nevada, a Nevada
corporation (88-0350589); Chemical Leaman Corporation, a Pennsylvania
corporation (23-2021808); Chemical Properties, Inc., a Pennsylvania
corporation (23-1470735); Capacity Management Systems, Inc., a Pennsylvania
corporation (23-1423460); Core Logistics Management, Inc., a Delaware
corporation (23-2021808); EnviroPower, Inc., a Delaware corporation
(23-2735584); Pickering Way Funding Corp., a Delaware corporation
(23-2723269); Power Purchasing, Inc., a Delaware corporation (23-2611487);
American Transinsurance Group, Inc., a Delaware corporation (23-2613934);
Chemical Leaman Tank Lines, Inc., a Delaware corporation (23-1316982); Fleet
Transport Company, Inc., a Delaware corporation (23-2848147); Quala Systems,
Inc., a Delaware corporation (23-2343087); CLT Services, Inc., a Delaware
corporation (51-0338487); Leaman Logistics, Inc., a Delaware corporation (23-
2905374); Transplastics, Inc., a Delaware corporation (23-2932792); and QSI
Services, Inc., a Delaware corporation (51-0349728).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE TIME 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 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED DECEMBER 17, 1998
[LOGO]
MTL INC
OFFER TO EXCHANGE
10% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
SERIES B FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2006
(FIRSTS SM*)
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
FOR ANY AND ALL OUTSTANDING
10% SENIOR SUBORDINATED NOTES DUE 2006
FLOATING INTEREST RATE SUBORDINATED TERM SECURITIES DUE 2006 (FIRSTS SM*)
($140,000,000 AGGREGATE PRINCIPAL AMOUNT OUTSTANDING)
Material Terms of the Exchange Offer
. Expires 5:00 p.m., New York City . The exchange of notes should not
time, on , 1999, unless be a taxable exchange for U.S.
extended federal income tax purposes
. We will exchange your validly . We will not receive any proceeds
tendered unregistered fixed rate from the exchange offer
notes for an equal principal
amount of registered fixed rate
notes with substantially identical
terms and your validly tendered
unregistered floating rate notes
for an equal principal amount of
registered floating rate notes
with substantially identical terms
. The terms of the notes to be
issued are substantially identical
to the outstanding notes, except
for certain transfer restrictions
and registration rights relating
to the outstanding notes
. You may tender outstanding notes
only in denominations of $1,000
and multiples of $1,000
. Not subject to any condition other
than that the exchange offer not
violate applicable law or any
applicable interpretation of the
Staff of the Securities and
Exchange Commission and certain
other customary conditions
. Affiliates of our company may not
participate in the exchange offer
. You may withdraw your tender of
outstanding notes at any time
prior to the expiration of the
exchange offer
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE 23 OF THIS DOCUMENT
FOR CERTAIN IMPORTANT INFORMATION.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
THE COMPANY IS NOT MAKING THIS EXCHANGE OFFER IN ANY STATE WHERE THIS EXCHANGE
OFFER IS NOT PERMITTED.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE NOTES TO BE ISSUED IN THE EXCHANGE OFFER, NOR HAVE
ANY OF THESE ORGANIZATIONS DETERMINED THAT THE PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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* FIRSTS SM is a service mark of BT Alex. Brown Incorporated.
---------------
The date of this Prospectus is , 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Where You Can Get More Information....................................... ii
Forward-Looking Statements............................................... ii
Prospectus Summary....................................................... 1
Summary Historical Consolidated Financial Information.................... 17
Risk Factors............................................................. 23
The CLC Merger........................................................... 28
Use of Proceeds.......................................................... 30
Unaudited Pro Forma Condensed Consolidated Statement of Operations....... 31
Selected Historical Consolidated Financial Information................... 38
Management's Discussion and Analysis of Financial Condition and Results
of Operations.......................................................... 42
Business................................................................. 55
Management............................................................... 78
Principal Stockholders................................................... 85
Certain Relationships and Related Transactions........................... 86
Description of Capital Stock............................................. 88
Description of the New Credit Agreement.................................. 96
The Exchange Offer....................................................... 100
Description of Notes..................................................... 114
Book-Entry; Delivery and Form............................................ 164
Federal Income Tax Considerations........................................ 167
Plan of Distribution..................................................... 172
Legal Matters............................................................ 173
Experts.................................................................. 173
Index to Financial Statements............................................ F-1
</TABLE>
i
<PAGE>
WHERE YOU CAN GET MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement under the Securities Act of 1933, as amended, covering the notes to
be issued in the exchange offer. As permitted by the Commission rules, this
Prospectus omits certain information included in the Registration Statement.
For further information pertaining to the notes, we refer you to the
Registration Statement, including its exhibits. Any statement made in this
Prospectus concerning the contents of any contract, agreement or other
document is not necessarily complete. If we have filed any such contract,
agreement or other document as an exhibit to the Registration Statement, you
should read the exhibit for a more complete understanding of the document or
matter involved. Each statement regarding a contract, agreement or other
document made in this Prospectus is not necessarily complete and you should
refer to the exhibits attached to the Registration Statement for a copy of the
actual document. You may read and copy any of the information we file with the
Commission at the Commission's public reference rooms at Room 1024, 450 Fifth
Street, N.W., Washington, D.C., at 7 World Trade Center, 13th Floor, New York,
New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. You can also obtain copies of filed documents by
mail from the Public Reference Section of the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. You may call
the Commission at 1-800-SEC-0330 for further information on the operation of
the public reference rooms. Filed documents are also available to the public
at the Commission's web site at http://www.sec.gov.
Following the exchange offer, we will be required to file annual, quarterly
and special reports, proxy statements and other information with the
Commission under the Exchange Act. Our obligation to file periodic reports
with the Commission will be suspended if the notes issued in the Exchange
Offer are held of record by fewer than 300 holders as of the beginning of any
year. However, to the extent permitted, the indenture governing the notes
requires us to file with the Commission financial and other information for
public availability. In addition, the indenture governing the notes requires
us to deliver to you copies of all reports that we file with the Commission
without any cost to you. We will also furnish such other reports as we may
determine or as the law requires.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this Prospectus discuss future
expectations, contain projections or results of operation or financial
condition or state other "forward-looking" information. Those statements are
subject to known and unknown risks, uncertainties and other factors that could
cause the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and
was derived using numerous assumptions. Important factors that could cause our
actual results to be materially different from the forward-looking statements
are disclosed under the heading "Risk Factors" and throughout this Prospectus.
ii
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this Prospectus
and may not contain all of the information that is important to you. This
Prospectus includes the specific terms of the notes we are offering, as well as
information regarding our business, certain recent transactions entered into by
us and detailed financial data. We encourage you to read this Prospectus in its
entirety.
THE EXCHANGE OFFER
On June 9, 1998, MTL Inc. completed the private offering of $100,000,000
principal amount of 10% Senior Subordinated Notes due 2006 and $40,000,000
principal amount of Floating Interest Rate Subordinated Term Securities due
2006. These notes were sold to certain initial purchasers identified in this
Prospectus. The notes are guaranteed by substantially all of the subsidiaries
of MTL.
MTL and the guarantors of the notes entered into a registration rights
agreement with the initial purchasers in the private offering in which we
agreed, among other things, to deliver to you this Prospectus and to complete
the exchange offer on or prior to February 4, 1999. As a holder of such
outstanding notes, you are entitled to exchange in the exchange offer your
unregistered notes for a new series of notes which have been registered under
the Securities Act with substantially identical terms. If the exchange offer is
not completed on or prior to February 4, 1999, the interest rate on the notes
will be increased by .25% per year for the first 90 days immediately following
such date, and increasing by an additional .25% per year at the beginning of
each subsequent 90-day period up to a maximum of 1.0% in the aggregate. You
should read the discussion under the heading "Summary of Terms of the Exchange
Notes" and "Description of Notes" for further information regarding the
registered notes.
We believe that the notes issued in the exchange offer may be resold by you
without compliance with the registration and prospectus delivery provisions of
the Securities Act, subject to certain conditions. Following the exchange
offer, any notes held by you that are not exchanged in the exchange offer will
continue to be subject to the existing restrictions on transfer on the notes
and, except in certain circumstances, we will have no further obligation to you
to provide for registration under the Securities Act of transfers of
outstanding notes held by you. You should read the discussion under the
headings "Summary of the Exchange Offer" and "The Exchange Offer" for further
information regarding the exchange offer and the resale of notes.
1
<PAGE>
ABOUT OUR COMPANY
We are the largest bulk tank truck carrier in the United States based on
revenues. Through a network of 189 terminals located across the United States
and Canada, we transport a broad range of chemical products and provide our
customers with supplementary transportation services such as dry bulk hauling,
transloading, tank cleaning, third-party logistics, intermodal services and
leasing. Many of the chemical and chemical-related consumer products that we
transport require specialized trailers and experienced personnel for safe,
reliable and efficient handling. We are a core carrier for many of the Fortune
500 companies who are engaged in chemical processing, including The Procter &
Gamble Company, Union Carbide Corporation, Dow Chemical North America, Allied
Signal, Inc., DuPont de Nemours Co. and PPG Industries. We are a holding
company, and our business operates principally through our five main operating
subsidiaries: (1) Montgomery Tank Lines, Inc., (2) Quality Carriers, Inc., (3)
Chemical Leaman Tank Lines, Inc., (4) Fleet Transport Company, Inc. and (5)
Levy Transport Ltd.
In addition to our own fleet operations, we use affiliates (i.e., independent
companies which, through comprehensive contracts with us, operate their
terminals exclusively for us) and owner-operators (i.e., independent
contractors who, through contracts with us, supply one or more tractors and
drivers for our or our affiliates' use). We believe that the use of affiliates
and owner-operators results in a more flexible cost structure, increases our
asset utilization and increases our return on invested capital.
On June 9, 1998, we were merged with a company controlled by Apollo
Management, L.P. and certain related companies. On August 28, 1998, we acquired
Chemical Leaman Corporation ("CLC"). Founded in 1913, CLC was, prior to its
acquisition by us, the largest bulk tank truck carrier in the United States
based on revenues. The combination of CLC and our company has united two of the
leading bulk transportation service providers under one holding company and has
enabled us, among other things, to expand the variety of transportation-related
services that we provide, increase our terminal network, expand our geographic
coverage and increase our customer base. All of these benefits create the
potential for additional revenue growth and cost saving opportunities. Our
revenue growth is expected to be generated through (1) our fleet of
approximately 7,995 tank trailers, which we believe is the largest fleet of
tank trailers in North America, (2) our network of 189 terminals located across
the United States and Canada and (3) the provision of a wide variety of
transportation-related services.
Our pro forma revenues were $621.8 million for the fiscal year ended December
31, 1997 and $494.5 million for the nine months ended September 30, 1998. Our
pro forma financial information gives effect to both of the transactions
described above as if they both had occurred on January 1, 1997.
2
<PAGE>
PRINCIPAL EXECUTIVE OFFICE
Our principal executive offices are located at 3108 Central Drive, Plant
City, Florida 33567, and our telephone number is (813) 754-4725.
OUR RECENT TRANSACTIONS
Recently our company has completed two significant transactions, which are
briefly described below. To understand each of these transactions fully and for
a more complete description of the terms of these transactions, you should read
the more detailed descriptions of these transactions included elsewhere in this
Prospectus, as well as those additional documents we have referred you to.
MTL Transactions:
On June 9, 1998, we were recapitalized through a merger with a company
controlled by Apollo Management L.P. and certain of its affiliates. Upon
completion of this merger, we became a private company. The merger
consideration paid to the holders of our common stock was $40.00 per share.
This merger was financed by:
.the private offering of the notes;
.borrowings under a credit agreement (the "MTL Credit Agreement"); and
. equity investments of approximately $68.0 million by Apollo Management
L.P. and certain of its affiliates, certain members of our management and
affiliates of two of the initial purchasers of the notes.
Following this merger, we and our bank lenders under the MTL Credit Agreement
amended and restated the MTL Credit Agreement to provide for additional
borrowings to finance our acquisition of CLC, and, as so amended, the MTL
Credit Agreement is called the "New Credit Agreement." The merger, the private
offering of notes, the equity investments and the related borrowings under the
MTL Credit Agreement are collectively referred to as the "MTL Transactions."
CLC Transactions:
On August 28, 1998, we completed our acquisition of CLC. The consideration
paid in the acquisition of CLC included:
.cash and preferred equity to the shareholders of CLC;
. the conversion of a portion of the shares held by certain shareholders of
CLC who are officers of CLC into shares of our common stock (the "CLC
Management Roll"); and
3
<PAGE>
. loans to certain of our employees and employees of CLC and its
subsidiaries.
A complete description of the consideration received by the shareholders of CLC
and certain other related transactions is set forth in this Prospectus under
the heading "The CLC Merger."
In connection with the acquisition of CLC, we completed a tender offer and
consent solicitation for $100 million principal amount of outstanding 10 3/8%
Senior Notes due 2005 of CLC. We also refinanced certain other indebtedness of
CLC, including a $33 million receivables securitization program.
The acquisition of CLC, the tender offer for the CLC notes and the
refinancing were financed by:
.borrowings under the New Credit Agreement; and
. preferred and common equity investments by certain of our shareholders,
including Apollo Management L.P. and certain of its affiliates.
See "Description of Capital Stock" and "The CLC Merger." We also refer you to
the merger agreements governing each of the merger transactions described
above, and to the New Credit Agreement. Copies of each of these documents have
been filed as exhibits to the Registration Statement of which this Prospectus
forms a part.
All of our domestic, direct and indirect wholly-owned subsidiaries (including
CLC and its subsidiaries) are guarantors of our borrowings under the New Credit
Agreement and, following the acquisition of CLC, CLC and its subsidiaries also
became guarantors of the notes.
The acquisition of CLC, the tender offer for the CLC notes, the refinancing
of the MTL Credit Agreement, the preferred and common equity investments made
in connection with the acquisition of CLC and the related borrowings under the
New Credit Agreement are collectively referred to as the "CLC Transactions."
4
<PAGE>
The following tables are intended to show you our sources and uses of funds
for (1) the MTL Transactions and (2) the CLC Transactions described above
(dollars in millions):
MTL Transactions:
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Revolving Credit Facility (Sublimit).................................. $ 10.0
Term Loan Facility.................................................... 50.0
Notes................................................................. $140.0
Equity Investment..................................................... 68.0
------
Total Sources......................................................... $268.0
======
USES OF FUNDS:
Payment of consideration in the merger................................ $195.0
Repayment of long term debt, net...................................... 54.3
Fees and expenses..................................................... 18.7
------
Total Uses............................................................ $268.0
======
</TABLE>
The Revolving Credit Facility listed above provides for borrowings of up to
$75.0 million. The equity investment listed above includes (1) a $58.1 million
cash equity investment by Apollo Management L.P. and certain of its affiliates,
(2) an approximately $3.0 million cash equity investment by affiliates of
BT Alex. Brown Incorporated and Credit Suisse First Boston Corporation, two of
the initial purchasers of the notes, (3) a $1.2 million cash equity investment
by an officer and employee of our company and (4) an implied value of $5.7
million for 141,672 shares of our common stock retained by management of our
company based on the cash merger price of $40.00 per share.
The payment of consideration in the merger listed above includes:
(1) payments to stockholders of $176.4 million for 4,410,546 shares of MTL
Common Stock at the cash merger price of $40.00 per share,
(2) the implied value of $5.7 million for 141,672 shares to be retained by
management of our company,
(3) payments of $12.5 million to holders of options to purchase approximately
506,683 shares of MTL Common Stock at the cash merger price of $40.00 per
share, net of the option exercise proceeds, and
(4) a payment in the form of a stockholder loan in the amount of $0.4 million
which amount was used by an officer of our company to finance a portion of a
$1.2 million cash equity investment.
5
<PAGE>
Repayment of long term debt listed above represents the repayment of $55.8
million of long term debt, net of available cash of $1.5 million.
CLC Transactions:
<TABLE>
<S> <C>
SOURCES OF FUNDS:
Incremental Term Loans................................................ $235.0
Preferred Equity...................................................... 19.9
Common Equity......................................................... 12.0
------
Total Sources......................................................... $266.9
======
USES OF FUNDS:
Payment of consideration in the transactions relating to the acquisi-
tion of CLC.......................................................... $ 69.8
Transaction Bonuses/Payments.......................................... 1.9
Management Loans...................................................... 1.1
MTL Preferred Stock to CLC Shareholders............................... 5.0
CLC Preferred Stock Retained.......................................... 4.4
CLC debt refinancing (including Tender Offer)......................... 170.7
Fees and expenses..................................................... 14.0
------
Total Uses............................................................ $266.9
======
</TABLE>
The preferred equity listed above includes (1) $4.4 million of preferred
stock of CLC which remained outstanding after the CLC Transactions, (2) $5.0
million of a series of MTL preferred stock issued to former CLC shareholders
and (3) $10.5 million of a series of MTL preferred stock issued to Apollo
Management L.P. and certain of its affiliates and an affiliate of BT Alex.
Brown Incorporated.
The common equity listed above includes (1) a $10.1 million investment from
Apollo Management L.P. and certain of its affiliates, (2) $1.1 million
attributable to the conversion of shares pursuant to CLC Management Roll, and
(3) $.8 million of new management investments.
The payment of consideration in the transactions relating to the acquisition
of CLC includes (1) $60.1 million in cash consideration paid to CLC
shareholders, (2) $10.8 million of temporary replacement deposits of letter of
credit and (3) $1.1 million attributable to the CLC Management Roll, less the
repayment of $2.2 million of outstanding indebtedness.
6
<PAGE>
SUMMARY OF THE EXCHANGE OFFER
SECURITIES OFFERED......
$100,000,000 aggregate principal amount of 10% Se-
ries B Senior Subordinated Notes due 2006 which we
have registered under the Securities Act (the
"Fixed Rate Notes").
$40,000,000 aggregate principal amount of Series B
Floating Interest Rate Subordinated Term Securities
due 2006 (FIRSTS SM) which we have registered under
the Securities Act (the "Floating Rate Notes" and
together with the Fixed Rate Notes, the "Exchange
Notes").
ISSUER.................. MTL Inc.
REGISTRATION RIGHTS
AGREEMENT...............
You are entitled to exchange your unregistered
notes for registered notes with substantially iden-
tical terms. The exchange offer is intended to sat-
isfy this right. After the exchange offer is com-
pleted, you will no longer be entitled to any ex-
change or registration rights with respect to your
notes. Under certain circumstances, certain holders
of outstanding notes may require us to file a shelf
registration statement under the Securities Act.
THE EXCHANGE OFFER......
We are offering to exchange $1,000 principal amount
of Exchange Notes of MTL for each $1,000 principal
amount of outstanding 10% Senior Subordinated Notes
due 2006 and Floating Interest Rate Subordinated
Term Securities due 2006 which we issued in June
1998 in a private offering. In order to be ex-
changed, an outstanding note must be properly ten-
dered and accepted. All outstanding notes that are
validly tendered and not validly withdrawn will be
exchanged.
As of this date, there is $140,000,000 principal
amount of notes outstanding.
7
<PAGE>
We will issue the Exchange Notes on or promptly
after the expiration of the exchange offer.
RESALE...................
We believe that the Exchange Notes issued in the
exchange offer may be offered for resale, resold
and otherwise transferred by you without compli-
ance with the registration and prospectus deliv-
ery provisions of the Securities Act provided
that:
. the Exchange Notes issued in the exchange offer
are being acquired in the ordinary course of
your business;
. you are not participating, do not intend to
participate and have no arrangement or
understanding with any person to participate,
in the distribution of the notes issued to you
in the exchange offer; and
. you are not an "affiliate" of our company.
If our belief is inaccurate and you transfer any
note issued to you in the exchange offer without
delivering a prospectus meeting the requirements
of the Securities Act or without an exemption
from registration of your notes from such re-
quirements, you may incur liability under the Se-
curities Act. We do not assume, or indemnify you
against, such liability.
Each broker-dealer that is issued Exchange Notes
in the exchange offer for its own account in ex-
change for notes which were acquired by such bro-
ker-dealer as a result of market-making or other
trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale
of the Exchange Notes issued in the exchange of-
fer. A broker-dealer may use this Prospectus for
an offer to resell, resale or other retransfer of
the Exchange Notes issued to it in the exchange
offer.
8
<PAGE>
The exchange offer is not being made to, nor will
we accept surrenders for exchange from, the fol-
lowing:
. holders of notes in any jurisdiction in which
this Exchange Offer or the acceptance thereof
would not be in compliance with the applicable
securities or "blue sky" laws of such
jurisdiction; and
. holders of notes who are affiliates of our
company.
EXPIRATION DATE..........
The exchange offer will expire at 5:00 p.m., New
York City time, on , 1999, unless extended,
in which case the term "Expiration Date" shall
mean the latest date and time to which we extend
the exchange offer.
CONDITIONS TO THE
EXCHANGE OFFER...........
The exchange offer is subject to certain custom-
ary conditions, which may be waived by us. The
exchange offer is not conditioned upon any mini-
mum principal amount of notes being tendered.
PROCEDURES FOR TENDERING
OLD NOTES................
If you wish to tender your notes for exchange
pursuant to the exchange offer you must transmit
to the United States Trust Company of New York,
as Exchange Agent, on or before the Expiration
Date:
either
. a properly completed and duly executed Letter
of Transmittal, which accompanies this Prospec-
tus, or a facsimile of the Letter of Transmit-
tal, together with your notes and any other re-
quired documentation, to the Exchange Agent at
the address set forth in this Prospectus under
the heading "The Exchange Offer--Exchange
Agent," and on the front cover of the Letter of
Transmittal; or
9
<PAGE>
. a computer generated message transmitted by
means of The Depository Trust Company's Auto-
mated Tender Offer Program system and received
by the Exchange Agent and forming a part of a
confirmation of book entry transfer in which you
acknowledge and agree to be bound by the terms
of the Letter of Transmittal.
If either of these procedures cannot be satisfied
on a timely basis, then you should comply with
the guaranteed delivery procedures described be-
low.
By executing the Letter of Transmittal, each
holder of notes will make certain representations
to us described under "The Exchange Offer--Proce-
dures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........
If you are a beneficial owner whose notes are
registered in the name of a broker, dealer, com-
mercial bank, trust company or other nominee and
you wish to tender your notes in the exchange of-
fer, you should contact such registered holder
promptly and instruct such registered holder to
tender on your behalf. If you wish to tender on
your own behalf, you must, prior to completing
and executing the Letter of Transmittal and de-
livering your notes, either make appropriate ar-
rangements to register ownership of the notes in
your name or obtain a properly completed bond
power from the registered holder.
The transfer of registered ownership may take
considerable time and may not be able to be com-
pleted prior to the Expiration Date.
GUARANTEED DELIVERY
PROCEDURES...............
If you wish to tender your notes and time will
not permit the documents required by the Letter
of Transmittal to reach the Exchange Agent
10
<PAGE>
prior to the Expiration Date, or the procedure
for book-entry transfer cannot be completed on a
timely basis, you must tender your notes accord-
ing to the guaranteed delivery procedures de-
scribed in this Prospectus under the heading "The
Exchange Offer--Guaranteed Delivery Procedures."
ACCEPTANCE OF NOTES AND
DELIVERY OF EXCHANGE
NOTES....................
Subject to certain conditions (as described more
fully in "The Exchange Offer--Conditions to the
Exchange Offer"), we will accept for exchange any
and all notes which are validly tendered in the
exchange offer and not withdrawn, prior to 5:00
p.m., New York City time, on the Expiration Date.
WITHDRAWAL RIGHTS........ You may withdraw the tender of your notes at any
time prior to 5:00 p.m., New York City time, on
the Expiration Date, subject to compliance with
the procedures for withdrawal described in this
Prospectus under the heading "The Exchange Of-
fer--Withdrawal of Tenders."
FEDERAL INCOME TAX
CONSIDERATIONS......
For a discussion of the material federal income
tax considerations relating to the exchange of
notes for Exchange Notes, see "Federal Income Tax
Considerations."
EXCHANGE AGENT........... United States Trust Company of New York, the
Trustee under the indenture governing the notes,
is serving as the Exchange Agent. The address,
telephone number and facsimile number of the Ex-
change Agent are set forth in this Prospectus un-
der the heading "The Exchange Offer--Exchange
Agent."
CONSEQUENCES OF FAILURE
TO EXCHANGE OLD NOTES....
If you do not exchange your notes for Exchange
Notes pursuant to the exchange offer,
11
<PAGE>
you will continue to be subject to the restric-
tions on transfer provided in the notes and in
the indenture governing the notes. In general,
the notes may not be offered or sold, unless reg-
istered 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. We do not currently plan
to register the notes under the Securities Act.
See "The Exchange Offer" for more detailed information concerning the
exchange offer.
12
<PAGE>
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The exchange offer relates to the exchange of up to $140,000,000 aggregate
principal amount of Exchange Notes for up to an equal principal amount of
outstanding notes. The form and terms of the Exchange Notes are the same as the
form and terms of the outstanding notes, except that the Exchange Notes will be
registered under the Securities Act, and, therefore, the Exchange Notes will
not be subject to certain transfer restrictions, registration rights and
certain provisions providing for an increase in the interest rate of the
outstanding notes under certain circumstances relating to the registration of
the Exchange Notes. The Exchange Notes issued in the exchange offer will
evidence the same debt as the outstanding notes (which they replace) and both
the outstanding notes and the Exchange Notes are governed by the same
indenture.
MATURITY DATE............ June 15, 2006.
INTEREST PAYMENT DATES...
Interest on the Exchange Notes will accrue from
the last interest payment date on which interest
was paid on the notes surrendered in exchange for
Exchange Notes or, if no interest has been paid
on the notes, from June 9, 1998, the date of
original issuance of the notes (the "Issue
Date"). Interest on the Exchange Notes will be
payable semi-annually on each June 15 and Decem-
ber 15. Interest on the outstanding notes was
paid on on December 15, 1998. The Fixed Rate
Notes will bear interest at a rate of 10% per an-
num. The Floating Rate Notes will bear interest
at a rate per annum equal to LIBOR plus 4.81%.
Interest on the Floating Rate Notes will be reset
every three months.
OPTIONAL REDEMPTION......
The Fixed Rate Notes will be redeemable, in whole
or in part, at our option on or after June 15,
2002, and the Floating Rate Notes will be redeem-
able, in whole or in part, at our option, at any
time, in each case at the redemption prices set
forth in this Prospectus under the heading "De-
scription of Notes--Redemption", plus accrued and
unpaid interest to the date of redemption. Also,
at any time on or prior to June 15, 2001, we may,
at our option, redeem up to 35% of the aggregate
principal
13
<PAGE>
amount of the Fixed Rate Notes originally issued
with the proceeds of certain public or private
offerings of equity of our company.
In addition, prior to June 15, 2002, upon the oc-
currence of a change of control of our company,
we may redeem the notes in whole but not in part.
GUARANTEES...............
The Exchange Notes will be guaranteed on a senior
subordinated basis by substantially all of our
subsidiaries (the "Guarantors"). The guarantees
are full, unconditional, joint and several obli-
gations of the Guarantors.
RANKING.................. The Exchange Notes:
. are general unsecured obligations of our
company and are subordinated in right of
payment to all of our existing and future
senior debt, including indebtedness under the
New Credit Agreement; and
. rank equal in right of payment with any future
senior subordinated obligations of our company
and rank senior in right of payment to all
other subordinated obligations of our company.
The guarantees are general unsecured obligations
of the Guarantors and are subordinated in right
of payment to all existing and future senior debt
of the Guarantors.
As of September 30, 1998, we had approximately
$294.4 million of senior debt outstanding and ap-
proximately $61.1 million of undrawn upon senior
debt (in the form of unused commitments under the
New Credit Agreement). As of September 30, 1998
the Guarantors had approximately $285.0 million
of Guarantor senior debt outstanding (consisting
solely
14
<PAGE>
of guarantees under the New Credit Agreement but
excluding guarantees of unused commitments under
the New Credit Agreement).
CHANGE OF CONTROL........ Upon a change of control of our company, you will
have the right to require us to repurchase your
notes at a price equal to 101% of their principal
amount, plus accrued and unpaid interest to the
date of repurchase.
CERTAIN COVENANTS........
The indenture governing the notes (the "Inden-
ture") contains certain covenants that, among
other things, limit our ability and the ability
of our subsidiaries to:
. incur additional indebtedness;
. make certain restricted payments;
. consummate certain asset sales;
. enter into certain transactions with
affiliates;
. impose restrictions on the ability of a
subsidiary to make certain payments to us and
to our other subsidiaries; or
. merge or consolidate with any other person or
sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all
our assets or those of our subsidiaries.
FORM OF EXCHANGE NOTES...
The Exchange Notes issued in the exchange offer
will be represented by one or more permanent
global certificates, in fully registered form,
deposited with a custodian for, and registered in
the name of a nominee of, The Depository Trust
Company ("DTC"), as depositary. You will not
receive notes in certificated form unless one of
the events set forth under the heading "Book
Entry; Delivery and Form" occurs. Instead,
beneficial interests in the Exchange Notes issued
in the exchange offer will be shown on, and
transfers of these
15
<PAGE>
notes will be effected only through, records
maintained in book-entry form by DTC and its
participants.
USE OF PROCEEDS..........
We will not receive any proceeds from the
exchange offer.
For additional information regarding the notes, see "Description of Notes."
16
<PAGE>
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
MTL
The following table sets forth summary consolidated financial
information of MTL Inc. It is important that you read this
information along with the Consolidated Financial Statements
and the related notes of our company included elsewhere in this
Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The fiscal year historical information and the unaudited
financial information for the nine months ended September 30,
1997 set forth in the following table are for periods before
our acquisition of CLC and do not reflect the CLC Transactions
or include historical information for CLC. The unaudited
financial information for the nine months ended September 30,
1998 includes the results of CLC as of the effective date of
the acquisition, August 28, 1998. The period end unaudited
financial information at September 30, 1998 reflect the
acquisition of CLC. However, related historical financial
information for CLC is presented following such information.
The consolidated financial information set forth below for
and as of each of the years in the five-year period ended
December 31, 1997 has been derived from audited consolidated
financial statements of MTL Inc., which are included elsewhere
in this Prospectus. The consolidated financial information for
the nine months ended September 30, 1998 and 1997 is unaudited,
but in the opinion of management, reflects all adjustments
necessary for a fair presentation of such information. Such
adjustments are of a normal recurring nature.
Operating results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 1998.
17
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...... $142,376 $168,290 $190,054 $235,599 $286,047 $ 213,133 $ 255,465
Operating expenses,
excluding depreciation
and amortization....... 122,188 145,108 163,396 203,487 247,619 184,616 234,111
Depreciation and
amortization........... 7,335 8,213 10,156 13,892 17,335 12,580 18,126
Operating income ....... 12,853 14,969 16,502 18,220 21,093 15,937 3,228
Interest expense, net... 5,722 4,172 3,468 3,494 3,175 2,375 9,907
Net income (loss) before
extraordinary item..... 4,384 6,239 7,802 8,837 10,483 8,017 (3,941)
OTHER DATA:
Net cash provided by
operating activities... $ 14,486 $ 17,308 $ 18,090 $ 22,304 $ 33,832 $ 26,301 $ (26,518)
Net cash used in
investing activities... (2,735) (21,395) (30,089) (21,780) (31,690) (26,791) (244,957)
Net cash (used in)
provided by financing
activities............. (11,378) 4,366 11,597 (135) (1,503) 325 281,624
Ratio of earnings to
fixed charges (1)...... 2.1x 3.2x 4.4x 4.1x 4.8x 5.1x --
EBITDA (2)(3)........... 20,188 23,182 26,658 32,112 38,428 28,517 21,354
Capital expenditures.... 3,576 24,341 32,099 20,577 35,121 23,028 24,120
Number of terminals at
end of period.......... 53 59 66 70 80 76 183
Number of trailers
operated at end of
period................. 2,546 2,869 3,190 3,728 4,148 4,038 7,995
Number of tractors
operated at end of
period................. 907 1,196 1,305 1,649 1,915 1,895 3,820
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
------------------------------------------------ --------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE
SHEET DATA
AT PERIOD END:
Total assets............ $105,787 $126,219 $145,740 $173,604 $194,036 $ 194,036 $ 599,692
Long-term obligations,
including current
maturities............. 53,613 40,538 48,844 57,329 55,098 54,740 434,973
Stockholders' equity
(deficit).............. 17,245 52,247 60,058 68,913 79,532 79,532 (44,763)
</TABLE>
- --------
(1) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of an interest factor. For the nine
months ended September 30, 1998 earnings were insufficient to cover fixed
charges by $6,645. Excluding the non-recurring expense related to the
vesting of MTL stock options referred to in footnote (3) below, the ratio
would have been 1.6x.
(2) EBITDA represents earnings before extraordinary items, net interest
expense, income taxes, depreciation and amortization, minority interest
expense and other income (expense). EBITDA is presented because it is a
widely accepted financial indicator used by certain investors and analysts
to analyze and compare companies on the basis of operating performance.
EBITDA is not intended to present cash flows for the period, nor has it
been presented as an alternative to operating income as an indicator of
operating performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. EBITDA does not necessarily
represent cash flow available for discretionary use by management due to
debt service requirements, functional requirements for capital replacement
and expansion and other commitments and uncertainties. See the Consolidated
Financial Statements and the related notes of MTL Inc. appearing elsewhere
in this Prospectus.
(3) During the nine months ended September 30, 1998, MTL incurred a non-
recurring expense related to the vesting of options of MTL stock in
connection with the MTL Transactions. Excluding this expense, EBITDA would
have been $34.8 million for the nine months ended September 30, 1998.
18
<PAGE>
CLC
The following table sets forth summary historical
consolidated financial information of CLC. It is important that
you read this information along with the Consolidated Financial
Statements and the related notes of CLC included elsewhere in
this Prospectus and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The selected consolidated financial data as of and for the
years ended December 31, 1993, 1994, 1995, 1996, 1997, and as
of June 29, 1997 and for the six month period then ended have
been derived from the audited financial statements of CLC,
which are included elsewhere in this Prospectus. The
consolidated financial information for the six months ended
July 5, 1998 is unaudited, but in the opinion of management,
reflects all adjustments necessary for a fair presentation of
such information. Such adjustments are of a normal recurring
nature.
The information set forth in the following table is for
periods prior to the CLC Transactions, and therefore does not
show the effects of the CLC Transactions on CLC's business.
Operating results for the six months ended July 5, 1998 are
not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 1998.
19
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------ ------------------
JUNE 29, JULY 5,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...... $231,190 $241,443 $245,706 $281,075 $329,977 $156,545 $183,082
Operating expenses,
excluding depreciation
and amortization....... 214,737 222,847 225,556 258,178 314,223 145,460 166,571
Depreciation and
amortization........... 11,320 11,783 13,731 16,255 19,817 9,336 10,867
Operating income
(loss)................. 5,133 6,813 6,419 6,642 (4,063) 1,749 5,644
Interest expense, net... 4,016 4,946 5,978 7,553 10,299 4,515 6,158
Net income (loss) before
extraordinary item and
cumulative effect of
accounting change ..... 683 1,065 331 (162) (9,217) (1,708) (831)
OTHER DATA:
Net cash provided by
(used in) operating
activities............. $ 11,197 $ 16,567 $ 17,444 $ 4,677 $(11,740) $ (3,519) $ 1,314
Net cash used in
investing activities... (9,892) (18,755) (10,490) (34,273) (23,156) (10,255) (13,225)
Net cash provided by
(used in) financing
activities............. 6,994 4,120 (9,444) 26,861 31,789 22,709 11,869
EBITDA (1) ............. 16,453 18,596 20,150 22,897 15,754 11,085 16,511
Capital expenditures.... 12,050 20,747 13,270 20,020 24,345 11,006 12,834
Number of terminals at
end of period.......... 65 61 66 105 107 105 109
Number of trailers
operated at end of
period................. 2,438 2,869 2,645 3,502 3,525 3,433 3,420
Number of tractors
operated at end of
period................. 1,390 1,545 1,368 1,755 2,032 1,813 2,046
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------ ------------------
JUNE 29, JULY 5,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA AT
PERIOD END:
Total assets............ $127,176 $146,536 $136,405 $182,544 $177,514 $177,528 $178,621
Long-term obligations,
including current
maturities............. 53,386 69,223 67,821 109,024 112,301 102,202 120,820
Stockholders' equity.... 22,917 20,245 19,779 15,723 3,013 13,153 2,004
</TABLE>
- --------
(1) EBITDA represents earnings before extraordinary items, net interest
expense, income taxes, depreciation and amortization and other income
(expense). EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA is not intended to
present cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance
and should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted accounting
principles. EBITDA does not necessarily represent cash flow available for
discretionary use by management due to debt service requirements,
functional requirements for capital replacement and expansion and other
commitments and uncertainties. See the Consolidated Financial Statements
and related notes of CLC appearing elsewhere in this Prospectus.
20
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following table sets forth summary unaudited pro forma
financial information and other data of our company.
The pro forma data below is intended to give you a better
picture of what our business might have looked like if the MTL
Transactions and CLC Transactions previously described on pages
3 through 6 of this Prospectus had each occurred on January 1,
1997.
It is important that you read this information along with the
Unaudited Pro Forma Condensed Consolidated Financial
Information and the related notes included elsewhere in this
Prospectus. In addition, this summary unaudited pro forma
financial information should be read along with the
Consolidated Financial Statements and the related notes
included elsewhere in this Prospectus of our company and CLC.
We do not claim or represent that the summary unaudited pro
forma financial information set forth below is indicative of
the results that would have been reported had the MTL
Transactions and the CLC Transactions actually occurred on
January 1, 1997, nor is it indicative of our future results.
There can be no assurance that the assumptions used in the
preparation of the summary unaudited pro forma financial
information will prove to be correct. Additionally, pro forma
operating results for the nine months ended September 30, 1998
are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998.
21
<PAGE>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS
ENDED ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1998
----------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues............. $621.8 $494.5
Operating expenses, excluding
depreciation and
amortization.................. 563.4 452.1
Depreciation and amortization.. 36.9 32.2
Operating income............... 21.5 10.2
Interest expense, net.......... 39.1 28.6
Net loss before extraordinary
item and cumulative effect of
accounting change............. (10.3) (11.2)
OTHER DATA:
Net cash provided by (used in)
operating activities.......... $ 18.6 $(21.5)
Cash interest expense (1)...... 38.0 28.5
Capital expenditures........... 59.5 42.6
Ratio of earnings to fixed
charges (2)................... -- --
Pro Forma EBITDA (3)(4)........ 58.4 42.4
Ratio of EBITDA to cash
interest expense, net (5)..... 1.5x 1.5x
</TABLE>
- --------
(1) Pro forma cash interest expense is defined as pro forma interest expense
(including fees on the unused portion of the Revolving Credit Facility)
excluding amortization of deferred financing fees. See the Unaudited Pro
Forma Condensed Consolidated Financial Information and related notes
included elsewhere in this Prospectus.
(2) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of an interest factor. For the year
ended December 31, 1997 and nine months ended September 30, 1998, pro forma
earnings were insufficient to cover fixed charges by $16.3 million and
$18.5 million, respectively.
(3) Pro forma EBITDA represents pro forma earnings before net interest expense,
income taxes, depreciation and amortization, minority interest expense and
other income (expense). Pro forma EBITDA is presented because it is a
widely accepted financial indicator used by certain investors and analysts
to analyze and compare companies on the basis of operating performance. Pro
forma EBITDA is not intended to present cash flows for the period, nor has
it been presented as an alternative to operating income as an indicator of
operating performance and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with
generally accepted accounting principles. EBITDA does not necessarily
represent cash flow available for discretionary use by management due to
debt service requirements, functional requirements for capital replacement
and expansion and other commitments and uncertainties. See the Unaudited
Pro Forma Condensed Consolidated Financial Information and the related
notes appearing elsewhere in this Prospectus.
(4) During the nine months ended September 30, 1998, MTL incurred a non-
recurring expense related to the vesting of options of MTL stock in
connection with the MTL Transactions. Excluding this expense, EBITDA would
have been $34.8 million for the nine months ended September 30, 1998.
Additionally, management has identified potential merger synergies related
to the acquisition of CLC in the amount of $12.6 million annually.
Estimated synergies include specifically identified personnel cost savings
related to the planned integration of MTL and CLC primarily expected to
occur within one year of the merger, savings related to consolidation of
certain overlapping terminals and anticipated savings related to the
combining of MTL and CLC insurance policies for which MTL has signed a new
contract covering the combined companies.
(5) For purposes of computing this ratio, pro forma EBITDA is divided by pro
forma cash interest expense. See footnotes (1) and (3) above.
22
<PAGE>
RISK FACTORS
In evaluating MTL, you should consider carefully the following factors in
addition to other information and data included in this Prospectus. Unless the
context otherwise requires, the term "MTL" refers to MTL Inc. and its
subsidiaries (including CLC). The term "Note" or "Notes" includes the
outstanding notes (the "Old Notes") and the Exchange Notes, as appropriate.
HIGH LEVEL OF DEBT--RISK OF DEFAULT, INTEREST RATE INCREASE
In order to complete the MTL Transactions and the CLC Transactions, MTL
incurred a high level of debt. As of September 30, 1998, MTL's long-term debt
(consisting principally of obligations under the New Credit Agreement and the
Notes) was $435.0 million, while the total capitalization of MTL was only
$412.0. MTL also has the ability to incur additional debt, subject to
limitations imposed by the New Credit Agreement and the Indenture governing the
Notes.
Interest payments under the New Credit Agreement and the Floating Rate Notes
may also increase. Generally, an increase in the interest rate assigned to MTL
in the market would also lower the value of the Fixed Rate Notes. In addition,
in the event MTL's operating cash flow decreases and/or its interest rates
rise, MTL may be unable to service its debt without refinancing or
restructuring it, selling assets or operations or raising additional debt or
equity capital. If these alternatives are not available in a timely manner or
on satisfactory terms, or are not permitted under existing agreements of MTL,
MTL may default on its debt obligations. Such a default would have serious
adverse consequences for the holders of the Notes. Currently, MTL is rated by
Standard and Poors as B+ with a negative outlook. MTL's subordinated debt is
rated B-. A downgrade in rating of MTL or its subordinated debt would be likely
to lower the market value of the Fixed Rate Notes.
In addition, MTL's high fixed debt service charges may also restrict its
ability to fund or obtain financing for working capital, capital expenditures
and general corporate purposes, making MTL more vulnerable to economic
downturns, competition and other market pressures.
NOTES ARE SUBORDINATED, UNSECURED
In the event of a bankruptcy, liquidation, dissolution, reorganization or
similar proceeding against MTL, the assets of MTL must be used to pay senior
debt in full before making any payments to holders of the Notes. Because of
this obligation to pay the senior debt first, there may not be sufficient
assets to pay all or any of the amounts due on the Notes. The Notes are also
unsecured and, therefore, are effectively subordinated to any secured debt of
MTL, whether or not such debt is senior by its terms.
23
<PAGE>
As of September 30, 1998, approximately $294.4 million in debt of MTL was
senior in priority to the Notes, including under the New Credit Agreement,
which is senior by its terms and secured by liens on substantially all of the
assets of MTL and its subsidiaries and the pledge of the common stock of all
existing and future material subsidiaries of MTL.
RESTRICTIONS IMPOSED BY THE NEW CREDIT AGREEMENT MAY LEAD TO ACCELERATION OF
INDEBTEDNESS
The New Credit Agreement requires MTL to maintain a minimum interest
coverage ratio (a ratio of consolidated earnings to consolidated interest
expense) of 1.75 to 1.0 and a maximum total leverage ratio (a ratio of
consolidated debt to consolidated earnings) of 6.00 to 1.0. In addition, the
New Credit Agreement restricts, among other things, MTL's ability to incur
additional indebtedness and make acquisitions and capital expenditures beyond
a certain level. If MTL fails to comply with the restrictions contained in the
New Credit Agreement, the lenders can declare the entire amount owed
thereunder immediately due and payable, and prohibit MTL from making payments
of interest and principal on the Notes until the default is cured or all
senior debt is paid or otherwise satisfied in full. If MTL were unable to
repay such borrowings, such lenders could proceed against the collateral. If
the senior debt were accelerated, the assets of MTL may not be sufficient to
repay in full such indebtedness and the other indebtedness of MTL, including
the Notes, in which event the interests of the senior debt lenders may
conflict with the interests of the holders of the Notes.
INTEGRATION OF CLC MAY NOT SUCCEED
The integration of CLC into MTL will require substantial management,
financial and other resources which may otherwise be devoted to improving
sales, customer service and productivity. CLC is significantly larger than any
acquisition MTL has previously made and MTL may experience difficulties with
customers, personnel, or other factors. For example, MTL currently operates
separate management information systems for MTL and CLC. MTL is in the process
of integrating all of its operations under a single information system. A
failure of MTL's or CLC's current system, the failure of MTL to implement or
integrate a new system without difficulty or at all, the failure of any new
system or the failure to upgrade systems as necessary could have a material
adverse effect on MTL. In addition, the cost savings, revenue enhancements and
margin improvements anticipated as a result of the CLC acquisition may not be
realized, and the combination of MTL and CLC may not be successful.
DEPENDENCE ON AFFILIATES AND OWNER-OPERATORS
MTL relies to a greater degree than its competitors on participants in its
affiliate program and independent owner-operators. A reduction in the number
of affiliates or
24
<PAGE>
owner-operators, whether due to capital requirements related to the expense of
obtaining, operating and maintaining equipment or for other reasons, could
have a negative effect on MTL's operations and profitability. Contracts with
affiliates generally have only one year terms, and contracts with owner-
operators may be terminated by either party on short notice. Although
affiliates and owner-operators are responsible for paying for their own
equipment, fuel and other operating costs, significant increases in these
costs could cause them to seek a higher percentage of revenue from MTL if MTL
is unable to increase its rates commensurately. See "Business--Affiliate
Program--Owner-Operators."
INCREASING TRUCKING REGULATIONS MAY INCREASE COSTS
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 require changes in operating practices and
increase the cost of providing truckload services. In addition, rules proposed
by the Federal Highway Administration ("FHWA") governing registration to
operate by interstate motor carriers, such as MTL, if adopted, may require MTL
to reregister to conduct interstate motor carrier operations and therefore,
could negatively affect MTL's business and operating results. See "Business--
Regulation."
POTENTIAL FOR INCREASED UNIONIZATION IN TRUCKING INDUSTRY
Although only approximately 13.2% of MTL's workforce is currently subject to
union collective bargaining agreements, unions such as the International
Brotherhood of Teamsters and its locals (collectively the "Teamsters") have
traditionally been active in the U.S. trucking industry. MTL's non-union
employees have been subject to union organization efforts from time to time,
and MTL could be subject to future unionization efforts as its operations
expand and MTL integrates the operations of CLC. Increased militancy by the
Teamsters or other unions could increase the possibility for unionization.
Increased unionization of MTL's workforce could result in higher employee
compensation and working condition demands that could increase MTL's operating
costs or constrain its operating flexibility.
ENVIRONMENTAL RISKS OF TRANSPORTING HAZARDOUS MATERIALS
MTL's and CLC's activities involve the handling, transportation, storage,
and disposal of bulk liquid chemicals, many of which are classified as
hazardous materials, hazardous substances, or hazardous wastes. MTL's and
CLC's tank wash and terminal operations engage in the storage or discharge of
wastewater and stormwater that may contain hazardous substances, and MTL and
CLC have from time to time stored diesel fuel and other petroleum products at
its terminals. As such, MTL and CLC are subject to environmental, health and
safety laws and regulation by U.S. federal, state, local and Canadian
government authorities. Environmental laws and regulations are complex, change
frequently and have tended to become more stringent over time. Changes in such
laws and regulations could impose significant costs on MTL and CLC. See
"Business--Environmental Program."
25
<PAGE>
As a handler of hazardous substances, MTL and CLC are potentially subject to
strict, joint and several liability for investigating and rectifying the
consequences of spills and other environmental releases of such substances
either under the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986 ("CERCLA") or comparable state laws. From time to
time, MTL and CLC have incurred remedial costs and regulatory penalties with
respect to chemical or wastewater spills and releases at its facilities. In
addition, MTL's relationship to its affiliates could, under certain
circumstances, result in MTL incurring liability for environmental
contamination attributable to an affiliate's operations, although MTL has not
incurred any such related liability in the past.
As the result of environmental studies conducted at its facilities in
conjunction with its environmental management program, MTL has identified
environmental contamination at certain of such sites which will require
remediation. MTL has also been named a "potentially responsible party," or has
otherwise been alleged to have some level of responsibility, under CERCLA or
similar state laws for cleanup of off-site locations at which MTL's waste, or
material transported by MTL, has allegedly been disposed of. See "Business--
Legal Proceedings."
CLC is currently remediating several properties at which it is the only
performing party. CLC is currently remediating two federal superfund sites at
which it is the only performing party. In addition, CLC is currently
investigating and remediating two state superfund sites at which it is the
only performing party. MTL and CLC are also investigating, remediating, or is
subject to potential financial obligations at a number of waste disposal sites
at which it is one of several performing parties. See "Business--Environmental
Matters." MTL and CLC have incurred in the past and expects to continue to
incur expenses for the foreseeable future on environmental matters. Actual
environmental expenditures may exceed MTL's and CLC's expectations or reserves
and may have a material adverse effect on MTL's and CLC's financial condition
or results of operations.
DEPENDENCE ON KEY PERSONNEL; AVAILABILITY OF QUALIFIED DRIVERS
MTL believes that its ability to successfully implement its business
strategy and to operate profitably depends on the continued employment of its
senior management team led by Charles J. O'Brien Jr., Marvin ("Buddy") Sexton,
Richard Brandewie and other members of senior management. If any of Messrs.
O'Brien, Sexton, Brandewie or the other members of senior management become
unable or unwilling to continue in their present positions, MTL's business or
financial results could be adversely affected. In addition, there is
substantial competition for qualified personnel, including drivers, in the
trucking industry. There is no assurance that MTL will be able to retain its
existing senior management or to attract additional qualified personnel.
Difficulty in attracting or retaining qualified drivers could require MTL to
limit its growth and could have a negative effect on MTL's operations. See
"Business--Drivers and Other Personnel."
26
<PAGE>
NOTE HOLDERS MAY NOT GET CHANGE OF CONTROL PAYMENT
In the event of a Change of Control, MTL is required to make an offer for
cash to repurchase the Notes at 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, thereof to the repurchase date. However,
the New Credit Agreement prohibits the purchase of outstanding Notes prior to
repayment of the borrowings under the New Credit Agreement and any exercise by
the holders of the Notes of their right to require MTL to repurchase the Notes
may cause an event of default under the New Credit Agreement. In addition, MTL
may not have the financial resources necessary to repurchase the Notes upon a
Change of Control. See "Description of Notes--Change of Control."
CONTROL BY APOLLO
Apollo owns approximately 85.3% of the outstanding common stock of MTL
(approximately 76.8% on a diluted basis). Accordingly, Apollo controls MTL and
has the power to elect all of its directors, appoint new management and
approve any action requiring the approval of the holders of shares of MTL
common stock, including adopting amendments to MTL's certificate of
incorporation and approving mergers or sales of substantially all of MTL's
assets. The interests of Apollo may conflict with the interests of the holders
of the Notes. For example, if MTL encounters financial difficulties, or is
unable to pay its debts as they mature, MTL's equity investors may have an
interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity investment,
even though such transactions might involve risk to the holders of the Notes.
ABSENCE OF LIQUID MARKET FOR THE EXCHANGE NOTES MAY REDUCE THEIR VALUE
There is no existing trading market for the Exchange Notes and no such
market may develop. The absence of such market adversely affects the liquidity
of an investment in the Notes. If a market for the Exchange Notes does
develop, future trading prices will depend on many factors, including among
other things, prevailing interests rates and the market for similar
securities, general economic conditions and the financial condition and
performance of, and prospects for, MTL. MTL does not intend to apply for
listing of the Exchange Notes on any securities exchange or for quotation
through any over-the-counter market.
27
<PAGE>
THE CLC MERGER
On August 28, MTL completed its merger with CLC (the "CLC Merger"), pursuant
to which CLC became a wholly-owned subsidiary of MTL. In addition to providing
short and long-haul transportation of liquid and dry bulk chemicals, CLC
offers a full range of specialized transportation services including (1)
intermodal services, material handling and third-party logistics, principally
to the chemical industry; (2) tank cleaning services; (3) driver-related
services such as bulk purchasing of insurance and supplies to its own fleet,
independent owner-operators and third-party carriers; and (4) brokering
transportation services through over sixty bulk carriers. Substantially all of
CLC's revenues are derived from five wholly owned subsidiaries--(1) Chemical
Leaman Tank Lines, Inc. ("CLTL"), (2) Fleet Transport, Inc. ("Fleet"), (3)
Quala Systems, Inc. ("QSI"), (4) Transplastics, Inc. and (5) Leaman Logistics,
Inc. ("Leaman Logistics").
In the CLC Merger, the shareholders of CLC received an aggregate of $70.7
million in cash ($10.75 million of which was placed in an escrow account for
CLC shareholders' indemnification obligations) and $5.0 million stated value
of redeemable preferred stock. See "Description of Capital Stock." A portion
of the shares held by certain shareholders of CLC who are officers of CLC
(having a value of $1.1 million based on the per share consideration) were
converted into shares of MTL common stock pursuant to the CLC Management Roll.
Simultaneously with the CLC Merger, certain employees of MTL and CLC acquired,
for $830,000 in cash, shares of MTL's common stock, which was financed in part
by loans from MTL. Additionally, certain employees of Leaman Logistics
acquired 5% of the equity of Leaman Logistics through a rollover of CLC common
stock held by certain CLC shareholders, and a small cash investment financed
by loans from MTL. The above description contains all of the material aspects
of the CLC Merger. However, for greater detail we advise that you refer to the
CLC merger agreement, which has been filed as an exhibit to the Registration
Statement, of which this Prospectus forms a part.
In connection with the CLC Merger, on July 28, 1998, MTL commenced a tender
offer (the "Tender Offer") for the $100 million principal amount of
outstanding 10 3/8% Senior Notes due 2005 of CLC (the "CLC Notes"). The Tender
Offer was subject to the consummation of the CLC Merger. On August 28, 1998,
following consummation of the CLC Merger, MTL accepted all validly tendered
CLC Notes (constituting 100% of the outstanding CLC Notes) for payment and
paid to the holders the tender offer consideration and a related consent
payment. Also on August 28, 1998, MTL refinanced certain indebtedness of CLC,
including a $33 million receivables securitization program.
The sources of funds used to consummate the CLC Transactions included:
. borrowings under the New Credit Agreement,
. $4.4 million of assumed CLC preferred stock, and
28
<PAGE>
. preferred and common equity investments in MTL by certain of MTL's
shareholders, including Apollo Management L.P. and certain of its
affiliates ("Apollo Management" and, together with its affiliates,
"Apollo"), consisting of the following: (1) a $5.0 million redeemable
preferred stock investment, (2) a $10.5 million senior exchangeable
preferred stock investment and (3) an approximately $10.1 million common
equity investment. See "Description of Capital Stock."
The New Credit Agreement provides for the following:
(1) an add-on facility to the original term loan facility under the MTL
Credit Agreement providing for an increase of $40.0 million in the
total term loan amount currently outstanding to a total of $90.0
million (the "Tranche A Term Loan"),
(2) an additional term loan facility (the "Tranche B Term Loan") in the
amount of $105.0 million,
(3) an additional term loan facility (the "Tranche C Term Loan" and,
together with the Tranche A Term Loan and Tranche B Term Loan, the
"Term Loans") in the amount of $90.0 million and
(4) a decrease in the total amount of the Revolving Credit Facility from
$110.0 million to $75.0 million.
See "Description of the New Credit Agreement."
All of the domestic, direct and indirect, wholly-owned subsidiaries of MTL
(including CLC and its subsidiaries) have guaranteed MTL's borrowings under the
New Credit Agreement and CLC and its subsidiaries have executed a supplemental
indenture to become Guarantors of the Notes pursuant to the terms of the
Indenture.
29
<PAGE>
USE OF PROCEEDS
The exchange offer is intended to satisfy certain of MTL's obligations under
the registration rights agreement. MTL will not receive any cash proceeds from
the exchange offer.
The net proceeds from the original sale of the notes and from the other MTL
Transactions were approximately $268.0 million. MTL used such net proceeds as
follows:
. approximately $195.0 million to consummate the merger of MTL with a
company controlled by Apollo;
. approximately $54.3 million to repay long term debt; and
. approximately $18.7 million to pay fees and expenses related to the
MTL Transactions.
30
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
The Unaudited Pro Forma Condensed Consolidated Statements of Income for the
year ended December 31, 1997 and the nine months ended September 30, 1998
gives effect to the MTL Transactions and CLC Transactions as if they had
occurred at the beginning of the periods presented.
All adjustments necessary to fairly present this pro forma information have
been made based on available information and in the opinion of management are
reasonable. The Unaudited Pro Forma Condensed Consolidated Statement of Income
is based upon, and should be read in conjunction with, the Consolidated
Financial Statements and the related notes for the year ended December 31,
1997 of MTL and CLC, the nine months ended September 30, 1998 of MTL and the
six months ended July 5, 1998 of CLC included elsewhere in this Prospectus.
The pro forma information does not purport to be indicative of the results
that would have been reported had such events actually occurred on the dates
specified, nor is it indicative of MTL's future results.
31
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
MTL CLC PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues.............. $286.0 $330.0 $ 5.8 [A] $621.8
Costs and expenses:
Operating expenses, excluding
depreciation and
amortization................. 247.6 314.2 5.0 [A]
(5.2)[B]
1.8 [C] 563.4
Depreciation and
amortization................. 17.3 19.8 (3.4)[C]
3.4 [D] 37.1
------ ------ ------ ------
Total operating expenses.... 264.9 334.0 1.6 600.5
------ ------ ------ ------
Operating income................ 21.1 (4.0) 4.2 21.3
Other expenses (income)......... 0.2 (2.0)[E] (1.8)
Minority interest expense....... 0.3 [F] 0.3
Interest expense, net........... 3.2 10.3 25.6 [G] 39.1
------ ------ ------ ------
Income before income taxes...... 17.9 (14.5) (19.7) (16.3)
Provision for (benefit from) in-
come taxes..................... 7.4 (5.3) (8.1)[H] (6.0)
------ ------ ------ ------
Net income (loss) before
extraordinary item and
cumulative effect of accounting
change......................... 10.5 (9.2) $(11.6) $(10.3)
====== ====== ====== ======
Ratio of earnings to fixed
charges (I) --
</TABLE>
See notes to Unaudited Pro Forma Condensed Consolidated Statement of Income for
Year Ended December 31, 1997 and Nine Months Ended September 30, 1998
32
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR
NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
MTL CLC PRO FORMA
HISTORICAL HISTORICAL* ADJUSTMENTS PRO FORMA
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Operating revenues............... $255.5 $239.0 $ -- $494.5
Costs and expenses:
Operating expenses, excluding
depreciation and amortiza-
tion.......................... 234.2 218.9 (2.8)[B]
1.6 [C] 451.9
Depreciation and amortization.. 18.1 14.8 (2.6)[C]
2.3 [D] 32.6
------ ------ ----- ------
Total operating expenses..... 252.3 233.7 (1.5) 484.5
------ ------ ----- ------
Operating income................. 3.2 5.3 1.5 10.0
Other expense (income)........... (0.1) 1.0 (1.3)[E] (0.4)
Minority Interest Expense........ 0.3 [F] 0.3
Interest expense, net (including
bridge loan financing fees)..... 9.9 8.3 10.4 [G] 28.6
------ ------ ----- ------
Income before income taxes....... (6.6) (4.0) (7.9) (18.5)
Benefit from income taxes........ 2.7 1.4 3.2 [H] 7.3
------ ------ ----- ------
Net income, before extraordinary
items........................... $ (3.9) $ (2.6) $(4.7) $(11.2)
====== ====== ===== ======
</TABLE>
- --------
*Denotes results through August 28, 1998, the effective date of the
acquisition.
Ratio of earnings to fixed charges (I)
--
See notes to Unaudited Pro Forma Condensed Consolidated Statement of Income for
Year Ended December 31, 1997 and Nine Months Ended September 30, 1998
33
<PAGE>
MTL INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
A. Represents the operating revenues and operating expenses associated with
the acquisition of two entities by CLC as if these acquisitions had
occurred at the beginning of the period presented. The two entities
acquired consist solely of operational and tank wash facilities.
B. Pro forma adjustment to reflect operating expenses is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Adjustments related to the MTL Transactions
Compensation expense for MTL's former
chairman (1).................................... $(0.3) $(0.1)
Shareholder relations and other expenses of oper-
ating as a public company (1)................... (0.2) (0.1)
Apollo management fee (2)........................ 0.5 0.2
----- -----
Total Adjustments related to the MTL
Transactions.................................. -- --
Adjustments related to the CLC Transactions
CLC ownership expenses (3)....................... (4.7) (2.5)
CLC corporate jet costs (4)...................... (0.5) (0.3)
----- -----
Total Adjustments related to the CLC
Transactions.................................. (5.2) (2.8)
----- -----
Net pro forma operating expense adjustment....... $(5.2) $(2.8)
===== =====
</TABLE>
---------
(1) As a result of the MTL Transactions these functions will no longer be
performed or will be performed by personnel of the combined MTL or by
Apollo. See note (2) below.
(2) Under the terms of the Management Agreement, Apollo will receive an
annual management fee in consideration for financial and strategic
advisory services fees.
(3) Pursuant to the Purchase and Sale Agreement between CLC and MTL these
ownership and related costs represent primarily salaries, bonuses,
consulting fees, expense reimbursements and other payments to the
former owners of CLC that will not be incurred subsequent to the
Merger.
(4) In connection with the CLC Merger, pursuant to the Purchase and Sale
Agreement between CLC and MTL, CLC's corporate jet will be distributed
to a previous owner of CLC. This pro forma adjustment represents the
related net operating expenses for the corporate jet net of additional
costs expected to be incurred by MTL not having access to the jet for
business purposes which management does not anticipate to be
significant.
34
<PAGE>
MTL INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
C. Adjustment represents results of conforming CLC depreciation and
amortization policies to MTL policies including (i) decrease in
depreciation expense of $1.4 million and $0.9 million for the year ended
December 31, 1997 and the nine months ended September 30, 1998 respectively
(ii) decrease in amortization expense related to tubes and tires of $0.2
million and $0.1 million for the year ended December 31, 1997 and the nine
months ended September 30, 1998 respectively and (iii) reclassification of
leasing costs of $1.8 million and $1.6 million for the year ended December
31, 1997 and the nine months ended September 30, 1998 respectively.
D. Reflects estimated amortization expense of approximately $3.4 million and
$2.3 million for the year ended December 31, 1997 and the six months ended
June 30, 1998 respectively, related to intangible assets to be recorded in
connection with the CLC Merger. Intangible assets of approximately $136.0
million consist primarily of goodwill. MTL anticipated these intangible
assets will be amortized over a composite life of approximately 40 years.
The period used for intangible amortization is based on a preliminary
estimate of the reasonable period for which such costs are expected to be
recovered and is based in part on the earnings and history of CLC.
Management is continuing to assess its purchase price allocation, although
they do not believe the current allocation will differ materially from the
final allocation.
E. Reflects adjustment to decrease Other income (expense) for the amount of
historical interest expense recorded associated with the accounts
receivables which were repurchased in connection with the Merger.
F. Represents interest expense in the form of dividends payable on the
Minority Interest calculated as (i) 6% of the face value of the historical
Series A preferred stock and (ii) 8% of the face value of the historical
Series C preferred stock.
35
<PAGE>
MTL INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
INCOME FOR YEAR ENDED DECEMBER 31, 1997 AND
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
G. Pro forma adjustment to record interest expense and amortization of
financing fees related to the Revolving Credit Facility, Term Loan Facility
and the Notes, net of a decrease in interest expense from the assumed
repayment of existing long term debt, is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1997 1998
------------ -------------
<S> <C> <C>
Pro forma interest on new debt (a).............. $37.7 $28.3
Pro forma amortization of deferred financing
costs (b)...................................... 1.5 1.1
Fee for unused portion of Revolving Credit
Facility (c)................................... 0.3 0.2
Bridge financing fees (d)....................... -- (0.6)
Decrease from repayment of actual interest
expense on existing long term debt (e)......... (13.9) (18.6)
----- -----
Net pro forma interest expense adjustment....... $25.6 $10.4
===== =====
</TABLE>
---------
(a) Pro forma adjustment to record interest expense on new debt is as
follows:
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
INTEREST INTEREST
EXPENSE EXPENSE FOR
FOR YEAR NINE MONTHS
ASSUMED ENDED ENDED
INTEREST OUTSTANDING DECEMBER SEPTEMBER
RATE DEBT BALANCE 31, 1997 30, 1998
-------- ------------ --------- -----------
<S> <C> <C> <C> <C>
Sublimit Revolving
Credit Facility........ 7.50% (i) 10.0 $ 0.8 $ 0.6
Term Loan Facility
Tranche A.............. 7.72% (ii) 90.0 6.9 5.2
Term Loan Facility
Tranche B.............. 7.97% (iii) 105.0 8.4 6.3
Term Loan Facility
Tranche C.............. 8.22% (iv) 90.0 7.4 5.5
Fixed Rate Notes........ 10.00% 100.0 10.0 7.5
Floating Rate Notes..... 10.53%(v) 40.0 4.2 3.2
----- -----
Total pro forma interest expense
on new debt.................................. $37.7 $28.3
</TABLE>
---------
(i) Interest on the Revolving Credit Facility is based on 1.50% in
excess of the Canadian Bankers Acceptance Rate.
(ii) Interest on Tranche A of the Term Loan Facility is based on
2.00% in excess of LIBOR.
(iii) Interest on Tranche B of the Term Loan Facility is based on
2.25% in excess of LIBOR.
(iv) Interest on Tranche C of the Term Loan Facility is based on
2.50% in excess of LIBOR.
(v) Interest of the Floating Rate Notes is based on 4.8% is excess
of LIBOR.
A .125% increase or decrease in the assumed weighted average interest
rate of the variable rate facilities noted above would change pro
forma interest expense by $0.4 million and $0.3 million for the year
ended December 31, 1997 and nine months ended September 30, 1998.
36
<PAGE>
MTL INC.
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS FOR YEAR ENDED DECEMBER 31, 1997 AND NINE MONTHS ENDED SEPTEMBER
30, 1998
(UNAUDITED)
(b) Pro forma adjustment to reflect amortization of financing fees related
to the Revolving Credit Facility and Term Loan Facility and the Notes
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
FINANCING MATURITY DECEMBER 31, ENDED SEPTEMBER
FEES (IN YEARS) 1997 30, 1998
--------- ---------- ------------ ---------------
<S> <C> <C> <C> <C>
Revolving Credit
Facility............... $ 1.5 6 $0.3 $0.2
Term Loan............... 4.4 6 0.7 0.5
Notes................... 4.2 8 0.5 0.4
----- ---- ----
Total................... $10.1 $1.5 $1.1
</TABLE>
(c) Represents the commitment fee equal to 1/2 of 1.0% per annum on the
undrawn portion of the available commitment under the Revolving Credit
Facility (total line of credit is $75.0 million of which $10.0 million
is assumed drawn for purposes of this pro forma analysis).
(d) Pro forma adjustment to decrease interest expense for the one-time
bridge financing fee incurred in connection with the MTL Transactions.
(e) Interest expense, net includes $0.4 million interest income from MTL
for the year ended December 31, 1997 and nine months ended September
30, 1998.
H. Pro forma adjustment to reflect tax effect of the pro forma adjustments at
an assumed approximate 41% effective income tax rate.
I. For purposes of computing this ratio of earnings of income before income
taxes plus fixed charges, fixed charges consist of interest expense and
one-third of the rent expense from operating leases, which management
believes is a reasonable approximation of an interest factor. For the year
ended December 31, 1997 and nine months ended September 30, 1998 earnings
were insufficient to cover fixed charges by $16.3 million and $18.5
million, respectively.
37
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
MTL
The selected historical consolidated financial
information set forth below is qualified in its entirety by
reference to, and should be read in conjunction with, the
Consolidated Financial Statements and notes thereto of MTL
included elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results
of Operations."
The fiscal year historical information and the unaudited
financial information for the nine months ended September
30, 1997 and 1998 do not give effect to the CLC
Transactions or include historical information for CLC
prior to its acquisition by MTL as of August 28, 1998.
However, selected historical information for CLC is
presented following such information.
The consolidated financial information set forth below
for and as of each of the years in the five-year period
ended December 31, 1997 has been derived from audited
consolidated financial statements of MTL. The consolidated
financial information for the nine months ended September
30, 1997 and 1998 is unaudited, but in the opinion of
management, reflects all adjustments necessary for a fair
presentation of such information. Such adjustments are of a
recurring nature.
Operating results for the nine months ended September 30,
1998 are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 1998.
38
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...... $142,376 $168,290 $190,054 $235,599 $286,047 $ 213,133 $ 255,465
Costs and expenses:
Operating expenses,
excluding depreciation
and amortization...... 122,188 145,108 163,396 203,487 247,619 184,616 234,111
Depreciation and
amortization.......... 7,335 8,213 10,156 13,892 17,335 12,580 18,126
Interest expense, net.. 5,722 4,172 3,468 3,494 3,175 2,375 9,907
Other expenses
(income).............. 94 252 (176) (214) 39 (48) (34)
-------- -------- -------- -------- -------- --------- ----------
Total costs and
expenses.............. 135,339 157,745 176,844 220,659 268,168 199,523 262,110
-------- -------- -------- -------- -------- --------- ----------
Income (loss) before
taxes.................. 7,037 10,545 13,210 14,940 17,879 13,610 (6,645)
Provision (benefit) for
income taxes........... 2,653 4,306 5,408 6,103 7,396 5,593 (2,704)
-------- -------- -------- -------- -------- --------- ----------
Net income (loss) before
extraordinary item..... $ 4,384 $ 6,239 $ 7,802 $ 8,837 $ 10,483 $ 8,017 $ (3,941)
======== ======== ======== ======== ======== ========= ==========
OTHER DATA:
Net cash provided by
(used in) operating
activities............. $ 14,486 $ 17,308 $ 18,090 $ 22,304 $ 33,832 $ 26,301 $ (26,518)
Net cash used in
investing activities... (2,735) (21,395) (30,089) (21,780) (31,690) (26,791) (244,957)
Net cash (used in)
provided by financing
activities............. (11,378) 4,366 11,597 (135) (1,503) 325 281,624
Ratio of earnings to
fixed charges (1)...... 2.1x 3.2x 4.4x 4.1x 4.8x 5.1x --
EBITDA (2)(3)........... 20,188 23,182 26,658 32,112 38,428 28,517 21,354
Capital expenditures.... 3,576 24,341 32,099 20,577 35,121 23,028 24,120
Number of terminals at
end of period.......... 53 59 66 70 80 76 183
Number of trailers
operated at end of
period................. 2,546 2,869 3,190 3,728 4,148 4,038 7,995
Number of tractors
operated at end of
period................. 907 1,196 1,305 1,649 1,915 1,895 3,913
CONSOLIDATED BALANCE
SHEET DATA AT PERIOD
END:
Total assets............ $105,787 $126,219 $145,740 $173,604 $194,036 $ 194,036 $ 599,692
Long-term obligations,
including current
portion................ 53,613 40,538 48,844 57,329 55,098 54,740 434,973
Stockholders' equity
(deficit).............. 17,245 52,247 60,058 68,913 79,532 79,532 (44,763)
</TABLE>
- --------
(1) For purposes of computing this ratio, earnings consist of income before
income taxes plus fixed charges. Fixed charges consist of interest expense
and one-third of the rent expense for operating leases, which management
believes is a reasonable approximation of an interest factor. For the nine
months ended September 30, 1998 earnings were insufficient to cover fixed
charges by $6,645. Excluding the nonrecurring expense related to the
vesting of MTL stock options of $13.4 million, the ratio would have been
1.6x for the nine months ended September 30, 1998.
(2) EBITDA represents earnings before extraordinary items, net interest
expense, income taxes, depreciation and amortization, minority interest
expenses and other operating income (expense). EBITDA is presented because
it is a widely accepted financial indicator used by certain investors and
analysts to analyze and compare companies on a basis of operating
performance. EBITDA is not intended to present cash flows for the period,
nor has it been presented as an alternative to operating income as an
indicator of operating performance and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. EBITDA does not
necessarily represent cash flow available for discretionary use by
management due to debt service requirements, functional requirements for
capital replacement and expansion and other commitments and uncertainties.
See the Consolidated Financial Statements and the related notes of MTL
appearing elsewhere in this Prospectus.
(3) During the nine months ended September 30, 1998, MTL incurred a non-
recurring expense related to the exercise of options of MTL stock in
connection with the MTL Transactions. Excluding this expense, EBITDA would
have been $34.8 million for the nine months ended September 30, 1998.
39
<PAGE>
CLC
The selected historical consolidated financial information set
forth below is qualified in its entirety by reference to, and
should be read in conjunction with, the Consolidated Financial
Statements and the related notes of CLC included elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The selected consolidated financial data as of and for the years
ended December 31, 1993, 1994, 1995, 1996, and 1997, have been
derived from the audited financial statements of CLC. The
consolidated financial information for the six months ended June
29, 1997 and July 5, 1998 is unaudited, but in the opinion of
management, reflects all adjustments of a normal recurring nature
necessary for a fair presentation of such information.
The information set forth below is for periods prior to the CLC
Transactions, and therefore does not give effect thereto.
Operating results for the six months ended July 5, 1998 are not
necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 1998.
40
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
------------------------------------------------ ------------------
JUNE 29, JULY 5,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues...... $231,190 $241,443 $245,706 $281,075 $329,977 $156,545 $183,082
Costs and expenses:
Operating expenses,
excluding depreciation
and amortization...... 214,737 222,847 225,556 258,178 314,223 145,460 166,571
Depreciation and
amortization.......... 11,320 11,783 13,731 16,255 19,817 9,336 10,867
Interest expense, net.. 4,016 4,946 5,978 7,553 10,299 4,515 6,158
Other income
(expense)............. 207 92 (110) (795) 165 165 764
-------- -------- -------- -------- -------- -------- --------
Total costs and
expenses.............. 230,280 239,668 245,155 281,191 344,504 159,476 184,360
-------- -------- -------- -------- -------- -------- --------
Income before taxes..... 910 1,775 551 (116) (14,527) (2,931) (1,278)
Provision for income
taxes.................. 227 710 220 46 (5,310) (1,223) (447)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) before
extraordinary item and
cumulative effect of
accounting change...... $ 683 $ 1,065 $ 331 $ (162) $ (9,217) $ (1,708) $ (831)
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (1) ............. $ 16,453 $ 18,596 $ 20,150 $ 22,897 $ 15,754 $ 11,085 $ 16,511
Net cash provided by
(used in) operating
activities............. 11,197 16,567 17,444 4,677 (11,740) (3,519) 1,314
Net cash used in
investing activities... (9,892) (18,755) (10,490) (34,273) (23,156) (10,255) (13,225)
Net cash provided by
(used in) financing
activities............. 6,994 4,120 (9,444) 26,861 31,789 22,709 11,869
Capital expenditures.... 12,050 20,747 13,270 20,020 24,345 11,006 12,834
Number of terminals at
end of period.......... 65 61 66 105 107 105 109
Number of trailers
operated at end of
period................. 2,438 2,869 2,645 3,502 3,525 3,433 3,420
Number of tractors
operated at end of
period................. 1,390 1,545 1,368 1,755 2,032 1,813 2,046
BALANCE SHEET DATA AT
PERIOD END:
Total assets............ $127,176 $146,536 $136,405 $182,544 $177,514 $177,528 $178,621
Long-term obligations,
including current
maturities............. 53,386 69,223 67,821 109,024 112,301 102,202 120,820
Stockholders' equity.... 22,917 20,245 19,779 15,723 3,013 13,153 2,004
</TABLE>
- --------
(1) EBITDA represents earnings before extraordinary items, net interest
expense, income taxes, depreciation and amortization and other income
(expense). EBITDA is presented because it is a widely accepted financial
indicator used by certain investors and analysts to analyze and compare
companies on the basis of operating performance. EBITDA is not intended to
present cash flows for the period, nor has it been presented as an
alternative to operating income as an indicator of operating performance
and should not be considered in isolation or as a substitute for measures
of performance prepared in accordance with generally accepted accounting
principles. EBITDA does not necessarily represent cash flow available for
discretionary use by management due to debt service requirements,
functional requirements for capital replacement and expansion and other
commitments and uncertainties. See the Consolidated Financial Statements
and related notes of CLC appearing elsewhere in this Prospectus.
41
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MTL
The following discussion of the results of operations and financial
condition of MTL should be read in conjunction with MTL's consolidated
financial statements and the related notes included elsewhere in this
Prospectus. The information presented below does not include the results of
CLC, which became a wholly owned subsidiary of MTL on August 28, 1998, except
for the results of operations for the nine months ended September 30, 1998
which includes the results of CLC for the 33 day period ended September 30,
1998.
OVERVIEW
MTL's revenue is principally a function of (1) the volume of shipments for
the bulk chemical industry, (2) MTL's market share as opposed to that of its
competitors and (3) the amount spent on tank truck transportation as opposed
to other modes of transportation such as rail. The volume of shipments of
chemical products are in turn affected by many other industries, including
consumer and industrial products, automotive, paint and coatings, and paper,
and tend to vary with changing economic conditions.
The principal components of MTL's operating costs include purchased
transportation, salaries, wages, benefits, annual tractor and trailer
maintenance costs, insurance and fuel costs. MTL's use of affiliates and
owner-operators provides a more flexible cost structure, increases MTL's asset
utilization and increases return on invested capital.
MTL has historically focused on maximizing cash flow and return on invested
capital. MTL's affiliate program has greatly reduced the amount of capital
needed for MTL to maintain and grow its terminal network. In addition, the
extensive use of owner-operators reduces the amount of capital needed by MTL
to build its fleet of tractors, which have shorter economic lives than
trailers. These factors have allowed MTL to concentrate its capital spending
on its trailer fleet where it can achieve superior returns on invested capital
through MTL's transportation operations and leasing to third parties and
affiliates. Over the past five years, MTL estimates that its cash return on
invested capital has exceeded 20.0%.
MTL also provides leasing, tank cleaning, logistics and intermodal services.
Revenues from these supplementary services accounted for less than 10.0% of
MTL's revenues for the year ended December 31, 1997.
MTL pursues a business strategy of growth through acquisitions. In 1996, MTL
acquired all of the outstanding stock of Levy Transport Ltd. ("Levy"), a
Quebec-based tank truck carrier, for $5.1 million in cash plus the assumption
of debt.
42
<PAGE>
Levy services the chemical, petroleum and glass industries with a fleet of
over 400 tractors and trailers. MTL intends to continue providing these
services and expand upon existing customer relationships by providing MTL's
supplementary services as well as increasing the fleet size in these markets.
Through its acquisition of CLC in August 1998, MTL was further able to expand
its service capabilities and its geographic coverage.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1997.
Revenues for the first nine months of 1998 were $255.5 million, an increase
of $42.3 million or 19.9%, over the same period in 1997. In the first nine
months of 1998, transportation revenues accounted for approximately 93.4% of
revenues while supplementary services including leasing, tank cleaning,
logistics and intermodal services accounted for approximately 6.6%, consistent
with the first nine months of 1997. The addition of CLC resulted in an
increase of $33.3 million, or almost 80% of the $42.3 million increase. MTL
attributes its additional increased revenue to sustained strength in chemical
industry shipment volumes nationwide and continued implementation of both its
affiliate and core carrier strategies.
MTL operated 183 terminals at September 30, 1998 compared to 76 terminals at
September 30, 1997. MTL approximately doubled the size of its fleet during
this time period, increasing operated trailers from 4,038 to 7,995 and
increasing operated tractors from 1,878 to 3,913. These increases are directly
attributable to the acquisition of CLC.
Operating expenses, excluding depreciation and amortization totaled $234.1
million in the first nine months of 1998, an increase of $20.4 million, or
26.8%, from the first nine months of 1997. Operating expenses as a percentage
of operating revenues increased from 92.5% for the first nine months of 1997,
to 98.7% for the first nine months of 1998. This increase in operating
expenses as a percentage of operating revenues was attributable to the $14.7
million pre-tax cost of payouts to the holders of stock options made in
connection with the MTL Transactions and bonuses paid in connection with the
CLC Transactions. Adjusted for the nonrecurring compensation paid to optionees
and employees, total operating expense was $219.4 million or 93.0% in the
first nine months of 1998. The adjusted operating ratio declined due to the
acquisition of CLC which has historically had a higher operating expense
ratio.
Depreciation and amortization expense increased $5.5 million, or 44%, in the
first nine months of 1998 from the same time period in 1997 due to the assets
acquired from CLC and increases in the number of terminals and MTL operated
trailers and tractors.
43
<PAGE>
Operating income decreased $12.7 million, or 79.7%, to $3.2 million in the
first nine months of 1998 as compared to $15.9 million during the same time
period in 1997. Operating income as a percentage of revenues decreased from
7.5% in the first nine months of 1997 to 1.3% in the first nine months of
1998. The decrease in operating income and operating income as a percentage of
revenues during the first nine months of 1998 is attributable to the payout to
the holders of stock options and bonuses, discussed above and the acquisition
of CLC, also discussed above. Adjusted for the nonrecurring compensation paid
to optionees, operating income was $17.9 million or 7.0% in the first nine
months of 1998. The adjusted operating income decreased due to the acquisition
of CLC.
Interest expense increased $7.5 million or 317%, in the first nine months of
1998 as a result of higher average outstanding debt balances during 1998 as
compared with the same period in 1997. The additional debt was incurred in
connection with both the MTL Transactions and the CLC Transactions.
An income tax benefit of $2.7 million was recorded in 1998, compared to
income tax expense of $5.6 million recorded in the same period in 1997. This
resulted from the pre-tax loss of $6.6 million in 1997 compared to pre-tax
income of $13.6 million in 1997.
MTL's net loss was $7.0 million in the first nine months of 1998 compared to
net income of $8.0 million in the first nine months of 1997. This decrease of
$15.0 million was attributable to the payout to the holders of stock options
and bonuses discussed above and the additional interest expense associated
with increased debt levels. Adjusted for all nonrecurring charges related to
the MTL Transactions, net income was $5.3 million in the first nine months of
1998.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996.
Revenues for 1997 were $286.0 million, an increase of $50.4 million, or
21.4%, over 1996 revenues. Transportation revenues increased $48.6 million, or
22.3%, due to strong internal growth and the impact of a full year of Levy's
operating results. In 1997, transportation revenues accounted for
approximately 93.1% of revenues while supplementary services including
leasing, tank cleaning, logistics and intermodal accounted for approximately
6.9% of total revenues. Revenues from these supplementary services increased
$1.9 million, or 10.6%, compared to 1996, primarily as a result of increased
equipment rental income from both affiliates and MTL's customers.
MTL operated 80 terminals at December 31, 1997 compared to 70 terminals at
December 31, 1996. MTL also expanded the size of its fleet during this time
period, increasing operated trailers from 3,728 to 4,148, or 11.3%, and
increasing operated tractors from 1,649 to 1,915, or 16.1%.
Operating expenses, excluding depreciation and amortization, totaled $247.6
million in 1997, an increase of $44.1 million, or 21.7%, from 1996. Operating
expenses as a percentage of operating revenues increased from 86.4% in 1996 to
44
<PAGE>
86.6% in 1997. This increase in operating expenses as a percentage of operating
revenues was primarily attributable to increases in purchased transportation
expenses, selling and administrative expenses and insurance and claims
expenses, offset by decreases in compensation expense and fuel supplies and
maintenance expenses. This is partially a result of a full year's impact of the
acquisition of Levy, which had higher operating expenses as a percentage of
operating revenues than MTL.
Depreciation and amortization expense increased $3.4 million, or 24.8%,
principally due to a higher amount of depreciable assets associated with
increases in the number of terminals and MTL operated trailers and tractors.
Operating income increased $2.9 million, or 15.8%, to $21.1 million in 1997
as compared to $18.2 million in 1996. Operating income as a percentage of
revenues decreased from 7.7% in 1996 to 7.4% in 1997.
Interest expense decreased $0.3 million, or 9.1%, in 1997 as a result of
lower average outstanding debt balances during 1997 as compared with 1996.
An income tax provision of $7.4 million was recorded in 1997, which was
higher than the income tax provision recorded in 1996 by $1.3 million, or
21.2%. The increase resulted from the increase in income before taxes.
MTL's net income was $10.5 million in 1997 compared to net income of $8.8
million in 1996. This increase of $1.7 million, or 18.6%, was primarily
attributable to the increase in revenues achieved without a proportionate
increase in costs and administrative expenses.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Revenues for 1996 were $235.6 million, an increase of $45.5 million, or
24.0%, over 1995 revenues. Transportation revenues increased $44.8 million, or
25.9%, partially impacted by strong internal growth as well as the acquisition
of Levy. In 1996, transportation revenues accounted for approximately 92.0% of
revenues while supplementary services including leasing, tank cleaning,
logistics and intermodal services accounted for approximately 8.0% of total
revenues. Revenues from these supplementary services increased $0.8 million, or
4.7%, compared to 1995, primarily as a result of increased equipment rental
income from both affiliates and MTL's customers.
MTL operated 70 terminals at December 31, 1996 compared to 66 terminals at
December 31, 1995. MTL also expanded the size of its fleet during this time
period, increasing operated trailers from 3,190 to 3,728, or 16.9%, and
increasing operated tractors from 1,305 to 1,649, or 26.4%.
Operating expenses, excluding depreciation and amortization, totaled $203.5
million in 1996, an increase of $40.1 million, or 24.5%, from 1995. Operating
expenses as a percentage of operating revenue increased from 86.0% in 1995 to
45
<PAGE>
86.4% in 1996. This increase in operating expenses as a percentage of
operating revenues was primarily attributable to increases in compensation
expense, insurance and claims expenses and fuel, supplies and maintenance
expenses, offset by decreases in purchased transportation expenses and selling
and administrative expenses. This is partially a result of the impact of the
Levy acquisition which had higher operating expenses as a percentage of
operating revenues than MTL.
Depreciation and amortization expense increased $3.7 million, or 36.8%,
principally due to a higher amount of depreciable assets associated with
increases in the number of terminals and MTL operated trailers and tractors.
Operating income increased $1.7 million, or 10.4%, to $18.2 million in 1996
as compared to $16.5 million in 1995. Operating income as a percentage of
revenues decreased from 8.7% in 1995 to 7.7% in 1996.
Interest expense increased slightly in 1996 as a result of modestly higher
average outstanding debt balances during 1996 as compared with 1995.
An income tax provision of $6.1 million was recorded in 1996, which was
higher than the tax provision recorded in 1995 by $0.7 million, or 12.9%. The
increase resulted from the increase in income before taxes.
MTL's net income was $8.8 million in 1996 compared to net income of $7.8
million in 1995. This increase of $1.0 million, or 13.3%, was primarily
attributable to the increase in revenues achieved without a proportionate
increase in costs and administrative expenses.
CLC
The following discussion of the results of operations and financial
condition of CLC should be read in conjunction with CLC's consolidated
financial statements and the related notes included elsewhere in this
Prospectus. The information presented below is for periods prior to, and does
not include, the CLC Transactions.
OVERVIEW
CLC 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,
CLC'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. CLC's customer base includes many of the major chemical
producers in the U.S., such as Dow Chemical North America ("Dow Chemical"),
E.I. DuPont de Nemours Co. ("DuPont"), Air Products and Chemicals, Inc. ("Air
Products"), AlliedSignal, Inc. ("Allied Signal") and Union Carbide Corporation
("Union Carbide").
In 1997, approximately 89% of CLC's revenues were derived from short and
long-haul transportation and materials handling, while approximately 9% were
46
<PAGE>
derived from tank cleaning and intermodal services. CLC operates 31 tank
cleaning facilities throughout the U.S., which not only support CLC's trucking
operations, but also provide tank cleaning services for other tank truck
carriers. In 1997, CLC generated $20 million in revenues from tank cleaning
services provided to non-affiliated companies. CLC 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 CLC's
tank truck operations.
Over the last three years, CLC has continued to focus on shifting its driver
force from company-employed drivers to owner-operator drivers. At December 31,
1997, the number of owner-operators was 1,505 as compared to 844 at December
31, 1993. 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
CLC's fixed cost structure, the shift from company-employed drivers to owner-
operators provides CLC with added operating and financial flexibility.
CLC's exposure to fuel price increases is minimal as most contracts include
fuel price escalation clauses. In addition, CLC's extensive use of owner-
operators further minimizes fuel cost risk as the cost of fuel is borne by
each individual owner-operator. Accordingly, CLC does not participate in any
fuel hedging activities.
CLC 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 CLC with a strong presence in the southeastern U.S. and adds
customers with little or no overlap with CLC's existing customer base. During
the last six months of 1996 and the for the year ended December 31, 1997,
Fleet generated $27.5 million and $61.3 million, respectively, in revenues.
The Fleet acquisition provides the opportunity for cost savings associated
with Fleet's operations by taking advantage of CLC'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, CLC has realized significant insurance
savings as a result of adding Fleet to its existing insurance programs.
CLC's new information technology system will provide CLC with a new order
entry system, enhanced order tracking and continuous communication with
drivers via satellite. The new system is expected to be completed during 1998
and is anticipated to provide productivity and cost benefits to CLC. CLC has
capitalized $11.6 million of costs as of December 31, 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 "Year 2000" and Note 2 of "Notes
to Consolidated Financial Statements."
47
<PAGE>
CLC faces significant potential liability associated with environmental
contamination of property it owns. It is likely that CLC's liability at the
most costly of these sites will be covered by insurance. However, CLC's
litigation with its insurance carriers, in which CLC has largely prevailed to
date, is ongoing.
RESULTS OF OPERATIONS
CLC employs an accounting calendar consisting of four thirteen week quarters.
Because of differences in the week ending dates of the three and six month
periods ended July 5, 1998 and June 29, 1997, there were three additional
billing days in the six month period ended July 5, 1998 versus the six month
period ended June 29, 1997 and there were two less billing days in the three
month period ended July 5, 1998 versus the three month period ended June 29,
1997. As such, the analysis of the results of operations between comparative
periods will be impacted by the difference in revenue days in 1998 versus 1997.
SIX MONTH PERIOD ENDED JULY 5, 1998 COMPARED TO THE SIX MONTH PERIOD ENDED JUNE
29, 1997
OPERATING REVENUES
Operating revenues increased $26.6 million from $156.5 million for the six
month period ended June 29, 1997 to $183.1 million for the six month period
ended July 5, 1998. Of this increase, approximately $3.8 million is
attributable to three additional billing days in the 1998 period versus the
1997 period. An additional $3.5 million is attributable to acquisitions in
CLC's dry bulk and tank cleaning subsidiaries. The remaining increase of $19.3
million results from internal growth of which $6.3 million is from CLC's
logistics subsidiary.
OPERATING EXPENSES
Operating expenses increased $22.6 million from $154.8 million or 98.9% of
revenue for the six month period ended June 29, 1997 to $177.4 million or 96.9%
of revenue for the six month period ended July 5, 1998. Of this increase,
approximately $3.6 million is attributable to the increased number of billing
days in the 1998 period versus the 1997 period. An additional $3.0 million is
attributable to acquisitions in CLC's dry bulk and tank cleaning subsidiaries.
The remaining increase of $16.0 results from internal growth of which $6.2
million is related to growth in CLC's logistics subsidiary.
INTEREST EXPENSE
Interest expense increased from $4.5 million for the six month period ended
June 29, 1997, or 2.9% of revenue, to $6.2 million for the six month period
July 5, 1998, or 3.4% of revenue. The increase in interest expense is
attributable to additional debt incurred in support of new business and
increased business from
48
<PAGE>
existing operations as well as higher interest rates and increased debt as a
result of the issuance of the CLC Notes completed on June 16, 1997.
NET LOSS
The net loss for the six month period ended July 5, 1998 decreased $1.1
million from $1.9 million for the six month period ended July 5, 1998 to $.8
million. The decreased net loss was due primarily to the after-tax effect of
higher operating profit attributable to increased revenue described above
offset by higher interest and other expense.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
RESULTS OF OPERATIONS
OPERATING REVENUES
Operating revenues increased by $48.9 million, or 17.4%, from $281.1 million
in 1996 to $330 million in 1997. Of this increase, $33.8 million or 12%
resulted from a full year of operations for Fleet in 1997. The remainder of
the increase was due primarily to revenue growth in CLC's trucking operations
and tank cleaning businesses Average revenue per mile remained constant at
$1.78 in 1996 and 1997, while average length of haul was 450 miles for 1997 as
compared to 455 miles for 1996. In 1997, short and long-haul transportation
accounted for 89% of revenues while tank cleaning and intermodal services
accounted for 9%, consistent with the 1996.
OPERATING EXPENSES
Operating expenses totaled $334.0 million in 1997 as compared to $274.4
million in 1996, an increase of $59.6 million, or 21.7%. The majority of the
increase was due to the increase in CLC's operating revenues of 17.4%. The
remaining increase was due primarily to the settlement of a lawsuit, and the
related loss incurred by CLC due to the insolvency of certain of its insurers,
in the amount of $4.8 million, charges of $2.7 million for two large insurance
claims for personal injuries arising from trucking accidents, and a fourth
quarter charge of $3.2 million recorded to increase CLC's reserves for
environmental liabilities due to developments at certain sites. See Notes 9
and 11 of "Notes to Consolidated Financial Statements." Operating expenses as
a percentage of revenue increased from 97.6% for 1996 to 101.2% for 1997. The
increase was primarily attributable to increased purchased transportation and
rents and operations and maintenance expense as a percentage of revenues,
offset by decreases in salaries, wages and benefits expense and communications
and utilities expense as a percentage of revenue.
INTEREST EXPENSE
Interest expense increased from $7.6 million, or 2.7% of revenues, in 1996
to $10.3 million, or 3.1% of revenues, in 1997. The increase in net interest
expense is
49
<PAGE>
attributable to the additional debt incurred in connection with implementation
of CLC's information technology system, the lawsuit settlement and related
loss discussed above, and additional interest expense with respect to CLC's
outstanding CLC Notes.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
In connection with the repayment of indebtedness with the proceeds of the
Senior Note Offering, CLC 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.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In November 1997, the Emerging Issues Task Force (EITF) of the FASB reached
a consensus on Issue No. 97-13 "Accounting for Costs Incurred in Connection
with a Consulting Contract or an Internal Project That Combines Business
Process Reengineering and Information Technology Transformation." The Task
Force determined that the cost of business process reengineering activities,
whether done internally or by third parties, is to be expensed as incurred.
The consensus also applies when the business process reengineering activities
are part of a project to acquire, develop, or implement internal-use software.
The consensus requires companies to expense any previously capitalized
reengineering costs (for both current and previous projects) as a cumulative
change in accounting principle. Based upon the detailed guidance of EITF 97-
13, CLC recorded a charge of $2.0 million, net of tax benefit, in the fourth
quarter of fiscal 1997. This charge is classified as a cumulative effect of an
accounting change in CLC's consolidated statement of operations.
NET LOSS
CLC had a net loss of $11.4 million in 1997 as compared to a net loss of
$162,000 in 1996. The net loss in 1997 is primarily attributable to the
expenses recorded in connection with the lawsuit settlement and related loss
discussed above, two large insurance claims and developments at certain
environmental sites, and reflects the increased depreciation, operating lease
expense and interest expense resulting from the Fleet acquisition and the
cumulative effect of the accounting change.
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 CLC's
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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 CLC's taken as a whole as Fleet utilizes operating leases to finance a
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.
CLC received insurance settlement proceeds of $11.5 million in late 1995,
which were applied to reduce outstanding 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)
CLC 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, CLC
recorded tax expense of
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$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.
LIQUIDITY AND CAPITAL RESOURCES OF MTL
Through its subsidiaries, the MTL's primary source of liquidity is cash flow
from operations and availability under the New Credit Agreement. MTL generated
$18.1 million, $22.3 million and $33.8 million from operating activities in
1995, 1996 and 1997, respectively, and $26.3 million and a use of $26.5
million in the first nine months of 1997 and 1998, respectively. The decrease
in cash provided by operating activities reflects the additional cash charges
in 1998 relating to the MTL Transactions and the CLC Transactions. Capital
expenditures totaled $32.1 million, $20.6 million and $35.1 million in 1995,
1996 and 1997, respectively. In the last three years, MTL has spent in excess
of $52.0 million to purchase 1,040 trailers for both replacement and to
facilitate future growth. In addition, MTL has spent $35.0 million on tractors
and other assets. There are no material commitments for capital expenditures
as of September 30, 1998. Net cash used in investing activities in 1995, 1996
and 1997 was $30.1 million, $21.8 million and $31.7 million, respectively. Net
cash used in investing activities the first nine months of 1997 and 1998 was
$26.8 and $245.0 million, respectively. The large increase in 1998 was the
result of the CLC Merger. Net cash provided by financing activities in 1995
was $11.6 million, while 1996 and 1997 showed net cash used of $0.1 million
and $1.5 million, respectively. Net cash used in financing activities in the
first nine months of 1997 and 1998 were $0.3 and $281.6 million, respectively.
The large increase in 1998 was due to issuance of debt related to the MTL
Transactions and the CLC Transactions. While uncertainties relating to
environmental, labor and regulatory matters exist within the trucking
industry, management is not aware of any trends or events likely to have a
material effect on liquidity or the accompanying financial statements.
The for-hire tank truck industry is highly fragmented and MTL believes that
it consists of in excess of 200 tank truck carriers, with the top five
carriers representing $1.4 billion or approximately 23.8% of 1997 for-hire
tank truck industry revenues. Recently, however, the industry has begun to
undergo consolidation. MTL believes such consolidation is primarily the result
of economies of scale in the provision of services to a larger customer base,
cost-effective purchasing of equipment, supplies and services by larger
companies and the decision by many smaller, capital constrained operators to
sell their trucking businesses rather than make substantial investments to
modernize their fleets. As a result of its leading market position and
decentralized operating structure, MTL believes it is well-positioned to
benefit from these current industry trends.
In June 1998, MTL underwent a recapitalization, which provided the necessary
capital resources to support future growth opportunities. In August 1998, MTL
completed the acquisition of CLC. After giving effect to the MTL Transactions
and CLC Transactions, MTL is capitalized with $140.0 million principal amount
of Notes, a $360.0 million New Credit Agreement, $68.0 million in equity
investments by Apollo and affiliates of two of the Initial Purchasers (as
defined) and members of
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management of MTL, and $31.9 million in preferred and common equity
investments by certain of MTL's and CLC's shareholders, including Apollo. The
Notes are unsecured senior subordinated obligations of MTL, ranking
subordinate in right of payment to all existing and future senior debt of MTL.
Upon consummation of the CLC Merger, CLC and its subsidiaries became
guarantors of the Notes and guarantors under the New Credit Agreement. The New
Credit Agreement provides for a term-loan facility consisting of a $90.0
million Tranche A Term maturing on June 9, 2004, a seven-year $105.0 million
Tranche B Term Loan, an eight-year $90.0 million Tranche C Term Loan and a
$75.0 million Revolving Credit Facility available until June 9, 2004. As of
September 30, 1998, MTL's long-term debt (including current maturities) was
$435.2 million.
In 1997, CLC's net cash used by operating activities totaled $11.7 million,
as compared to cash generated by operating activities of $4.7 million in 1996.
The $11.7 million of cash used by operating activities in 1997 is due
primarily to the net loss incurred in 1997, an increase in accounts receivable
of $14.0 million, and increases in other assets levels as a result of
approximately $4.2 million of bond issuance costs. CLC was also required in
October 1997 to fund approximately $7.4 million of a lawsuit and the related
losses incurred by CLC due to the insolvency of certain of its insurers, which
resulted in an after-tax charge to earnings of approximately $2.9 million in
the quarter ended September 30, 1997. During the six month period ended July
5, 1998, cash provided by operating activities of CLC was $1.3 million versus
cash used in operating activities of $3.5 million in the six month period
ended June 29, 1997. Cash used in investing activities was $13.2 million and
$10.2 million for the six month periods in 1998 and 1997, respectively.
MTL's primary cash needs consist of capital expenditures and debt service.
MTL incurs capital expenditures for the purpose of (1) maintaining its fleet
of owned tractors and trailers; (2) replacing older tractors and trailers; (3)
purchasing new tractors and trailers; and (4) maintaining and improving
infrastructure, including the integration of the information technology
system.
MTL and CLC have historically sought to acquire smaller local operators as
part of their programs of strategic growth. Following the CLC Merger, both
companies continue to evaluate potential acquisitions in order to capitalize
on the consolidation occurring in the industry and expect to fund such
acquisitions from available sources of liquidity, including borrowings under
the Revolving Credit Facility.
MTL believes that after giving effect to the MTL Transactions, the CLC
Transactions and the incurrence of indebtedness related thereto, based on
current levels of operations and anticipated growth, on a combined basis,
MTL's cash flow from operations, together with available sources of liquidity,
including borrowings under the Revolving Credit Facility, will be sufficient
over the next several years to fund anticipated capital expenditures and make
required payments of principal and interest on its debt, including payments
due on the Notes and obligations under the New Credit Agreement.
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YEAR 2000
Some of MTL's older computer programs and systems were written using two
digits rather than four to define the applicable year. As a result, those
computer programs have time sensitive software that recognizes a date using
"00" as the year 1900 rather than the year 2000. This could cause a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices or
engage in similar normal business activities.
MTL has developed a plan to ensure that its systems are compliant with the
requirements to process transactions in the year 2000. Most of MTL's combined
systems implementation effort is now directed toward the migration of the CLC
billing, settlement and financial reporting systems from mainframe based
systems which are not Year 2000 compliant. The target completion date for this
implementation effort is June 30, 1999. The estimated cost of MTL's completed
and remaining replacement and modification for the Year 2000 issue is not
expected to be material to MTL's earnings or financial position.
MTL has developed a contingency plan should it be unable to compete its
implementation effort by the June 30, 1999 target date. At that time MTL would
be able to convert to a new mainframe system which would be Year 2000
compliant. This new system would enable MTL's to become Year 2000 compliant
without rewriting the application to its system. MTL estimates that the cost
of this new system would not be material to MTL.
MTL has also done an assessment of its non-IT systems. MTL has determined
that it currently owns approximately 300 qualcom units, which are located in
its trucks and deal with the communication to the trucks, which have embedded
chips that are not year 2000 compliant. These units are not an integral piece
of the operation of MTL's business. These units have been earmarked to be
replaced over the next year and MTL does not expect the costs of such units to
be material. In addition to assessing its own Year 2000 compliance, MTL has
had discussions with many of its major vendors and suppliers regarding their
Year 2000 compliance. MTL has already received letters of compliance from many
of its material partners and is in the process of collecting such letters from
others.
There can be no assurance, that MTL's timetable will be met, that the
programming changes required to accommodate current CLC billing and driver
settlement requirements will be completed in this time frame, or that such
changes will not negatively impact CLC's ability to meet its customers or its
drivers requirements.
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BUSINESS
GENERAL
With the completion of the CLC Merger, MTL has become the largest bulk tank
truck carrier in the United States based on revenues. Through a network of 189
terminals located across the United States and Canada, MTL transports a broad
range of chemical products and provides its customers with supplementary
transportation services such as dry bulk hauling, transloading, tank cleaning,
third-party logistics, intermodal services and leasing. Many of the chemical
and chemical-related consumer products transported by MTL require specialized
trailers and experienced personnel for safe, reliable and efficient handling.
MTL is a core carrier for many of the Fortune 500 companies who are engaged in
chemical processing, including The Procter & Gamble Company ("Procter &
Gamble"), Union Carbide, Dow Chemical, Allied Signal, DuPont and PPG
Industries.
In addition to MTL's own fleet operations, it uses affiliates (i.e.,
independent companies which, through comprehensive contracts with MTL, operate
their terminals exclusively for MTL) and owner-operators (i.e., independent
contractors who, through contracts with MTL, supply one or more tractors and
drivers for MTL or its affiliate's use). Management believes that the use of
affiliates and owner-operators results in a more flexible cost structure,
increases MTL's asset utilization and increases return on invested capital.
MTL is a holding company and operates principally through five main operating
subsidiaries: (1) Montgomery Tank Lines, Inc. ("Montgomery Tank Lines"), (2)
Quality Carriers, Inc., (3) CLTL, (4) Fleet and (5) Levy. Through these
principal transportation subsidiaries, as of September 30, 1998, MTL operated
7,995 trailers, of which 6,966 were owned or leased by MTL, and 3,913
tractors, of which 912 were owned or held directly under lease by MTL.
On June 9, 1998, MTL was recapitalized through a merger with a corporation
controlled by Apollo Management, L.P. and certain related companies. On August
28, 1998, MTL completed its acquisition of CLC. Founded in 1913, CLC was,
prior to the CLC Merger, the largest bulk tank truck carrier in the United
States based on revenues. The combination of CLC and MTL has united two of the
leading bulk transportation service providers under one holding company. On a
pro forma basis for the fiscal year ended December 31, 1997 and for the nine
months ended September 30, 1998, after giving effect to the MTL Transactions
and the CLC Transactions, MTL generated revenues of approximately $621.8
million, and $494.5 million, respectively. The pro forma financial information
gives effect to both of MTL's recent transactions as described above as if
they had occurred on January 1, 1997. See "The CLC Merger;" and Note 11 to the
Notes to Consolidated Financial Statements of MTL Inc. and subsidiaries.
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The following chart shows the organization of MTL and its subsidiaries, and
indicates which subsidiaries are guarantors of the notes. Each of MTL's
subsidiaries are guarantors of the notes, except for Levy Transport Ltd. and
MTL de Mexico, which are non-domestic subsidiaries of MTL.
PARENT
MTL INC.
|
-------------------------------------------------------------------
| | | | | | | |
| | | | | | MTL |
Montgomery | | | Lake Shore | Investments |
Tank Lines | Levy | Leasing | Inc. |
(guarantor) | Transport | (guarantor) | (guarantor) |
Quality CLC MTL Of Mexico
Carriers Chemical Nevada Investments
(guarantor) Leaman Holding (guarantor) Inc.
(guarantor) (guarantor)
| |
| MTL de
| Mexico
|
-----------------------------------------------------------------
| | | | | | | |
Transplastics | | | Chemical Leaman | | |
Inc. | Enviro Power | Tank Lines | Quala Systems |
(guarantor) | (guarantor) | (guarantor) | (guarantor) |
| | | | | |
Core Logistics Power |Fleet Transport |Leaman Logistics
(guarantor) Purchasing | (guarantor) | (guarantor)
(guarantor) | |
| | |
| | |
American Trans | |
Insurance | OSI Services
(guarantor) | (guarantor)
|
-------------------------------------------------
| | | |
Chemical Capacity Pickering Way |
Properties Inc. Management Funding CLT Services
(guarantor) (guarantor) (guarantor) (guarantor)
DEVELOPMENT OF MTL
MTL was founded in 1965. MTL is a holding company, and operates principally
through its transportation subsidiaries. MTL has grown over the past five years
from 53 terminals to 189 terminals and has expanded its area of geographic
coverage. Much of this growth has been accomplished through strategic
acquisitions. MTL plans to continue to grow both its core business and the
variety of services it provides to its customers.
On June 11, 1996, MTL acquired all of the outstanding stock of Levy Transport
Ltd., a Quebec-based tank truck carrier for a purchase price of $5.1 million in
cash plus the assumption of debt. Such purchase price was financed with
borrowings from an unsecured line of credit, and was determined based upon the
fair market value of assets acquired and discounted, projected profit potential
of the Levy operation after consolidation with MTL. As of the date of such
acquisition, Levy serviced the chemical, petroleum and glass industries with a
fleet of over 400 trucks and tank trailers.
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On June 9, 1998, Sombrero Acquisition Corp., a Florida corporation and
wholly-owned subsidiary of Apollo, merged with and into MTL with MTL as the
surviving corporation. In such merger, the holders of the outstanding shares
of common stock of MTL (other than certain exempted shares) received $40 in
cash for each share of the common stock of MTL held by them. The total
consideration that was paid to shareholders of MTL in connection with the
merger consisted of $194.6 million and included payments to holders of certain
options of MTL, net of the option exercise proceeds, and the implied value of
shares which were retained by management. MTL treated such merger as a
recapitalization for accounting purposes. Following such merger, Apollo owned
85.4%, certain other investors owned 4.4%, and management of MTL owned
approximately 10.2% of the common stock of MTL. Following such merger, on a
fully diluted basis, Apollo owned 76.9%, certain other investors owned 4% and
management of MTL owned 19.1% of the common stock of MTL.
On August 28, 1998 MTL acquired CLC. See "The CLC Merger."
INDUSTRY OVERVIEW
MTL competes in the over $5.0 billion for-hire tank truck carrier market,
which excludes shipper-owned private fleets. Substantially all of the for-hire
tank truck carrier market involves the transportation of liquid and dry bulk
chemicals including resins, latex, acids, alcohol, solvents, corrosives as
well as petroleum and petroleum-related products. We believe that the
specialized nature of these products and the high service levels required for
their transportation makes the tank truck carrier market less sensitive to
pricing pressures than the dry van segment of the trucking industry, which is
considered more of a commodity-type service.
The for-hire tank truck industry is expected to continue to grow primarily
as a result of continued growth of chemical shipments as well as increased
outsourcing of transportation services by chemical companies. MTL believes
that the increasing desire of chemical companies to focus their financial
resources on product development and marketing has made it increasingly
difficult for them to justify operating a private transportation fleet and has
resulted in an increasing reliance on
third-party carriers, such as MTL. In addition, MTL believes that chemical
companies are seeking a limited number of large national core carriers as a
result of their increasing focus on safety and quality, the need for
sophisticated information systems and the significant capital requirements for
the acquisition and maintenance of a fleet of trailers and tractors. For these
reasons, MTL believes that large carriers, such as MTL, will continue to grow
at a faster rate than smaller carriers.
The for-hire tank truck industry is highly fragmented and MTL believes that
it consists of in excess of 200 tank truck carriers. The top five carriers in
the for-hire tank truck industry represented approximately $1.4 billion or
approximately 23.8% of 1997 for-hire tank truck industry revenues. Recently,
however, the industry has begun to undergo consolidation. MTL believes such
consolidation is primarily the
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result of economies of scale in the provision of services to a larger customer
base, cost-effective purchasing of equipment, supplies and services by larger
companies and the decision by many smaller, capital constrained operators to
sell their trucking businesses rather than make substantial investments to
modernize their fleets. As a result of its leading market position and
decentralized operating structure, MTL believes it is well-positioned to
benefit from these current industry trends.
COMPETITIVE STRENGTHS
MTL believes that its market leadership, strong historical financial
performance, and significant opportunities for continued growth and increased
profitability are primarily attributable to the following strengths:
EXPANSIVE GEOGRAPHIC COVERAGE AND TERMINAL NETWORK.
As of September 30, 1998 MTL operated 189 terminals in 31 states and Canada.
MTL believes that this network represents the largest network of tank truck
terminals in North America and will provide it with benefits of scale. In
addition, due to the strategic location of such terminals, MTL expects to
benefit from significant operating efficiencies. MTL's expanded terminal
coverage facilitates the matching of inbound and outbound shipments, thus
maximizing utilization of driver and equipment resources. MTL also believes
that greater lane density and geographic presence will provide opportunities
for MTL to penetrate additional routes, increasing loaded miles in addition to
increased backhaul loads.
VALUE ADDED RELATED SERVICE CAPABILITIES AND SUPERIOR CUSTOMER SERVICE.
MTL believes that it has established itself as a comprehensive provider of
tank truck transportation and logistics services catering primarily to the
chemical industry, and competes on the basis of its ability to provide value-
added transportation and related services, in addition to price. The
acquisition of CLC, a leading provider of value added services, has
strengthened MTL's ability to provide comprehensive transportation services to
its customers. Additional services provided include brokerage, logistics and
tank cleaning and are conducted through wholly-owned operating subsidiaries of
CLC. As MTL's customers continue to focus on their core competencies, MTL
believes that the opportunity will arise for the outsourcing of their entire
transportation and shipping functions to MTL. MTL believes that it provides
superior customer services, including timely delivery, reliability of service,
quality and availability of equipment and responsiveness to customer
requirements. As a result, MTL has developed many long-standing relationships
with a wide variety of industrial and manufacturing companies, including many
of the Fortune 500 companies who are engaged in chemical or food processing.
During 1997, on a pro forma basis, MTL served over 3,000 companies, with no
single customer accounting for more than 7.9% of MTL's revenues.
OPPORTUNITIES FOR INCREASED MARKET AND CUSTOMER PENETRATION.
MTL believes that the acquisition of CLC increases its ability to capture a
larger share of lineal revenues from chemical manufacturers with which it
currently does
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business. The combination also creates additional opportunities for MTL to
achieve core carrier status with new customers by providing comprehensive
transportation and distribution related services to chemical manufacturers
which were not served by either MTL or CLC prior to the acquisition of CLC. As
more companies focus on their core businesses, the outsourcing of the
distribution and logistics function has become an increasingly cost-effective
and efficient option. Management believes that MTL's full service capabilities
should help establish it as a partner of choice for these firms. MTL's ability
to take advantage of these opportunities is enhanced by the minimal overlap in
the core customer base of MTL and CLC. Moreover, transactions with shared
customers largely involve contracts for different facilities, the transport of
different chemicals or transportation on different routes.
STRONG AND EXPERIENCED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY STAKE.
MTL believes that its management team, which is complemented by senior
management and operating staff of CLC, operates one of the most efficient tank
trailer fleets in the industry. Both MTL's and CLC's management team, prior to
the CLC Merger, employed similar management approaches and each fostered a
performance oriented culture to develop their respective businesses into
leading comprehensive transportation logistics service companies.
MTL's senior management has an average of 21 years of industry experience
and 6.5 years of experience with MTL or CLC. After giving effect to MTL's
option plans, management owns approximately 17.4% of the capital stock of MTL
on a diluted basis.
LOW FIXED COST OPERATING STRUCTURE.
Unlike many of its competitors, MTL implements a decentralized operating
strategy, the key components of which are its unique affiliate program and
significant use of owner-operators. As of September 30, 1998, 61 of MTL's 189
terminals were operated by 35 independently owned and managed affiliates. In
fiscal 1997 after giving pro forma effect to the Transactions, affiliates
generated approximately 25.7% of MTL's total revenues. Affiliates are
independent corporations that operate terminals exclusively for MTL and are
dependent upon MTL's infrastructure and customer relationships. MTL's
affiliate program is dependent on strict adherence to stringent service
delivery guidelines which makes the affiliate terminal virtually
indistinguishable to customers from a company operated terminal. MTL typically
retains approximately 15% of affiliate revenues and is responsible for sales
and marketing, insurance, accounts receivable collection, management
information systems, and establishment of driver qualifications and training.
MTL also receives additional fees, in the form of equipment usage charges,
from most of the affiliates. The affiliate is responsible for driver
management and dispatching, local customer service, terminal upkeep and
equipment utilization. In addition, affiliates are responsible for their own
operating expenses, which allows MTL to reduce fixed costs associated with
operating multiple terminals and a large fleet of tractors. As
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such, the affiliate program allows MTL to profitably expand its base business
with reduced levels of capital investment. MTL believes that the
implementation of its affiliate program has:
.resulted in a low fixed cost operating structure and highly efficient
terminals that absorb a significant amount of operating expenses,
thereby enhancing MTL's return on investment and profitability; and
. enabled MTL to retain the entrepreneurial spirit and strong customer
service culture of a small, local trucking company while achieving the
benefits of a national operator.
The second major component of MTL's decentralized operating strategy is the
extensive use of owner-operators by MTL and its affiliates. Owner-operators
are independent contractors who, through a contract with MTL, supply one or
more tractors and drivers for MTL or affiliate use. Owner-operators are
generally compensated on the basis of a fixed percentage of the revenue
generated from shipments they haul. The owner-operators must pay substantially
all of their costs, including insurance, maintenance, fuel and highway use
taxes. MTL realizes many of the same benefits through its use of owner-
operators as it does from its affiliate program, including reduced levels of
capital investment and a highly variable cost structure. As of September 30,
1998, MTL and its affiliates had contracts with approximately 2,356 owner-
operators.
LARGE TRAILER FLEET.
MTL operates approximately 7,995 tank trailers (of which 6,966 are owned or
leased by MTL) which have a useful economic life of approximately 20 years.
Included in MTL's fleet of approximately 7,995 trailers is what it believes to
be the largest stainless steel trailer fleet in North America. As part of its
dedication to superior customer service, MTL uses customized tank trailers to
meet the specialized needs of its customers. MTL and CLC have invested
significant capital in each of their trailer fleets, expending approximately
$64.3 million in the past three years on trailers to facilitate future growth
and provide required capital maintenance. During the same period MTL and CLC
purchased on a combined basis approximately 1,277 trailers.
BUSINESS STRATEGY
MTL's management team has developed and implemented a business strategy
designed to profitably increase MTL's market share while increasing revenues
and cash flow. The primary components of MTL's business strategy are the
following:
CONTINUE GROWTH OF THE CORE BUSINESS.
MTL expects to continue its internal growth primarily through (1) continued
market share penetration as companies moved towards establishing relationships
with low cost providers of transportation services and a limited number of
core carriers, and (2) providing comprehensive transportation services to
chemical companies seeking to outsource their
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transportation services. MTL expects to grow its core bulk transportation
business through terminal and fleet expansion and a continued emphasis on its
affiliate program. From 1993 through September 1998, on a combined basis with
CLC, MTL added 82 terminals, including 20 affiliate terminals, and 2,501
trailers to its operational fleet. During the same period, MTL's revenues grew
at a significantly faster rate than the overall tank truck market. Management
believes MTL will continue to grow at a faster rate than the industry as a
result of its
. continued provision of high quality, specialized services and the
ability to capture an increased share of existing customers' bulk
transportation and related service requirements;
. increased market share penetration as customers continue to depend on
core carriers capable of providing national coverage for a greater
portion of their transportation services;
. ability to provide a full range of transportation-related services; and
. opportunities to expand MTL's geographic market coverage due to the
increased size of our terminal network.
MAXIMIZE RETURN ON INVESTED CAPITAL.
MTL's affiliate program has greatly reduced the amount of capital needed for
MTL to maintain and grow its terminal network. In addition, its extensive use
of owner-operators reduces the amount of capital needed by MTL to build its
fleet of tractors which have shorter economic lives than trailers. These
factors have allowed MTL to concentrate its capital spending on its trailer
fleet where it can achieve superior returns on invested capital through the
MTL's transportation operations as well as leasing to third parties and
affiliates. MTL expects to continue to expand its affiliate program and its
use of owner operators in order to improve its cost structure and improve
operating leverage. MTL has also identified opportunities to integrate
existing terminals into select markets, which it believes will enable it to
maintain its route and service capability at a reduced level of invested
capital. MTL expects that this consolidation will effectively reduce the
capital required to maintain MTL's terminal network and further improve MTL's
return on invested capital.
EXPANDED SCOPE OF SERVICE CAPABILITIES.
MTL plans to continue to expand its geographic coverage as well as the scope
of its service capabilities in order to serve the growing needs of its
customer base, by offering complementary transportation services including
inventory management, supply chain management, transportation brokerage
services, intermodal services and international transportation services. In
addition to its core transportation services, management intends to continue
to focus on its leasing business which MTL believes
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is currently among the largest in the industry and provides a stable source of
revenue and profitability. CLC is the leading provider of value added
services, and MTL believes that its acquisition of CLC has strengthened its
ability to provide comprehensive transportation services to its customers. CLC
is one of only three national networks of tank cleaning operations, with
significant bulk logistics capability and a leading freight brokerage
operation. In addition, through its subsidiary, Transplastics, Inc., CLC
operates one of the largest providers of services to the plastics industry.
MTL believes it can increase revenues and enhance its profitability by
marketing these value-added transportation related services to its existing
customer base as well as to new customers.
AGGRESSIVELY SEEK CONTINUED COST REDUCTIONS.
MTL believes that it has been a leader in providing low cost transportation
services. MTL intends to pursue additional operating efficiencies and service
quality initiatives, leveraging off the experience and the best practices of
both MTL and CLC. MTL also intends to continue to emphasize driver training
and development aimed at reducing labor costs and equipping its drivers with
the skills necessary to handle specialty loads safely and efficiently. MTL
believes that the increased size of MTL enables it to take full advantage of
the benefits of scale through bulk purchasing programs particularly for tires,
fuel and spare parts which will benefit the entire network.
PURSUE STRATEGIC ACQUISITIONS.
The tank truck industry is highly fragmented with the majority of the
industry consisting of small, local operators. MTL's acquisition of CLC
capitalizes on the growing trend within the chemical industry of establishing
"partnership" relations with a few core carriers which have an extensive
national network and offer a wide array of transportation-related services.
MTL intends to pursue an acquisition strategy which will enable it to further
capitalize on the consolidation occurring in the industry. Management is
seeking potential acquisitions in which MTL can:
. realize significant synergies, operating expense reductions and overhead
cost savings,
. utilize MTL's fleet management expertise,
. increase backhaul opportunities, and
. provide or further strengthen complementary transportation service
capabilities.
SERVICES PROVIDED
BULK TRANSPORTATION SERVICES
The primary service MTL provides its customers is the transportation of bulk
liquid and dry bulk chemical products. MTL provides its services through both
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Company owned terminals and through affiliates. As of September 30, 1998, 61
of MTL's 189 terminals were operated by affiliates, and in 1997, on a pro
forma basis, affiliate terminals were responsible for approximately 25.7% of
MTL's total revenues. MTL, both at its MTL owned terminals and its affiliates,
relies heavily on the use of owner-operators for its tractor needs. MTL
believes that the combination of its affiliate program and its emphasis on the
use of owner-operators results in a flexible, low fixed cost operating
structure which provides MTL's customers with superior service levels and
allows MTL to generate an above average return on invested capital.
AFFILIATE PROGRAM
Affiliates are established and maintained as independent corporations in
order to preserve the entrepreneurial motivation common to small businesses.
Each affiliate enters into a comprehensive contract with MTL pursuant to which
it is required to operate its terminal exclusively for MTL. Each affiliate is
supervised by MTL's corporate staff and is linked via computer to MTL's
central management information system located at its Plant City, Florida
headquarters. Affiliate facilities are frequently staffed and managed by
former MTL employees who MTL believes have the operating experience and
management capability to be an effective affiliate.
Affiliates obtain various benefits from their relationship with MTL, such as
greater equipment utilization through participation in MTL's backhaul program,
access to and enhancement of customer relationships, driver recruitment,
safety training, expanded marketing resources and access to sophisticated
management information systems. Affiliates also benefit from MTL's purchasing
leverage for insurance coverage, tractors and trailors, fuel, tires, and other
significant operating requirements.
Affiliates predominantly operate under the marketing identity of Montgomery
and Quality and typically receive approximately 85% of gross revenues from
each shipment they transport. Affiliates are responsible for their own
operating expenses. MTL pays its affiliates weekly on the basis of completed
billings to customers. MTL collects all accounts receivable and deducts any
amounts advanced for fuel, insurance, or other miscellaneous expenses,
including charges (as applicable) for MTL's tank trailers, from these weekly
billing settlements.
Contracts with affiliates typically carry a one-year term, renewable on a
yearly basis unless terminated by either party. Contracts between MTL and its
affiliates also contain restrictive covenants which prohibit affiliates from
competing directly with MTL in a specific geographic area for a period of one
year following termination of a contract. In addition, MTL requires its
affiliates to meet certain operating and financial standards.
Affiliates engage their own drivers and personnel as well as utilize the
services of owner-operators who must meet MTL's operating and financial
standards. The
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affiliate assumes all operating expenses such as fuel, licenses, fuel taxes
and tank cleaning. However, MTL reimburses affiliates for certain expenses
passed through to its customers, such as tolls and scaling charges.
Affiliates are required to pay for their own workers' compensation coverage,
which must meet both MTL and statutory coverage levels. Affiliates retain
responsibility for liabilities up to $10,000 per incident arising from
accidents, spills or contamination incurred while transporting a load.
Liability beyond the obligations of the affiliate is the responsibility of MTL
or its insurer. MTL makes additional insurance coverage available to its
affiliates for physical damage, running a tractor without a trailer, health
and life, and garage-keepers insurance for additional fees.
OWNER-OPERATORS
MTL and its affiliates extensively utilize owner-operators. Owner-operators
are independent contractors who, through a contract with MTL, supply one or
more tractors and drivers for MTL or affiliate use. Owner-operators are
compensated on the basis of a fixed percentage of the revenue generated from
the shipments they haul. The owner-operator must pay all insurance,
maintenance, highway use taxes. All owner-operators utilized by either MTL or
an affiliate must meet specified guidelines relating to driving experience,
safety records, tank truck experience, and physical examinations in accordance
with Department of Transportation ("DOT") regulations. MTL emphasizes safety
to its independent contractors and their drivers and maintains driver safety
inspection programs, safety awards, terminal safety meetings and stringent
driver qualifications.
MTL and its affiliates dedicate significant resources to recruiting and
retaining owner-operators. MTL attempts to enhance the profitability of its
owner-operators through purchasing programs which take advantage of MTL's
significant purchasing power. Programs cover such operating expense items as
fuel, tires and insurance. As of September 30, 1998 MTL had contracts with
2,356 owner-operators.
LEASING
In conjunction with its provision of bulk transportation services MTL
provides dedicated tractors and trailers to affiliates and other third
parties, including shippers. MTL believes its leasing business is among the
largest in the industry and provides a stable source of revenue and
profitability. Trailer lease terms range from one to 84 months and do not
include a purchase option. Tractor lease terms range from 12 to 60 months and
may include a purchase option.
TANK WASH OPERATIONS
To maximize equipment utilization, MTL relies on approximately 50 MTL and
affiliate tank wash facilities, as well as the services of other commercial
tank wash
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facilities located throughout its operating network. MTL and affiliate
facilities allow MTL to generate additional tank washing fees from non-
affiliated carriers and shippers. Management believes that the availability of
these facilities enables MTL to provide an integrated service package to its
customers.
INTERMODAL AND BULK RAIL OPERATIONS
MTL offers a wide range of intermodal services by transporting liquid bulk
containers on specialized chassis to and from a primary mode of transportation
such as rail, barge or vessel. MTL also provides rail transloading services
which enable products to be transloaded directly from rail car to trailer. This
allows shippers to combine the economy of long-haul rail transportation with
the flexibility of local truck delivery.
Through the CLC Merger, MTL has expanded the range of transportation-related
services it provides to include the following:
THIRD-PARTY LOGISTICS
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, CLC has established third-
party logistics capabilities. As a result of CLC'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 CLC
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.
OWNER-OPERATOR SERVICES
CLC, through its subsidiary, Power Purchasing, Inc., offers products and
services to both its internal and external fleet and to its owner-operators at
favorable prices. By offering purchasing programs which take advantage of CLC's
significant purchasing power for products and services such as tractors, fuel
and tires as well as automobile, general liability and workers' compensation
insurance, CLC believes it strengthens its relationships with its owner-
operators and results in improved driver recruitment.
CAPACITY MANAGEMENT SYSTEMS
CLC has developed load brokerage capabilities in order to enhance its ability
to handle its customers' trucking requirements. To the extent that CLC does not
have the equipment necessary to service a particular shipment, CLC will broker
the load to another carrier, thereby meeting the customer's shipping needs and
generating additional revenues for CLC, in the form of commissions, at
attractive margins. Through its relationship with over sixty bulk carriers, CLC
can assure timely response to customer needs.
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TRACTORS AND TRAILERS
As of September 30, 1998, MTL operated 7,995 trailers, of which
approximately 6,966 were owned or leased by MTL, 836 were owned by affiliates
and 193 were owned by shippers. A typical 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 trailer ranges from $47,000
to $64,000, depending on specifications. The combined companies' capital
expenditures for new and used trailers in 1997 were $23.9 million for the
purchase of approximately 500 trailers, the majority of which represented
additions to MTL's fleet in connection with MTL's continuing expansion.
As of September 30, 1998, MTL operated approximately 3,913 tractors, of
which approximately 862 were operated by MTL drivers, 2,383 were operated by
owner-operators and 668 were operated by affiliates. Of the approximately
1,087 tractors owned by MTL, 225 were leased to affiliates and owner-
operators. MTL primarily purchases high-end tractors manufactured by Mack
Trucks, Inc., Freightliner Corporation and/or Peterbilt Company. In 1997, MTL
purchased 164 new tractors at costs ranging from $63,000 to $80,000 per
tractor. MTL attempts to standardize its equipment purchases which reduces
training and parts inventory costs and allows for a more standardized
preventive maintenance program.
The majority of MTL and affiliate terminals provide preventive maintenance
and service and receive computer generated reports which indicate when
inspection and/or servicing of units is required. Major repairs are performed
by unaffiliated third parties. MTL complies with DOT periodic inspection
requirements by performing inspections on its tractors every 60 days as part
of its company-wide service/inspection program. MTL's maintenance facilities
are registered with DOT and are qualified to perform trailer inspections and
repairs for MTL's fleet and equipment owned by third parties.
DRIVERS AND OTHER PERSONNEL
At September 30, 1998 MTL employed approximately 789 drivers and also
utilized the services of approximately 2,356 owner-operators. Additionally,
the affiliates employed directly 675 drivers. MTL also employed 1,685 persons,
of whom 189 were mechanics, 236 were tank washers and the balance were support
personnel, including clerical and administrative personnel and dispatchers.
Each terminal manager has direct responsibility for hiring drivers and
administrative personnel. Where appropriate, the terminal manager is also
responsible for hiring mechanics and customer service and tank wash personnel.
MTL drivers and owner-operators are hired in accordance with specific
guidelines regarding safety records, driving experience and a personal
evaluation of MTL's staff. MTL employs only qualified tank truck drivers with
a minimum of two years of over-the-road, tractor trailer experience. These
drivers are then enrolled in a rigorous training program conducted at one of
MTL's five safety schools.
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Owner-operators are retained by MTL under contracts generally terminable by
either party upon short notice. However, they may be terminated immediately
under certain circumstances. Owner-operators retain responsibility for their
own operating expenses. MTL provides its employees with health, dental, vision,
life, and certain other insurance coverages. These same insurance programs are
available to affiliates and owner-operators for a fee.
As of September 30, 1998, 232 employees in MTL terminals and approximately 74
employees of three affiliate terminals were members of the International
Brotherhood of Teamsters.
MARKETING
MTL conducts its marketing activities at both the national and local levels.
MTL employs 32 geographically dispersed sales managers who market MTL's
services primarily to national accounts. These sales managers have extensive
experience in marketing specialized tank truck transportation services. The
corporate sales staff also concentrates on developing dedicated logistics
opportunities. MTL's senior management is actively involved in the marketing
process, especially in marketing to national accounts. In addition, a
significant portion of MTL's marketing activities are conducted locally by
MTL's terminal managers and dispatchers who act as local customer service
representatives. These managers and dispatchers maintain regular contact with
shippers and are well-positioned to identify the changing transportation needs
of customers in their respective geographic areas.
CUSTOMERS
GENERAL
MTL's client base consists of customers located throughout North America,
including many Fortune 500 companies, such as Procter & Gamble, Union Carbide,
PPG Industries, Dow Chemical and DuPont. During 1997, no single customer
accounted for more than 7.9% of the combined companies' total revenues. For the
fiscal year ended December 31, 1997, on a combined basis, MTL's 10 largest
customers accounted for 28.0%, of revenues.
CUSTOMER SERVICE AND QUALITY ASSURANCE
In order to achieve its goal of providing to its customers the highest
quality service and creating the highest level of customer and employee
satisfaction, MTL has implemented a quality assurance program at all levels of
MTL. MTL's Quality Assurance Program is designed to enable the achievement of
superior customer service through the development and implementation of
standardized operating procedures for each area within MTL. This includes
marketing and contracts, dispatch and terminal operations, safety, driver
hiring and training, trailer operations, tractor operations, and procedures for
administration functions, payroll and settlement, insurance, sales, data
processing, and fuel tax and permits.
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MTL has developed and implemented a statistical measurement tool called the
Terminal Safety Ranking Profile. This profile establishes a uniform method of
evaluating, measuring and comparing the safety performance of all field
operation facilities. Through utilization of this tool, individual facilities
and regions of MTL can be evaluated for performance trends or areas of
deficiency needing improvement.
MTL has also implemented a Quality Corrective Action procedure which is
intended to identify, document and correct safety and service non-conformance.
In addition, MTL has established cross-functional teams known as Continuous
Process Improvement teams which have been charged with the responsibility of
identifying ways in which to improve MTL processes as well as to manage the
implementation of such improvements.
Most of CLC's tractor fleet, including both CLC-owned and owner-operator
tractors, are equipped with OmniTRACS(R) mobile satellite communications
systems which provide continuous monitoring and two-way communications with
tractors in transit. This information is used to track load status, optimized
the use of drivers and equipment and respond to emergency situations. CLC's
Internet Website enables customers to access the OmniTRACS(R) system to view
the exact status of their loads in transit at their convenience.
ADMINISTRATION
MTL operates through 189 trucking terminals located across the United States
and Canada. Each of the 128 MTL and 61 affiliate terminals operates as
separate profit centers, and terminal managers retain responsibility for most
operational decisions in their given service area. Effective supervision of a
service area requires maximum personal contact with both customers and
drivers. Therefore, to achieve mutually defined operating objectives, the
functions of dispatch, customer service, and general administration typically
rest within each separate terminal. Cooperation and coordination between the
terminals is further encouraged by MTL's backhaul policy. Any terminal which
generates a backhaul shipment for another terminal receives a commission on
the revenue generated by the backhaul shipment.
From its headquarters in Florida, management constantly monitors each
terminal's operating and financial performance, safety and training record,
and customer service effort. All terminals are required to adhere to MTL
safety, maintenance, customer service and other operating procedures, and the
terminal manager is responsible for insuring compliance with these strict
guidelines. Senior corporate executives and safety department personnel
conduct unannounced visits to verify terminal compliance. MTL attempts to
achieve uniform service and safety at all MTL and affiliate terminals, while
simultaneously providing terminal managers the freedom to focus on generating
business in their region.
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PROPERTIES
MTL's operating terminals are located in the following cities:
<TABLE>
<C> <S>
MTL OPERATED AFFILIATE OPERATED
- ---------------------------------------------------------------------------------
Albany, NY* Ft. Worth, TX* Parker, PA Akron, OH Lake
Appleton, WI Geismar, LA Pasadena, TX Atlanta, GA Charles, LA
Ashland, KY Greensboro, NC* Pedricktown, NJ Augusta, GA Lansing, IL
Atlanta, GA(1)* Greenup, KY Pittsburgh, PA Austin, MN Leeds, SC
Augusta, GA(1)* Greer, SC Point Comfort, TX Baltimore, MD Louisville,
Avenel, NJ Hagerstown, MD Port Arthur, TX* Barberton, OH KY
Baltimore, MD* Hayward, CA(1) Portland, OR Baton Rouge, LA Mediapolis,
Bangor, ME Hopewell, VA(1) Proctor, WV* Birmingham, AL IA
Baton Rouge, Houston, TX(1)* Rock Hill, SC* Bradford, PA Memphis, TN
LA(1) Jessup, MD Ross, OH* Branford, CT Mobile, AL
Bayonne, NJ Joliet, IL Roseville, CA Bristol, WI New Castle,
Beaumont, TX Jonesboro, GA* Savannah, GA(1) Buffalo, NY DE(3)
BenSalem, PA Kalamazoo, Security, MD* Calvert City, New Orleans,
Bergen, NY MI(1)* South Gate, CA KY LA
Branford, CT* Keasbey, NJ South Pointe, OH Carlisle, SC Niagara
Bridgeport, NJ* Kelso, WA Spartansburg, SC* Charleston, SC Falls, NY
Bristol, PA* Lafayette, IN St. Albans, WV Chattanooga, Norfolk, VA
Brownsville, TX Lake Charles, St. Gabriel, LA* TN(1) Omaha, NB*
Brunswick, GA LA(1) St. Louis, MO(1) Cincinnati, OH Parker, PA
Buffalo, NY* Lansing, MI Summit, IL* Columbus, OH Pasadena, TX
Calvert City, KY Laredo, TX Syracuse, NY* Detroit, MI Pearisburg,
Carpentersville, Lexington, KY Tucker, GA Dumfries, VA VA
IL Lima, OH Washington, WV Elkridge, MD Philadelphia,
Carteret, NJ Longview, TX Waterford, NY Fairfield, OH PA
Charleston, Los Angeles, CA Wilkes-Barre, PA* Freeport, TX Pinson, AL
SC(1)* Luling, LA Williamsport, PA* Garden City, GA Pittsburgh,
Charleston, WV* Mechanicsburg, Wilmington, NC* Gary, IN(1) PA
Chattanooga, PA CanadianWinnie, TXGlenmoore, PA Port Hudson,
TN(1)* Memphis, TN(1)* Provinces: Houston, TX* LA
Chesnee, SC* Middletown, OH Coteau-du-Lac, Inwood, WV Prairie
Chicago, IL(2)* Midland, MI* Quebec* Jacksonville, Ville, LA
Columbus, OH(1) Mobile, AL Montreal, FL Roanoke, VA
Columbus, GA Morgantown, WV* Quebec(1)* Kansas City, KS Salisbury,
Concord, NC* Morrisville, PA Oakville, NC
Danville, KY Mt. Holly, NC Ontario* Savannah, GA
Decatur, AL Nazareth, PA* Sarnia, Ontario St. Louis,
Detroit, MI* Neville Island, Quebec City, MO
East PA Quebec Tampa, FL
Rutherford, Newark, NJ(1)* Ville Becancour, Toledo, OH
NJ* North Haven, CT Quebec Triadelphia,
Fall River, MA Oakley, CA PA
Follansbee,WV Oshkosh, WI Tuscaloosa,
Freeport, TX* AL
Friendly, WV* Whistler, AL
Wilmington,
IL
</TABLE>
- --------
(1) Two terminals in this city.
(2) Four terminals in this city.
(3) Three terminals in this city.
* Indicates that the MTL operated terminal is owned by MTL.
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In August 1996, MTL entered into a modified affiliate relationship with
Transportes Especializados Antonio de la Torre e Hijos, S.A. de C.V. and
operates from its two terminals in Guadalajara and Mexico City, Mexico.
In addition to the properties listed above, MTL also owns four facilities in
the U.S., including: a 149,000 square foot warehouse in Chicago, Illinois; a
6-acre property in Macomb, Mississippi; an undeveloped, 3-acre lot in Ruskin,
Florida; and a tank wash facility in Philadelphia.
MTL's executive and administrative offices are located in a 17,600 sq. ft.
building in Plant City, Florida. This facility is also owned by MTL and is
located on 5.2 acres of land.
COMPETITION
The tank truck business is extremely competitive and fragmented. MTL
competes primarily with other tank truck carriers and private carriers in
various states. With respect to certain aspects of its business, MTL also
competes with intermodal transportation, railroads and less-than-truckload
carriers. 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 for the freight transported by MTL is based primarily on rates
and service. Management believes that MTL enjoys significant competitive
advantages over other tank truck carriers because of MTL's low cost structure,
overall fleet size and age, national terminal network and tank wash
facilities.
MTL's largest competitors are Matlack Systems, Inc., DSI Transports, Inc.
and Trimac Transportation Services, Ltd., an operation based in Canada. There
are approximately 195 other recognized tank truck carriers, most of whom are
primarily regional operators.
MTL also competes with other motor carriers for the services of MTL drivers
and owner-operators. MTL's overall size and its reputation for good relations
with affiliates and owner-operators have enabled it to attract a sufficient
number of qualified professional drivers and owner-operators. See "Risk
Factors--Dependence on Key Personnel; Availability of Drivers."
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.
RISK MANAGEMENT AND INSURANCE/SAFETY
The primary risks associated with MTL's business are bodily injury and
property damage, workers' compensation claims and cargo loss and damage. MTL
maintains insurance against these risks and is subject to liability as a self-
insurer to
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the extent of the deductible under each policy. MTL currently maintains
liability insurance for bodily injury and property damage in the amount of
$100.0 million per incident, which is first dollar insurance coverage (in other
words, having no deductible) for a period of three years. There is no aggregate
limit on this coverage. MTL currently maintains first dollar workers'
compensation insurance coverage. MTL is self-insured for damage or loss to the
equipment it owns or leases, and for cargo losses.
MTL employs a safety and insurance staff of in excess of 30 professionals. In
addition, MTL employs specialists to perform compliance checks and conduct
safety tests throughout MTL's operations. MTL conducts a number of safety
programs designed to promote compliance with rules and regulations and to
reduce accidents and cargo claims. These programs include training programs,
driver recognition programs, an ongoing Substance Abuse Prevention Program,
driver safety meetings, distribution of safety bulletins to drivers, and
participation in national safety associations.
ENVIRONMENTAL MATTERS
MTL's and CLC's activities involve the handling, transportation, storage, and
disposal of bulk liquid chemicals, many of which are classified as hazardous
materials, hazardous substances, or hazardous wastes. The combined companies'
tank wash and terminal operations engage in the storage or discharge of
wastewater and stormwater that may contain hazardous substances, and from time
to time MTL and CLC store diesel fuel and other petroleum products at their
terminals. As such, MTL and CLC are subject to environmental, health and safety
laws and regulation by U.S. federal, state, local and Canadian government
authorities. Environmental laws and regulations are complex, change frequently
and have tended to become more stringent over time. There can be no assurance
that violations of such laws or regulations will not be identified or occur in
the future, or that such laws and regulations will not change in a manner that
could impose material costs on MTL or CLC.
MTL has environmental management programs that it carries out in conjunction
with its safety program. Facility managers are responsible for environmental
compliance, and for preparing semi-annual self-audit forms which are submitted
to the Vice President, Safety, Health & Environmental Administration as well as
to a regional environmental manager. The self-audits are required to address
operations, safety training and procedures, equipment and grounds maintenance,
emergency response capabilities, and wastewater management. MTL also contracts
with an independent environmental consulting firm that conducts periodic,
unscheduled, compliance assessments, which focus on conditions with the
potential to result in releases of hazardous substances or petroleum, and which
also include screening for evidence of past spills or releases. MTL's
relationship to its affiliates could, under certain circumstances, result in
MTL incurring liability for environmental
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contamination attributable to an affiliate's operations, although MTL has not
incurred any such derivative liability in the past. MTL's environmental
management program has recently been extended to its affiliates.
CLC's wholly-owned subsidiary, EnviroPower, Inc. ("EnviroPower"), is staffed
with environmental experts who manage CLC's environmental exposure relating to
historical operations and develop policies and procedures, including periodic
audits of CLC's terminals and tank cleaning facilities, in order to minimize
the existence of circumstances that could lead to future environmental
exposure. EnviroPower is also CLC's principal interface with the U.S.
Environmental Protection Agency ("EPA") and various state environmental
agencies.
As handlers of hazardous substances, MTL and CLC are potentially subject to
strict, joint and several liability for investigating and rectifying the
consequences of spills and other environmental releases of such substances
either under CERCLA or comparable state laws. From time to time, MTL has
incurred remedial costs and regulatory penalties with respect to chemical or
wastewater spills and releases at its facilities and, notwithstanding the
existence of its environmental management program, MTL cannot assure that such
obligations will not be incurred in the future, nor that such liabilities will
not result in a material adverse effect on MTL's financial condition or
results of operations or its business reputation. As the result of
environmental studies conducted at its facilities in conjunction with its
environmental management program, MTL has identified environmental
contamination at certain of such sites which will require remediation. While
MTL does not expect associated costs to be material, it cannot guarantee that
to be the case.
MTL has also been named a "potentially responsible party," or has otherwise
been alleged to have some level of responsibility, under CERCLA or similar
state laws for cleanup of off-site locations at which MTL's waste, or material
transported by MTL, has allegedly been disposed of. MTL has asserted defenses
to such actions and has not incurred significant liability in the CERCLA cases
settled to date. While MTL believes that it will not bear any material
liability in any current or future CERCLA matters, there can be no assurance
that MTL will not in the future incur material liability under CERCLA or
similar laws. See "Risk Factors--Environmental Risk Factors."
CLC is currently solely responsible for remediation of the following two
federal Superfund sites:
Bridgeport, New Jersey. During 1991, CLC 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 CLC to
remediate groundwater contamination. The Consent Decree required CLC to
undertake Remedial Design and Remedial Action ("RD/RA") related to the
groundwater
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operable unit of the cleanup. Costs associated with performing the RD/RA were
$443,000 in 1997.
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. In October 1998, the EPA
issued an administrative order that requires CLC to implement the EPA's
wetlands remedy. In April 1998, the federal and state natural resource damages
trustees indicated their intention to bring claims against CLC for natural
resource damages at the Bridgeport site. The trustees' have indicated that
their demand for natural resources damages is due to groundwater loss, land
use loss and oversight cost reimbursement. CLC is currently negotiating with
the state and federal trustees to enter a consent decree that will resolve the
natural resource damages claims. CLC has also entered an agreement in
principle to pay the EPA $3.6 million over a three year period for
reimbursement of the EPA's past costs in investigating and overseeing
activities at the Site. In addition, the EPA has investigated contamination in
site soils. No decision has been made as to the extent of soil remediation to
be required, if any.
CLC 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 at., 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 CLC 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 CLC and its
primary insurer settled all of CLC'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. In September 1997, the District Court issued an
order allocating liability among applicable policies. An appeal from the
allocation is currently pending before the Third Circuit. Since some of the
CLC's insurance carriers are insolvent, allocation of the costs among the
insurers will affect the amount of recovery CLC can expect to receive. CLC
anticipates that it will recover the majority of the costs associated with
remediation of the Bridgeport site, including attorneys fees and expenses,
from its insurance carriers.
West Caln Township, PA. The EPA has alleged that CLC disposed of Hazardous
Materials at the William Dick Lagoons Superfund Site in West Caln,
Pennsylvania. On October 10, 1995, CLC entered a Consent Decree with the EPA
which required CLC to (1) pay the EPA for installation of an alternate water
line to provide water to area residents; (2) perform an interim groundwater
remedy at the site; and (3) conduct soil remediation. U.S. v. Chemical Leaman
Tank Lines, Inc.,
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Civil Action No. 95-CV-4264 (RJB) (E.D. Pa.). CLC has paid all costs
associated with installation of the waterline. CLC is currently performing a
hydrogeologic study, and upon completion of the study will construct a
groundwater treatment plant to pump and treat groundwater. The EPA anticipates
that CLC will operate the plant for about five years, at which time the EPA
will evaluate groundwater conditions and determine whether a final groundwater
remedy is necessary. Soil remediation has not yet commenced because CLC is
awaiting the EPA's approval for certain items required for 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. From 1992 to date,
CLC has incurred costs of approximately $8,240,000 at such site. CLC projects
that it will incur approximately $7.1 million of additional costs in
connection with the Consent Decree, including additional costs to be incurred
in 1998.
Other Environmental Matters. CLC has been named as PRP under CERCLA and
similar state laws at approximately 40 former waste treatment and/or disposal
sites. In general, CLC is among several PRPs named at these sites. Based upon
information known at this time, CLC's involvement at these sites generally
arises from shipment of wastes by or for CLC 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 CLC's involvement and the
expected number of PRPs at these sites, CLC does not believe its liability at
most of these third party sites will be material. However, CLC's involvement
at some of the sites could amount to material liabilities, and there can be no
assurance that costs associated with these sites, individually or in the
aggregate, will not be material.
In October 1989, the New Jersey Department of Environmental Protection
(NJDEP) filed a claim against CLC and other defendants seeking reimbursement
of response costs for remediation of the Helen Kramer Landfill in Mantua, New
Jersey. This case has been consolidated with a similar case brought by the EPA
against many of the same defendants. The defendants in these cases have filed
third party claims against more than 250 third party defendants. In August
1998, the court entered three consent decrees whereby EPA, NJDEP and many of
the parties, including CLC, resolved the litigation and claims regarding the
site. The consent decrees require the settling defendants to make specified
payments over the next three years and to operate and maintain the site for
the next twenty six years.
CLC is also incurring expenses resulting from the remediation of certain
CLC-owned sites. In April 1997, CLC 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 CLC at its Tonawanda, New York Terminal. CLC has
indicated its willingness to perform a mutually acceptable Remedial
Investigation and Feasibility Study. In 1994, CLC entered into an
Administrative Consent Order ("ACO") with the West Virginia
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<PAGE>
Division of Environmental Protection ("DEP") to undertake the investigation
and remediation of a former lagoon at its former facility in Putnam County,
West Virginia. In accordance with the ACO, CLC 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.
In July and August 1998, during the course of its due diligence in
connection with the acquisition of CLC, MTL conducted invasive sampling at a
number of CLC's properties and discovered previously unidentified
environmental conditions. MTL also further quantified and evaluated certain
previously identified potential liabilities. CLC notified governmental
authorities of contamination at certain properties during the due diligence
period as required by applicable law. CLC is currently investigating and may
need to remediate certain of the other identified environmental conditions.
Based upon the limited invasive sampling and review of site information, CLC
has estimated potential costs associated with these identified environmental
conditions. CLC continues to monitor environmental conditions at all of its
properties, and management anticipates addressing environmental issues as they
arise in the future. CLC anticipates that it will continue to face
environmental liabilities and incur costs for environmental matters in
connection with its business operations and contractual obligations.
CLC has recorded total charges to income of $4.7 million, $2.3 million and
$2.4 million in 1997, 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.
CLC 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 $2.4
million, of which $1.65 million has been expended to date.
REGULATION
As a motor carrier, MTL is subject to regulation. There are additional
regulations specifically relating to the tank truck industry including testing
and specifications of equipment and product handling requirements. MTL may
transport most types of freight to and from any point in the United States
over any route selected by MTL. 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, MTL's tank wash
facilities are subject to stringent local, state and federal environmental
regulations.
The Federal Motor Carrier Act of 1980 (the "Federal Motor Carrier Act")
served to increase competition among motor carriers and limit the level of
regulation
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in the industry. The Federal Motor Carrier Act also enabled applicants to
obtain Interstate Commerce Commission ("ICC") operating authority more readily
and allowed interstate motor carriers such as MTL greater freedom to change
their rates each year without ICC approval. The law also removed many route
and commodity restrictions on the transportation of freight. A series of
federal acts, including the Negotiated Rates Act of 1993, the Trucking
Industry Regulatory Reform Act of 1994 and the ICC Termination Act of 1995,
further reduced regulation applicable to interstate operations of motor
carriers such as MTL, and resulted in transfer of interstate motor carrier
registration responsibility to the FHWA of DOT. On February 13, 1998, FHWA
published proposed new rules governing registration to operate by interstate
motor carriers. That proposal may lead to revised procedures for motor
carriers like MTL to register to conduct interstate motor carrier operations.
The form of such revised procedures presently cannot be predicted by MTL. See
"Risk Factors--Regulation."
Interstate motor carrier operations are subject to safety requirements
prescribed by the DOT. To a large degree, intrastate motor carrier operations
are subject to safety and hazardous material transportation regulations that
mirror federal regulations. Such matters as weight and dimension of equipment
are also subject to federal and state regulations. DOT regulations mandate
drug testing of drivers. To date, the DOT's national commercial driver's
license and drug testing requirements have not adversely affected the
availability to MTL of qualified drivers. Alcohol testing rules were adopted
by the DOT in February 1994 and became effective in January 1995 for employers
with 50 or more drivers. These rules require certain tests for alcohol levels
in drivers and other safety personnel. MTL does not believe the rules will
adversely affect the availability of qualified drivers.
Title VI of The Federal Aviation Administration Authorization Act of 1994,
which became effective on January 1, 1995, largely deregulated intrastate
transportation by motor carriers. This Act generally prohibits individual
states, political subdivisions thereof and combinations of states from
regulating price, entry, routes or service levels of most motor carriers.
However, the states retained the right to continue to require certification of
carriers, based upon two primary fitness criteria--safety and insurance--and
retained certain other limited regulatory rights. Prior to January 1, 1995,
MTL held intra-state authority in several states. Since that date, MTL has
either been "grandfathered in" or has obtained the necessary certification to
continue to operate in those states. In states in which MTL was not previously
authorized to operate, it has obtained certificates (or permits) allowing it
to operate or is in the process of obtaining said certificates in order of
importance to MTL.
From time to time, various legislative proposals are introduced including
proposals to increase federal, state, or local taxes, including taxes on motor
fuels. MTL cannot predict whether, or in what form, any increase in such taxes
applicable to MTL will be enacted.
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SEASONALITY
The business of MTL 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. MTL'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.
LEGAL PROCEEDINGS
In addition to those items disclosed under "Environmental Matters," MTL from
time to time is involved in routine litigation incidental to the conduct of
its business. MTL believes that no litigation pending against it, if adversely
determined, would have a material adverse effect on its consolidated financial
position or results of operations.
On August 28, 1998, BMI Transportation, Inc., RBM Transport, Inc. RBM-Va.
Transport, Inc. and Bulk Storage, Inc. (collectively, the "Plaintiffs") filed
suit against CLC in the United States Bankruptcy Court for the Southern
District of New York. The Plaintiffs allege that CLC owes them $1,104,671.00,
plus interest, which represents the remainder of the $1,500,000.00 hold back
of the purchase price CLC paid in connection with its acquisition of the
majority of the assets of Fleet from the Plaintiffs on June 28, 1996. In
addition to the alleged damages, the Plaintiffs are also seeking punitive
damages, attorneys fees and costs. CLC has filed an answer denying these
claims, and fully intends to defend itself in the litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the directors and
executive officers of MTL following the MTL Transactions and the CLC
Transactions:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH MTL
- ---- --- -------------------------------------------
<S> <C> <C>
Director, Chairman of the Board, President
Charles J. O'Brien............... 60 and Chief Executive Officer
Director, Senior Vice President, Treasurer
Richard J. Brandewie............. 43 and Chief Financial Officer
Director, President of Montgomery Tank
Marvin E. Sexton................. 54 Lines
Joshua J. Harris................. 33 Director
Michael D. Weiner................ 45 Director
Robert A. Katz................... 31 Director
Marc J. Rowan.................... 35 Director
John H. Kissick.................. 56 Director
</TABLE>
The directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Board of Directors.
CHARLES J. O'BRIEN, JR. joined MTL in 1989 in connection with the
acquisition of Quality-O'Boyle, Inc., at which time he was appointed as MTL's
Chief Operating Officer and elected to the Board of Directors. Since 1991, he
has served as MTL's President and Chief Executive Officer. On September 30,
1998, he was appointed as MTL's Chairman of the Board. Prior to joining MTL,
he was a controlling shareholder of Quality-O'Boyle, Inc. from January 1977 to
February 1989. Prior to his association with Quality-O'Boyle, Inc., he held
various positions with Matlack Systems, Inc. from April 1962 through December
1976. He served as Matlack's Chief Executive Officer from 1969 to 1976 and
served as a director of Rollins International, Inc., Matlack's parent company.
RICHARD J. BRANDEWIE has been employed by MTL since June 1992 as Chief
Financial Officer and Treasurer, and in 1996 he was appointed Senior Vice
President of Finance. He served as a director of MTL from 1988 to 1992. Prior
to joining MTL, he served as a General Partner of South Atlantic Venture Fund
I & II, Limited Partnerships where he was employed from November 1985 through
June 1992. From June 1980 through November 1985, he served concurrently as
Vice President of Doan Resources Venture Fund and as General Partner of
Michigan Investment Fund and MBW Venture Partners. Prior to his venture
capital experience, he served as an accountant and financial analyst for the
Ford Motor Company from 1977 to 1979. Mr. Brandewie became a director of MTL
in June 1998.
MARVIN E. SEXTON joined MTL in September 1996 as President of Montgomery
Tank Lines, one of MTL's principal operating subsidiaries. Mr. Sexton joined
MTL from BET plc., the former parent company of United Transport America,
where he
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<PAGE>
served as the Sector Director/Distribution North America. Mr. Sexton was
formerly President of United Transport America. The United Transport group of
companies includes: DSI Transport, Redwing Carriers and Ward Transport. He
joined DSI Transport in 1974 and subsequently became its President and Chief
Executive Officer in 1985. He currently serves as the Chairman of the Board of
Directors of the National Tank Truck Carriers, Inc. and is a member of the
Association of the Chemical Industry of Texas and the National Council of
Physical Distribution. Mr. Sexton became a director of MTL in June 1998.
JOSHUA J. HARRIS is a principal of Apollo and has served as an officer of
certain affiliates of Apollo since 1990. Prior to that time, Mr. Harris was a
member of the Mergers and Acquisitions Department of Drexel Burnham Lambert
Incorporated. Mr. Harris is also a director of Converse Inc., Florsheim Group
Inc., NRT, Incorporated, SMT Health Services Inc., Breuners Home Furnishings
Corporation and Alliance Imaging, Inc. Mr. Harris became a director of MTL in
June 1998.
MICHAEL D. WEINER is a principal of Apollo and has served as an officer of
certain affiliates of Apollo and general counsel since 1992. Prior to 1992,
Mr. Weiner was a partner in the law firm of Morgan, Lewis & Bockius LLP,
specializing in securities law, public and private financings, and corporate
and commercial transactions. Mr. Weiner is also a director of Converse Inc.,
Alliance Imaging, Inc., NRT Incorporated, Continental Graphics Holdings, Inc.
and Florsheim Group Inc. Mr. Weiner became a director of MTL in June 1998.
ROBERT A. KATZ is a principal of Apollo and has served as an officer of
certain affiliates of Apollo since 1990. Prior to that time, Mr. Katz was
associated with the Special Restructuring Group of Smith Barney Harris & Upham
Inc. and was a member of the Mergers & Acquisitions Department of Drexel
Burnham Lambert Incorporated. Mr. Katz is also a director of Vail Resorts,
Inc., Salant Corporation, Aris Industries, Inc. and Alliance Imaging, Inc. Mr.
Katz became a director of MTL in June 1998.
MARC J. ROWAN is a principal of Apollo and has served as an officer of
certain affiliates of Apollo since 1990. From 1985 until 1990, Mr. Rowan was
with Drexel Burnham Lambert Incorporated, most recently as Vice President with
responsibilities in high yield financing, transaction idea generation and
merger structure and negotiation. Mr. Rowan is also a director of Vail
Resorts, Inc., Samsonite Corporation and NRT Incorporated. Mr. Rowan became a
director of MTL in June 1998.
JOHN H. KISSICK is a principal of Apollo and has served as an officer of
certain affiliates of Apollo since 1991. Mr. Kissick serves on the Investors
Council of each of the Apollo Funds. From 1990 to 1991, Mr. Kissick was
consultant with Kissick & Associates, an investment advisory firm. Prior to
1990, Mr. Kissick served as a Senior Executive Vice President of Drexel
Burnham Lambert Incorporated, where he
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<PAGE>
began work in 1975, heading its Corporate Finance and High Yield Bond
Departments. Mr. Kissick is also a director of Mariner Post Acute Network,
Continental Graphics Holdings Inc., Converse Inc. and Florsheim Group, Inc.
Mr. Kissick became a director in June 1998.
DIRECTOR'S COMPENSATION
Directors of MTL are not compensated for their service as directors.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation paid or accrued by MTL
for services rendered during the year ended December 31, 1997, by the
President and Chief Executive Officer, the Chairman of the Board and the Chief
Financial Officer of MTL (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL SECURITIES ALL
COMPENSATION UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMP.(2)
- --------------------------- ---- --------- ------- ------------ --------
<S> <C> <C> <C> <C> <C>
Charles J. O'Brien, Jr.
President and Chief Executive
Officer.......................... 1997 $ 193,937 $74,446 -- $ 8,696
1996 188,262 71,362 -- 9,913
1995 183,074 64,214 -- 11,136
Elton E. Babbitt (1)
Chairman of the Board............ 1997 188,353 71,335 -- 3,946
1996 182,885 71,093 -- 4,112
1995 177,749 64,184 -- 5,180
Richard J. Brandewie
Senior Vice President, Treasurer
and Chief Financial Officer...... 1997 145,402 55,332 -- 8,696
1996 122,489 44,187 100,000 9,913
1995 112,846 40,755 -- 11,146
</TABLE>
- ---------
(1) Elton E. Babbitt retired as Chairman of the Board of MTL on September 30,
1998.
(2) Amount shown represents contributions by MTL to MTL's profit sharing plan
on behalf of such officers.
MTL maintains various employee benefit and compensation plans, including an
incentive bonus plan and 401(k) savings plan.
OPTION GRANTS IN LAST FISCAL YEAR
No options were granted to any of the Named Executive Officers in 1997.
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<PAGE>
YEAR-END OPTION VALUES
The following sets forth information concerning the value of stock options
in 1997. No stock options were exercised in 1997.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Charles J. O'Brien, Jr..... 17,244 11,496 $ 176,751 $117,834
Richard J. Brandewie....... 78,619 85,746 $1,178,345 $618,897
</TABLE>
NEW STOCK OPTION PLAN
MTL adopted an employee stock option plan (the "New Stock Option Plan")
pursuant to which a total of 222,222 shares of MTL Common Stock will be
available for grant. Fifty percent of each option granted (each, a "New
Option") on June 9, 1998 (the "Effective Time") will vest in equal increments
over four years. The remaining fifty percent of each New Option will vest in
nine years, subject to acceleration if certain per-share equity value targets
are achieved or, in the event of a sale of MTL, if certain per share
consideration targets are achieved. Vesting of the New Options occurs only
during an employee's term of employment. The New Options will become fully
vested in the event of a termination of employment without "cause" or for
"good reason" within six months following a sale of MTL. The exercise price
for the New Options is $40.00 per share and the New Options will expire ten
years from the date of grant. See "--Employment and Related Agreements."
Options granted after the Effective Time shall vest as determined by a
committee of MTL's Board of Directors.
EMPLOYMENT AND RELATED AGREEMENTS
Employment Agreements. Montgomery Tank Lines, which, prior to the CLC Merger
was the principal operating subsidiary of MTL, entered into employment
agreements with the following executive officers: Charles J. O'Brien, Jr.,
Richard J. Brandewie and Marvin Sexton (each an "Employment Agreement" and
collectively, the "Employment Agreements"). Each Employment Agreement provides
for a two-year term of service, with an automatic one-year extension on each
June 9th, unless Montgomery Tank Lines or the executive officer gives notice
that the term will not be so extended. The Employment Agreements provide to
each of the executive officers an annual base salary of not less than
$192,238.80 and permit each executive to earn an annual bonus of up to 42.0%
of his annual base salary if certain performance standards are achieved, and
an additional bonus of up to 18.0% of his annual base salary relating to
extraordinary performance by Montgomery Tank Lines and such executive. Such
bonus plan will be administered by Montgomery Tank Lines' compensation
committee. The Employment Agreements also provide for certain severance
payments to be made if the employment of any of such executives is terminated
without "cause" (as defined in the Employment Agreements) or if such executive
resigns after the occurrence of one of a number of specified changes in such
executive's employment, including a material diminution by Montgomery Tank
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<PAGE>
Lines of the executive's duties and responsibilities, a material breach by
Montgomery Tank Lines of its compensation and benefit obligations or an
involuntary relocation by more than 50 miles from Plant City, Florida (each a
termination for "good reason"). Under such circumstances, such executive would
be entitled to receive his base salary for the remainder of the term of his
employment, a pro rated bonus and continued medical and other benefits. In
addition, each of the Employment Agreements grants to each such executive
options to purchase 22,000 shares of MTL under the New Stock Option Plan. See
"Management--New Stock Option Plan."
Consulting Agreement. Elton E. Babbit (the "Consultant") entered into a
Consulting Agreement (the "Consulting Agreement") with Montgomery Tank Lines
pursuant to which the Consultant has agreed to serve as an advisor and
consultant to MTL in connection with MTL's business operations. The Consulting
Agreement provides for a term of service commencing on June 9, 1998 and
continuing through December 31, 1999, unless earlier terminated as provided
therein. Pursuant to the Consulting Agreement, Montgomery Tank Lines paid the
Consultant for his services a base consulting fee at the rate of $20,000 per
month until September 30, 1998. Thereafter, until the expiration of the
Consulting Agreement, Montgomery Tank Lines shall pay the Consultant a base
consulting fee at the rate of $5,000 per month. Montgomery Tank Lines will
also reimburse the Consultant for all of the Consultant's reasonable out-of-
pocket business expenses incurred by him in connection with the performance of
his services thereunder.
Shareholders' Agreement. Elton E. Babbitt, Charles J. O'Brien, Jr., Richard
J. Brandewie and Marvin E. Sexton have entered into a Shareholders' Agreement
with Apollo (the "Shareholders' Agreement") governing certain aspects of the
relationship among such shareholders and MTL. The Shareholders' Agreement
contains, among other matters, (1) a provision restricting the rights of Elton
E. Babbitt to transfer his shares of MTL Common Stock (subject to certain
permitted or required transfers and a right of first refusal in favor of
Apollo), (2) certain registration rights in the event MTL effects a
registration of its securities; (3) certain preemptive rights with respect to
the sale of MTL Common Stock and equity securities convertible into MTL Common
Stock; and (4) certain rights of Charles J. O'Brien, Jr., if he is employed by
MTL at the fourth anniversary of the Effective Time, to cause MTL to purchase
from him such number of shares with a value equal to the implied value of his
investment in MTL Common Stock at the Effective Time.
The Shareholders' Agreement became effective on June 9, 1998 and will
terminate upon the earlier of (a) the tenth anniversary thereof and (b) at
such time as MTL is a public company with equity securities listed on a
national securities exchange or publicly traded in the over-the-counter
market; provided, however, that certain transfer restrictions and registration
rights will survive notwithstanding MTL being a public company.
Pursuant to the Shareholders' Agreement, Apollo is entitled to a transaction
fee of up to 1.0% of the value of each transaction entered into by MTL, as
determined in
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the sole discretion of Apollo Management. Such fee is in addition to the
management fees payable to Apollo Management as set forth in the Management
Agreement between Apollo Management and MTL described below.
Non-Competition Agreements. Each of Elton E. Babbitt and Gordon Babbitt, a
shareholder holding an 8.25% interest in MTL, has entered into a Non-
Competition Agreement with MTL that contains, among other things, a covenant
not to compete with MTL. Pursuant to such covenant, Elton E. Babbitt has
agreed that he will not, for a period of five years from the Effective Time,
engage in the bulk transportation services business or in any related business
(the "BTS Business") within any geographic area in which any member of the MTL
Group (as defined in the Non-Competition Agreement) conducts its business.
Ownership of up to 2.0% of a publicly traded enterprise engaged in a BTS
Business, without otherwise participating in such enterprise, would not be a
violation of such covenant not to compete. Gordon Babbitt has agreed that he
will not, for a period of three years from June 9, 1998, engage in the for-
hire, common carrier tank truck transportation business (the "Business")
within the United States and Canada. Ownership of up to 2.0% of a publicly
traded enterprise engaged in a Business, without otherwise participating in
such enterprise, would not be a violation of such covenant not to compete.
In addition, Elton E. Babbitt and Gordon Babbitt have each agreed (for a
period of five years from the Effective Time with respect to Elton E. Babbitt,
and for a period of three years from the Effective Time with respect to Gordon
Babbitt) not to request, induce, attempt to influence or have any other
business contact with (1) any distributor or supplier of goods or services to
any member of the MTL Group to curtail or cancel any business they may
transact with any member of the MTL Group, (2) any customers of any member of
the MTL Group that have done business with or potential customers which have
been in contact with any member of the MTL Group to curtail or cancel any
business they may transact with any member of the MTL Group, (3) any employee
of any member of the MTL Group to terminate his employment with such member of
the MTL Group or (4) any governmental entity or regulatory authority to
terminate, revoke or materially and adversely alter or impair any license,
authority or permit held, owned, used or reserved for the MTL Group.
Management Agreement between Apollo and MTL. MTL and Apollo Management have
entered into a Management Agreement whereby MTL appointed Apollo Management
following the consummation of the Merger to provide financial and strategic
advice to MTL. Pursuant to the terms of the Management Agreement, Apollo
Management has agreed at such time to provide financial and strategic services
to MTL as reasonably requested by MTL's Board of Directors. As consideration
for services to be rendered under the Management Agreement, Apollo received an
initial fee of $2.0 million on June 9, 1998 and thereafter will receive an
annual fee of $500,000 until termination of the Management Agreement. The
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Management Agreement may be terminated upon 30 days' written notice by Apollo
Management or MTL to the other party thereto. See "Certain Relationships and
Related Transactions."
Marvin Sexton Limited Recourse Secured Promissory Note and Pledge
Agreement. In connection with the completion of the MTL Transactions, MTL made
a limited recourse secured loan to Marvin Sexton in the amount of $400,000.
The loan is secured by a pledge by Mr. Sexton of all of his MTL Common Stock
and options to purchase MTL Common Stock. The principal amount of the loan is
due on June 9, 2006, with mandatory pre-payments due upon, and to the extent
of, the receipt of after-tax proceeds from the sale of Mr. Sexton's pledged
securities.
The foregoing discussion of employment and related agreements highlights the
material terms of such agreements, but does not purport to be complete.
Reference is made to all of the terms of such agreements, each of which has
been filed as exhibits to the Registration Statement, of which this Prospectus
forms a part.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the MTL Common Stock as of September 30, 1998, by (1) each person
known by MTL to be a beneficial owner of more than 5.0% of the outstanding MTL
Common Stock, (2) beneficial ownership of MTL Common Stock by each director
and named executive officer and (3) all directors and executive officers as a
group:
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE
NAME OF BENEFICIAL OWNER COMMON STOCK OF CLASS
- ------------------------ ------------ ----------
<S> <C> <C>
Elton E. Babbitt(/1/)................................. 66,892 3.3%
Richard J. Brandewie(/1/)............................. 40,541 2.0%
Charles J. O'Brien, Jr.(/1/).......................... 30,239 1.5%
Marvin Sexton(/1/).................................... 35,135 1.8%
Joshua J. Harris(/2/)(/3/)............................ -- --
Michael D. Weiner(/2/)(/3/)........................... -- --
Robert A. Katz(/2/)(/3/).............................. -- --
Marc J. Rowan(/2/)(/3/)............................... -- --
John H. Kissick(/2/)(/3/)............................. -- --
All executive officers and directors as a group (9 172,807 8.6%
persons).............................................
Apollo Investment Fund III, L.P.(/4/)................. 1,714,470 85.7%
c/o Apollo Advisors II, L.P.
Two Manhattanville Road
Purchase, New York 10577
</TABLE>
- ---------
(/1/) The business address for Messrs. Babbitt, Brandewie, O'Brien and Sexton
is MTL Inc., 3108 Central Drive, Plant City, FL 33567.
(/2/) The business address for Messrs. Harris, Weiner, Katz, Rowan and Kissick
is Apollo Management, L.P., 1301 Avenue of the Americas, New York, NY
10019.
(/3/) Messrs. Harris, Weiner, Katz, Rowan and Kissick are each principals and
officers of certain affiliates of Apollo. Although each of Messrs.
Harris, Weiner, Katz, Rowan and Kissick may be deemed to beneficially
own shares owned by Apollo, each such person disclaims beneficial
ownership of any such shares.
(/4/) Includes shares owned by Apollo Overseas Partners III, L.P., a Delaware
limited partnership, and Apollo (U.K.) Partners III, L.P., a limited
partnership organized under the laws of the United Kingdom.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
A company owned by the children of Elton Babbitt, MTL's former Chairman of
the Board (the "Related Corporation") entered into a service agreement with
MTL, pursuant to which the Related Corporation agreed to supply design,
engineering, transloading, intermodal and other services to MTL for a monthly
fee of $11,670 per month. Because of their specialized nature, these are
services MTL would be unable to provide to its customers on its own. The
agreement is automatically renewable for one year terms unless canceled upon
prescribed notice. Management believes that the terms of this service
agreement are no less favorable than could be obtained from unaffiliated
parties.
During 1997, MTL purchased $6.6 million worth of trailer equipment from the
Related Corporation. The Related Corporation performed repair and maintenance
services for MTL totaling $347,000 during 1997. Management believes that the
purchase price for the trailers and cost of the repair services are no greater
than those charged by the Related Corporation to non-affiliated purchasers and
users.
In addition to the purchase of trailers and repair work, MTL and the Related
Corporation have engaged in various transactions involving (1) tire purchases
and (2) facility rentals. Because of its ability to buy tires in volume, MTL
included in its purchase orders tires on behalf of the Related Corporation.
The Related Corporation leases a manufacturing and repair facility from MTL
for a monthly rental of $5,000. The lease expires April 1, 1999. As a result
of these transactions, during the year ended December 31, 1997, the amount
owed to MTL by the Related Corporation ranged from a high of $82,540 in
February to a low of $0 in December. At December 31, 1997, there were no
amounts owed to MTL by the Related Corporation. Upon consummation of the MTL
Transactions, MTL became subject to limitations under the Indenture with
respect to these transactions. See "Description of Notes--Limitations on
Transactions with Affiliates."
In March 1994, MTL entered into a limited partnership (the "Limited
Partnership") with Gordon Babbitt, an unaffiliated corporation (each of MTL,
Gordon Babbitt and such corporation, a "limited partner") and another
corporation (the "general partner") owned by an individual employed by the
Related Corporation. The Limited Partnership provides transportation services
for bulk liquid commodities between Florida and Puerto Rico. Each limited
partner has contributed $4,950 to the Limited Partnership for a 33.0%
partnership interest and the general partner holds the remaining 1%
partnership interest. The three limited partners financed, on a loan basis,
$1.7 million of the initial operations of the Limited Partnership. MTL
financed approximately $700,000 of the $1.7 million with cash or equipment.
Such amount financed by MTL, in excess of the amounts financed by the other
limited partners, was secured by the equipment owned by the Limited
Partnership and guaranteed by the other limited partners. Distributions to the
partners are made in accordance with their ownership interest in the Limited
Partnership once
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all loans have been repaid to the limited partners. As of December 31, 1997,
all debt was repaid to MTL by the Limited Partnership.
A corporation owned by Mr. Charles J. O'Brien, III, son of Charles J.
O'Brien, Jr., the Chairman of the Board, President and Chief Executive Officer
of MTL, is an affiliate of MTL which operates two terminals of MTL. The terms
of the agreement with this corporation are the same as those entered into with
other affiliates. Additionally, Mr. O'Brien, III, owns a company which
provided administrative services to MTL. The total paid for such
administrative services in 1997 was $113,820. As of September 30, 1997 such
administrative services were no longer provided to MTL by such corporation.
For a description of certain management and other agreements in connection
with the MTL Transactions and the CLC Transactions, see "Management--
Employment and Related Agreements."
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DESCRIPTION OF CAPITAL STOCK
MTL has authorized a total of 20,000,000 shares of capital stock of which
15,000,000 shares, par value $.01 per share are of a class designated as
"Common Stock" and 5,000,000 shares, par value $.01 per share, are of a class
designated as "Preferred Stock."
Each share of Common Stock entitles the holder thereof to one vote at every
annual or special meeting of the stockholders of MTL. There is no cumulative
voting.
Shares of Preferred Stock may be issued from time to time, in one or more
series, with such designation, assigned values, preferences and relative,
participating, optional or other rights, qualifications, limitations or
restrictions thereof as the Board of Directors of MTL (the "Board of
Directors") from time to time may adopt by resolution. Each series shall
consist of such number of shares as shall be stated and expressed in such
resolution or resolutions providing for the issuance of the stock of such
series. All shares of any one series of Preferred Stock shall be identical.
No holder of shares of MTL shall have any preferential or preemptive right
to subscribe for, purchase or receive any share of stock of MTL, any options
or warrants for such shares, any rights to subscribe to or purchase such
shares or any securities which may at any time or from time to time be issued,
sold or offered for sale by MTL.
Pursuant to the authority granted in MTL's Articles of Incorporation, the
Board of Directors has authorized the issuance of two series of Preferred
Stock, (1) 8% Redeemable Preferred Stock and (2) 13.75% Senior Exchangeable
Preferred Stock. The designation, assigned values, preferences and relative,
participating, optional or other rights, qualifications, limitations or
restrictions on such Preferred Stock are described in full in their respective
Articles of Amendment. The following description is a summary of the material
terms of the two series of Preferred Stock, but does not restate those
agreements in their entirety. You should read all of the provisions of the
Articles of Amendment governing each series of Preferred Stock, including the
definitions of certain terms therein, and MTL's Articles of Incorporation,
copies of which are attached as exhibits to the Registration Statement, of
which this Prospectus forms a part.
COMMON STOCK
Of MTL's 15,000,000 authorized shares of Common Stock 2,000,000 shares,
which were issued in connection with the MTL Transactions and the CLC
Transactions, are outstanding. MTL's Common Stock is not registered.
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8% REDEEMABLE PREFERRED STOCK
100,000 of MTL's 5,000,000 authorized shares of Preferred Stock are
designated "8% Redeemable Preferred Stock" (the "Redeemable Preferred Stock").
50,000 of such shares of Redeemable Preferred Stock were issued on August 28,
1998 to certain former shareholders of CLC in connection with the CLC
Transactions, and the remainder have been reserved for future issuance by MTL
as payment-in-kind dividends. Except as otherwise required by law, or as
stated below, shares of Redeemable Preferred Stock are not entitled to voting
rights.
Dividends. Each holder of shares of outstanding Redeemable Preferred Stock
on the applicable dividend payment date (including all shares issued at the
closing of the CLC Merger and all shares issued as payment-in-kind dividends)
is entitled to receive when and as declared by the Board of Directors,
dividends on such shares of Redeemable Preferred Stock at the rate of 8.0% per
annum on the stated value of $100.00 per share (the "Stated Value"). Dividends
shall be payable annually in arrears on December 31 of each year. MTL may
choose to pay dividends in kind from the date of issuance of the Redeemable
Preferred Stock until the third anniversary of such date, and thereafter in
cash. Dividends on the Redeemable Preferred Stock are payable in priority over
dividends on any class of preferred stock of MTL, the terms of which do not
expressly provide that it ranks senior or on a parity with the Redeemable
Preferred Stock as to dividend rights and rights upon liquidation, winding-up
and dissolution of MTL (collectively referred to, together with all classes of
common stock of MTL, as "Junior Stock"). Dividends shall be cumulative.
Restrictions in Respect of Junior Stock. Except as set forth below, or to
the extent approval is provided in writing by the holders of a majority of the
outstanding shares of Redeemable Preferred Stock (voting as a separate class),
unless MTL has paid or simultaneously pays all accrued dividends that are due
and payable in respect of the Redeemable Preferred Stock, MTL will not declare
or pay any dividends on its Junior Stock, except that MTL may: (1) effect a
stock split of, or declare or pay any dividend on, the Junior Stock consisting
solely of additional shares of Junior Stock; (2) comply with any specific
provision of the terms of any subsequently designated series of Preferred
Stock approved by the holders of the Redeemable Preferred Stock as provided
for herein; or (3) redeem or repurchase any stock of any director, officer,
employee, consultant or other person or entity, pursuant to a stock repurchase
agreement or stock restriction agreement approved by the Board of Directors
under which MTL has the right or obligation to repurchase (in the event of
death, termination of employment or of the consulting arrangement, or other
similar discontinuation of a business relationship) vested shares at no more
than their fair market value and unvested shares at no more than their initial
issuance price.
Liquidation, Dissolution or Winding Up. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of MTL, the holders of
Redeemable Preferred Stock will be paid after the holders of any stock ranking
senior to it are paid in accordance with the terms of such senior stock, but
prior
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to any payments made to holders of Junior Stock. Holders of the Redeemable
Preferred Stock, as well as holders of any stock ranking on parity with the
Redeemable Preferred Stock (the "Pari Passu Stock"), will be paid first out of
the assets of MTL available for distribution, whether such assets are capital,
surplus or earnings ("Available Assets"). Holders of Redeemable Preferred
Stock will receive an amount in respect of each share of Redeemable Preferred
Stock equal to the Redemption Price (as defined below).
If, upon liquidation, dissolution or winding up of MTL, the Available Assets
are not enough to pay the holders of Redeemable Preferred Stock and Pari Passu
Stock in full, such holders shall share ratably in any distribution of the
Available Assets in proportion to the respective liquidation preference
amounts to which each is entitled, until such liquidation preference amounts
are paid in full.
Optional Redemption. Shares of Redeemable Preferred Stock will be
redeemable, in whole or in part, at the option of MTL, for a redemption price
(the "Redemption Price") equal to (i) the Stated Value multiplied by the
amount set forth below under the applicable column entitled "Premium to Stated
Value" determined based on the actual redemption date as set forth below under
the column entitled "Day Following Closing Date," plus (ii) accrued and unpaid
dividends:
<TABLE>
<CAPTION>
PREMIUM TO
DAY FOLLOWING CLOSING DATE STATED VALUE
-------------------------- ------------
<S> <C>
From first day to last day of 42nd month........................ 100%
From first day of 43rd month to last day of 54th month.......... 105%
From first day of 54th month to last day of 66th month.......... 110%
From first day of 66th month to last day of 78th month.......... 115%
Thereafter...................................................... 120%
</TABLE>
Mandatory Redemption; Sale Event; IPO. Subject to MTL having funds legally
available for such purpose, MTL shall redeem all of the shares of Redeemable
Preferred Stock on the ninth anniversary of the date of issuance of the
Redeemable Preferred Stock. The price payable for any redemption shall be the
Redemption Price for all shares being redeemed, plus accrued and unpaid
dividends thereon. Subject to MTL having funds legally available for such
purpose, upon the consummation of certain sales of capital stock, MTL shall
redeem all of the shares of Redeemable Preferred Stock. The price payable for
any redemption shall be the Redemption Price for all shares being redeemed.
Subject to MTL having funds legally available for such purpose, upon the
consummation of certain initial public offerings, MTL shall use 50% of the
initial public offering proceeds to redeem shares of Redeemable Preferred
Stock. Such redemption shall take place within 30 days following the
consummation of an initial public offering.
Exchange; Exchange Indenture. The outstanding shares of Redeemable Preferred
Stock are exchangeable, in whole but not in part, at the option of MTL, at any
time for the MTL's Exchange Debentures, ("Exchange Debentures") containing an
interest rate and maturity comparable to the dividend and maturity provisions
of
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the Redeemable Preferred Stock. However, any such exchange may only be made if
there is no legal impediment to such exchange. The exchange rate is $1.00
principal amount of Exchange Debentures for each $1.00 of Stated Value of
Redeemable Preferred Stock. The Exchange Debentures will be issued in
principal amounts of $100 and integral multiples thereof to the extent
possible. MTL's Exchange Debentures are governed by an indenture, which will
be in a form customary for an indenture of its type and reasonably acceptable
to the holders of a majority of the outstanding shares of Redeemable Preferred
Stock.
No Exchange in Certain Cases. Notwithstanding the foregoing, MTL will not be
entitled or required to exchange the Redeemable Preferred Stock for Exchange
Debentures if (1) such exchange, any term or provision of the indenture
governing the Exchange Debentures (the "Exchange Indenture") or the Exchange
Debentures, or the performance of MTL's obligations under the Exchange
Indenture or the Exchange Debentures, will materially violate or conflict with
any applicable law or agreement or instrument then binding on MTL, including
agreements with the holders of indebtedness of MTL or its subsidiaries, or (2)
if, at the time of such exchange MTL is insolvent or would be rendered
insolvent by such exchange.
Forfeiture/Reduction of Stated Value. The Stated Value of outstanding shares
issued as payment-in-kind dividends held by each holder will be reduced from
time to time as provided in the Articles of Amendment.
Restrictions on Transfer. Shares of Redeemable Preferred Stock may not be
sold or otherwise transferred without the prior written consent of MTL, other
than to family members of the holder thereof and to trusts for the purpose of
estate planning (provided that any such transfer shall not, in any way, limit
MTL's rights thereunder). Any sale or transfer made in violation of this
paragraph shall be void and MTL and its agents shall have no obligation to
record any such transfer on its books.
13.75% SENIOR EXCHANGEABLE PREFERRED STOCK
250,000 of MTL's 5,000,000 shares of Preferred Stock are designated "13.75%
Senior Exchangeable Preferred Stock" ("Exchangeable Preferred Stock"). 105,000
shares of the Exchangeable Preferred Stock were issued to Apollo and an
affiliate of BT Alex. Brown Incorporated, one of the initial purchasers of the
Notes, in connection with the CLC Transactions, with an aggregate of 145,000
additional shares reserved for affiliates issuance. The liquidation preference
of the Exchangeable Preferred Stock will be $100.00 per share.
Rank. The Exchangeable Preferred Stock, with respect to dividend rights and
rights upon liquidation, winding-up and dissolution of MTL, ranks (1) senior
to all classes of Common Stock of MTL and to each other class of preferred
stock of MTL established by the Board of Directors, the terms of which do not
expressly provide that it ranks senior or on a parity with the Exchangeable
Preferred Stock as to
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dividend rights and rights upon liquidation, winding-up and dissolution of MTL
(collectively referred to, together with all classes of common stock of MTL,
as "Junior Stock"); and (2) subject to certain conditions, on a parity with
each other class of preferred stock of MTL established hereafter by the Board
of Directors, the terms of which expressly provide that such class or series
will rank on a parity with the Exchangeable Preferred Stock as to dividend
rights and rights upon liquidation, winding-up and dissolution (collectively
referred to as "Parity Stock");
Dividends. The holders of the outstanding shares of Exchangeable Preferred
Stock will be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available therefor, distributions in the form
of cash dividends on each share of Exchangeable Preferred Stock, at a rate per
annum equal to 13.75% of the liquidation preference per share of the
Exchangeable Preferred Stock. Dividends are paid quarterly. All dividends
shall be cumulative, whether or not earned or declared, on a daily basis from
the date of issuance of Exchangeable Preferred Stock and will be payable
quarterly in arrears on each date on which dividends shall be payable (a
"Dividend Payment Date"), commencing on December 15, 1998, to holders of
record on each Dividend Record Date immediately preceding the relevant
Dividend Payment Date, provided that if any dividend payable on any Dividend
Payment Date on or before September 15, 2001 is not paid in full in cash on
such Dividend Payment Date, the amount payable as dividends on such Dividend
Payment Date that is not paid in cash on such Dividend Payment Date shall, at
the option of MTL, be paid in additional shares of Exchangeable Preferred
Stock (including fractional shares) (calculated by dividing (x) the amount of
the cash dividend payable to each holder of record of the Exchangeable
Preferred Stock on the basis of all shares held of record by such holder,
whether evidenced by one or more certificates, by (y) $100.00), on such
Dividend Payment Date and will be deemed paid in full and shall not
accumulate. After September 15, 2001, all dividends will be paid in cash.
Nothing shall in any way or under any circumstances be construed or deemed to
require the Board of Directors to declare, or MTL to pay or set apart for
payment, any dividends on shares of the Exchangeable Preferred Stock at any
time.
Liquidation Preference. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of MTL, the holders of
shares of Exchangeable Preferred Stock then outstanding will be entitled to be
paid, out of the assets of MTL available for distribution to its shareholders,
an amount in cash equal to the liquidation preference for each share
outstanding, plus, without duplication, an amount in cash equal to accumulated
and unpaid dividends thereon to the date fixed for liquidation, dissolution or
winding up (including an amount equal to a prorated dividend for the period
from the last Dividend Payment Date to the date fixed for liquidation,
dissolution or winding up). Such payment will be made before any payment is
made or any assets distributed to the holders of any of the Junior Stock,
including, without limitation, Common Stock of MTL. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of MTL, the assets of MTL
are not
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sufficient to pay in full the liquidation payments payable to the holders of
outstanding shares of the Exchangeable Preferred Stock and all other Parity
Stock, then the holders of all such shares shall share equally and ratably in
any such distribution of assets in proportion to the full liquidation
preference and amounts of accumulated but unpaid dividends to which each is
entitled until such liquidation preferences and dividends are paid in full.
The holders of outstanding shares of Exchangeable Preferred Stock and all
other Parity Stock will not be entitled to any further participation in any
distribution of assets of MTL after payment of the full amount of the
liquidation preferences and accumulated and unpaid dividends to which such
holders are entitled. For the purposes of this paragraph (d), neither the
sale, conveyance, exchange or transfer (for cash, shares of stock, securities
or other consideration) of all or substantially all of the property or assets
of MTL nor the consolidation or merger of MTL with or into one or more
entities will be deemed to be a liquidation, dissolution or winding-up of the
affairs of MTL.
Optional Redemption. MTL may, at the option of the Board of Directors,
redeem at any time on or after September 15, 2003, subject to contractual and
other restrictions with respect thereto and to the legal availability of funds
therefor, in whole or in part any or all of the shares of the Exchangeable
Preferred Stock, at the redemption prices (expressed as a percentage of the
liquidation preference) set forth below, plus, without duplication, an amount
in cash equal to all accumulated and unpaid dividends per share to the date of
redemption (the "Redemption Date") (including an amount in cash equal to a
prorated dividend for the period from the Dividend Payment Date immediately
prior to the Redemption Date to the Redemption Date) (the "Optional Redemption
Price"), if redeemed during the twelve-month period commencing on September 15
of each of the years set forth below:
<TABLE>
<S> <C>
2003................................. 106.88%
2004 and thereafter.................. 103.44%
2005 and thereafter.................. 100.00%
</TABLE>
In addition to the foregoing, prior to September 15, 2003, MTL may, at its
option, use the net cash proceeds of one or more public equity offerings to
redeem in whole, or in part, from any source of funds legally available
therefor, in the manner provided for in paragraph (e)(iii) hereof, the
Exchangeable Preferred Stock, at a redemption price of 113.75% of the
liquidation preference thereof, plus, without duplication, an amount in cash
equal to all accumulated and unpaid dividends to the Redemption Date including
an amount in cash equal to a prorated dividend for the period from the
Dividend Payment Date immediately prior to the Redemption Date to the
Redemption Date (the "Cash Proceeds Redemption Price"). In order to effect the
foregoing redemption with the proceeds of any public equity offering, MTL
shall make such redemption not more than 120 days after the consummation of
any such public equity offering.
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Mandatory Redemption. On September 15, 2006, MTL shall redeem (subject to
the legal availability of funds therefor) all of the shares of the
Exchangeable Preferred Stock then outstanding at a redemption price equal to
100% of the liquidation preference per share, plus, without duplication, an
amount in cash equal to all accumulated and unpaid dividends per share to the
Redemption Date (including an amount equal to a prorated dividend for the
period from the Dividend Payment Date immediately prior to the Redemption Date
to the Redemption Date) (the "Mandatory Redemption Price").
Voting Rights. The holders of Exchangeable Preferred Stock, except as
otherwise required under Florida law, shall not be entitled or permitted to
vote on any matter required or permitted to be voted upon by the shareholders
of MTL, except that so long as any shares of the Exchangeable Preferred Stock
are outstanding, MTL will not:
(1) authorize any class of Parity Stock without the affirmative vote or
consent of holders of at least a majority of the then outstanding shares
of Exchangeable Preferred Stock, voting or consenting, as the case may be,
as one class, given in person or by proxy, either in writing or by
resolution adopted at an annual or special meeting; provided, however,
that no such vote or consent shall be necessary in connection with the
authorization of the issuance of Exchangeable Preferred Stock to satisfy
dividend payments in lieu of cash on outstanding shares of Exchangeable
Preferred Stock; or
(2) amend the Articles of Amendment governing the Exchangeable Preferred
Stock so as to affect materially and adversely the specified rights,
preferences, privileges or voting rights of the then outstanding shares of
Exchangeable Preferred Stock, or to authorize the issuance of any
additional shares of Exchangeable Preferred Stock without the affirmative
vote or consent of holders of at least a majority of the issued and
outstanding shares of Exchangeable Preferred Stock, voting or consenting,
as the case may be, as one class, given in Person or by proxy, either in
writing or by resolution adopted at an annual or special meeting.
If (1) after September 15, 2003, cash dividends on the Exchangeable
Preferred Stock are in arrears and unpaid for six or more Dividend Periods
(whether or not consecutive) (a "Dividend Default") or (2) MTL fails to redeem
all of the then outstanding shares of Exchangeable Preferred Stock on
September 15, 2006, then in the case of any of clauses (1) or (2) the number
of directors constituting the Board of Directors shall be adjusted by the
number, if any, necessary to permit the holders of Exchangeable Preferred
Stock, voting separately and as one class (together with the holders of any
Parity Stock having similar voting rights), to elect the lesser of two
directors or that number of directors constituting 25% of the members of the
Board of Directors. At any time after voting power to elect directors shall
have become vested and be continuing in the holders of Exchangeable Preferred
Stock, or if vacancies shall exist in the offices of directors elected by the
holders of
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Exchangeable Preferred Stock, a proper officer of MTL may, and upon the
written request of the holders of record of at least twenty percent (20%) of
the shares of Exchangeable Preferred Stock then outstanding addressed to the
secretary of MTL shall, call a special meeting of the holders of Exchangeable
Preferred Stock, for the purpose of electing the directors which such holders
are entitled to elect.
Exchange. The outstanding shares of Exchangeable Preferred Stock are
exchangeable in whole but not in part, at the option of MTL at any time on any
Dividend Payment Date for MTL's 13.75% Subordinated Exchange Debentures due
2006 (the "Exchange Debentures") which have an interest rate and maturity
substantially similar to the dividend and maturity provisions of the
Exchangeable Preferred Stock, provided that any such exchange may only be made
if on or prior thereto (1) MTL has paid (or is deemed to have paid) all
accumulated dividends on the Exchangeable Preferred Stock (including the
dividends payable on the date of exchange) and there shall be no contractual
impediment to such exchange; (2) there shall be funds legally available
sufficient therefor; (3) immediately after giving effect to such exchange, no
Default or Event of Default (each as defined in the indenture governing the
Exchange Debentures (the "Exchange Indenture") would exist under the Exchange
Indenture, no Default or Event of Default (each as defined in the Indenture)
would exist under the Indenture, no default or event of default (each as
defined in the New Credit Facility) would exist under the New Credit Facility
and no default or event of default under any other material instrument
governing Indebtedness outstanding at the time would be caused thereby; and
(iv) the Exchange Indenture has been qualified under the TIA (as defined), if
such qualification is required at the time of exchange. The exchange rate
shall be $1.00 principal amount of Exchange Debentures for each $1.00 of
liquidation preference of Exchangeable Preferred Stock. The Exchange Indenture
will contain customary covenants consistent with MTL's existing obligations. A
more complete description of the terms and conditions of the Exchange
Indenture is contained in the Exchange Indenture which has been attached as an
exhibit to the Registration Statement, of which this Prospectus forms a part.
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DESCRIPTION OF THE NEW CREDIT AGREEMENT
In connection with the MTL Transactions, MTL entered into the MTL Credit
Agreement with a syndicate of financial institutions. In order to finance the
CLC Transactions, the MTL Credit Agreement was amended and restated to provide
for additional borrowings and was replaced by the New Credit Agreement. The
New Credit Agreement provides for the following:
(1) a $90.0 million Tranche A Term Loan with a final maturity date of
June 9, 2004,
(2) a seven-year $105.0 million Tranche B Term Loan,
(3) an eight-year $90.0 million Tranche C Term Loan, and
(4) a $75.0 million Revolving Credit Facility (which may include letters
of credit) available until June 9, 2004 to be used for the purposes noted
below, including for working capital and general corporate purposes of MTL
and its subsidiaries (including, without limitation, effecting certain
permitted acquisitions).
The Revolving Credit Facility further provides for a $15,000,000
sublimit (the "Sublimit") to be made available to Levy, an indirect
wholly-owned subsidiary of MTL. Amounts drawn under the Sublimit will be
drawn in Canadian dollars. See "Risk Factors--Notes are Subordinated,
Unsecured."
Prepayments. The Term Loans are required to be prepaid with, and after the
repayment in full of such loans, permanent reductions to the Revolving Credit
Facility are required in an amount equal to,
(1) 100.0% (or 75.0%, if the Leverage Ratio (as defined in the New
Credit Agreement) is less than 4.0:1.0) of the net cash proceeds of all
asset sales and dispositions by MTL and its subsidiaries, subject to
certain exceptions,
(2) 100.0% (or 75.0%, if the Leverage Ratio is less than 4.0:1.0) of the
net cash proceeds of issuances of certain debt obligations and certain
preferred stock by MTL and its subsidiaries, subject to certain
exceptions,
(3) 50.0% (or 0.0%, if the Leverage Ratio is less than 4.0:1.0) of the
net proceeds from common equity and certain preferred stock issuances by
MTL and its subsidiaries, subject to certain exceptions, including in
connection with permitted acquisitions,
(4) 75.0% (or 50.0%, if the Leverage Ratio is less than 4.0:1.0) of
annual Excess Cash Flow (as defined in the New Credit Agreement), and
(5) 100.0% of certain insurance proceeds, subject to certain exceptions.
Such mandatory prepayments and permanent reductions will be allocated
first, to the Term Loans and second, to the Revolving Credit Facility.
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Voluntary prepayments and commitment reductions will be permitted in whole
or in part, subject to minimum prepayment or reduction requirements, without
premium or penalty; provided that voluntary prepayments of Eurodollar Loans
(as defined in the New Credit Agreement) on a date other than the last day of
the relevant interest period will be subject to payment of customary breakage
costs, if any.
Interest and Fees. The interest rates under the New Credit Agreement will be
as follows:
(1) Tranche A Term Loans: At the option of MTL, (a) 1.00% in excess of
the base rate equal to the higher of (x) 1/2 of 1.0% in excess of the
federal funds rate or (y) the rate that CSFB as the administrative agent
announces from time to time as its prime lending rate, as in effect from
time to time (the "Base Rate"), and (b) 2.00% in excess of the Eurodollar
rate for Eurodollar Loans, in each case, subject to adjustment based upon
the achievement of certain financial ratios;
(2) Tranche B Term Loans: At the option of MTL, (a) 1.25% in excess of
the Base Rate and (b) 2.25% in excess of the Eurodollar rate for
Eurodollar Loans, in each case, subject to adjustment based upon the
achievement of certain financial ratios; and
(3) Tranche C Term Loans: At the option of MTL, (a) 1.50% in excess of
the Base Rate and (b) 2.50% in excess of the Eurodollar rate for
Eurodollar Loans, in each case, subject to adjustment based upon the
achievement of certain financial ratios; and
(4) Revolving Credit Facility: At the option of MTL, (a) 1.00% in excess
of the Base Rate and (b) 2.00% in excess of the Eurodollar rate for
Eurodollar Loans, in each case, subject to adjustments based upon the
achievement of certain financial ratios. The interest rate on the Sublimit
will be based on Canadian dollar bankers' acceptances and the Canadian
prime rate.
MTL may elect interest periods of 1, 2, 3 or 6 months or, to the extent
available to each bank lender with loans and/or commitments under the
applicable Term Loan or the Revolving Credit Facility, 9 or 12 months in the
case of Eurodollar Loans. With respect to Eurodollar Loans, interest will be
payable at the end of each interest period and, in any event, at least every 3
months. With respect to Base Rate Loans (as defined in the New Credit
Agreement), interest will be payable quarterly on the last business day of
each fiscal quarter. In each case, calculations of interest will be based on a
360-day year and actual days elapsed.
The New Credit Agreement provides for payment by MTL in respect of
outstanding letters of credit of
(1) an annual fee equal to the spread over the Eurodollar rate for
Eurodollar Loans under the Revolving Credit Facility from time to time in
effect on the aggregate outstanding stated amounts of such letters of
credit,
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(2) a fronting fee equal to 1/4 of 1.0% on the aggregate outstanding
stated amounts of such letters of credit, and
(3) customary administrative charges.
Levy will pay an acceptance fee equal to the Applicable Margin (as defined in
the New Credit Agreement) that would be payable on Eurodollar Loans under the
Revolving Credit Facility on the drawing date of each loan drawn under the
Sublimit.
MTL will pay a commitment fee equal to a percentage equal to 1/2 of 1.0% per
annum on the undrawn portion of the available commitment under the Revolving
Credit Facility, subject to decreases based on the achievement of certain
financial ratios.
Collateral and Guarantees. The loans and letters of credit under the New
Credit Agreement will be guaranteed by all of MTL's existing and future direct
and indirect wholly-owned domestic subsidiaries (collectively, the "Bank
Guarantors"). The obligations of MTL and the Bank Guarantors will be secured by
a first priority perfected lien on substantially all of the properties and
assets of MTL and the Bank Guarantors, now owned or subsequently acquired,
including a pledge of all capital stock and notes owned by MTL and the Bank
Guarantors, subject to certain exceptions; provided that, in certain cases, no
more than 65.0% of the stock of foreign subsidiaries of MTL will be required to
be pledged.
Representations and Warranties and Covenants. The New Credit Agreement and
related documentation contain certain customary representations and warranties
by MTL and Levy. In addition, the New Credit Agreement contains customary
covenants restricting the ability of MTL, Levy and certain of their
subsidiaries to, among other things
. declare dividends;
. prepay debt;
. incur liens;
. make investments;
. incur additional indebtedness;
. amend certain organizational, corporate and other documents;
. make capital expenditures;
. engage in mergers, acquisitions and asset sales;
. engage in certain transactions with affiliates and formation of
subsidiaries; and
. issue redeemable common stock and preferred stock, subject to certain
exceptions.
In addition, MTL is required to comply with specified financial covenants and
customary affirmative covenants.
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Events of Default. Events of default under the New Credit Agreement include
. MTL's or Levy's failure to pay principal or interest when due or pay a
reimbursement obligation on a letter of credit;
. material breach of any representation or warranty;
. covenant defaults;
. events of bankruptcy;
. a change of control of MTL; and
. other customary events of default.
The above summary highlights the material provisions of the New Credit
Agreement, but does not restate that agreement in its entirety. Reference is
made to all of the provisions of the New Credit Agreement, a copy of which has
been filed as an exhibit to the Registration Statement of which this
Prospectus is a part.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by MTL on June 9, 1998 (the "Issue
Date"), to BT Alex. Brown Incorporated, Credit Suisse First Boston Corporation
and Salomon Brothers Inc (collectively, the "Initial Purchasers") pursuant to
a Purchase Agreement, dated June 4, 1998, between MTL, the subsidiaries of MTL
listed therein as guarantors (the "Guarantors") and the Initial Purchasers
(the "Purchase Agreement"). The Initial Purchasers subsequently resold the Old
Notes to qualified institutional buyers in reliance on, and subject to the
restrictions imposed pursuant to Rule 144A under the Securities Act ("Rule
144A") and outside the United States in accordance with the provisions of
Regulation S under the Securities Act ("Regulation S."). MTL, the Guarantors
and the Initial Purchasers also entered into the registration rights agreement
with the Initial Purchasers, which requires, among other things, that
following the issuance and sale of the Old Notes, MTL and the Guarantors
(1) file with the Commission within 150 days after the Issue Date, a
Registration Statement with respect to the Exchange Notes,
(2) use their commercially reasonable efforts to cause the Registration
Statement to become effective under the Securities Act within 210 days
after the Issue Date and,
(3) upon the effectiveness of the Registration Statement, offer to the
holders of the Old Notes the opportunity to exchange their Old Notes for a
like principal amount of Exchange Notes, which will be issued without a
restrictive legend and may be reoffered and resold by the holder without
restrictions or limitations under the Securities Act subject to certain
exceptions described below. MTL has agreed to keep such exchange offer
open for 20 business days (or longer if required by applicable law) after
the date that notice of the exchange offer is mailed to holders.
For each Old Note surrendered to MTL pursuant to the exchange offer, the
holder of such Old Note will receive an Exchange Note having a principal
amount equal to that of the surrendered Old Note. The exchange offer being
made hereby is intended to satisfy MTL's exchange offer obligations under the
registration rights agreement. The term "holder" with respect to the exchange
offer means any person in whose name Old Notes are registered on MTL's books
or any other person who has obtained a properly completed bond power from the
registered holder or any person whose Old Notes are held of record by DTC who
desires to deliver such Old Notes by book-entry transfer of DTC.
Under existing interpretations of the staff of the Commission contained in
several no action letters to third parties, the Exchange Notes (and the
related guarantees) would in general be freely transferable by holders thereof
after the
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exchange offer without further registration under the Securities Act. However,
any purchaser of Old Notes who is an "affiliate" of MTL or who intends to
participate in the exchange offer for the purpose of distributing the Exchange
Notes
(1) will not be able to tender its Old Notes in the exchange offer,
(2) will not be able to rely on the interpretation of the staff of the
Commission, and
(3) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or transfer
of the Old Notes, unless such sale or transfer is made pursuant to an
exemption from such requirements.
Each holder that wishes to exchange the Old Notes for Exchange Notes will be
required to represent in the Letter of Transmittal that:
. any Exchange Notes to be received by it will be acquired in the ordinary
course of its business,
. it has no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of the
Exchange Notes in violation of the Securities Act,
. it is not an "affiliate" (as defined in Rule 405 promulgated under the
Securities Act) of MTL,
. if such holder is not a broker-dealer, that it is not engaged in, and
does not intend to engage in, the distribution of Exchange Notes, and
. if such holder is a broker-dealer (a "Participating Broker-Dealer") that
will receive Exchange Notes for its own account in exchange for Old
Notes that are acquired as a result of market-making or other trading
activities, that it will deliver a prospectus in connection with any
resale of such Exchange Notes.
The Commission has taken the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with respect to the Exchange
Notes received with the prospectus contained in the Registration Statement.
Each of MTL and the Guarantors has agreed that it will make available, during
the period required by the Securities Act, a prospectus meeting the
requirements of the Securities Act for use by Participating Broker-Dealers and
other persons, if any, with similar prospectus delivery requirements for use
in connection with any resale of Exchange Notes.
If, (1) because of any change in law or in currently prevailing
interpretations of the staff of the Commission, MTL and the Guarantors are not
permitted to effect the exchange offer, (2) the exchange offer is not
consummated within 240 days of the Issue Date, (3) in certain circumstances,
certain holders of unregistered Exchange Notes so request or (4) in the case
of any holder that participates in the exchange offer, such holder does not
receive Exchange Notes on the date of the exchange that
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may be sold without restriction under state and federal securities laws (other
than due solely to the status of such holder as an affiliate of MTL within the
meaning of the Securities Act), then in each case, MTL will
. promptly upon becoming aware of any of the matters contemplated by
clauses (1)-(4) above, deliver to the holders and the Trustee written
notice thereof, and
. at their sole expense, MTL and the Guarantors will (a) as promptly as
practicable, file a shelf registration statement covering resales of the
Old Notes (the "Shelf Registration Statement"), (b) use their
commercially reasonable efforts to cause the Shelf Registration Statement
to be declared effective under the Securities Act and (c) use their
commercially reasonable efforts to keep effective the Shelf Registration
Statement until the earlier of two years after the Issue Date or such
time as all of the applicable Old Notes have been sold thereunder.
MTL will, in the event that a Shelf Registration Statement is filed, (1)
provide to each holder copies of the prospectus that is a part of the Shelf
Registration Statement, (2) notify each such holder when the Shelf
Registration Statement for the Old Notes has become effective, and (3) take
certain other actions as are required to permit unrestricted resales of the
Old Notes. A holder that sells Old Notes pursuant to the Shelf Registration
Statement (1) will be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, (2) will be
subject to certain of the civil liability provisions under the Securities Act
in connection with such sales, and (3) will be bound by the provisions of the
registration rights agreement that are applicable to such a holder (including
certain indemnification rights and obligations).
The Old Notes provide, among other things, that if (1) the exchange offer
has not been consummated on or prior to 240 days after the Issue Date or (2)
if applicable, a Shelf Registration Statement has been declared effective, but
ceases to be effective at any time prior to the second anniversary of the
Issue Date, then from the 241st day or the date the Shelf Registration
Statement ceases to be effective, through but excluding the date the exchange
offer is consummated or the Shelf Registration Statement becomes effective,
the interest rate on the Old Notes will (1) increase by .25% per annum for the
first 90 days immediately following such date, and (2) thereafter, will
increase by an additional .25% per annum at the beginning of each subsequent
90-day period. The additional interest on any affected Old Notes may not
exceed 1.0% in the aggregate.
The summary herein highlights the material provisions of the registration
rights agreement, but does not restate that agreement in its entirety. MTL
urges you to review all of the provisions of the registration rights
agreement, because it, and not this description, defines your rights as
holders to exchange your Old Notes for registered notes. A copy of the
registration rights agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus forms a part.
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Following the consummation of the exchange offer, holders of Old Notes who
were eligible to participate in the exchange offer but who did not tender
their Old Notes will not have any further registration rights, and the Old
Notes will continue to be subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for the Old Notes could be adversely
affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, MTL will accept all Old Notes
validly tendered and not withdrawn prior to 5:00 p.m. New York City time, on
the Expiration Date. After authentication of the Exchange Notes by the Trustee
or an authenticating agent, MTL will issue and deliver $1,000 principal amount
of Exchange Notes in exchange for each $1,000 principal amount of outstanding
Old Notes accepted in the exchange offer. Holders may tender some or all of
their Old Notes pursuant to the exchange offer in denominations of $1,000 and
integral multiples thereof.
By tendering Old Notes in exchange for Exchange Notes and by executing the
Letter of Transmittal, each holder of Old Notes will be required to represent
that (1) it is not an affiliate of MTL, (2) any Exchange Notes to be received
by it were acquired in the ordinary course of its business and (3) it has no
arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of the Exchange Notes.
Each Participating Broker-Dealer that receives Exchange Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
Participating Broker-Dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See "Plan of Distribution."
The form and terms of the Exchange Notes are identical in all material
respects to the form and terms of the Old Notes, except that (1) the offering
of the Exchange Notes has been registered under the Securities Act, (2) the
Exchange Notes will not be subject to transfer restrictions and (3) certain
provisions relating to an increase in the stated interest rate on the Old
Notes provided for under certain circumstances will be eliminated. The
Exchange Notes will evidence the same debt as the Old Notes. The Exchange
Notes will be issued under and entitled to the benefits of the Indenture.
As of the date of this Prospectus, $140,000,000 aggregate principal amount
of the Old Notes is outstanding. In connection with the issuance of the Old
Notes, MTL arranged for the Old Notes to be issued and transferable in book-
entry form through the facilities of DTC, acting as a depositary. The Exchange
Notes will also be issuable and transferable in book-entry form through DTC.
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This Prospectus, together with the accompanying Letter of Transmittal, is
initially being sent to all registered holders of the Old Notes as of the
close of business on , 1999. The exchange offer is not conditioned upon
any minimum aggregate principal amount of Old Notes being tendered. However,
the exchange offer is subject to certain customary conditions which may be
waived by MTL, and to the terms and provisions of the Registration Rights
Agreement. See "--Conditions to the exchange offer."
MTL shall be deemed to have accepted validly tendered Old Notes when, as and
if MTL has given oral or written notice thereof to the Exchange Agent. See "--
Exchange Agent." The Exchange Agent will act as agent for the tendering
holders for the purpose of receiving Exchange Notes from MTL and delivering
Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, at MTL's
cost, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
Holders who tender Old Notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the exchange offer. MTL will pay all charges and expenses,
other than certain applicable taxes, in connection with the exchange offer.
See "--Solicitation of Tenders, Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1999, unless MTL, in its sole discretion, extends the exchange offer,
in which case the term "Expiration Date" shall mean the latest date to which
the exchange offer is extended. MTL may extend the exchange offer at any time
and from time to time by giving oral or written notice to the Exchange Agent
and by timely public announcement.
MTL expressly reserves the right, in its sole discretion (1) to delay
acceptance of any Old Notes, to extend the exchange offer or to terminate the
exchange offer and to refuse to accept Old Notes not previously accepted, if
any of the conditions set forth herein under "--Conditions to the Exchange
Offer" shall have occurred and shall not have been waived by MTL (if permitted
to be waived by MTL), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent and (2) to amend the terms of
the exchange offer in any manner. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral
or written notice thereof by MTL to the registered holders of the Old Notes.
If the exchange offer is amended in a manner determined by MTL to constitute a
material change, MTL will promptly disclose such amendment in a manner
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reasonably calculated to inform the holders of such amendment and MTL will
extend the exchange offer to the extent required by law.
Without limiting the manner in which MTL may choose to make public
announcements of any delay in acceptance, extension, termination or amendment
of the exchange offer, MTL shall have no obligation to publish, advise, or
otherwise communicate any such public announcement, other than by making a
timely release thereof to the Dow Jones News Service.
INTEREST ON THE EXCHANGE NOTES
Interest on the Exchange Notes will accrue from the last interest payment
date on which interest was paid on the Old Notes surrendered in exchange
therefor or, if no interest has been paid on the Old Notes, from the Issue
Date. The Fixed Rate Notes will bear interest at a rate of 10% per annum and
the Floating Rate Notes will bear interest at a rate per annum, reset every
three months, equal to LIBOR plus 4.81%, from the date of issuance of the Old
Notes. Interest on the Exchange Notes will be payable semi-annually on June 15
and December 15 of each year. Interest on the Old Notes will be payable on
December 15, 1998.
PROCEDURES FOR TENDERING
Each holder of Old Notes wishing to accept the exchange offer must complete,
sign and date the Letter of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and (1) mail or otherwise
deliver such Letter of Transmittal, or such facsimile, together with the Old
Notes to be exchanged and any other required documentation, to United States
Trust Company of New York, as Exchange Agent, at the address set forth herein
and therein or (2) effect a tender of Old Notes pursuant to the procedures for
book-entry transfer as provided for herein and therein. By executing the
Letter of Transmittal, each holder will represent to MTL that, among other
things,
(1) the Exchange Notes acquired pursuant to the exchange offer are being
acquired in the ordinary course of business of the person receiving such
Exchange Notes, whether or not such person is the holder,
(2) that neither the holder nor any such other person has any arrangement
or understanding with any person to participate in the distribution of such
Exchange Notes, and
(3) that neither the holder nor any such other person is an "affiliate,"
as defined in Rule 405 under the Securities Act, of MTL.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Old Notes by causing DTC
to transfer such Old Notes into the Exchange Agent's account in accordance
with DTC's procedure for such transfer. Although delivery of Old Notes may be
effected through book-entry transfer into the Exchange Agent's account at DTC,
the Letter of
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Transmittal (or facsimile thereof), with any required signature guarantees and
any other required documents, must, in any case, be transmitted to and
received by the Exchange Agent at its address set forth herein under "--
Exchange Agent" prior to 5:00 p.m., New York City time, on the Expiration
Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Only a holder may tender its Old Notes in the exchange offer. To tender in
the exchange offer, a holder must (1) complete, sign and date the Letter of
Transmittal or a facsimile thereof, (2) have the signatures thereof guaranteed
if required by the Letter of Transmittal, and (3) mail or otherwise deliver
such Letter of Transmittal or such facsimile, together with the Old Notes
(unless such tender is being effected pursuant to the procedure for book-entry
transfer) and other required documents, to the Exchange Agent, prior to 5:00
p.m., New York City time, on the Expiration Date.
The tender by a holder will constitute an agreement between such holder, MTL
and the Exchange Agent in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal. If less than all
of the Old Notes are tendered, a tendering holder should fill in the amount of
Old Notes being tendered in the appropriate box on the Letter of Transmittal.
The entire amount of Old Notes delivered to the Exchange Agent will be deemed
to have been tendered unless otherwise indicated.
THE LETTER OF TRANSMITTAL WILL INCLUDE REPRESENTATIONS TO MTL THAT, AMONG
OTHER THINGS,
(1) THE EXCHANGE NOTES ACQUIRED PURSUANT TO THE EXCHANGE OFFER ARE BEING
ACQUIRED IN THE ORDINARY COURSE OF BUSINESS OF THE PERSON RECEIVING SUCH
EXCHANGE NOTES (WHETHER OR NOT SUCH PERSON IS THE HOLDER),
(2) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS ENGAGED IN, INTENDS TO
ENGAGE IN OR HAS ANY ARRANGEMENT OR UNDERSTANDING WITH ANY PERSON TO
PARTICIPATE IN THE DISTRIBUTION OF SUCH EXCHANGE NOTES,
(3) NEITHER THE HOLDER NOR ANY SUCH OTHER PERSON IS AN "AFFILIATE," AS
DEFINED IN RULE 405 UNDER THE SECURITIES ACT, OF MTL, AND
(4) IF THE TENDERING HOLDER IS A BROKER OR DEALER (AS DEFINED IN THE
EXCHANGE ACT)
(A) IT ACQUIRED THE OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-
MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES, AND
(B) IT HAS NOT ENTERED INTO ANY ARRANGEMENT OR UNDERSTANDING WITH MTL OR ANY
"AFFILIATE" THEREOF (WITHIN THE MEANING OF RULE 405 UNDER THE SECURITIES ACT)
TO DISTRIBUTE THE EXCHANGE NOTES TO BE RECEIVED IN THE EXCHANGE OFFER.
IN THE CASE OF A BROKER-DEALER THAT RECEIVES EXCHANGE NOTES FOR ITS OWN
ACCOUNT IN EXCHANGE FOR OLD NOTES WHICH WERE ACQUIRED BY IT AS A RESULT OF
MARKET-MAKING OR OTHER TRADING ACTIVITIES, THE LETTER OF TRANSMITTAL WILL ALSO
INCLUDE AN
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ACKNOWLEDGEMENT THAT THE BROKER-DEALER WILL DELIVER A COPY OF THIS PROSPECTUS
IN CONNECTION WITH THE RESALE BY IT OF EXCHANGE NOTES RECEIVED PURSUANT TO THE
EXCHANGE OFFER; HOWEVER, BY SO ACKNOWLEDGING AND BY DELIVERING A PROSPECTUS,
SUCH HOLDER WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE
MEANING OF THE SECURITIES ACT. SEE "PLAN OF DISTRIBUTION."
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ENSURE DELIVERY TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO MTL. HOLDERS MAY ALSO
REQUEST THAT THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST
COMPANIES OR NOMINEES EFFECT SUCH TENDER FOR HOLDERS, IN EACH CASE AS SET
FORTH HEREIN AND IN THE LETTER OF TRANSMITTAL.
Any beneficial owner whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact such registered holder promptly and instruct such
registered holder to tender on his behalf. If such beneficial owner wishes to
tender on his own behalf, such beneficial owner must, prior to completing and
executing the Letter of Transmittal and delivering his Old Notes, either make
appropriate arrangements to register ownership of the Old Notes in such
owner's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Exchange Act (each an "Eligible Institution"), unless
the Old Notes tendered pursuant thereto are tendered (1) by a registered
holder who has not completed the box entitled "Special Registration
Instructions" or "Special Delivery Instruction" of the Letter of Transmittal
or (2) for the account of an Eligible Institution. If the Letter of
Transmittal is signed by a person other than the registered holder listed
therein, such Old Notes must be endorsed or accompanied by appropriate bond
powers which authorize such person to tender the Old Notes on behalf of the
registered holder, in either case signed as the name of the registered holder
or holders appears on the Old Notes. If the Letter of Transmittal or any Old
Notes or bond powers are signed or endorsed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, such persons
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should so indicate when signing, and unless waived by MTL, evidence
satisfactory to MTL of their authority to so act must be submitted with such
Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be
determined by MTL in its sole discretion, which determination will be final
and binding. MTL reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes MTL's acceptance of which would, in the
opinion of counsel for MTL, be unlawful. MTL also reserves the absolute right
to waive any irregularities or conditions of tender as to particular Old
Notes. MTL's interpretation of the terms and conditions of the exchange offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as MTL
shall determine. Although MTL intends to notify holders of defects or
irregularities with respect to tender of Old Notes, neither MTL, the Exchange
Agent nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of Old Notes, nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such irregularities have
been cured or waived. Any Old Notes received by the Exchange Agent that MTL
determines are not properly tendered or the tender of which is otherwise
rejected by MTL and as to which the defects or irregularities have not been
cured or waived by MTL will be returned by the Exchange Agent to the tendering
holder unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
In addition, MTL reserves the right in its sole discretion (1) to purchase
or make offers for any Old Notes that remain outstanding subsequent to the
Expiration Date, or, as set forth under "--Conditions to the exchange offer,"
terminate the exchange offer and (2) to the extent permitted by applicable
law, to purchase Old Notes in the open market, in privately negotiated
transactions or otherwise. The terms of any such purchases or offers may
differ from the terms of the exchange offer.
BOOK-ENTRY TRANSFER
MTL understands that the Exchange Agent will make a request promptly after
the date of this Prospectus to establish accounts with respect to the Old
Notes at DTC (the "Book-Entry Transfer Facility") for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of Old Notes by causing such
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-
Entry Transfer Facility's Automated Tender Offer Program procedures for such
transfer. However, the exchange for the Old Notes so tendered will only be
made after a timely confirmation of a book-entry transfer of such Old Notes
into the Exchange Agent's account, and timely receipt by the Exchange Agent of
an Agent's Message and any other documents required by the
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Letter of Transmittal. The term "Agent's Message" means a message, transmitted
by the Book Entry Transfer Facility and received by the Exchange Agent and
forming part of the confirmation of a book-entry transfer, which states that
the Book-Entry Transfer Facility has received an express acknowledgment from a
participant tendering Old Notes and that such participant has received the
Letter of Transmittal and agrees to be bound by the terms of the Letter of
Transmittal, and MTL may enforce such agreement against the participant.
ALTHOUGH DELIVERY OF OLD NOTES MAY BE EFFECTED THROUGH BOOK-ENTRY TRANSFER INTO
THE EXCHANGE AGENT'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY, AN
APPROPRIATE LETTER OF TRANSMITTAL PROPERLY COMPLETED AND DULY EXECUTED WITH ANY
REQUIRED SIGNATURE GUARANTEE AND ALL OTHER REQUIRED DOCUMENTS MUST IN EACH CASE
BE TRANSMITTED TO AND RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT AT ITS
ADDRESS SET FORTH BELOW ON OR PRIOR TO THE EXPIRATION DATE, OR, IF THE
GUARANTEED DELIVERY PROCEDURES DESCRIBED BELOW ARE COMPLIED WITH WITHIN THE
TIME PERIOD PROVIDED UNDER SUCH PROCEDURES. DELIVERY OF DOCUMENTS TO THE BOOK-
ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (1) whose Old Notes are not
immediately available, or (2) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer
on a timely basis, may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmittal, mail or hand delivery)
setting forth the name and address of the holder, the certificate number
or numbers of such holder's Old Notes and the principal amount of such Old
Notes tendered, stating that the tender is being made thereby, and
guaranteeing that, within three New York Stock Exchange ("NYSE") trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Old Notes to
be tendered in proper form for transfer (or confirmation of a book-entry
transfer into the Exchange Agent's account at DTC of Old Notes delivered
electronically) and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(3) such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all
tendered Old Notes in proper form for transfer (or confirmation of a book-
entry transfer into the Exchange Agent's account at DTC of Old Notes
delivered electronically and all other documents required by the Letter of
Transmittal are received by the Exchange Agent within three NYSE trading
days after the Expiration Date.
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Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m. New York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. Any
such notice of withdrawal must
(1) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"),
(2) identify the Old Notes to be withdrawn (including the certificate
number or number and principal amount of such Old Notes or, in the case of
Old Notes transferred by book-entry transfer, the name and number of the
account at DTC to be credited),
(3) be signed by the Depositor in the same manner as the original
signature on the Letter of Transmittal by which such Old Notes were
tendered (including any required signature guarantee) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to the
Old Notes to register the transfer of such Old Notes into the name of the
Depositor withdrawing the tender, and
(4) specify the name in which any such Old Notes are to be registered,
if different from that of the Depositor.
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by MTL, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
exchange offer, and no Exchange Notes will be issued with respect thereto
unless the Old Notes so withdrawn are validly retendered. Any Old Notes that
have been tendered but are not accepted for exchange will be returned to the
holder thereof without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn Old Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering" at any time prior to the
Expiration Date.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the exchange offer, MTL will not be
required to accept for exchange, or to exchange Exchange Notes for, any Old
Notes, and may terminate or amend the exchange offer as provided herein before
the acceptance of
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such Old Notes if, in MTL's judgment, any of the following conditions has
occurred or exists or has not been satisfied: (1) that the exchange offer, or
the making of any exchange by a holder, violates applicable interpretation of
the staff of the Commission, (2) that any action or proceeding shall have been
instituted or threatened in any court or by or before any governmental agency
or body with respect to the exchange offer, or (3) that there has been adopted
or enacted any law, statute, rule or regulation that can reasonably be expected
to impair the ability of MTL to proceed with the exchange offer.
If MTL determines that it may terminate the exchange offer for any of the
reasons set forth above, MTL may (1) refuse to accept any Old Notes and return
any Old Notes that have been tendered to the holders thereof, (2) extend the
exchange offer and retain all Old Notes tendered prior to the Expiration Date
of the exchange offer, subject to the rights of such holders of tendered Old
Notes to withdraw their tendered Old Notes or (3) waive such termination event
with respect to the exchange offer and accept all properly tendered Old Notes
that have not been withdrawn. If such waiver constitutes a material change in
the exchange offer, MTL will disclose such change by means of a supplement to
this Prospectus that will be distributed to each registered holder, and MTL
will extend the exchange offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the exchange offer would otherwise expire during
such period.
EXCHANGE AGENT
United States Trust Company of New York, the Trustee under the Indenture, has
been appointed as Exchange Agent for the exchange offer. In such capacity, the
Exchange Agent has no fiduciary duties and will be acting solely on the basis
of directions of MTL. Requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed to
the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: United States Trust Company of New York
P.O. Box 844, Cooper Station
New York, New York 10276-0844
Attention: Corporate Trust Services
By Hand Delivery to 4:30 p.m.: United States Trust Company of New York
111 Broadway, Lower level
New York, New York 10006
Attention: Corporate Trust Window
By Overnight Courier and by United States Trust Company of New York
Hand Delivery after 4:30 p.m. 770 Broadway, 13th Floor
on the Expiration Date: New York, New York 10003
Attention: Corporate Trust Services
Facsimile Transmission: (212) 780-0592
Attention: Customer Service
Information or Confirmation by (800) 548-6565
Telephone:
</TABLE>
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Delivery to an address or facsimile number other than those listed above
will not constitute a valid delivery.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the exchange offer will be
borne by MTL. The principal solicitation pursuant to the exchange offer is
being made by mail. Additional solicitations may be made by officers and
regular employees of MTL and its affiliates in person, by telegraph, telephone
or telecopier.
MTL has not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker, dealers or other persons
soliciting acceptances of the exchange offer. MTL will, however, pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket costs and
expenses in connection therewith and will indemnify the Exchange Agent for all
losses and claims incurred by it as a result of the exchange offer.
MTL may also pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in
forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes and in handling or
forwarding tenders for exchange.
The expenses to be incurred in connection with the exchange offer, including
fees and expenses of the Exchange Agent and Trustee and accounting and legal
fees and printing costs, will be paid by MTL.
MTL will pay all transfer taxes, if any, applicable to the exchange of Old
Notes pursuant to the exchange offer. If, however, certificates representing
Exchange Notes or Old Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or
if tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if the transfer tax is imposed
for any reason other than the exchange of Old Notes pursuant to the exchange
offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the Letter of Transmittal, the amount of such
transfer taxes will be billed by MTL directly to such tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, as reflected in MTL's accounting records on the date of the exchange.
Accordingly, no gain or loss for accounting purposes will be recognized by MTL
as a result of the consummation of the exchange offer. The expenses of the
exchange offer will be amortized by MTL over the term of the Exchange Notes.
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CONSEQUENCES OF FAILURE TO EXCHANGE
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, MTL
will have fulfilled a covenant contained in the registration rights agreement.
Holders of the Old Notes who do not tender their Old Notes in the exchange
offer will continue to hold such Old Notes and will be entitled to all the
rights, and subject to the limitations applicable thereto, under the Indenture
and the registration rights agreement, except for any such rights under the
registration rights agreement that by their terms terminate or cease to have
further effect as a result of making of this exchange offer. All untendered
Old Notes will continue to be subject to the restrictions on transfer set
forth in the Indenture. Accordingly, such Old Notes may be resold only (1) to
MTL, (2) pursuant to a registration statement which has been declared
effective under the Securities Act, (3) in the United States to qualified
institutional buyers ("QIBs") within the meaning of Rule 144A in reliance upon
the exemption from the registration requirements of the Securities Act
provided by Rule 144A, (4) in the United States to Institutional Accredited
Investors (as defined in Rule 501(a)(1), (2), (3) or (7) promulgated under the
Securities Act) in transactions exempt from the registration requirements of
the Securities Act, (5) outside the United States to foreign persons in
transactions complying with the provisions of Regulation S under the
Securities Act or (6) pursuant to any available exemption from the
registration requirements under the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States. To the
extent that Old Notes are tendered and accepted in the exchange offer, the
liquidity of the trading market for untendered Old Notes could be adversely
affected.
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DESCRIPTION OF NOTES
You can find the definitions of certain terms used in this description under
the subheading "--Certain Definitions." In this description, the term "MTL"
refers only to MTL Inc. and not its subsidiaries.
MTL will issue the Fixed Rate Notes and the Floating Rate Notes as a single
class of securities under a single indenture (the "Indenture"), dated as of
June 9, 1998 by and among MTL, the Guarantors and United States Trust Company
of New York, as trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act.
The following description is a summary of the material provisions of the
Indenture. It does not restate that agreement in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights
as holders of these Notes. We have filed a copy of the Indenture as an exhibit
to the Registration Statement, which includes this Prospectus.
BRIEF DESCRIPTION OF THE NOTES AND THE GUARANTEES
THE EXCHANGE NOTES
These notes:
. are general unsecured obligations of MTL;
. are identical, in all material respects, to the form and terms of the Old
Notes, except that the Exchange Notes have been registered under the
Securities Act;
. are not subject to transfer restrictions, registration rights and certain
provisions relating to an increase in the stated interest rate of the Old
Notes under certain circumstances;
. are subordinate in right of payment to all existing and future Senior
Debt of MTL; and
. are unconditionally guaranteed by the Guarantors.
THE GUARANTEES
These Notes are guaranteed by the following direct and indirect subsidiaries
of MTL:
Montgomery Tank Lines, Inc.
Quality Carriers, Inc.
Lakeshore Leasing, Inc.
Mexico Investments, Inc.
MTL of Nevada
Chemical Leaman Corporation
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Chemical Properties, Inc.
Capacity Management Systems, Inc.
Core Logistics Management, Inc.
EnviroPower, Inc.
Pickering Way Funding Corp.
Power Purchasing, Inc.
American Transinsurance Group, Inc.
Chemical Leaman Tank Lines, Inc.
Fleet Transport Company, Inc.
Quala Systems, Inc.
CLT Services, Inc.
Leaman Logistics, Inc.
Transplastics, Inc.
QSI Services, Inc.
The Guarantees of these Notes:
. are full, unconditional, joint and several obligations of each Guarantor;
and
. are subordinate in right of payment to all existing and future Senior
Debt of each Guarantor.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be
presented for registration or transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. MTL
may change any Paying Agent and Registrar without notice to holders of the
Notes (the "Holders"). MTL will pay principal (and premium, if any) on the
Notes at the Trustee's corporate office in New York, New York. At MTL's
option, interest may be paid at the Trustee's corporate trust office or by
check mailed to the registered address of Holders. Any Old Notes that remain
outstanding after completion of the Exchange Offer, together with the Exchange
Notes issued in connection with the Exchange Offer, will be treated as a
single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $275.0 million, of
which $140.0 million of Old Notes was issued in the private offering ($100.0
million of which are Fixed Rate Notes and $40.0 million of which are Floating
Rate Notes). MTL will issue Notes in denominations of $1,000 and integral
multiples of $1,000. The Notes will mature on June 15, 2006.
Interest on these Notes will be payable semi-annually in cash on each June
15 and December 15 commencing on June 15, 1999. MTL will make each interest
payment to the Holders of record of these Notes at the close of business on
the June 1 and December 1 immediately preceding the applicable interest
payment date.
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Interest on these Notes will accrue from the most recent date on which
interest has been paid or, if no interest has been paid, from and including
the date of issuance. MTL paid interest on the Old Notes on December 15, 1998.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
The Notes will not be entitled to the benefit of any mandatory sinking fund.
Fixed Rate Notes. Interest on the Fixed Rate Notes will accrue at the rate
of 10% per annum.
Floating Rate Notes. The Floating Rate Notes will bear interest at a rate
per annum, reset every three months, equal to LIBOR plus 4.81%, as determined
by the Calculation Agent (the "Calculation Agent"), which shall initially be
the Trustee.
The following terms are relevant to understanding the calculation of
interest on the Floating Rate Notes:
"LIBOR," with respect to an Interest Period, will be the rate (expressed as
a percentage per annum) for deposits in United States dollars for a three-
month period beginning on the second London Banking Day (as defined) after the
Determination Date (as defined) that appears on Telerate Page 3750 (as
defined) as of 11:00 a.m., London time, on the Determination Date. If Telerate
Page 3750 does not include such a rate or is unavailable on a Determination
Date, LIBOR for the Interest Period shall be the arithmetic mean of the rates
(expressed as a percentage per annum) for deposits in a Representative Amount
(as defined) in United States dollars for a three-month period beginning on
the second London Banking Day after the Determination Date that appears on
Reuters Screen LIBO Page (as defined) as of 11:00 a.m., London time, on the
Determination Date. If Reuters Screen LIBO Page does not include two or more
rates or is unavailable on a Determination Date, the Calculation Agent will
request the principal London office of each of four major banks in the London
interbank market, as selected by the Calculation Agent, to provide such bank's
offered quotation (expressed as a percentage per annum), as of approximately
11:00 a.m., London time, on such Determination Date, to prime banks in the
London interbank market for deposits in a Representative Amount in United
States dollars for a three-month period beginning on the second London Banking
Day after the Determination Date. If at least two such offered quotations are
so provided, LIBOR for the Interest Period will be the arithmetic mean of such
quotations. If fewer than two such quotations are so provided, the Calculation
Agent will request each of three major banks in New York City, as selected by
the Calculation Agent, to provide such bank's rate (expressed as a percentage
per annum), as of approximately 11:00 a.m., New York City time, on such
Determination Date, for loans in a Representative Amount in United States
dollars to leading European banks for a three-month period beginning on the
second London Banking Day after the Determination Date. If at least two such
rates are so provided, LIBOR for the Interest Period will be the arithmetic
mean of such rates. If fewer than two such rates are so provided, then
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LIBOR for the Interest Period will be LIBOR in effect with respect to the
immediately preceding Interest Period.
"Interest Period" means the period commencing on and including an interest
payment date and ending on and including the day immediately preceding the
next succeeding interest payment date.
"Determination Date," with respect to an Interest Period, will be the second
London Banking Day preceding the first day of the Interest Period.
"London Banking Day" is any day in which dealings in United States dollars
are transacted or, with respect to any future date, are expected to be
transacted in the London interbank market.
"Representative Amount" means a principal amount of not less than U.S. $1.0
million for a single transaction in the relevant market at the relevant time.
"Telerate Page 3750" means the display designated as "Page 3750" on the Dow
Jones Telerate Service (or such other page as may replace Page 3750 on that
service).
"Reuters Screen LIBO Page" means the display designated as page "LIBO" on
The Reuters Monitor Money Rates Service (or such other page as may replace the
LIBO page on that service).
The amount of interest for each day that the Floating Rate Notes are
outstanding (the "Daily Interest Amount") will be calculated by dividing the
interest rate in effect for such day by 360 and multiplying the result by the
principal amount of the Floating Rate Notes. The amount of interest to be paid
on the Floating Rate Notes for each Interest Period will be calculated by
adding the Daily Interest Amounts for each day in the Interest Period.
All percentages resulting from any of the above calculations will be
rounded, if necessary, to the nearest one hundred-thousandth of a percentage
point, with five one-millionths of a percentage point rounded upwards (e.g.,
9.876545% (or .09876545) being rounded to 9.87655% (or .0987655)) and all
dollar amounts used in or resulting from such calculations will be rounded to
the nearest cent (with one-half cent being rounded upwards).
The interest rate on the Floating Rate Notes will in no event be higher than
the maximum rate permitted by New York law as the same may be modified by
United States law of general application. Under current New York law, the
maximum rate of interest is 25.0% per annum on a simple interest basis. This
limit may not apply to Floating Rate Notes in which $2.5 million or more has
been invested.
The Calculation Agent will, upon the request of the holder of any Floating
Rate Note, provide the interest rate then in effect with respect to the
Floating Rate Notes.
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All calculations made by the Calculation Agent in the absence of manifest
error will be conclusive for all purposes and binding on MTL and the Holders
of the Floating Rate Notes.
REDEMPTION
Optional Redemption. MTL may redeem the Fixed Rate Notes, in whole at any
time or in part from time to time, on and after June 15, 2002, upon not less
than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on June 15 of the year set forth below,
plus, in each case, accrued and unpaid interest thereon, if any, to the date
of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002.............................. 105.000%
2003.............................. 102.500%
2004 and thereafter............... 100.000%
</TABLE>
MTL may redeem the Floating Rate Notes, in whole or in part from time to
time, upon not less than 30 nor more than 60 days' notice at the following
redemption prices (expressed as percentages of the principal amount thereof)
if redeemed during the twelve-month period commencing on June 15 of the year
set forth below, plus, in each case, accrued and unpaid interest thereon, if
any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
1998.............................. 105.000%
1999.............................. 104.000%
2000.............................. 103.000%
2001.............................. 102.000%
2002.............................. 101.000%
2003 and thereafter .............. 100.000%
</TABLE>
Optional Redemption upon Equity Offerings. At any time, or from time to
time, on or prior to June 15, 2001, MTL may, at its option, use the net cash
proceeds of one or more Equity Offerings (as defined below) to redeem up to
35% of the aggregate principal amount of the Fixed Rate Notes originally
issued at a redemption price equal to 110% of the principal amount thereof;
plus accrued and unpaid interest thereon, if any, to the date of redemption;
provided:
(1) at least 65% of the aggregate principal amount of the Fixed Rate
Notes originally issued in the private offering remain outstanding after
the redemption; plus
(2) the redemption occurs within 120 days of the date of the closing of
such Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a public or
private offering of Qualified Capital Stock (other than public offerings with
respect
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to MTL's Common Stock on Form S-8) of MTL for aggregate net cash proceeds to
MTL of at least $20.0 million.
Change of Control. If a Change of Control occurs, MTL may redeem the Notes,
in whole but not in part, provided that:
(1) the Change of Control occurs prior to June 15, 2002; and
(2) the redemption price is equal to the principal amount of the Notes
plus the Applicable Premium plus accrued and unpaid interest, if any, to
the date of redemption.
Notice of redemption of the Notes pursuant to this paragraph shall be mailed
to holders of the Notes
(1) not less than 30 days nor more than 60 days prior to the date of
redemption; and
(2) no more than 180 days following the occurrence of a Change of
Control.
MTL may not redeem Notes pursuant to this paragraph if it has made an offer
to repurchase Notes with respect to such Change of Control.
SELECTION AND NOTICE OF REDEMPTION
If less than all of the Notes are to be redeemed at any time, the Trustee
will select Notes for redemption as follows:
(1) If the Notes are listed, in compliance with the requirements of the
principal national securities exchange on which the Notes are listed; or
(2) if the Notes are not listed, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate.
No Notes of a principal amount of $1,000 or less shall be redeemed in part.
Notice of redemption shall be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address.
If any Note is to be redeemed in part only, the notice of redemption that
relates to such Note shall state the portion of the principal amount thereof
to be redeemed. A new Note in a principal amount equal to the unredeemed
portion of the original Note will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest ceases to accrue on Notes or portions of those called for redemption.
If a partial redemption is made with the net cash proceeds of an Equity
Offering, selection of the Fixed Rate Notes or portions thereof for redemption
shall be made by the Trustee only on a pro rata basis or on as nearly a pro
rata basis as is practicable (subject to DTC procedures), unless such method
is otherwise prohibited.
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SUBORDINATION
The payment of principal, premium and interest, if any, on these Notes will
be subordinated to the prior payment in full of all Senior Debt of MTL.
The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt) before the Holders of Notes will be entitled to receive any
payment with respect to the Notes, in the event of any distribution to
creditors of MTL:
(1) in a liquidation, dissolution or reorganization of MTL;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to MTL or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of MTL's assets and liabilities.
MTL also may not make any payment in respect of the Notes if:
(1) a payment default on Senior Debt occurs and is continuing; or
(2) any other default occurs and is continuing on Designated Senior Debt
that permits holders of the Designated Senior Debt to accelerate its
maturity and the Trustee receives a notice of such default (a "Default
Notice") from the Representative of the holders of any Designated Senior
Debt.
Payments on the Notes may and shall be resumed:
(1) in the case of a payment default, on Senior Debt upon the date on
which such default is cured or waived; and
(2) in case of a nonpayment default, the earlier of the date on which
such nonpayment default on Designated Senior Debt is cured or waived or
179 days after the date on which the applicable Default Notice is
received, unless the maturity of any Designated Senior Debt has been
accelerated.
No new Default Notice may be delivered unless and until:
(1) 360 days have elapsed since the effectiveness of the immediately
prior Payment Blockage Notice; and
(2) all scheduled payments of principal, premium and interest on the
Notes that have come due have been paid in full in cash.
No event of default that existed or was continuing on the date of delivery
of any Default Notice to the Trustee shall be, or be made, the basis for a
subsequent Default Notice unless such default shall have been cured or waived
for a period of not less than 90 days.
MTL must promptly notify holders of Senior Debt if payment of the Notes is
accelerated because of an Event of Default.
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As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of MTL, Holders of these Notes may
recover less ratably than creditors of MTL who are holders of Senior Debt.
At September 30, 1998, MTL had approximately $294.4 million of Senior Debt
outstanding (exclusive of $61.1 million of unused commitments under the New
Credit Agreement).
GUARANTEES
The Guarantors jointly and severally guarantee MTL's obligations under these
Notes. Each Guarantee will be subordinated to the prior payment in full of all
Senior Debt of that Guarantor. The obligations of each Guarantor under its
Guarantee will be limited as necessary to prevent that Guarantee from
constituting a fraudulent conveyance or fraudulent transfer under applicable
law.
Each Guarantor that makes a payment or distribution under a Guarantee shall
be entitled to a contribution from each other Guarantor in an amount pro rata,
based on the net assets of each Guarantor, determined in accordance with GAAP.
Each Guarantor may consolidate with or merge into or sell its assets to MTL
or another Guarantor without limitation, or with other Persons upon the terms
and conditions set forth in the Indenture. See "Certain Covenants--Merger,
Consolidation and Sale of Assets." In the event all of the Capital Stock of a
Guarantor is disposed of by MTL, whether by merger, consolidation, sale or
otherwise, and the disposition complies with the provisions set forth in
"Certain Covenants--Limitation on Asset Sales," the Guarantor's Guarantee will
be released.
CHANGE OF CONTROL
If a Change of Control occurs, each Holder will have the right to require
that MTL to repurchase all or any part of that Holder's Notes pursuant to the
Change of Control Offer. In the Change of Control Offer, MTL will offer a
Change of Control Payment in cash equal to 101.0% of the aggregate principal
amount of Notes purchased plus accrued and unpaid interest thereon, if any, to
the date of purchase.
Within 30 days following any Change of Control, and prior to the mailing of
notice to the Holders, MTL covenants to
(1) prepay in full and terminate all commitments under Indebtedness
under the New Credit Agreement and all other Senior Debt the terms of
which require repayment upon a Change of Control or offer to repay in full
and terminate all commitments under all Indebtedness under the New Credit
Agreement and all other such Senior Debt and to repay the Indebtedness
owed to each lender which has accepted such offer or
(2) obtain the requisite consents under the New Credit Agreement and all
other Senior Debt to permit the repurchase of the Notes as provided below.
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MTL shall first comply with the covenant in the immediately preceding
sentence before it shall be required to repurchase Notes. MTL's failure to
comply with the covenant described in the immediately preceding sentence shall
constitute an Event of Default described in clause (iii) and not in clause
(ii) under "Events of Default" below.
Within 30 days following any Change of Control, MTL will mail, by first
class mail, a notice to each Holder, with a copy to the Trustee, describing
the purchase date, which must be no earlier than 30 days nor later than 60
days from the date such notice is mailed, other than as may be required by
law. Holders electing to have a Note purchased pursuant to a Change of Control
Offer will be required to surrender the Note, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment
Date.
MTL may not have available funds sufficient to pay the Change of Control
purchase price for all the Notes that might be delivered by Holders seeking to
accept the Change of Control Offer. MTL will seek third party financing to the
extent it does not have available funds to meet such purchase obligations.
However, there can be no assurance that MTL will be able to obtain such
financing.
Neither the Board of Directors of MTL nor the Trustee may waive the covenant
relating to a Holder's right to redemption upon a Change of Control.
Restrictions on the ability of MTL and its Restricted Subsidiaries to incur
additional Indebtedness, to grant liens on its property, to make Restricted
Payments and to make Asset Sales may also make more difficult or discourage a
takeover of MTL, whether favored or opposed by the management of MTL.
Consummation of any such transaction in certain circumstances may require
redemption or repurchase of the Notes, and there can be no assurance that MTL
or the acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Such restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more
difficult or discourage any leveraged buyout of MTL or any of its Restricted
Subsidiaries by the management of MTL. While such restrictions cover a wide
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
MTL will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
as a result of a Change of Control Offer. To the extent that the provisions of
any securities laws or regulations conflict with the "Change of Control"
provisions of the Indenture, MTL shall comply with the applicable securities
laws and regulations and shall not be
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deemed to have breached its obligations under the "Change of Control"
provisions of the Indenture by reason of such laws or regulations.
The definition of "Change of Control" includes, among other transactions, a
disposition of "all or substantially all" of the property and assets of MTL.
With respect to the disposition of property or assets, the phase "all or
substantially all" as used in the Indenture varies according to the facts and
circumstances of the subject transaction, has no clearly established meaning
under relevant law and is subject to judicial interpretation. Accordingly, in
certain circumstances, there may be a degree of uncertainty in ascertaining
whether a particular transaction would involve a disposition of "all or
substantially all" of the property or assets of a Person, and therefore it may
be unclear whether a Change of Control has occurred and whether MTL is
required to make a Change of Control Offer.
CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness. MTL will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, assume, guarantee, acquire, or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness, other than Permitted Indebtedness; provided,
however, that if no Default or Event of Default occurs and is continuing at
the time of or as a consequence of any such Indebtedness, MTL or any of the
Guarantors may incur Indebtedness (including, without limitation, Acquired
Indebtedness) and Restricted Subsidiaries of MTL may incur Acquired
Indebtedness, in each case if on the date of the incurrence of such
Indebtedness, after giving effect to the incurrence thereof, the Consolidated
Fixed Charge Coverage Ratio of MTL is:
(1) greater than 1.90 to 1.0 if such incurrence is on or prior to
December 31, 1999;
(2) 2.0 to 1.0 if such incurrence is after December 31, 1999 and on or
prior to December 31, 2001; and
(3) 2.25 to 1.0 if such incurrence is thereafter.
Limitation on Restricted Payments. MTL will not, and will not cause or
permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution (other than
dividends or distributions payable in Qualified Capital Stock of MTL) to
holders of MTL's Capital Stock in their capacity as such;
(2) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of MTL or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock;
(3) make any principal payment on or with respect to, or purchase,
defease, redeem, prepay or otherwise acquire or retire for value, prior to
any
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scheduled final maturity, scheduled repayment or scheduled sinking fund
payment, any Indebtedness of MTL (other than the Notes) that is
subordinated to the Notes; or
(4) make any Investment other than Permitted Investments (all such
payments and other actions set forth in clauses (1) through (4) above
being referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted
Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as result thereof;
(b) MTL would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment has
been made at the beginning of the applicable four-quarter period,
have been permitted to incur at least $1.00 of additional
Indebtedness, other than Permitted Indebtedness, pursuant to the
"Limitation on Incurrence of Additional Indebtedness" covenant; or
(c) the aggregate amount of Restricted Payments, including such
proposed Restricted Payment, made after the Issue Date (the amount
expended for such purposes, if other than in cash, being the fair
market value of such property as determined reasonably and in good
faith by the Board of Directors of MTL) shall not exceed the sum
of:
(w) 50% of the cumulative Consolidated Net Income (or if cumulative
Consolidated Net Income shall be a loss, minus 100% of such loss)
of MTL earned after the Issue Date and on or prior to the date the
Restricted Payment occurs (the "Reference Date") (treating such
period as a single accounting period); plus
(x) 100% of the aggregate net cash proceeds and the fair market
value, as determined in good faith by the Board of Directors, of
property other than cash received by MTL from any Person, other
than a Subsidiary of MTL, from the issuance and sale of Qualified
Capital Stock of MTL after the Issue Date and on or prior to the
Reference Date; plus
(y) without duplication of any amounts included in clause (c)(w)
above, 100% of the aggregate net cash proceeds of any equity
contribution received by MTL from a holder of MTL's Capital Stock;
plus
(z) without duplication, the sum of:
(A) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made after to the
Issue Date whether through interest payments, principal payments,
dividends or other distributions or payments,
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(B) the net cash proceeds received by MTL or any Restricted
Subsidiary of MTL from the disposition of all or any portion of
such Investments, other than to a Subsidiary of MTL, and
(C) upon redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the fair market value of such Subsidiary (valued in
each case as provided in the definition of "Investment");
provided, however, that the sum of clauses (A), (B) and (C) above
shall not exceed the aggregate amount of all such Investments made
subsequent to the date of issuance.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provision will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment
would have complied with the Indenture;
(2) the acquisition of any shares of Capital Stock of MTL, either
(a) solely in exchange for shares of Qualified Capital Stock of MTL
or
(b) through the application of net proceeds of a substantially
concurrent sale for cash, other than to a Subsidiary of MTL, of
shares of Qualified Capital Stock of MTL;
(3) the acquisition of any Indebtedness of MTL that is subordinate
to the Notes either
(a) solely in exchange for shares of Qualified Capital Stock of MTL,
or
(b) through the application of net proceeds of a substantially
concurrent sale for cash, other than to a Subsidiary of MTL, of
(x) shares of Qualified Capital Stock of MTL or (y) Refinancing
Indebtedness;
(4) repurchases by MTL of Capital Stock of MTL from
(a) employees of or consultants to MTL or any of its Subsidiaries or
their authorized representatives (x) upon the death, disability or
termination of employment of such employees or consultants or to
the extent required pursuant to employee benefit plans, employment
agreements or consulting agreements, (y) pursuant to any other
agreements with such employees of or consultants to MTL or any of
its Subsidiaries, in an aggregate amount not to exceed $2.5
million in any calendar year (with unused amounts in any calendar
year being carried over to succeeding years subject to a maximum
of $5.0 million in any calendar year) or (z) to the extent
required pursuant to the Shareholder Agreement or the Option Plan
or
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(b) Elton Babbitt;
(5) the declaration and payment of dividends to holders of any class or
series of Preferred Stock (other than Disqualified Capital Stock)
issued after the Issue Date, if the Consolidated Fixed Charge Coverage
Ratio for MTL's most recently ended four full fiscal quarters for
which internal financial statements are available immediately
preceding the date of issuance of such Preferred Stock, after giving
effect to such issuance on a pro forma basis, would have been at least
1.75 to 1.00;
(6) the payment of dividends on MTL's Common Stock, following the first
public offering of MTL's Common Stock after the Issue Date, of up to
6% per annum of the net proceeds received by MTL in such public
offering, other than public offerings with respect to MTL's Common
Stock registered on Form S-8;
(7) the repurchase, retirement or other acquisition or retirement for
value of equity interests of MTL in existence on the Issue Date and
from the persons holding such equity interests on the Issue Date and
which are not held by Apollo or any of its Affiliates or members of
management of MTL and its Subsidiaries on the Issue Date (including
any equity interests issued in respect of such equity interests as a
result of a stock split, recapitalization, merger, combination,
consolidation or similar transaction), provided, however, MTL would
have been permitted to incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the "Limitation on
Incurrence of Additional Indebtedness" covenant and
(8) other Restricted Payments in an aggregate amount not to exceed $7.5
million.
In determining the aggregate amount of Restricted Payments made after the
Issue Date in accordance with clause (c) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2)(b), (4), (5), (6), (7)
and (8) shall be included in such calculation.
Not later than the date of making any Restricted Payment, MTL shall deliver
to the Trustee an officers' certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the required calculations were
computed.
Limitation on Asset Sales. MTL will not, and will not permit any of its
Restricted Subsidiaries to, consummate an Asset Sale unless
(1) MTL (or the 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;
(2) such fair market value is determined by the Company's Board of
Directors and evidenced by a resolution of the Board of Directors set
forth in an Officers' Certificate delivered to the Trustee; and
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(3) at least 75% of the consideration therefor received by MTL or such
Restricted Subsidiary is in the form of cash and is received at the time
of such disposition.
For purposes of this provision each of the following shall be deemed to be
cash:
(1) any liabilities (as shown on MTL's or such Restricted Subsidiary's most
recent balance sheet) of MTL or any such Restricted Subsidiary (other than
liabilities that are subordinated to the Notes) that are assumed by the
transferee of any such assets, and
(2) any notes or other obligations received by MTL or any such Restricted
Subsidiary from such transferee that are converted by MTL or such Restricted
Subsidiary into cash within 180 days after such Asset Sale (to the extent of
the cash received in the conversion).
Within 360 days after the receipt of any Net Cash Proceeds from an Asset Sale
MTL may apply such Net Cash Proceeds at its option:
(1) to prepay any Senior Debt or Guarantor Senior Debt and, in the case of
any Senior Debt or Guarantor Senior Debt under any revolving credit facility,
effect a permanent reduction in the availability under such revolving credit
facility,
(2) to make an Investment (a) in properties and assets that replace the
properties and assets that were the subject of such Asset Sale, (b) in
properties and assets that will be used in the business of MTL and its
Restricted Subsidiaries as existing on the Issue Date or in businesses the
same, similar or reasonably related thereto or (c) permitted by clause (1) of
the definition of Permitted Investments ("Replacement Assets"), or
(3) a combination of prepayment and investment permitted by the foregoing
clauses (1) and (2).
On the 361st day after an Asset Sale or such earlier date, if any, as the
Board of Directors of MTL or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(1), (2) and (3) of the next preceding sentence (each, a "Net Proceeds Offer
Trigger Date"), such aggregate amount of Net Cash Proceeds which have not been
applied on or before such Net Proceeds Offer Trigger Date as permitted in
clauses (1), (2) and (3) of the next preceding sentence (each a "Net Proceeds
Offer Amount") shall be applied by MTL or such Restricted Subsidiary to make an
offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds Offer
Payment Date") not less than 30 nor more than 60 days following the applicable
Net Proceeds Offer Trigger Date, from all Holders on a pro rata basis, that
amount of Notes equal to the Net Proceeds Offer Amount at a price equal to 100%
of the principal amount of the Notes to be purchased, plus accrued and unpaid
interest thereon, if any, to the date of purchase; provided, however, that if
at any time any non-cash consideration received by MTL or any Restricted
Subsidiary of MTL, as the case may be, in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash (other than interest
received with respect to any such non-cash consideration), then such
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conversion or disposition shall be deemed to constitute an Asset Sale
hereunder as of the date of such conversion or disposition and the Net Cash
Proceeds thereof shall be applied in accordance with this covenant. If MTL
defers the Net Proceeds Offer until there is an aggregate unutilized Net
Proceeds Offer Amount equal to or in excess of $5.0 million resulting from one
or more Asset Sales then the entire unutilized Net Proceeds Offer Amount, and
not just the amount in excess of $5.0 million, shall be applied.
In the event of the transfer of substantially all (but not all) of the
property and assets of MTL and its Restricted Subsidiaries as an entirety to a
Person in a transaction permitted under "--Merger, Consolidation and Sale of
Assets," the successor corporation shall be deemed to have sold the properties
and assets of MTL and its Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this
covenant with respect to such deemed sale as if it were an Asset Sale. In
addition, the fair market value of such properties and assets of MTL or its
Restricted Subsidiaries deemed to be sold shall be deemed to be Net Cash
Proceeds for purposes of this covenant.
Notice of each Net Proceeds Offer will be mailed to the record Holders as
shown on the register of Holders within 45 days following the Net Proceeds
Offer Trigger Date, with a copy to the Trustee, and shall comply with the
procedures set forth in the Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer Amount,
Notes of tendering Holders will be purchased on a pro rata basis (based on
amounts tendered). To the extent that the aggregate amount of the Notes
tendered pursuant to a Net Proceeds Offer is less than the Net Proceeds Offer
Amount, MTL may use such excess Net Proceeds Offer Amount for general
corporate purposes or for any other purposes not prohibited by the Indenture.
Upon completion of any such Net Proceeds Offer, the Net Proceeds Offer Amount
shall be reset at zero. A Net Proceeds Offer shall remain open for a period of
20 business days or such longer period as may be required by law.
MTL will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such
laws and regulations are applicable in connection with the repurchase of Notes
pursuant to a Net Proceeds Offer. To the extent that the provisions of any
securities laws or regulations conflict with the "Asset Sale" provisions of
the Indenture, MTL shall comply with the applicable securities laws and
regulations and shall not be deemed to have breached its obligations under the
"Asset Sale" provisions of the Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. MTL will not, and will not cause or permit any of its Restricted
Subsidiaries to, directly or indirectly, create or permit to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock;
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(2) make loans or advances or to pay any Indebtedness or other
obligation owed to MTL or any other Restricted Subsidiary of MTL; or
(3) transfer any of its property or assets to MTL or any other
Restricted Subsidiary.
However, the preceding restriction will not apply to encumbrances or
restrictions existing under or by reason of:
(1) applicable law;
(2) the Indenture;
(3) the New Credit Agreement (as it may be assigned in accordance with
its terms);
(4) customary non-assignment provisions of any contract or any lease
governing a leasehold interest of any Restricted Subsidiary of MTL;
(5) any instrument governing Acquired Indebtedness, which encumbrance or
restriction is not applicable to any Person, or the properties or assets
of any Person, other than the Person or the properties or assets of the
Person so acquired;
(6) agreements existing on the Issue Date to the extent and in the
manner such agreements are in effect on the Issue Date;
(7) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature discussed in
clause (3) of the preceding paragraph;
(8) contracts for the sale of assets, including, without limitation,
customary restrictions with respect to a Restricted Subsidiary of MTL
pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of
such Restricted Subsidiary;
(9) secured Indebtedness otherwise permitted to be incurred pursuant to
the covenants described under "Limitation on Incurrence of Additional
Indebtedness" and "Limitation on Liens" that limit the right of the debtor
to dispose of the assets securing such Indebtedness;
(10) customary provisions in joint venture agreements and other similar
agreements entered into in the ordinary course of business;
(11) customary net worth provisions contained in leases and other
agreements entered into by MTL or any Restricted Subsidiary;
(12) an agreement governing Indebtedness incurred to Refinance the
Indebtedness issued, assumed or incurred pursuant to an agreement referred
to in clauses (1) through (11) above; provided, however, that the
provisions relating to such encumbrance or restriction contained in any
such Indebtedness are no less favorable to MTL in any material respect
than the provisions relating to such encumbrance or restriction contained
in agreements referred to in such clauses; or
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(13) an agreement governing Indebtedness permitted to be incurred
pursuant to the "Limitation on Incurrence on Additional Indebtedness"
covenant; provided that the provisions relating to such encumbrance or
restriction contained in such Indebtedness are no less favorable to MTL in
any material respect as determined by the Board of Directors of MTL in
their reasonable and good faith judgment than the provisions contained in
the New Credit Agreement as in effect on the Issue Date.
Limitation on Liens. MTL will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or permit to exist
any Liens of any kind against or upon any property or assets of MTL or any of
its Restricted Subsidiaries whether owned on the Issue Date or acquired after
the Issue Date, or any proceeds therefrom, or assign or otherwise convey any
right to receive income or profits therefrom unless:
(1) in the case of Liens securing Indebtedness that is expressly
subordinate or junior in right of payment to the Notes, the Notes are
secured by a Lien on such property, assets or proceeds that is senior in
priority to such Liens and
(2) in all other cases, the Notes are equally and ratably secured.
However, the preceding restrictions will not apply to Liens:
(a) existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;
(b) securing Senior Debt and Liens securing Guarantor Senior Debt;
(c) securing the Notes and the Guarantees;
(d) of MTL or a Wholly Owned Restricted Subsidiary of MTL on assets
of any Restricted Subsidiary of MTL;
(e) securing Refinancing Indebtedness which is incurred to Refinance
any Indebtedness (including, without limitation, Acquired
Indebtedness) which has been secured by a Lien permitted under the
Indenture and which has been incurred in accordance with the
provisions of the Indenture;
provided, however, that such Liens
(x) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than
the Liens in respect of the Indebtedness being Refinanced and
(y) do not extend to or cover any property or assets of MTL or
any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and
(f) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. MTL and the Guarantors
will not incur or permit to exist Indebtedness that is senior in right of
payment to the Notes or the Guarantees, as the case may be, and subordinate in
right
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of payment by its terms to any other Indebtedness of MTL or such Guarantor, as
the case may be.
Merger, Consolidation and Sale of Assets. MTL will not, in a single
transaction or series of related transactions: (A) consolidate or merge with
or into another Person; or (B) sell, assign, transfer, lease, convey or
otherwise dispose of (or cause or permit any Restricted Subsidiary of MTL to
sell, assign, transfer, lease, convey or otherwise dispose of) all or
substantially all of MTL's assets, determined on a consolidated basis, to
another Person, unless:
(1) either (a) MTL is the surviving corporation or (b) the Person (if
other than MTL) formed by or surviving any such consolidation or merger or
to which such sale, assignment, transfer, lease, conveyance or other
disposition shall have been made (x) is a corporation organized and
existing under the laws of the United States, any state thereof or the
District of Columbia and (y) expressly assumes, by supplemental indenture
(in form and substance satisfactory to the Trustee), executed and
delivered to the Trustee, the due and punctual payment of the principal
of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes and the Indenture on the part
of MTL to be performed or observed;
(2) immediately after such transaction on a pro forma basis and the
assumption contemplated by clause (1)(b)(y) above (including giving effect
to any Indebtedness and Acquired Indebtedness incurred or anticipated to
be incurred in connection with or in respect of such transaction), MTL or
such Surviving Entity, as the case may be, shall be able to incur at least
$1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the "Limitation on Incurrence of Additional Indebtedness"
covenant;
(3) immediately before and immediately after giving effect to such
transaction on a pro forma basis and the assumption contemplated by clause
(1)(b)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be
incurred and any Lien granted in connection with or in respect of the
transaction), no Default or Event of Default shall have occurred or be
continuing; and
(4) MTL or the Surviving Entity, as the case may be, shall have
delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that such consolidation, merger, sale, assignment,
transfer, lease, conveyance or other disposition and, such supplemental
indenture, if any, comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
Notwithstanding the foregoing, the merger of MTL with an Affiliate
incorporated solely for the purpose of reincorporating MTL in another
jurisdiction shall be permitted.
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For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of MTL the Capital Stock of which constitutes all or
substantially all of the properties and assets of MTL, shall be deemed to be
the transfer of all or substantially all of the properties and assets of MTL.
Upon any consolidation, combination or merger or any transfer of all or
substantially all of the assets of MTL in accordance with the foregoing, in
which MTL is not the continuing corporation, the successor Person formed by
such consolidation or into which MTL is merged or to which such conveyance,
lease or transfer is made shall succeed to, and be substituted for, and may
exercise every right and power of, MTL under the Indenture and the Notes with
the same effect as if such Surviving Entity had been named as such.
Each Guarantor (other than any Guarantor whose Guarantee is to be released
in accordance with the terms of the Guarantee and the Indenture in connection
with any transaction complying with the provisions of "--Limitation on Asset
Sales") will not, and MTL will not cause or permit any Guarantor to,
consolidate with or merge with or into any Person other than MTL or any other
Guarantor unless:
(1) the entity formed by or surviving any such consolidation or merger
(if other than the Guarantor) or to which such sale, lease, conveyance or
other disposition shall have been made is a corporation organized and
existing under the laws of the United States, or any state thereof or the
District of Columbia;
(2) such entity assumes by supplemental indenture all of the Obligations
of the Guarantor under the Guarantee;
(3) immediately after giving effect to such transaction on a pro forma
basis, no Default or Event of Default shall have occurred and be
continuing; and
(4) immediately after giving effect to such transaction and the use of
any net proceeds therefrom on a pro forma basis, MTL could satisfy the
provisions of clause (2) of the first paragraph of this covenant. Any
merger or consolidation of a Guarantor with and into MTL (with MTL being
the surviving entity) or another Guarantor that is a Wholly Owned
Restricted Subsidiary of MTL need only comply with clause (4) of the first
paragraph of this covenant.
Limitations on Transactions with Affiliates. MTL will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), unless:
(1) such Affiliate Transaction is on terms that are no less favorable to
MTL or the relevant Restricted Subsidiary than those that would have been
obtained
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in a comparable transaction at such time on an arms' length basis by MTL
or such Restricted Subsidiary with an unrelated person; and
(2) MTL delivers to the Trustee:
(a) with respect to any Affiliate Transactions or series of related
Affiliate Transactions involving aggregate consideration in excess
of $1.0 million, a resolution of the Board of Directors set forth
in an Officer's Certificate certifying that such Affiliate
Transaction complies with the covenant and that such Affiliate
Transaction has been approved by a majority of the members of the
Board of Directors; and
(b) with respect to any Affiliate Transaction or a series of related
Affiliate Transactions involving aggregate consideration in excess
of $10.0 million, an opinion as to the fairness to MTL or such
Restricted Subsidiary of such Affiliate Transaction from a
financial point of view, issued by an Independent Financial
Advisor.
The restrictions set forth in the above paragraph shall not apply to:
(1) reasonable fees and compensation paid to and indemnity provided on
behalf of, officers, directors, employees or consultants of MTL or any
Restricted Subsidiary of MTL as determined in good faith by MTL's Board of
Directors;
(2) transactions exclusively between or among MTL and any of its Wholly
Owned Restricted Subsidiaries or exclusively between or among such Wholly
Owned Restricted Subsidiaries, provided such transactions are not
otherwise prohibited by the Indenture;
(3) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) in any replacement agreement thereto so long as any
such amendment or replacement agreement is not more disadvantageous to the
Holders in any material respect than the original agreement as in effect
on the Issue Date;
(4) Restricted Payments permitted by the Indenture;
(5) transactions in which MTL or any of its Restricted Subsidiaries, as
the case may be, delivers to the Trustee a letter from an Independent
Financial Advisor stating that such transaction is fair to MTL or such
Restricted Subsidiary from a financial point of view or meets the
requirements of the first sentence of paragraph (1) above;
(6) the existence of, or the performance by MTL or any of its Restricted
Subsidiaries of its obligations under the terms of, any stockholders
agreement (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the Issue Date and
any similar agreements which it may enter into thereafter; provided,
however, that the existence of, or the performance by MTL or any of its
Restricted Subsidiaries of obligations under, any future amendment to any
such existing agreement or under any
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similar agreement entered into after that Issue Date shall only be
permitted by this clause to the extent that the terms of any such,
amendment or new agreement are not otherwise disadvantageous to the
holders of the Notes in any material respect;
(7) the issuance of securities or other payments, awards or grants in
cash securities or otherwise pursuant to or the funding of, employment
arrangements, stock options and stock ownership plans approved by Board of
Directors of MTL in good faith and loans to employees of MTL and its
Subsidiaries which are approved by the Board of Directors of MTL in good
faith;
(8) the payment of all fees and expenses related to the Transactions;
(9) transactions with customers, clients, suppliers, or purchasers or
sellers of goods or services, in each case in the ordinary course of
business and otherwise in compliance with the terms of the Indenture,
which are fair to MTL or its Restricted Subsidiaries, in the reasonable
determination of the Board of Directors of MTL or the senior management
thereof, or are on terms at least as favorable as might reasonably have
been obtained at such time from an unaffiliated party; and
(10) fees payable to Apollo pursuant to the Management Agreement and the
Shareholders Agreement.
Additional Subsidiary Guarantees. If MTL or any of its Restricted
Subsidiaries transfers or causes to be transferred, in one transaction or a
series of related transactions, any property to any domestic Restricted
Subsidiary that is not a Guarantor, or if MTL or any of its Restricted
Subsidiaries shall organize, acquire or otherwise invest in another domestic
Restricted Subsidiary having total equity value in excess of $1.0 million,
then such transferee or acquired or other Restricted Subsidiary shall:
(1) execute and deliver to the Trustee a supplemental indenture in form
reasonably satisfactory to the Trustee pursuant to which such Restricted
Subsidiary shall unconditionally guarantee all of MTL's obligations under
the Notes and the Indenture on the terms set forth in the Indenture;
(2) deliver to the Trustee an opinion of counsel that such supplemental
indenture has been duly authorized, executed and delivered by such
Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary; and
(3) execute a Guarantee.
Thereafter, such Restricted Subsidiary shall be a Guarantor for all purposes
of the Indenture.
Reports to Holders. MTL will deliver to the Trustee within 15 days after the
filing of the same with the Commission, copies of the quarterly and annual
reports
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and of the information, documents and other reports, if any, which MTL is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Whether or not required by the Commission, so long as the Notes
are outstanding, MTL will file with the Commission, to the extent permitted,
and provide the Trustee and Holders with such annual reports and such
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act.
EVENTS OF DEFAULT
Each of the following is an "Event of Default":
(1) default for 30 days in the payment when due of interest on the
Notes, whether or not such payment shall be prohibited by the
subordination provisions of the Indenture;
(2) default in payment when due of the principal of or premium, if any,
on the Notes, whether or not such payment shall be prohibited by the
subordination provisions of the Indenture;
(3) failure by MTL to observe or perform any other covenant or agreement
contained in the Indenture which default continues for a period of 30 days
after MTL receives written notice specifying the default from the Trustee
or the Holders of at least 25% of the outstanding principal amount of the
Notes;
(4) failure by MTL to pay at final stated maturity the principal amount
of any Indebtedness of MTL or any Restricted Subsidiary of MTL, prior to
the expiration of any applicable grace periods provided in such
Indebtedness, or the acceleration of the final stated maturity of any such
Indebtedness if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final stated maturity or which has
been accelerated, aggregates $7.5 million or more at any time;
(5) failure by MTL or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $7.5 million which judgments are not
discharged, paid or stayed for a period of 60 days;
(6) certain events of bankruptcy or insolvency with respect to MTL or
any of its Significant Subsidiaries; or
(7) except as permitted by the Indenture any of the Guarantees ceases to
be in full force and effect or any of the Guarantees is declared to be
null and void and unenforceable or any of the Guarantees is found to be
invalid, or any of the Guarantors denies its liability under its
Guarantee.
If an Event of Default other than an event of bankruptcy or insolvency, with
respect to MTL, occurs and is continuing, the Trustee or the Holders of at
least 25% in principal amount of the then outstanding Notes may declare all
the Notes to be
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due and payable by notice in writing to MTL and the Trustee specifying the
respective Event of Default and that it is a notice of acceleration, and the
same
(1) shall become immediately due and payable; and
(2) if there are any amounts outstanding under the New Credit Agreement,
shall become immediately due and payable upon the first to occur of
(a) an acceleration under the New Credit Agreement or
(b) five business days after receipt by MTL and the Representative
under the New Credit Agreement of such Acceleration Notice.
If an Event of Default due to an event of bankruptcy or insolvency, with
respect to MTL, occurs and is continuing, then the Notes shall ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holder.
Any time after a declaration of acceleration with respect to the Notes, the
Holders of a majority in principal amount of the Notes may rescind and cancel
such declaration and its consequences:
(1) if the rescission would not conflict with any judgment or decree;
(2) if all existing Events of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of
the acceleration;
(3) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become
due otherwise than by such declaration of acceleration, has been paid;
(4) if MTL has paid the Trustee its reasonable compensation and
reimbursed the Trustee for its expenses, disbursements and advances; and
(5) in the event of the cure or waiver of an Event of Default of the
type described in clause (6) of the description above of Events of
Default, the Trustee shall have received an officers' certificate and an
opinion of counsel that such Event of Default has been cured or waived.
No such rescission shall affect any subsequent Default or impair any right
consequent thereto.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of the principal of, or interest on, the Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture. Subject to certain provisions, the Trustee is under
no
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obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power.
MTL is required to deliver to the Trustee an officers' certificate promptly
upon any such officer becoming aware of any Default or Event of Default that
has occurred and, if applicable, describe such Default or Event of Default and
the status thereof. MTL is required to deliver to the Trustee annually a
statement regarding compliance with the Indenture.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of MTL or any Guarantor, as
such, shall have any liability for any obligations of MTL under the Notes or
the Indenture or the Guarantees or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for issuance of the Notes. The waiver
may not be effective to waive liabilities under the Federal securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
MTL may, at its option and at any time, elect to have its obligations and
the obligations of the Guarantors discharged with respect to the outstanding
Notes ("Legal Defeasance"). Such Legal Defeasance means that MTL shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Notes, except for:
(1) the rights of Holders to receive payments in respect of the
principal of, premium, if any, and interest on the Notes when such
payments are due;
(2) MTL's obligations with respect to the Notes concerning issuing
temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes and the maintenance of an office or agency for payments;
(3) the rights, powers, trust, duties and immunities of the Trustee and
MTL's obligations in connection therewith, and
(4) the Legal Defeasance provisions of the Indenture.
In addition, MTL may, at its option and at any time, elect to have the
obligations of MTL released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described
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under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) MTL must irrevocably deposit with the Trustee, in trust, for the
benefit of the Holders cash in U.S. dollars, non-callable U.S. government
obligations, 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 Notes on the stated date for payment thereof or on the applicable
redemption date, as the case may be;
(2) in the case of Legal Defeasance, MTL shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that (A) MTL has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the
date of the execution of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal 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 Legal Defeasance had not occurred;
(3) in the case of Covenant Defeasance, MTL shall have delivered to the
Trustee an opinion of counsel in the United States reasonably acceptable
to the Trustee confirming that the Holders will not recognize income, gain
or loss for federal income tax purposes as a result of such 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 Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit;
(5) such Legal Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under the Indenture or any
other material agreement or instrument to which MTL or any of its
Subsidiaries is a party or by which MTL or any of its Subsidiaries is
bound;
(6) MTL shall have delivered to the Trustee an officers' certificate
stating that the deposit was not made by MTL with the intent of preferring
the Holders over any other creditors of MTL or with the intent of
defeating, hindering, delaying or defrauding any other creditors of MTL or
others;
(7) MTL shall have delivered to the Trustee an officers' certificate and
an opinion of counsel, each stating that all conditions precedent provided
for or
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relating to the Legal Defeasance or the Covenant Defeasance have been
complied with;
(8) MTL shall have delivered to the Trustee an opinion of counsel to the
effect that
(a) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
Indenture and
(b) assuming no intervening bankruptcy of MTL between the date of
deposit and the 91st day following the date of the deposit and that no
Holder is an insider of MTL, after the 91st day following the date of
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
(9) certain other customary conditions precedent are satisfied.
Notwithstanding the foregoing, the opinion of counsel required by clause
(2) above need not be delivered if all Notes not theretofore delivered to
the Trustee for cancellation (x) have become due and payable, (y) will
become due and payable on the maturity date within one year or (z) are to
be called for redemption within one year under arrangements satisfactory
to the Trustee for the giving of notice of redemption by the Trustee in
the name, and at the expense, of MTL.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration or transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when:
(1) either:
(a) all the Notes theretofore authenticated and delivered (except
lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by MTL and thereafter repaid to MTL or
discharged from such trust) have been delivered to the Trustee for
cancellation or
(b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and MTL 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
Notes not theretofore delivered to the Trustee for cancellation, for
principal of, premium, if any, and interest on the Notes to the date
of deposit together with irrevocable instructions from MTL directing
the Trustee to apply such funds to the payment thereof at maturity or
redemption, as the case may be;
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(2) MTL has paid all other sums payable under the Indenture by MTL; and
(3) MTL has delivered to the Trustee an officers' certificate and an
opinion of counsel stating that all conditions precedent under the
Indenture relating to the satisfaction and discharge of the Indenture have
been complied with.
MODIFICATION OF THE INDENTURE
Without the consent of each Holder affected thereby, an amendment or waiver
may not:
(1) reduce the amount of Notes whose Holders must consent to an
amendment;
(2) reduce the rate of or change or have the effect of changing the time
for payment of interest, including defaulted interest, on any Notes;
(3) reduce the principal of or change or have the effect of changing the
fixed maturity of any Notes, or change the date on which any Notes may be
subject to redemption or repurchase, or reduce the redemption or
repurchase price therefor;
(4) make any Notes payable in money other than that stated in the Notes;
(5) make any change in provisions of the Indenture protecting the right
of each Holder to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting Holders of a majority in principal amount of Notes
to waive Defaults or Events of Default;
(6) amend, change or modify in any material respect the obligation of
MTL to make and consummate a Change of Control Offer in the event of a
Change of Control which has occurred or make and consummate a Net Proceeds
Offer with respect to any Asset Sale that has been consummated or modify
any of the provisions or definitions with respect thereto after a Change
of Control has occurred or the subject Asset Sale has been consummated;
(7) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the Holders;
(8) release any Guarantor from any of its obligations under its
Guarantee or the Indenture otherwise than in accordance with the terms of
the Indenture; or
(9) make any change in the foregoing amendment provisions which require
each Holder's consent or in the waiver provisions.
Other modifications and amendments of the Indenture may be made with the
consent of the Holders of a majority in principal amount of the then
outstanding Notes issued under the Indenture.
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Notwithstanding the preceding, without the consent of any Holders of Notes,
MTL, the Guarantors and the Trustee may amend the Indenture:
(1) to cure any ambiguity, defect or inconsistency, so long as such
change does not, in the opinion of the Trustee, adversely affect the
rights of any of the Holders in any material respect. In formulating its
opinion on such matters, the Trustee will be entitled to rely on such
evidence as it deems appropriate, including, without limitation, solely on
an opinion of counsel.
GOVERNING LAW
The Indenture will provide that it, the Notes and the Guarantees will be
governed by, and construed in accordance with, the laws of the State of New
York but without giving effect to applicable principles of conflicts of law to
the extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
United States Trust Company of New York, as Trustee, shall take action at
the request of the Holder or Holders of at least 25% in principle amount of
the outstanding Notes. Such Trustee and its agents, employees, officers,
stockholders and directors are indemnified for, and held harmless against any
loss, liability or expense incurred by them except for such actions caused by
their own negligence, bad faith or willful misconduct in the performance of
their powers or duties as Trustee.
If the Trustee becomes a creditor of MTL or any Guarantor, the Indenture
limits its right to obtain payment of claims in certain cases, or to realize
on certain property received in respect of any such claim as security or
otherwise. The Trustee will be permitted to engage in other transactions;
however, if it acquires any conflicting interest it must eliminate such
conflict or resign.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. The Indenture provides that in case an Event of
Default occurs and is continuing, the Trustee will exercise such rights and
powers vested in it by the Indenture, and use the same degree of care and
skill in its exercise as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person or any
of its subsidiaries Indebtedness existing at the time such Person becomes a
Restricted Subsidiary of MTL or at the time it merges or consolidates with MTL
or any of its
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Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming
a Restricted Subsidiary of MTL or such acquisition, merger or consolidation
unless such Indebtedness is incurred in connection with a tax-advantaged Asset
Acquisition.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have correlative meanings.
"Asset Acquisition" means:
(1) an Investment by MTL or any Restricted Subsidiary of MTL in any
other Person pursuant to which such Person shall become a Restricted
Subsidiary of MTL or any Restricted Subsidiary of MTL, or shall be merged
with or into MTL or any Restricted Subsidiary of MTL; or
(2) the acquisition by MTL or any Restricted Subsidiary of MTL of the
assets of any Person (other than a Restricted Subsidiary of MTL) which
constitute all or substantially all of the assets of such Person or
comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by MTL or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than MTL or a Wholly Owned Restricted Subsidiary of MTL of:
(1) any Capital Stock of any Restricted Subsidiary of MTL; or
(2) any other property or assets of MTL or any Restricted Subsidiary of
MTL other than in the ordinary course of business.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) a transaction or series of related transactions for which MTL or its
Restricted Subsidiaries receive aggregate consideration of less than $1.5
million;
(2) the sale or exchange of equipment in connection with the purchase or
other acquisition of other equipment, in each case used in the business of
MTL and its Restricted Subsidiaries;
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(3) the sale, lease, conveyance, disposition or other transfer of all or
substantially all of the assets of MTL as permitted under "Merger,
Consolidation and Sale of Assets;
(4) disposals of tractors and trailers in connection with the
reinvestment in or the replacement of its fleet and disposals or
replacements of worn-out or obsolete equipment, in each case in the
ordinary course of business of MTL or its Restricted Subsidiaries; and
(5) the sale of accounts receivable pursuant to a Qualified Receivables
Transaction."
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and any refinancing thereof and, for
purposes of this definition, the amount of such obligations at any date shall
be the capitalized amount of such obligations at such date, determined in
accordance with GAAP.
"Capital Stock" means:
(1) with respect to any Person that is a corporation, any and all
shares, interests, participations or other equivalents (however designated
and whether or not voting) of corporate stock, including each class of
Common Stock and Preferred Stock of such Person or options to purchase the
same; and
(2) with respect to any Person that is not a corporation, any and all
partnership or other equity interests of such Person.
"Cash Equivalents" means:
(1) marketable direct obligations issued by, or unconditionally
guaranteed by, the United States Government or issued by any agency
thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof;
(2) marketable direct obligations issued by any state of the United
States of America or any political subdivision of any such state or any
public instrumentality thereof maturing within one year from the date of
acquisition thereof and, at the time of acquisition, having one of the two
highest ratings obtainable from either Standard & Poor's Corporation
("S&P") or Moody's Investors Service, Inc. ("Moody's");
(3) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having a rating of at
least A-1 from S&P or at least P-1 from Moody's;
(4) certificates of deposit or bankers' acceptances maturing within one
year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the
date of acquisition thereof combined capital and surplus of not less than
$250.0 million;
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(5) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clause (1) above entered
into with any bank meeting the qualifications specified in clause (4)
above; and
(6) investments in money market funds which invest substantially all
their assets in securities of the types described in clauses (1) through
(5) above.
"Change of Control" means the occurrence of one or more of the following
events:
(1) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets
of MTL to any Person or group of related Persons for purposes of Section
13(d) of the Exchange Act (a "Group"), together with any Affiliates
thereof (whether or not otherwise in compliance with the provisions of the
Indenture) other than Permitted Holders;
(2) the approval by the holders of Capital Stock of MTL of any plan or
proposal for the liquidation or dissolution of MTL (whether or not
otherwise in compliance with the provisions of the Indenture);
(3) any Person or Group (other than the Permitted Holders) shall become
the owner, directly or indirectly, beneficially or of record, of shares
representing more than 50.0% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of MTL; or
(4) the replacement of a majority of the Board of Directors of MTL over
a two-year period from the directors who constituted the Board of
Directors of MTL at the beginning of such period, and such replacement
shall not have been approved by the Permitted Holders or a vote of at
least a majority of the Board of Directors of MTL then still in office who
either were members of such Board of Directors at the beginning of such
period or whose election as a member of such Board of Directors was
previously so approved.
"Consolidated EBITDA" means, with respect to any Person, for any period, the
sum (without duplication) of (1) Consolidated Net Income and (2) to the extent
Consolidated Net Income has been reduced thereby, (a) all income taxes of such
Person and its Restricted Subsidiaries paid or accrued in accordance with GAAP
for such period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses), (b) Consolidated Interest Expense
and (c) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for such Person and its Restricted Subsidiaries in accordance with GAAP,
as applicable.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA of such Person during the four full
fiscal quarters (the "Four Quarter Period") ending on or prior to the date of
the transaction
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giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person
for the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
forma basis (consistent with the provisions below) for the period of such
calculation to:
(1) the incurrence or repayment of any Indebtedness of such Person or
any of its Restricted Subsidiaries (and the application of the proceeds
thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness
in the ordinary course of business for working capital purposes pursuant
to working capital facilities, occurring during the Four Quarter Period or
at any time subsequent to the last day of the Four Quarter Period and on
or prior to the Transaction Date, as if such incurrence or repayment, as
the case may be (and the application of the proceeds thereof), occurred on
the first day of the Four Quarter Period; and
(2) any Asset Sales or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted
Subsidiaries (including any Person who becomes a Restricted Subsidiary as
a result of the Asset Acquisition) incurring, assuming or otherwise being
liable for Acquired Indebtedness and also including any Consolidated
EBITDA (including any pro forma expense and cost reductions, adjustments
and other operating improvements or synergies both achieved by such Person
during such period and to be achieved by such Person and with respect to
the acquired assets, all as determined in good faith by a responsible
financial or accounting officer of MTL and as reported on or otherwise
confirmed, consistent with auditing standards, to MTL by an independent
public accounting firm) attributable to the assets which are the subject
of the Asset Acquisition or Asset Sale during the Four Quarter Period)
occurring during the Four Quarter Period or at any time subsequent to the
last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness)
occurred on the first day of the Four Quarter Period. If such Person or
any of its Restricted Subsidiaries directly or indirectly guarantees
Indebtedness of a third Person, the preceding sentence shall give effect
to the incurrence of such guaranteed Indebtedness as if such Person or any
Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating
"Consolidated Fixed Charges" for purposes of determining the denominator
(but not the numerator) of this "Consolidated Fixed Charge Coverage
Ratio," (a) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be
so determined thereafter shall be deemed to have accrued at a fixed rate
per annum equal to the rate of
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interest on such Indebtedness in effect on the Transaction Date; and (b)
notwithstanding clause (a) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations, shall be deemed to accrue at the
rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of:
(1) Consolidated Interest Expense (excluding amortization or write-off
of deferred financing costs), plus
(2) the product of (a) the amount of all dividend payments on any series
of Preferred Stock of such Person (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during
such period times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current effective consolidated
federal, state and local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication:
(1) the aggregate of the interest expense of such Person and its
Restricted Subsidiaries for such period determined on a consolidated basis
in accordance with GAAP, including without limitation:
(a) any amortization of debt discount and amortization or write-off of
deferred financing costs (including the amortization of costs relating
to interest rate caps or other similar agreements),
(b) the net costs under Interest Swap Obligations,
(c) all capitalized interest, and
(d) the interest portion of any deferred payment obligation; and
(2) the interest component of Capitalized Lease Obligations paid,
accrued and/or scheduled to be paid or accrued by such Person and its
Restricted Subsidiaries during such period as determined on a consolidated
basis in accordance with GAAP, minus interest income for such period.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that the following shall be excluded:
(1) after-tax gains or losses from Asset Sales (without regard to the
$1.5 million limitation set forth in the definition thereof) or
abandonments or reserves relating thereto,
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(2) after-tax nonrecurring gains or losses or after tax items classified
as extraordinary gains or losses,
(3) the net income of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary
of the referent Person or is merged or consolidated with the referent
Person or any Restricted Subsidiary of the referent Person,
(4) the net income (but not loss) of any Restricted Subsidiary of the
referent Person to the extent that the declaration of dividends or similar
distributions by that Restricted Subsidiary of that income is restricted
by contract, operation of law or otherwise,
(5) the net income of any Person, other than a Restricted Subsidiary of
the referent Person, except to the extent of cash dividends or
distributions paid to the referent Person or to a Wholly Owned Restricted
Subsidiary of the referent Person by such Person,
(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or
not such operations were classified as discontinued), and
(7) in the case of a successor to the referent Person by consolidation
or merger or as a transferee of the referent Person's assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of such Person and its Restricted Subsidiaries reducing Consolidated Net
Income of such Person and its Restricted Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect MTL or
any Restricted Subsidiary of MTL against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
"Designated Senior Debt" means (1) Indebtedness under or in respect of the
New Credit Agreement and (2) any other Indebtedness constituting Senior Debt
which, at the time of determination, has an aggregate principal amount of at
least $25.0 million and is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by MTL.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is redeemable at
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the sole option of the holder thereof on or prior to the final maturity date
of the Notes.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Guarantor" means
(1) each of Montgomery Tank Lines, Inc., Quality Carriers, Inc.,
Lakeshore Leasing, Inc., Mexico Investments, Inc., MTL of Nevada and
Chemical Leaman Corporation and its subsidiaries, and
(2) each of MTL's Restricted Subsidiaries that in the future executes a
supplemental indenture in which such Restricted Subsidiary agrees to be
bound by the terms of the Indenture as a Guarantor and executes a
Guarantee pursuant to the Indenture; provided that any Person constituting
a Guarantor as described above shall cease to constitute a Guarantor when
its respective Guarantee is released in accordance with the terms of the
Indenture.
"Guarantor Senior Debt" means with respect to any Guarantor, the principal
of, premium, if any, and interest (including any interest accruing subsequent
to the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect thereto, whether or not such interest is an allowed
claim under applicable law) on any Indebtedness of a Guarantor, whether
outstanding on the Issue Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Guarantee of such Guarantor.
Without limiting the generality of the foregoing, "Guarantor Senior Debt"
shall also include the principal of, premium, if any, interest (including any
interest accruing subsequent to the filing of a petition of bankruptcy at the
rate provided for in the documentation with respect thereto, whether or not
such interest is an allowed claim under applicable law) on, and all other
amounts owing by any Guarantor in respect of:
(1) all monetary obligations of every nature of a Guarantor under, or with
respect to, the New Credit Agreement, including, without limitation,
obligations to pay principal and interest, reimbursement obligations under
letters of credit, fees, expenses and indemnities (including guarantees
thereof),
(2) all Interest Swap Obligations (including guarantees thereof) and
(3) all obligations under Currency Agreements (including guarantees
thereof), in each case whether outstanding on the Issue Date or thereafter
incurred.
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Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include:
(1) any Indebtedness of such Guarantor to a Restricted Subsidiary of
such Guarantor,
(2) Indebtedness to, or guaranteed on behalf of, any director, officer
or employee of such Guarantor or any Restricted Subsidiary of such
Guarantor (including, without limitation, amounts owed for compensation),
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services,
(4) Indebtedness represented by Disqualified Capital Stock,
(5) any liability for federal, state, local or other taxes owed or owing
by such Guarantor,
(6) Indebtedness incurred in violation of the Indenture provisions set
forth under "Limitation on Incurrence of Additional Indebtedness" (but, as
to any such obligation, no such violation shall be deemed to exist for
purposes of this clause (6) if the holder(s) of such obligation or their
representative and the Trustee shall have received an officers'
certificate of MTL to the effect that the incurrence of such Indebtedness
does not (or, in the case of revolving credit Indebtedness, that the
incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of
the Indenture),
(7) that portion of any Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States
Code, is without recourse to MTL or any Guarantor and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of such Guarantor.
"Indebtedness" means with respect to any Person, without duplication:
(1) all Obligations of such Person for borrowed money, including,
without limitation, Senior Debt,
(2) all Obligations of such Person evidenced by bonds, debentures, notes
or other similar instruments,
(3) all Capitalized Lease Obligations of such Person,
(4) all Obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations and all
Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary
course of business),
(5) all Obligations for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction,
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(6) guarantees and other contingent Obligations in respect of
Indebtedness referred to in clauses (1) through (5) above and clause (8)
below,
(7) all Obligations of any other Person of the type referred to in
clauses (1) through (6) which are secured by any Lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of
the Obligation so secured,
(8) all Obligations under currency agreements and interest swap
agreements of such Person and
(9) all Disqualified Capital Stock issued by such Person with the amount
of Indebtedness represented by such Disqualified Capital Stock being equal
to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price, but excluding accrued dividends, if
any. For purposes hereof, the "maximum fixed repurchase price" of any
Disqualified Capital Stock which does not have a fixed repurchase price
shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased on any
date on which Indebtedness shall 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 Disqualified Capital Stock, such fair market value
shall be determined reasonably and in good faith by the Board of Directors
of the issuer of such Disqualified Capital Stock. For purposes of the
covenant described above under the caption "Limitation on Incurrence of
Additional Indebtedness," in determining the principal amount of any
Indebtedness to be incurred by MTL or a Guarantor or which is outstanding
at any date, the principal amount of any Indebtedness which provides that
an amount less than the principal amount thereof shall be due upon any
declaration of acceleration thereof shall be the accreted value thereof at
the date of determination.
"Interest Swap 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 other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, 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 any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by MTL and its Restricted Subsidiaries on
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commercially reasonable terms in accordance with normal trade practices of MTL
or such Restricted Subsidiary, as the case may be. For purposes of the
"Limitation on Restricted Payments" covenant;
(1) "Investment" shall include and be valued at the fair market value of
the net assets of any Restricted Subsidiary of MTL at the time that such
Restricted Subsidiary is designated an Unrestricted Subsidiary of MTL and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary of MTL at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of MTL and
(2) the amount of any Investment shall be the original cost of such
Investment plus the cost of all additional Investments by MTL or any of
its Restricted Subsidiaries, without any adjustments for increases or
decreases in value, or write-ups, write-downs or write-offs with respect
to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in
respect of such Investment; provided that no such payment of dividends or
distributions or receipt of any such other amounts shall reduce the amount
of any Investment if such payment of dividends or distributions or receipt
of any such amounts would be included in Consolidated Net Income. If MTL
or any Restricted Subsidiary of MTL sells or otherwise disposes of any
Common Stock of any direct or indirect Restricted Subsidiary of MTL such
that, after giving effect to any such sale or disposition, MTL no longer
owns, directly or indirectly, 100.0% of the outstanding Common Stock of
such Restricted Subsidiary, MTL shall be deemed to have made an Investment
on the date of any such sale or disposition equal to the fair market value
of the Common Stock of such Restricted Subsidiary not sold or disposed of.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement to
give any security interest).
"Management Agreement" means the Management Agreement dated February 10, 1998
between MTL and Apollo Management, L.P., as amended from time to time in
accordance with its terms.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds 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
(other than the portion of any such deferred payment constituting interest)
received by MTL or any of its Restricted Subsidiaries from such Asset Sale net
of:
(1) reasonable out-of-pocket expenses and fees relating to such Asset
Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions),
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(2) taxes paid or payable after taking into account any reduction in
consolidated tax liability due to available tax credits or deductions and
any tax sharing arrangements,
(3) repayment of Indebtedness that is required to be repaid in
connection with such Asset Sale and
(4) appropriate amounts to be provided by MTL or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP,
against any liabilities associated with such Asset Sale and retained by
MTL 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.
"New Credit Agreement" means the Credit Agreement dated as of the Issue Date
and amended and restated as of August 28, 1998, between MTL, Levy Transport,
Ltd., the lenders party thereto in their capacities as lenders thereunder and
Credit Suisse First Boston Corporation, as administrative agent, together with
the related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder in connection with
any of the foregoing (provided that such increase in borrowings is permitted
by the "Limitation on Incurrence of Additional Indebtedness" covenant above)
or adding Restricted Subsidiaries of MTL as additional and/or replacement
borrowers or guarantors thereunder) all or any portion of the Indebtedness
under such agreement or any successor or replacement agreement and whether by
the same or any other agent, lender or group of lenders.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Option Plan" means the Option Plan adopted by MTL on June 9, 1998 with
respect to an aggregate of 222,222 shares of MTL's Common Stock.
"Permitted Holders" means Apollo Management, L.P. and its Affiliates.
"Permitted Indebtedness" means, without duplication, each of the following:
(1) Indebtedness under the Notes and the Guarantees issued in the
Offering;
(2) Indebtedness incurred pursuant to the New Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $360.0
million
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less the amount of all repayments of term debt and permanent commitment
reductions under the New Credit Agreement with Net Cash Proceeds of Asset
Sales applied thereto as required by the "Limitation on Asset Sales"
covenant; provided, further, that the aggregate principal amount of
Indebtedness under this clause (ii) shall be reduced dollar for dollar for
any Indebtedness outstanding under clause (xii) below;
(3) other Indebtedness of MTL and its Restricted Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(4) Interest Swap Obligations of MTL covering Indebtedness of MTL or any
of its Restricted Subsidiaries and Interest Swap Obligations of any
Restricted Subsidiary of MTL covering Indebtedness of MTL or such
Restricted Subsidiary; provided, however, that such Interest Swap
Obligations are entered into to protect MTL and its Restricted
Subsidiaries from fluctuations in interest rates on Indebtedness incurred
in accordance with the Indenture to the extent the notional principal
amount of such Interest Swap Obligation does not exceed the principal
amount of the Indebtedness to which such Interest Swap Obligation relates;
(5) Indebtedness under Currency Agreements; provided that in the case of
Currency Agreements which relate to Indebtedness, such Currency Agreements
do not increase the Indebtedness of MTL and its Restricted Subsidiaries
outstanding other than as a result of fluctuations in foreign currency
exchange rates or by reason of fees, indemnities and compensation payable
thereunder;
(6) Indebtedness of a Restricted Subsidiary of MTL to MTL or to a Wholly
Owned Restricted Subsidiary of MTL for so long as such Indebtedness is
held by MTL, a Wholly Owned Restricted Subsidiary of MTL or the lenders or
collateral agent under the New Credit Agreement, in each case subject to
no Lien held by a Person other than MTL, a Wholly Owned Restricted
Subsidiary of MTL or the lenders or collateral agent under the New Credit
Agreement; provided that if as of any date any Person other than MTL, a
Wholly Owned Restricted Subsidiary of MTL or the lenders or collateral
agent under the New Credit Agreement owns or holds any such Indebtedness
or holds a Lien in respect of such Indebtedness, such date shall be deemed
the incurrence of Indebtedness not constituting Permitted Indebtedness by
the issuer of such Indebtedness;
(7) Indebtedness of MTL to a Wholly Owned Restricted Subsidiary of MTL
for so long as such Indebtedness is held by a Wholly Owned Restricted
Subsidiary of MTL or the lenders or collateral agent under the New Credit
Agreement and is subject to no Lien other than a Lien in favor of the
lenders or collateral agent under the New Credit Agreement; provided that
(a) any Indebtedness of MTL to any Wholly Owned Restricted Subsidiary of
MTL is
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unsecured and subordinated, pursuant to a written agreement, to MTL's
obligations under the Indenture and the Notes and (b) if as of any date
any Person other than a Wholly Owned Restricted Subsidiary of MTL or the
lenders or collateral agent under the New Credit Agreement owns or holds
any such Indebtedness or any Person holds a Lien other than a Lien in
favor of the lenders or collateral agent under the New Credit Agreement in
respect of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by MTL;
(8) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in
the ordinary course of business; provided, however, that such Indebtedness
is extinguished within two business days of incurrence;
(9) Indebtedness of MTL or any of its Restricted Subsidiaries in respect
of performance bonds, bankers' acceptances, workers' compensation claims,
surety or appeal bonds, payment obligations in connection with self-
insurance or similar obligations, and bank overdrafts (and letters of
credit in respect thereof);
(10) Indebtedness represented by Capitalized Lease Obligations, Purchase
Money Indebtedness or Acquired Indebtedness of MTL and its Restricted
Subsidiaries incurred in the ordinary course of business not to exceed
$25.0 million (as reduced dollar for dollar for any amounts incurred
pursuant to the proviso to this clause (x)) at any one time outstanding;
provided that all or a portion of the $25.0 million permitted to be
incurred under this clause (x) may, at the option of MTL, be incurred
under the New Credit Agreement or pursuant to clause (xiv) below instead
of pursuant to Capitalized Lease Obligations, Purchase Money Indebtedness
or Acquired Indebtedness;
(11) Indebtedness arising from agreements of MTL or a Restricted
Subsidiary of MTL providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or a Subsidiary,
other than guarantees of Indebtedness incurred by any Person acquiring all
or any portion of such business, assets or a Subsidiary for the purpose of
financing such acquisition; provided, however, that (a) such Indebtedness
is not reflected on the balance sheet of MTL or any Restricted Subsidiary
of MTL (contingent obligations referred to in a footnote to financial
statements and not otherwise reflected on the balance sheet will not be
deemed to be reflected on such balance sheet for purposes of this clause
(a)) and (b) the maximum assumable liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds including noncash
proceeds (the fair market value of such noncash proceeds being measured at
the time it is received and without giving effect to any subsequent
changes in value) actually received by MTL and its Restricted Subsidiaries
in connection with such disposition;
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(12) the incurrence by a Receivables Subsidiary of Indebtedness in a
Qualified Receivables Transaction that is without recourse to MTL or to
any Restricted Subsidiary of MTL or their assets (other than such
Receivables Subsidiary and its assets), and is not guaranteed by any such
Person; provided that any outstanding Indebtedness incurred under this
clause (xii) shall reduce the aggregate amount permitted to be incurred
under clause (ii) above to the extent set forth therein;
(13) Refinancing Indebtedness; and
(14) additional Indebtedness of MTL and its Restricted Subsidiaries in
an aggregate principal amount not to exceed $25.0 million at any one time
outstanding (which amount may, but need not, be incurred in whole or in
part under the New Credit Agreement) plus any amounts incurred in
accordance with the proviso to clause (x) above; provided that any
Indebtedness incurred in excess of $25.0 million in accordance with the
proviso to clause (x) above shall reduce the aggregate amount permitted to
be incurred under clause (x) above to the extent set forth therein.
"Permitted Investments" means:
(1) Investments by MTL or any Restricted Subsidiary of MTL in any Person
that is or will become immediately after such Investment a Wholly Owned
Restricted Subsidiary of MTL or that will merge or consolidate into MTL or
a Wholly Owned Restricted Subsidiary of MTL, provided that such Wholly
Owned Restricted Subsidiary of MTL is not restricted from making dividends
or similar distributions by contract, operation of law or otherwise;
(2) Investments in MTL by any Restricted Subsidiary of MTL; provided
that any Indebtedness evidencing such Investment is unsecured and
subordinated, pursuant to a written agreement, to MTL's obligations under
the Notes and the Indenture;
(3) Investments in cash and Cash Equivalents;
(4) loans and advances to employees and officers of MTL and its
Restricted Subsidiaries in the ordinary course of business for bona fide
business purposes not to exceed $4.0 million at any one time outstanding;
(5) Currency Agreements and Interest Swap Obligations entered into in
the ordinary course of MTL's or its Restricted Subsidiaries' businesses
and otherwise in compliance with the Indenture;
(6) additional Investments (including joint ventures) not to exceed
$20.0 million at any one time outstanding;
(7) Investments in securities of trade creditors or customers received
(x) pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or (y) in
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settlement of delinquent obligations of, and other disputes with,
customers and suppliers, in each case arising in the ordinary course of
business;
(8) Investments made by MTL or its Restricted Subsidiaries as a result
of consideration received in connection with an Asset Sale made in
compliance with the "Limitation on Asset Sales" covenant;
(9) Investments of a Person or any of its Subsidiaries existing at the
time such Person becomes a Restricted Subsidiary of MTL or at the time
such Person merges or consolidates with MTL or any of its Restricted
Subsidiaries, in either case in compliance with the Indenture; provided
that such Investments were not made by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of MTL or such merger or consolidation; and
(10) Investments in the Notes.
"Permitted Liens" means the following types of Liens:
(1) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which MTL or its Restricted Subsidiaries shall have
set aside on its books such reserves as may be required pursuant to GAAP;
(2) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by
law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have
been made in respect thereof;
(3) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business in connection therewith, or to
secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, leases, government contracts, performance and return-
of-money bonds and other similar obligations (exclusive of obligations for
the payment of borrowed money);
(4) judgment Liens not giving rise to an Event of Default so long as
such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not
have been finally terminated or the period within which such proceedings
may be initiated shall not have expired;
(5) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of MTL or any
of its Restricted Subsidiaries;
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(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(7) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to clause (x) of the definition of
"Permitted Indebtedness"; provided, however, that in the case of Purchase
Money Indebtedness (A) the Indebtedness shall not exceed the cost of such
property or assets and shall not be secured by any property or assets of
MTL or any Restricted Subsidiary of MTL other than the property and assets
so acquired or constructed and (B) the Lien securing such Indebtedness
shall be created within 180 days of such acquisition or construction or,
in the case of a refinancing of any Purchase Money Indebtedness, within
180 days of such refinancing;
(8) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(9) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(10) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of MTL or any
of its Restricted Subsidiaries, including rights of offset and set-off;
(11) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(12) Liens in the ordinary course of business not exceeding $5.0 million
at any one time outstanding that (a) are not incurred in connection with
borrowing of money and (b) do not materially detract from the value of the
property or materially impair its use;
(13) Liens by reason of judgment or decree not otherwise resulting in an
Event of Default;
(14) Liens securing Indebtedness permitted to be incurred pursuant to
clauses (xii) and (xiv) of the definition of "Permitted Indebtedness";
(15) Liens securing Indebtedness under Currency Agreements permitted
under the Indenture; and
(16) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant and
clause (x) of the definition of "Permitted Indebtedness"; provided that
(A) such Liens secured such Acquired Indebtedness at the time of and prior
to the incurrence of such Acquired Indebtedness by MTL or a Restricted
Subsidiary of MTL and
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were not granted in connection with, or in anticipation of, the incurrence
of such Acquired Indebtedness by MTL or a Restricted Subsidiary of MTL
unless the related Indebtedness is incurred in connection with a tax-
advantaged Asset Acquisition and (B) such Liens do not extend to or cover
any property or assets of MTL or of any of its Restricted Subsidiaries
other than the property or assets that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness of MTL or
a Restricted Subsidiary of MTL and are no more favorable to the
lienholders than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by MTL or a Restricted Subsidiary
of MTL.
"Purchase Money Indebtedness" means Indebtedness of MTL and its Restricted
Subsidiaries incurred in the normal course of business for the purpose of
financing all or any part of the purchase price, or the cost of installation,
construction or improvement, of property or equipment and any refinancing
thereof.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by MTL or any of its Restricted
Subsidiaries pursuant to which MTL or any of its Restricted Subsidiaries may
sell, convey or otherwise transfer to:
(1) a Receivables Subsidiary (in the case of a transfer by MTL or any of
its Restricted Subsidiaries) and
(2) any other person (in the case of a transfer by a Receivables
Subsidiary), or may grant a security interest in, any accounts receivable
(whether now existing or arising in the future) of MTL or any of its
Restricted Subsidiaries, and any assets related thereto including, without
limitation, all collateral securing such accounts receivable, all
contracts and all guarantees or other obligations in respect of such
accounts receivable, proceeds of such accounts receivable and other assets
which are customarily transferred or in respect of which security
interests are customarily granted in connection with asset securitization
transactions involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of MTL
that engages in no activities other than in connection with the financing of
accounts receivable and that is designated by the Board of Directors of MTL
(as provided below) as a Receivables Subsidiary:
(1) no portion of the Indebtedness or any other Obligations (contingent
or otherwise) of which
(a) is guaranteed by MTL or any Restricted Subsidiary of MTL (excluding
guarantees of Obligations (other than the principal of, and interest on,
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Indebtedness) pursuant to representations, warranties, covenants and
indemnities entered into in the ordinary course of business in connection
with a Qualified Receivables Transaction),
(b) is recourse to or obligates MTL or any Restricted Subsidiary of MTL
in any way other than pursuant to representations, warranties, covenants
and indemnities entered into in the ordinary course of business in
connection with a Qualified Receivables Transaction or
(c) subjects any property or asset of MTL or any Restricted Subsidiary
of MTL, directly or indirectly, contingently or otherwise, to the
satisfaction thereof, other than pursuant to representations, warranties,
covenants and indemnities entered into in the ordinary course of business
in connection with a Qualified Receivables Transaction,
(2) with which neither MTL nor any Restricted Subsidiary of MTL has any
material contract, agreement, arrangement or understanding other than on
terms no less favorable to MTL or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of
MTL, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable and
(3) with which neither MTL nor any Restricted Subsidiary of MTL has any
obligation to maintain or preserve such Restricted Subsidiary's financial
condition or cause such Restricted Subsidiary to achieve certain levels of
operating results. Any such designation by the Board of Directors of MTL
shall be evidenced to the Trustee by filing with the Trustee a Board
Resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the foregoing conditions.
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by MTL or any Restricted
Subsidiary of MTL of (A) for purposes of clause (13) of the definition of
Permitted Indebtedness, Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (2), (4), (5), (6), (7), (8), (9), (10), (11), (12) or (14)
of the definition of Permitted Indebtedness) or (B) for any other purpose,
Indebtedness incurred in accordance with the "Limitation on Incurrence of
Additional Indebtedness" covenant, in each case that does not
(1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing
(plus the amount of
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any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses
incurred by MTL in connection with such Refinancing) or
(2) create Indebtedness with (A) a Weighted Average Life to Maturity
that is less than the Weighted Average Life to Maturity of the
Indebtedness being Refinanced or (B) a final maturity earlier than the
final maturity of the Indebtedness being Refinanced; provided that:
(x) if such Indebtedness being Refinanced is Indebtedness of MTL, then
such Refinancing Indebtedness shall be Indebtedness solely of MTL and
(y) if such Indebtedness being Refinanced is subordinate or junior to
the Notes, then such Refinancing Indebtedness shall be subordinate to the
Notes at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then
the Representative for such Designated Senior Debt shall at all times
constitute the holders of a majority in outstanding principal amount of such
Designated Senior Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to MTL or a Restricted Subsidiary of any property, whether owned by
MTL or any Restricted Subsidiary at the Issue Date or later acquired, which
has been or is to be sold or transferred by MTL or such Restricted Subsidiary
to such Person or to any other Person from whom funds have been or are to be
advanced by such Person on the security of such Property.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of MTL, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the
generality of the foregoing, "Senior Debt" shall also include the principal
of, premium, if any, interest (including any interest accruing subsequent to
the filing of a petition of bankruptcy at the rate provided for in the
documentation with respect
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thereto, whether or not such interest is an allowed claim under applicable
law) on, and all other amounts owing by MTL in respect of:
(1) all monetary obligations of every nature of MTL under the New Credit
Agreement, including, without limitation, obligations to pay principal and
interest, reimbursement obligations under letters of credit, fees,
expenses and indemnities,
(2) all Interest Swap Obligations (including guarantees thereof), and
(3) all obligations under Currency Agreements (including guarantees
thereof), in each case whether outstanding on the Issue Date or thereafter
incurred.
Notwithstanding the foregoing, "Senior Debt" shall not include
(1) any Indebtedness of MTL to a Subsidiary of MTL,
(2) Indebtedness to, or guaranteed on behalf of, any director, officer
or employee of MTL or any Subsidiary of MTL (including, without
limitation, amounts owed for compensation),
(3) Indebtedness to trade creditors and other amounts incurred in
connection with obtaining goods, materials or services,
(4) Indebtedness represented by Disqualified Capital Stock,
(5) any liability for federal, state, local or other taxes owed or owing
by MTL,
(6) that portion of any Indebtedness incurred in violation of the
Indenture provisions set forth under "Limitation on Incurrence of
Additional Indebtedness" (but, as to any such obligation, no such
violation shall be deemed to exist for purposes of this clause (6) if the
holder(s) of such obligation or their representative and the Trustee shall
have received an officers' certificate of MTL to the effect that the
incurrence of such Indebtedness does not (or, in the case of revolving
credit Indebtedness, that the incurrence of the entire committed amount
thereof at the date on which the initial borrowing thereunder is made
would not) violate such provisions of the Indenture),
(7) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to MTL, and
(8) any Indebtedness which is, by its express terms, subordinated in
right of payment to any other Indebtedness of MTL.
"Shareholders' Agreement" means the Shareholders' Agreement dated as of
February 10, 1998 among certain affiliates of Apollo Management, L.P. and
certain shareholders of MTL.
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"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(w) of
Regulation S-X under the Securities Act.
"Subsidiary", with respect to any Person, means:
(1) any corporation of which the outstanding Capital Stock having at
least a majority of the votes entitled to be cast in the election of
directors under ordinary circumstances shall at the time be owned,
directly or indirectly, by such Person or
(2) any other Person of which at least a majority of the voting interest
under ordinary circumstances is at the time, directly or indirectly, owned
by such Person.
"Treasury Rate" means the rate per annum equal to the yield to maturity at
the time of computation of United States Treasury securities with a constant
maturity selected by the Calculation Agent (which shall initially be the
Trustee) most nearly equal to the period from such date of redemption to June
15, 2002; provided, however, that if the period from such date of redemption
to June 15, 2002 is not equal to the constant maturity of the United States
Treasury security for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-
twelfth of a year) from the weekly average yields of United States Treasury
securities for which such yields are given, except that if the period from
such date of redemption to June 15, 2002 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to
a constant maturity of one year shall be used.
"Unrestricted Subsidiary" of any Person means:
(1) any Subsidiary of such Person that at the time of determination
shall be or continue to be designated an Unrestricted Subsidiary by the
Board of Directors of such Person in the manner provided below and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary (including any newly
acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary unless
such Subsidiary owns any Capital Stock of, or owns or holds any Lien on any
property of, MTL or any other Subsidiary of MTL that is not a Subsidiary of
the Subsidiary to be so designated; provided that:
(1) MTL certifies to the Trustee in an officers' certificate that such
designation complies with the "Limitation on Restricted Payments" covenant
and
(2) each Subsidiary to be so designated and each of its Subsidiaries has
not at the time of designation, and does not thereafter, create, incur,
issue, assume, guarantee or otherwise become directly or indirectly liable
with respect to any
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Indebtedness pursuant to which the lender has recourse to any of the
assets of MTL or any of its Restricted Subsidiaries.
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary only if:
(1) immediately after giving effect to such designation, MTL is able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant and
(2) immediately before and immediately after giving effect to such
designation, no Default or Event of Default shall have occurred and be
continuing. Any such designation by the Board of Directors shall be
evidenced to the Trustee by promptly filing with the Trustee a copy of the
Board Resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (1) the then outstanding
aggregate principal amount of such Indebtedness into (2) the sum of the total
of the products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities
(other than in the case of a foreign Restricted Subsidiary, directors'
qualifying shares or an immaterial amount of shares required to be owned by
other Persons pursuant to applicable law) are owned by such Person and/or by
one or more Wholly Owned Restricted Subsidiaries of such Person.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the Exchange Notes will initially be issued in
the form of one or more fully registered notes in global form without coupons
(each a "Global Note"). Each Global Note shall be deposited with the Trustee,
as custodian (the "Custodian") for, and registered in the name of DTC or a
nominee thereof. The Old Notes to the extent validly tendered and accepted and
direct by their Holders in their Letters of Transmittal, will be exchanged
through book-entry electronic transfer for the Global Note.
THE GLOBAL NOTES
MTL expects that pursuant to procedures established by DTC (1) upon the
issuance of the Global Notes, DTC or its custodian will credit, on its
internal system, the principal amount of the individual beneficial interests
represented by such Global Notes to the respective accounts of persons who
have accounts with such depository and (2) ownership of beneficial interests
in the Global Notes will be shown on, and the transfer of such ownership will
be effected only through, records maintained by DTC or its nominee (with
respect to interests of participants) and the records of participants (with
respect to interests of persons other than participants). Such accounts
initially will be designated by or on behalf of the Initial Purchasers and
ownership of beneficial interests in the Global Notes will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Notes for all purposes
under the Indenture. No beneficial owner of an interest in the Global Notes
will be able to transfer that interest except in accordance with DTC's
procedures, in addition to those provided for under the Indenture with respect
to the Notes.
Payments of the principal of, premium (if any), and interest on, the Global
Notes will be made to DTC or its nominee, as the case may be, as the
registered owner thereof. None of MTL, the Trustee or any Paying Agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interest.
MTL expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, or interest in respect of on the Global Notes,
will credit participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of the Global
Notes as shown on the records of DTC or its nominee. MTL also expects that
payments by participants to owners of beneficial interests in the Global Notes
held through such participants will be governed by standing instructions and
customary practice, as is now the case with
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securities held for the accounts of customers registered in the names of
nominees for such customers. Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Note ("Certificated Note") for any reason, including to sell
Notes to persons in jurisdictions which require physical delivery of the
Notes, or to pledge such securities, such holder must transfer its interest in
a Global Note, in accordance with the normal procedures of DTC and with the
procedures set forth in the Indenture. Consequently, the ability to transfer
notes or to pledge Notes as collateral will be limited to such extent.
Notes that are issued as described below under "Certificated Notes," will be
issued in registered definitive form without coupons (each, a "Certificated
Note"). Upon the transfer of Certificated Notes, such Certificated Notes may,
unless the Global Note has previously been exchanged for Certificated Notes,
be exchanged for an interest in the Global Note representing the principal
amount of Notes being transferred.
DTC has advised MTL that it will take any action permitted to be taken by a
holder of Notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account the
DTC interest in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if
there is an Event of Default under the Indenture, DTC will exchange the Global
Notes for Certificated Notes, which it will distribute to its participants.
DTC has advised MTL as follows: DTC is a limited purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for its
participants and facilitate the clearance and settlement of securities
transactions between participants through electronic book-entry changes in
accounts of its participants, thereby eliminating the need for physical
movement of certificates. Participants include securities brokers and dealers,
banks, trust companies and clearing corporations and certain other
organizations. Indirect access to the DTC system is available to others such
as banks, brokers, dealers and trust companies that clear through or maintain
a custodial relationship with a participant, either directly or indirectly
("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Notes among participants of DTC, it is
under no obligation to perform such procedures, and such procedures may be
discontinued at
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any time. Neither MTL nor the Trustee will have any responsibility for the
performances by DTC or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Notes and a successor depositary is not appointed by MTL within 90
days, Certificated Notes will be issued in exchange for the Global Notes.
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FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of the material United States federal
income tax consequences of the acquisition, ownership and disposition of the
Exchange Notes to beneficial owners of the Exchange Notes who are U.S. Holders
(as defined below) and the material U.S. federal income and estate tax
consequences of the acquisition, ownership and disposition of the Exchange
Notes to beneficial owners of the Exchange Notes who are Non-U.S. Holders (as
defined below). This discussion applies only to initial beneficial owners of
Exchange Notes that acquired the Exchange Notes in exchange for Old Notes that
they purchased upon original issuance at the initial offering price thereof.
This discussion is based on currently existing provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury Department regulations
promulgated thereunder, and administrative and judicial interpretations
thereof, all as in effect on the date hereof and all of which are subject to
change, possibly on a retroactive basis.
This discussion is limited to initial beneficial owners that hold the Old
Notes and Exchange Notes as capital assets (generally, property held for
investment) within the meaning of Section 1221 of the Code. This discussion
also does not address the tax consequences to Non-U.S. Holders that are
subject to U.S. federal income tax on a net basis on income realized with
respect to an Old Note or Exchange Note because such income is effectively
connected with the conduct of a U.S. trade or business. Such holders are
generally taxed in a similar manner to U.S. Holders; however, certain special
rules apply. In addition, this discussion does not include any description of
the tax laws of any state, local or foreign government that may be applicable
to a particular beneficial owner.
This discussion does not address all of the U.S. federal income tax
consequences that may be relevant to particular beneficial owners in light of
their personal circumstances, or to certain types of beneficial owners (such
as banks and other financial institutions, insurance companies, tax-exempt
entities, dealers in securities, certain former citizens or former long-term
residents of the United States, persons holding the Old Notes or Exchange
Notes as part of a hedging or conversion transaction or a straddle or U.S.
Holders that have a functional currency other than the U.S. dollar).
As used herein, the term "U.S. Holder" means a beneficial owner of an Old
Note or Exchange Note that is, for U.S. federal income tax purposes, (1) a
citizen or resident of the United States, (2) a corporation or partnership
created or organized in or under the laws of the United States or any State
thereof (including the District of Columbia), (3) an estate or trust described
in Section 7701(a)(30) of the Code or (4) a person otherwise subject to U.S.
federal income taxation on a net income basis in respect of its worldwide
taxable income, and the term "Non-U.S. Holder" means a beneficial owner of an
Old Note or Exchange Note that is not a U.S. Holder.
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HOLDERS CONSIDERING THE EXCHANGE OF OLD NOTES FOR THE EXCHANGE NOTES
PURSUANT TO THE EXCHANGE OFFER ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE PARTICULAR U.S. FEDERAL TAX CONSEQUENCES TO THEM OF THE ACQUISITION,
OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES, AS WELL AS THE TAX
CONSEQUENCES UNDER STATE, LOCAL AND FOREIGN TAX LAWS, AND THE POSSIBLE EFFECTS
OF CHANGES IN TAX LAWS.
U.S. FEDERAL INCOME TAXATION OF U.S. HOLDERS
Payments of Interest.
In general, interest on an Exchange Note will be taxable to a U.S. Holder as
ordinary income at the time it accrues or is (actually or constructively)
received in accordance with the U.S. Holder's method of accounting for U.S.
federal income tax purposes.
Exchange Offer.
The exchange of Old Notes for the Exchange Notes pursuant to the exchange
offer should not constitute a taxable exchange of the Notes for U.S. federal
income tax purposes. As a result, (1) a U.S. Holder should not recognize
taxable gain or loss as a result of exchanging Old Notes for Exchange Notes
pursuant to the exchange offer, (2) the holding period of the Exchange Notes
should include the holding period of the Old Notes exchanged therefor and (3)
the adjusted tax basis of the Exchange Notes should be the same as the
adjusted tax basis of the Old Notes exchanged therefor immediately before such
exchange.
MTL is obligated to pay additional interest to the beneficial owners of
Notes under certain circumstances described under "The Exchange Offer." MTL
intends to take the position that such payments, if required to be made,
should be taxable to U.S. Holders in the manner described above under "--
Payments of Interest," but should not otherwise impact the U.S. federal income
tax consequences to U.S. Holders of the Notes. The Internal Revenue Service
(the "IRS"), however, may take a different position, which could affect the
timing of a U.S. Holder's income with respect to the Notes.
Sale, Exchange or Retirement of the Exchange Notes.
Upon the sale, exchange, redemption, retirement at maturity or other taxable
disposition of an Exchange Note, a U.S. Holder generally will recognize
taxable gain or loss equal to the difference between (1) the sum of cash plus
the fair market value of all other property received on such disposition
(except to the extent such cash or property is attributable to accrued but
unpaid interest, which will be taxable as ordinary income) and (2) such U.S.
Holder's adjusted tax basis in the Exchange Note. Gain or loss recognized on
the disposition of an Exchange Note generally will
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be capital gain or loss, and will be long-term capital gain or loss if at the
time of such disposition the U.S. Holder's holding period for the Exchange Note
is more than one year. In the case of a U.S. Holder that is an individual,
capital gain recognized with respect to the disposition of an Exchange Note
generally will be subject to U.S. federal income tax at (1) a maximum rate of
20.0% if such holder held his or her Exchange Note for more than 12 months and
(2) ordinary income rates if such holder held his or her Exchange Note for 12
months or less. The deductibility of capital losses is subject to limitations.
Backup Withholding and Information Reporting.
In general, a U.S. Holder will be subject to backup withholding at the rate
of 31.0% with respect to interest, principal and premium, if any, paid on an
Exchange Note, and the proceeds of a sale of an Exchange Note, unless the U.S.
Holder (1) is an entity that is exempt from withholding (including corporations
and tax-exempt organizations) and, when required, demonstrates this fact or (2)
provides the payor with its taxpayer identification number ("TIN") (which for
an individual would be the holder's social security number), certifies that the
TIN provided to the payor is correct and that the holder has not been notified
by the IRS that it is subject to backup withholding due to underreporting of
interest or dividends, and otherwise complies with applicable requirements of
the backup withholding rules. In addition, such payments of principal, premium
and interest to, and the proceeds of a sale of an Exchange Note by, U.S.
Holders that are not exempt entities will generally be subject to information
reporting requirements. The amount of any backup withholding from a payment to
a U.S. Holder will be allowed as a credit against such U.S. Holder's U.S.
federal income tax liability and may entitle such holder to a refund, provided
that the required information is furnished to the IRS.
U.S. FEDERAL INCOME TAXATION OF NON-U.S. HOLDERS
Payments of Interest.
In general, payments of interest on the Exchange Notes by MTL or any agent of
MTL to a Non-U.S. Holder will not be subject to U.S. federal income tax (or any
withholding thereof, except as described below under "--Backup Withholding and
Information Reporting"), provided that (1) (a) the Non-U.S. Holder does not
actually or constructively own 10.0% or more of the total combined voting power
of all classes of stock of MTL entitled to vote, (b) the Non-U.S. Holder is not
a controlled foreign corporation that is related to MTL, actually or
constructively, through stock ownership, (c) the Non-U.S. Holder is not a bank
described in Section 881(c)(3)(A) of the Code and (d) either (x) the Non-U.S.
Holder certifies to MTL or its agent on IRS Form W-8 (or a suitable substitute
form), under penalties of perjury, that it is not a "U.S. person" (as defined
in the Code) and provides its name and address or (y) a securities clearing
organization, bank or other financial institution that holds customers'
securities in the ordinary course of its trade or business (a "financial
institution") and holds the Exchange Notes on behalf of the Non-U.S. Holder
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certifies to MTL or its agent under penalties of perjury that such statement
has been received from the Non-U.S. Holder by it or by a financial institution
between it and the Non-U.S. Holder and furnishes MTL or its agent with a copy
thereof or (2) the Non-U.S. Holder is entitled to the benefits of an income
tax treaty under which interest on the Exchange Notes is exempt from U.S.
federal withholding tax and provides a properly executed IRS Form 1001
claiming the exemption.
On October 6, 1997, Treasury regulations (the "New Withholding Regulations")
were issued which alter the rules described above in certain respects. The New
Withholding Regulations generally will be effective with respect to payments
made after December 31, 1999, regardless of the issue date of the instrument
with respect to which such payments are made. The New Withholding Regulations
generally will not materially alter the certification rules described in
(l)(d) of the preceding paragraph, but will provide alternative methods for
satisfying such requirements. The New Withholding Regulations also generally
will require, in the case of Exchange Notes held by a foreign partnership,
that (1) the certification described in (1)(d) of the preceding paragraph be
provided by the partners rather than the foreign partnership and (2) the
partnership provide certain information, including a United States taxpayer
identification number. A look-through rule will apply in the case of tiered
partnerships. In addition, the New Withholding Regulations may require that a
Non-U.S. Holder (including, in the case of a foreign partnership, the partners
thereof) obtain a United States taxpayer identification number and make
certain certifications if the Non-U.S. Holder wishes to claim exemption from
(or a reduced rate of) withholding under an income tax treaty. Each Non-U.S.
Holder should consult its own tax advisor regarding the application to such
holder of the New Withholding Regulations.
Exchange Offer.
The exchange of Old Notes for the Exchange Notes pursuant to the exchange
offer should not be treated as a taxable exchange of the Notes for U.S.
federal income tax purposes. As a result, there should be no U.S. federal
income tax consequences to Non-U.S. Holders exchanging the Old Notes for the
Exchange Notes pursuant to the exchange offer.
Sale, Exchange or Retirement of the Exchange Notes.
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(or any withholding thereof, except as described below under "--Backup
Withholding and Information Reporting") on gain realized on the sale,
exchange, redemption, retirement at maturity or other disposition of an
Exchange Note unless the Non-U.S. Holder is an individual who is present in
the United States for a period or periods aggregating 183 or more days in the
taxable year of the disposition and certain other conditions are met.
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Backup Withholding and Information Reporting.
Under current Treasury regulations, backup withholding and information
reporting do not apply to payments made by MTL or a paying agent to Non-U.S.
Holders if the certification described in (1)(d) under "--Payments of
Interest" above is received, provided that the payor does not have actual
knowledge that the holder is a U.S. person.
In addition, backup withholding and information reporting generally will not
apply if payments on an Exchange Note are made to a Non-U.S. Holder by or
through the foreign office of a custodian, nominee or other agent of such Non-
U.S. Holder, or if the foreign office of a "broker" (as defined in applicable
Treasury regulations) pays the proceeds of the sale of an Exchange Note to the
seller thereof. Information reporting requirements (but, currently, not backup
withholding) will apply, however, to a payment by or through a foreign office
of a custodian, nominee, agent or broker that is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation or a foreign person
that derives 50.0% or more of its gross income for certain periods from the
conduct of a trade or business in the United States, unless such custodian,
nominee, agent or broker has documentary evidence in its records that the
holder is a non-U.S. person and certain other conditions are met, or the
holder otherwise establishes an exemption. Payment by a U.S. office of a
custodian, nominee, agent or broker is subject to both backup withholding at a
rate of 31.0% and information reporting unless the holder certifies, under
penalties of perjury, that it is not a U.S. person and the payor does not have
actual knowledge to the contrary, or the holder otherwise establishes an
exemption. A Non-U.S. Holder may obtain a refund or a credit against such Non-
U.S. Holder's U.S. federal income tax liability of any amounts withheld under
the backup withholding rules, provided the required information is furnished
to the IRS.
The New Withholding Regulations revise (substantially in certain respects)
the procedures that withholding agents and payees must follow to comply with,
or to establish an exemption from, the information reporting and backup
withholding provisions for payments after December 31, 1999. Each Non-U.S.
Holder should consult its own tax advisor regarding the application to such
holder of the New Withholding Regulations.
Estate Tax.
Exchange Notes held at the time of death (or theretofore transferred subject
to certain retained rights or powers) by an individual who at the time of
death is a Non-U.S. Holder will not be included in such holder's gross estate
for U.S. federal estate tax purposes, provided that (1) the individual does
not actually or constructively own 10.0% or more of the total combined voting
power of all classes of stock of MTL entitled to vote and (2) the income on
the Exchange Notes is not effectively connected with the conduct of a U.S.
trade or business by the individual.
171
<PAGE>
PLAN OF DISTRIBUTION
Each Participating Broker-Dealer that receives Exchange 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 Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection with resales of Exchange
Notes received in exchange for Notes where such Notes were acquired as a
result of market-making activities or other trading activities. MTL has agreed
that, for a period of 150 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating Broker-
Dealer for use in connection with any such resale.
MTL will not receive any proceeds from any sale of Exchange Notes by
Participating Broker-Dealers. Exchange Notes received by Participating Broker-
Dealers for their own account 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 Exchange Notes
or a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer or the
purchasers of any such Exchange Notes. Any Participating Broker-Dealer that
resells Exchange 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 Exchange Notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
Exchange Notes and any commission or concessions received by any such persons
may be deemed to be underwriting compensation under the Securities Act. The
Letter of Transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a Participating Broker-Dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
For a period of 150 days after the Expiration Date, MTL will promptly send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents in
the Letter of Transmittal. MTL has agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the Holders of the
Notes) other than commissions or concessions of any Participating Broker-
Dealers and will indemnify the Holders of the Notes (including any
Participating Broker-Dealers) against certain liabilities, including
liabilities under the Securities Act.
172
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes offered hereby will be passed upon for
MTL by Dewey Ballantine LLP, New York, New York.
EXPERTS
Following the MTL Transactions and the CLC Transactions, on September 24,
1998, the Board of Directors unanimously approved the dismissal of Arthur
Andersen LLP as the independent auditors for MTL Inc. and its subsidiaries,
and the appointment of PricewaterhouseCoopers LLP as independent auditors for
MTL Inc. and its subsidiaries. The reports provided by Arthur Andersen LLP do
not contain an adverse opinion or disclaimer of opinion, and there are no
disagreements on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
The consolidated financial statements of MTL Inc. and its subsidiaries at
December 31, 1997 and December 31, 1996 and for each of the three years in the
period ended December 31, 1997, included in this Prospectus, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The consolidated financial statements of Chemical Leaman Corporation and its
subsidiaries as of December 31, 1996 and 1997 and for each of the three years
in the period ended December 31, 1997, included in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated
in their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in giving said reports.
173
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants....................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997............. F-3
Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997........................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995, 1996 and 1997.................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1996 and 1997..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Consolidated Balance Sheet as of December 31, 1997....................... F-18
Consolidating Statements of Income for the Year Ended December 31, 1997.. F-20
Consolidating Income Statements of Income for the Year Ended December 31,
1996.................................................................... F-21
Consolidating Balance Sheet as of December 31, 1996...................... F-21
Consolidating Statement of Cash Flows for the Year Ended December 31,
1997.................................................................... F-22
Consolidating Statement of Cash Flows for the Year Ended December 31,
1996.................................................................... F-23
Condensed Consolidated Balance Sheets as of September 30, 1998 and
December 31, 1997 (unaudited)........................................... F-24
Condensed Consolidated Statements of Income for the nine months ended
September 30, 1998 and 1997 (unaudited)................................. F-25
Condensed Consolidated Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997 (unaudited)................................. F-26
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
PAGE
----
<S> <C>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
Report of Independent Public Accountants................................. F-36
Consolidated Balance Sheets December 31, 1996 And 1997................... F-37
Consolidated Statements Of Operations for the Years Ended December 31,
1995, 1996 and 1997..................................................... F-38
Consolidated Statements Of Stockholders' Equity for the Years Ended De-
cember 31, 1995, 1996 and 1997.......................................... F-39
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997..................................................... F-40
Notes to Consolidated Financial Statements............................... F-41
Condensed Consolidated Balance Sheets as of July 5, 1998 (unaudited) and
December 31, 1997....................................................... F-57
Condensed Consolidated Statement of Operations for the six months ended
July 5, 1998 and June 29, 1997 (unaudited).............................. F-58
Condensed Consolidated Statement of Cash Flows for the six months ended
July 5, 1998 and June 29, 1997 (unaudited).............................. F-59
Notes to Condensed Consolidated Financial Statements (unaudited)......... F-60
Schedule II--Valuation and Qualifying Accounts........................... F-63
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders ofMTL Inc.:
We have audited the accompanying consolidated balance sheets of MTL Inc. (a
Florida corporation) and subsidiaries as of December 31, 1996 and 1997, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of MTL Inc. and subsidiaries
as of December 31, 1996 and 1997, and the results of their operations and
their cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Tampa, Florida,
February 27, 1998 (except with respect to the matter discussed in Note 13, as
to which the date is June 9, 1998.)
F-2
<PAGE>
MTL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 694,851 $ 1,377,228
Accounts receivable, net......................... 32,495,711 38,171,957
Current maturities of other receivables.......... 1,061,941 1,163,357
Notes receivable................................. 500,646 547,213
Inventories...................................... 877,682 957,824
Prepaid expenses................................. 3,399,914 2,822,343
Prepaid tires.................................... 3,888,284 4,323,783
Deferred tax assets.............................. 2,748,163 2,685,597
Other............................................ 121,057 126,560
------------ ------------
Total current assets........................... 45,788,249 52,175,862
------------ ------------
Property and equipment:
Land and improvements............................ 4,734,133 4,808,938
Buildings and improvements....................... 12,284,784 12,457,662
Revenue equipment................................ 152,883,747 182,407,304
Terminal equipment............................... 5,992,691 5,874,647
Furniture and fixtures........................... 3,609,241 4,607,966
Other equipment.................................. 1,697,725 1,373,406
------------ ------------
181,202,321 211,529,923
Less--Accumulated depreciation and amortization.. (60,299,204) (75,019,546)
------------ ------------
Property and equipment, net.................... 120,903,117 136,510,377
Other receivables, less current maturities......... 3,284,918 1,986,908
Goodwill........................................... 2,433,751 2,003,473
Other assets....................................... 1,194,235 1,359,761
------------ ------------
$173,604,270 $194,036,381
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............ $ 10,656,972 $ 15,201,239
Affiliates and independent owner-operators pay-
able............................................ 4,547,431 6,431,565
Current maturities of long-term debt............. 1,611,249 1,805,775
Current maturities of obligations under capital
leases.......................................... 2,612,793 501,086
Accrued loss and damage claims................... 3,798,808 4,906,049
Income taxes payable............................. 151,958 798,292
------------ ------------
Total current liabilities...................... 23,379,211 29,644,006
Long-Term Debt, less current maturities............ 51,700,591 52,433,465
Obligations under capital leases, less current
maturities........................................ 1,404,489 357,732
Accrued loss and damage claims..................... 4,528,354 5,064,843
Deferred income taxes.............................. 23,678,302 27,004,040
------------ ------------
Total liabilities.............................. 104,690,947 114,504,086
------------ ------------
Commitments and contingencies (Notes 5 and 6)
Stockholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued or outstanding..... -- --
Common stock, $.01 par value; 15,000,000 shares
authorized, 4,523,739 and 4,549,824 shares is-
sued and outstanding in 1996 and 1997, respec-
tively.......................................... 45,237 45,498
Additional paid-in capital....................... 30,139,529 30,459,139
Retained earnings................................ 38,757,270 49,240,633
Cumulative translation adjustment................ (28,713) (212,975)
------------ ------------
Total stockholders' equity..................... 68,913,323 79,532,295
------------ ------------
$173,604,270 $194,036,381
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
MTL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues:
Transportation..................... $173,059,635 $217,811,945 $266,369,170
Other.............................. 16,994,611 17,787,254 19,677,955
------------ ------------ ------------
Total operating revenues......... 190,054,246 235,599,199 286,047,125
------------ ------------ ------------
Operating expenses:
Purchased transportation........... 120,011,387 145,895,456 178,116,479
Compensation....................... 20,099,486 26,200,723 31,566,260
Fuel, supplies and maintenance..... 12,171,649 17,956,982 20,391,935
Depreciation and amortization...... 10,155,676 13,892,344 17,335,121
Selling and administrative......... 5,203,918 6,014,696 7,421,177
Insurance and claims............... 3,280,962 4,365,953 6,455,248
Taxes and licenses................. 1,629,642 1,655,274 1,899,734
Communication and utilities........ 1,149,114 1,378,103 1,805,324
(Gain) loss on sale of property and
equipment......................... (149,507) 19,703 (37,047)
------------ ------------ ------------
Total operating expenses......... 173,552,327 217,379,234 264,954,231
------------ ------------ ------------
Net operating income............. 16,501,919 18,219,965 21,092,894
Interest expense, net................ (3,467,594) (3,494,476) (3,174,826)
Other income (expense)............... 175,463 214,820 (38,482)
------------ ------------ ------------
Income before provision for
income taxes.................... 13,209,788 14,940,309 17,879,586
Provision for income taxes........... (5,408,130) (6,103,602) (7,396,223)
------------ ------------ ------------
Net income........................... $ 7,801,658 $ 8,836,707 $ 10,483,363
============ ============ ============
Per share data:
Net income--basic.................. $1.73 $1.95 $2.31
Net income--diluted................ 1.72 1.92 2.23
Weighted average number of common
shares--basic..................... 4,516,153 4,520,917 4,536,097
Weighted average number of common
and common equivalent shares--
diluted........................... 4,542,709 4,600,267 4,711,301
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
MTL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON ADDITIONAL CUMULATIVE TOTAL
STOCK STOCK PAID-IN RETAINED TRANSLATION STOCKHOLDERS'
(SHARES) (AMOUNT) CAPITAL EARNINGS ADJUSTMENT EQUITY
--------- -------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... 4,515,733 $45,157 $30,082,520 $22,118,905 $ -- $52,246,582
Issuance of common
stock.................. 1,500 15 9,360 -- -- 9,375
Net income.............. -- -- -- 7,801,658 -- 7,801,658
--------- ------- ----------- ----------- --------- -----------
BALANCE, December 31,
1995................... 4,517,233 45,172 30,091,880 29,920,563 -- 60,057,615
Issuance of common
stock.................. 6,506 65 47,649 -- -- 47,714
Net income.............. -- -- -- 8,836,707 -- 8,836,707
Translation adjustment.. -- -- -- -- (28,713) (28,713)
--------- ------- ----------- ----------- --------- -----------
BALANCE, December 31,
1996................... 4,523,739 45,237 30,139,529 38,757,270 (28,713) 68,913,323
Issuance of common
stock.................. 26,085 261 319,610 -- -- 319,871
Net income.............. -- -- -- 10,483,363 -- 10,483,363
Translation adjustment.. -- -- -- -- (184,262) (184,262)
--------- ------- ----------- ----------- --------- -----------
BALANCE, December 31,
1997................... 4,549,824 $45,498 $30,459,139 $49,240,633 $(212,975) $79,532,295
========= ======= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
MTL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................. $ 7,801,658 $ 8,836,707 $10,483,363
Adjustments to reconcile to net cash
and cash equivalents provided by
operating activities--
Deferred income taxes................ 2,889,448 3,322,268 3,388,304
Depreciation and amortization........ 10,155,676 13,892,344 17,335,121
Equity in income from investments.... (144,534) (138,355) (49,386)
(Gain) loss on sale of property and
equipment........................... (149,507) 19,703 (37,047)
Changes in assets and liabilities--
Increase in accounts and notes
receivable.......................... (3,096,169) (4,629,023) (6,037,660)
Increase in inventories.............. (61,907) (211,249) (92,562)
Decrease (increase) in prepaid
expenses............................ 985,552 (1,385,551) 550,293
Decrease (increase) in prepaid
tires............................... 15,766 (249,851) (376,581)
(Increase) decrease in other assets.. (238,572) (399,210) 310,581
Increase in accounts payable and
accrued expenses.................... 1,005,952 313,873 4,798,875
Increase in affiliates and
independent owner-operators
payable............................. 533,827 1,500,020 1,330,506
(Decrease) increase in accrued loss
and damage claims................. (815,797) 844,803 1,643,730
(Decrease) increase in current
income taxes...................... (791,148) 587,516 584,671
----------- ----------- -----------
Net cash and cash equivalents
provided by operating activities.. 18,090,245 22,303,995 33,832,208
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures................... (32,099,300) (20,576,543) (35,120,876)
Investment in Levy Transport, Ltd.,
net of cash received.................. -- (4,725,502) --
Payments received on other
receivables........................... -- 1,025,614 1,196,594
Repayment of loan to barge tank
operation............................. 209,240 262,930 93,263
Proceeds from sales of property and
equipment............................. 1,801,219 2,233,213 2,140,861
----------- ----------- -----------
Net cash and cash equivalents used
in investing activities........... (30,088,841) (21,780,288) (31,690,158)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from sale of lease
receivables........................... 3,282,030 1,181,245 --
Proceeds from issuance of long-term
debt, less prepayments................ 19,243,370 35,043,936 3,975,841
Principal payments on long-term debt,
less borrowings....................... (5,549,645) (30,722,218) (2,713,897)
Principal payments on obligations
under capital leases.................. (5,387,921) (5,685,264) (3,453,557)
Issuance of common stock............... 9,375 47,714 319,871
Borrowings under capital lease......... -- -- 368,793
----------- ----------- -----------
Net cash and cash equivalents
provided by (used in) financing
activities........................ 11,597,209 (134,587) (1,502,949)
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents............................ (401,387) 389,120 639,101
Translation adjustment.................. -- (16,377) 43,390
Cash and cash equivalents, beginning of
year................................... 723,495 322,108 694,851
----------- ----------- -----------
Cash and cash equivalents, end of year.. $ 322,108 $ 694,851 $ 1,377,342
=========== =========== ===========
Supplemental disclosures of cash flow
information:
Cash paid during the year for--
Interest............................. $ 3,305,606 $ 3,912,421 $ 4,042,866
Income taxes......................... $ 3,309,830 $ 2,308,061 $ 3,248,839
Supplemental disclosures of noncash
investing and financing activities:
Note payable issued for purchase of
Levy Transport, Ltd................... $ -- $ 365,898 $ --
Receivable from tractors and trailors
leased under a capital lease.......... $ 6,482,752 $ 1,806,921 $ --
Tractors and trailors acquired by
capital lease......................... $ -- $ -- $ 368,793
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1997
1--BUSINESS ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
MTL Inc. and subsidiaries (the Company) is engaged primarily in truckload
transportation of bulk liquids in North America. The Company conducts a large
portion of its business through a network of affiliates and independent owner-
operators. Affiliates are independent corporations, which enter into renewable
one-year contracts with the Company. Affiliates are responsible for paying for
their own equipment (including debt service), fuel and other operating costs.
Independent owner-operators are independent contractors, which, through a
contract with the Company, supply one or more tractors and drivers for the
Company's use. Contracts with independent owner-operators may be terminated by
either party on short notice. The Company also charges affiliates and third
parties for the use of tractors and trailers as necessary. In exchange for the
services rendered, affiliates and independent owner-operators are generally
paid 85 percent and 63 percent, respectively, of the revenues generated for
each load hauled.
Purchase of Levy Transport, Ltd.
On June 11, 1996, the Company acquired all the outstanding stock of Levy
Transport, Ltd. (Levy), a Quebec-based tank truck carrier servicing the
chemical, petroleum and glass industries, from Les Placements Marlin, Ltd for
$5,148,745. The purchase price was determined based upon the fair market value
of the net assets acquired. The transaction was accounted for as a purchase
effective May 1, 1996, the date when control of Levy was transferred to the
Company. Goodwill in the amount of $1,616,000 was recorded as a result of the
acquisition. The Company is amortizing the goodwill over 15 years on a
straight-line basis.
Principles of Consolidation and Preparation
The consolidated financial statements include the accounts of the Company
Inc. and its wholly-owned subsidiaries, Montgomery, Quality Carriers, Inc.,
Lakeshore Leasing, Inc., the Company de Mexico and, beginning May 1, 1996,
Levy. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market and consist primarily of tires, parts, materials and supplies for
servicing the Company's revenue equipment.
Prepaid Tires
The cost of tires purchased with new equipment, as well as replacement
tires, are accounted for as prepaid tires and amortized on a straight-line
basis over their estimated useful lives, which approximate one year.
Property and Equipment
Property and equipment are stated at cost. Tractors and trailers under
capital leases is stated at the present value of the minimum lease payments at
the inception of the lease. Depreciation, including amortization of
F-7
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
tractors and trailors under capital leases, is computed on a straight-line
basis over the estimated useful lives of the assets or the lease terms,
whichever is shorter. The estimated useful lives are 10-25 years for buildings
and improvements, 5-15 years for tractors and trailers, 7 years for terminal
equipment, 3-5 years for furniture and fixtures, and 5-10 years for other
equipment. Maintenance and repairs are charged to operating expense when
incurred. Major improvements, which extend the lives of the assets, are
capitalized. When assets are disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any gains or losses are
reflected in operating expenses.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired and is being amortized on a straight-line basis over its estimated
useful life which ranges from 15 to 40 years. Accumulated amortization was
$313,949 and $419,589 at December 31, 1996 and 1997, respectively. At each
balance sheet date, the Company evaluates the realizability of goodwill based
upon expectations of non-discounted cash flows and operating income. Based on
the most recent analysis, the Company believes no material impairment exists
at December 31, 1997.
Other Assets
Other assets consist primarily of an investment in a barge tank operation
and deferred loan costs. The Company is a one-third partner in the barge tank
operation, and one of the other partners is a shareholder of the Company. The
partnership was organized to transport bulk liquids by barge tank from Florida
to Puerto Rico. the Company's investment in the partnership is accounted for
using the equity method. The Company's investment, including loans made (net
of loan repayments) to the partnership, was $447,198 and $475,323 as of
December 31, 1996 and 1997, respectively.
Deferred loan costs are being amortized over two to five years, the
estimated lives of the related long-term debt.
Accrued Loss and Damage Claims
The Company retains liability up to $75,000 per health claim and is self-
insured for cargo claims. For automotive liability, the Company has
deductibles ranging from $150,000 to $500,000 per occurrence. Prior to
September 1994, the Company retained liability for workers' compensation of up
to $250,000 per occurrence. Subsequent to this date, all workers' compensation
claims are fully insured. The Company has accrued for the estimated cost of
open claims based upon losses and claims reported and an estimate of losses
incurred but not reported.
The Company transports chemicals and hazardous materials and operates tank
wash facilities. As such, the Company's operations are subject to various
environmental laws and regulations. The Company has been involved in various
litigation and environmental matters arising from these operations. The
Company is currently designated a potentially responsible party (PRP) at six
Comprehensive Environmental Response, Compensation and Liability Act of 1980
(CERCLA) sites. The involved activities occurred in prior years and resulted
primarily from the transportation of waste or the cleaning of tank trailers at
third-party facilities. Although CERCLA liability is joint and several, in the
opinion of management, the Company has reviewed the financial stability of the
other PRPs and does not believe that its ultimate liability will be materially
affected by any financial uncertainties with respect thereto. In addition, at
five of the CERCLA sites, the Company is one of many (in most instances, one
of several hundred) PRP's named. Accordingly, based on the Company's
historical experience and available facts, in the opinion of management, a
material liability with respect to remediation of disposal sites to which the
Company may have delivered hazardous materials is not expected. Reserves have
been recognized for probable losses which can be estimated. There have been no
material changes in the
F-8
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recognized reserves, nor are material changes expected in the future, based on
the Company's activities at each of the locations. It is the opinion of
management that the ultimate disposition of these matters will not have a
material effect on the Company's financial position or results of operations.
Fair Value of Financial Instruments
The book value of all financial instruments approximates their fair value.
The fair value of the Company based on the above is not a market valuation of
the Company as a whole.
Revenue Recognition
Transportation revenues and related costs are recognized on the date freight
is delivered. Other operating revenues, consisting primarily of lease revenues
from affiliates, independent owner-operators and third parties, are recognized
as earned.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets 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. Actual results could differ from those estimates.
Foreign Currency Translation
The functional currency for Levy is Canadian dollars. The translation from
Canadian dollars to U.S. dollars is performed for balance sheet accounts using
current exchange rates in effect at the balance sheet date and for revenue and
expense accounts using a weighted average exchange rate in effect during the
period. The gains or losses, net of income taxes, resulting from such
translation are included in stockholders' equity. Gains or losses from foreign
currency transactions are included in other income (expense).
New Accounting Standards
In June 1997, the Financial Accounting Standards Board (FASB) released
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (SFAS 130) and No. 131, "Disclosures about Segments of an Enterprise
and Related Information" (SFAS 131).
SFAS 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in the financial statements and (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the stockholders' equity
section of the consolidated balance sheets.
SFAS 131 requires that a public business enterprise report financial and
descriptive information about its reportable operating segments.
SFAS 130 and SFAS 131 are effective for financial statements for periods
beginning after December 15, 1997. The Company has not considered the effects
of SFAS 130 and SFAS 131 on the consolidated financial statements.
Earning Per Share
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earning per Share" (SFAS 128). SFAS 128 establishes new
standards for computing and presenting earnings per share
F-9
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(EPS). Specifically, SFAS 128 replaces the presentation of primary EPS with a
presentation of basic EPS, requires dual presentation of basic and diluted EPS
on the face of the income statement and requires a reconciliation of the basic
EPS computation to the diluted EPS computation.
Basic EPS is calculated as net income divided by the weighted average number
of shares of common stock outstanding.
Diluted EPS is calculated using the treasury stock method under which net
income is divided by the weighted average number of common and common
equivalent shares outstanding during the year. Common stock equivalents
consist of options.
The reconciliation of basic EPS and diluted EPS is as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Basic weighted average number of common
shares................................... 4,516,153 4,520,917 4,536,097
Diluted effect of options outstanding..... 26,556 79,350 175,204
---------- ---------- ----------
Diluted weighted average number of common
and common equivalent shares............. 4,542,709 4,600,267 4,711,301
========== ========== ==========
</TABLE>
2--ACCOUNTS RECEIVABLE:
Accounts receivable consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Trade accounts receivable........................ $29,807,861 $35,538,018
Affiliate and independent owner-operator
receivables..................................... 3,157,212 2,963,221
Employee receivables............................. 102,317 127,454
Other receivables................................ 825,586 1,523,185
----------- -----------
Total receivables.............................. 33,892,976 40,151,878
Less--Allowance for doubtful accounts............ (1,397,265) (1,979,921)
----------- -----------
Accounts receivable, net....................... $32,495,711 $38,171,957
=========== ===========
</TABLE>
The activity in the allowance for doubtful accounts for each of the three
years in the period ended December 31, 1997, is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of period........... $ 923,055 $1,019,302 $1,397,265
Additions charged to operating
expenses.............................. 431,769 474,736 1,146,193
Write-off of bad debts................. (335,522) (96,773) (563,537)
---------- ---------- ----------
Balance, end of period................. $1,019,302 $1,397,265 $1,979,921
========== ========== ==========
</TABLE>
As of December 31, 1997, approximately 85 percent and 15 percent of trade
accounts receivable were due from companies in the chemical and bulk food
products industries, respectively. No single customer accounted for over 8
percent of the Company's operating revenues. Included in accounts and notes
receivable are $58,807 and $39,680 of receivables as of December 31, 1996 and
1997, respectively, which are due from other companies owned by related
parties.
F-10
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
3--OTHER RECEIVABLES:
Other receivables include the minimum lease payments due to the Company from
third parties for tractors and trailors leased under capital leases.
Future minimum lease payments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL LEASES
------------------------ --------------
<S> <C>
1998........................................................ $ 1,419,453
1999........................................................ 1,419,453
2000........................................................ 741,134
-----------
Total minimum lease payments................................ 3,580,040
Less--Unearned financing income............................. (429,775)
-----------
Present value of minimum capital lease payments............. 3,150,265
Less--Current maturities of other receivables............... (1,163,357)
-----------
Other receivables, less current maturities.................. $ 1,986,908
===========
</TABLE>
4--LONG-TERM DEBT:
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
PRIVATE PLACEMENT OF NOTES PAYABLE..................
Unsecured private placement of notes payable with a
fixed interest rate of 6.97%. Interest is payable
semi-annually and seven equal principal payments
are to be made annually beginning January 2000..... $25,000,000 $25,000,000
LINES OF CREDIT
Unsecured notes payable under a $50,000,000
revolving line of credit with interest rates of
LIBOR plus an incremental percentage based on the
ratio of funded debt to earnings before interest,
income taxes, depreciation and amortization (6.56%
at December 31, 1997) and U.S. prime less .25%
(8.25% at December 31, 1997). Interest is payable
at varying dates, and all outstanding principal is
due May 31, 2000, subject to renewal. Letters of
credit of $325,224 were issued as of December 31,
1997, and reduce the borrowings available.
Additional advances of $33,694,106 were available
and unused at December 31, 1997.................... 17,076,535 15,980,670
Unsecured notes payable under a $16,428,971
revolving line of credit with interest rates based
on the ratio of funded debt to earnings before
interest, income taxes, depreciation and
amortization (4.75% at December 31, 1997) and
Canadian lender's prime (6% at December 31, 1997).
Interest is payable at varying dates, and all
outstanding principal is due May 31, 2000, subject
to renewal. Additional advances of $5,942,394 were
available and unused at December 31, 1997.......... 6,795,292 10,486,577
NOTES SECURED BY TRACTORS AND TRAILORS
6.5% to 11.65% fixed rate notes payable, due in
varying monthly installments with maturity dates
through 1999....................................... 4,075,183 2,492,351
OTHER NOTES
5% unsecured note payable to employee, due in annual
installments of $69,911 through 2001............... 364,830 279,642
----------- -----------
53,311,840 54,239,240
Less--Current maturities of long-term debt.......... (1,611,249) (1,805,775)
----------- -----------
Long-term debt, less current maturities............. $51,700,591 $52,433,465
=========== ===========
</TABLE>
F-11
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Under the terms of the Company's debt agreements, the Company is required to
maintain, among other restrictions, minimum net worth levels, debt to net
worth ratios and debt service coverage ratios. In addition, the agreements
contain restrictions on asset dispositions and the payment of dividends. At
December 31, 1997, the Company was in compliance with the terms and covenants
of its debt agreements.
Scheduled maturities of long-term debt for the next five years and
thereafter are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ -----------
<S> <C>
1998........................................................... $ 1,805,775
1999........................................................... 812,300
2000........................................................... 30,122,683
2001........................................................... 3,641,340
2002........................................................... 3,571,429
Thereafter..................................................... 14,285,713
-----------
$54,239,240
===========
</TABLE>
5--LEASE COMMITMENTS:
The Company leases revenue and other equipment under operating and capital
leases.
Future minimum lease payments under non-cancelable operating leases and
capital leases at December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES
------------------------ -------------- ----------------
<S> <C> <C>
1998..................................... $539,502 $1,394,394
1999..................................... 157,456 185,142
2000..................................... 233,422 123,935
2001..................................... -- 49,560
-------- ----------
Total minimum lease payments............. 930,380 $1,753,031
==========
Less--Amount representing interest (at
rates ranging from 6.75% to 11.65%)....... (71,562)
--------
Present value of minimum capital lease pay-
ments..................................... 858,818
Less--Current maturities of obligations un-
der capital leases........................ (501,086)
--------
Obligations under capital leases, less cur-
rent maturities........................... $357,732
========
</TABLE>
The capitalized cost of equipment under capital leases, which is included in
tractors and trailors in the accompanying consolidated balance sheets, was as
follows at December 31:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Tractors and trailors................................ $6,499,900 $1,673,599
Less--Accumulated amortization....................... (2,317,947) (656,816)
---------- ----------
$4,181,953 $1,016,783
========== ==========
</TABLE>
Rent expense under operating leases was $958,162, $2,209,532 and $2,821,179
for the years ended December 31, 1995, 1996 and 1997, respectively.
F-12
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
6--GUARANTOR OF CERTAIN LEASE OBLIGATIONS:
In 1995 and 1996, the Company entered into capital leases for tractors and
trailers with certain affiliates and owner--operators. The Company then sold
to a third party the lease receivables for which it received $2,529,244 and
$979,104 in 1995 and 1996, respectively. There were no additional sales during
1997. The Company is contingently liable as the guarantor for the remaining
balance of the receivables sold of $2,769,801 at December 31, 1997. These
leases are collateralized by the equipment related to these leases. Management
estimated the fair value of this equipment to be $2,384,453 at December 31,
1997, which was based upon an average dealer-estimated repurchase price.
Also, in 1995 and 1996, the Company entered into capital leases for tractors
and trailors with other affiliates. The Company then sold to a third party the
lease receivables for which it received $3,282,030 and $202,141 in 1995 and
1996, respectively. There were no additional sales during 1997. The Company is
contingently liable as the guarantor for the remaining balance of the
receivables sold of $2,321,552 at December 31, 1997. These leases are
collateralized by the equipment related to these leases. Management estimated
the fair value of this equipment to be $1,938,665 at December 31, 1997, which
was based upon an average dealer-estimated repurchase price.
Reserves have been recognized by the Company for its estimated exposure
under the above guarantees. There have been no material changes in the
recognized reserves, nor are material changes expected in the future. It is
possible that the estimates used in determining these reserves and the fair
value may change. However, it is the opinion of management that the ultimate
difference in the estimates will not have a material effect on the Company's
financial position or results of operations.
7--OTHER TRANSACTIONS WITH RELATED PARTIES:
Tank trailer manufacturing facilities are located on property leased to a
stockholder by the Company. The property is under a lease for $5,000 per month
expiring April 1, 1999. The Company purchased tank trailers for $11,675,000,
$5,138,000 and $6,587,000 in 1995, 1996 and 1997, respectively, from the
company and has commitments to purchase additional tank trailers costing
approximately $2,467,000 at of December 31, 1997. Also, the related company
provided repair, maintenance, design, engineering, transloading, intermodal
and other services to the Company totaling $410,000, $572,000 and $347,000
during the years ended December 31, 1995, 1996 and 1997, respectively.
8--INCOME TAXES:
The provision for income taxes consisted of the following for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Currently payable:
Federal.................................. $1,800,607 $2,006,948 $2,945,692
State.................................... 718,075 773,975 1,062,227
---------- ---------- ----------
2,518,682 2,780,923 4,007,919
---------- ---------- ----------
Deferred taxes:
Federal.................................. 2,018,798 2,911,903 2,447,101
State.................................... 870,650 410,776 941,203
---------- ---------- ----------
2,889,448 3,322,679 3,388,304
---------- ---------- ----------
Provision for income taxes................. $5,408,130 $6,103,602 $7,396,223
========== ========== ==========
</TABLE>
F-13
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The net deferred tax liability, which includes no valuation allowances,
consisted of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Reserves for guarantee of lease obligations...... $ 291,631 $ 245,646
Capital leases treated as operating leases for
tax purposes as lessee.......................... 769,004 220,840
Tax credit carryforwards......................... 1,273,755 113,149
Self-insurance reserves.......................... 3,144,885 3,865,424
Allowance for doubtful accounts.................. 475,070 618,977
Investment basis difference...................... 206,323 216,855
Accrued vacation pay............................. 144,220 162,395
Other............................................ 119,191 174,530
------------ ------------
6,424,079 5,617,816
------------ ------------
Deferred tax liabilities:
Property and equipment basis difference.......... (21,819,799) (23,798,672)
State taxes...................................... (3,756,268) (4,562,246)
Capital leases treated as operating leases for
tax purposes as lessor.......................... (1,493,368) (1,132,308)
Other............................................ (284,783) (443,033)
------------ ------------
(27,354,218) (29,936,259)
------------ ------------
Net deferred tax liability..................... $(20,930,139) $(24,318,443)
============ ============
</TABLE>
The Company's effective tax rates differ from the federal statutory rate of
34 percent. The reasons for those differences are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Tax expense at the statutory rate....... $4,491,328 $5,079,705 $6,079,059
State income taxes, net of federal
benefit................................ 1,048,559 781,936 1,322,264
Other................................... (131,757) 241,961 (5,100)
---------- ---------- ----------
Provision for income taxes............ $5,408,130 $6,103,602 $7,396,223
========== ========== ==========
</TABLE>
At December 31, 1997, the Company had alternative minimum tax credit
carryforwards of $113,149 (no expiration).
The Company has not provided a valuation allowance for deferred tax assets
based upon the assumption that the Company will achieve sufficient taxable
income from operations in the future.
9--INCENTIVE STOCK OPTION PLAN:
In 1992, an incentive stock option plan (the Old Plan) was adopted which
allowed for 100,000 options to be granted to eligible employees. During 1994,
the Company's Board of Directors elected to adopt a new incentive stock option
plan (the Plan). The Plan absorbed the options granted under the Old Plan, and
an additional 200,000 options were approved for granting at an exercise price
not to be less than the market price of the common stock at the date of grant.
During 1996, an additional 400,000 shares were approved for granting under the
Plan. Options are granted at the discretion of the Board of Directors and are
exercisable for shares of unissued common stock or treasury stock. Options
vest 20 percent each year, other than 11,490 options granted in 1994 and
100,000 options granted in 1996, which vested immediately. Substantially all
employees, officers and directors are eligible for participation in the Plan.
F-14
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company uses Accounting Principles Board Opinion No. 25, "Accounting for
Stock-Based Compensation," and the related interpretations to account for the
Plan. No compensation cost has been recognized under the Plan as the option
price has been greater than or equal to the market price of the common stock
on the applicable measurement date for all options issued. The Company adopted
SFAS No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), for
disclosure purposes in 1996. For SFAS 123 purposes, the fair value of each
option grant has been estimated as of the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions: risk
free interest rate of 6.18 percent for options with an expected life of four
years and 6.39 percent for options with an expected life of six years,
expected option life of four or six years, expected dividend rate of 0
percent, and expected volatility of 30.05 percent. Using these assumptions,
the fair value of stock options granted in 1995 and 1996 are $222,110 and
$2,054,875, respectively, which would be amortized as compensation over the
vesting period of the options. No options were granted during 1997.
Had compensation cost relating to the Plan been determined based upon the
fair value at the grant date for awards under the Plan consistent with the
method described in SFAS 123, the Company's net income and earnings per share
would have been as follows for the years ended December 31:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<C> <S> <C> <C> <C>
Net income: As reported (in thousands)....... $7,802 $8,837 $10,483
Pro forma (in thousands)......... 7,725 8,010 10,217
Earnings per share: As reported...................... $ 1.72 $ 1.92 $ 2.23
Pro forma........................ 1.70 1.74 2.17
</TABLE>
Because the method of accounting described in SFAS 123 has not been applied
to options granted prior to January 1, 1995, the above may not be
representative of that in future years.
Combined stock option activity for the Plan for the years ended December 31,
1995, through December 31, 1997, is as follows:
<TABLE>
<CAPTION>
WEIGHTED
RANGE OF AVERAGE
NUMBER OF OPTION EXERCISE SHARES EXPIRATION
SHARES PRICES PRICE VESTED DATE
--------- ----------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
Options outstanding at
December 31, 1994......... 255,378 $6.25-15.00 $11.89 49,740 2002-2004
1995 option activity:
Vesting of prior-year
options................. -- 6.25-15.00 47,628 2002-2004
Granted.................. 43,461 15.00-15.50 15.17 -- 2005
Exercised................ (1,500) 6.25 6.25 (1,500) 2002
Canceled................. (19,916) 6.25-15.50 14.34 (1,894) 2002-2005
------- -------
Options outstanding at
December 31, 1995......... 277,423 6.25-15.50 12.26 93,974 2002-2005
1996 option activity:
Vesting of prior-year
options................. -- 6.25-15.50 59,073 2002-2005
Granted.................. 320,014 15.00-18.25 17.68 100,000 2006
Exercised................ (6,506) 6.25-15.00 7.33 (6,506) 2002-2004
Canceled................. (13,869) 6.25-16.00 15.07 (1,791) 2002-2006
------- -------
Options outstanding at
December 31, 1996......... 577,062 6.25-18.25 15.24 244,750 2002-2006
1997 option activity:
Vesting of prior-year
options................. -- 6.25-18.25 82,576 2002-2006
Exercised................ (26,085) 6.25-15.50 11.95 (26,085) 2002-2006
Canceled................. (13,799) 6.25-15.50 14.60 (1,266) 2002-2006
------- -------
Options outstanding at
December 31, 1997......... 537,178 6.25-18.25 15.42 299,975 2002-2006
======= =======
</TABLE>
F-15
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 537,178 options outstanding at December 31, 1997, are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
WEIGHTED AVERAGE AVERAGE
AVERAGE REMAINING EXERCISE PRICE
NUMBER OF EXERCISE CONTRACTUAL SHARES OF VESTED
PRICE RANGE SHARES PRICE LIFE (IN YEARS) VESTED SHARES
----------- --------- -------- --------------- ------- --------------
<S> <C> <C> <C> <C> <C>
$6.25 72,250 $ 6.25 4.48 72,250 $ 6.25
15.00-18.25 464,928 16.61 8.01 227,725 16.61
</TABLE>
The Company expects that approximately 10 percent of the outstanding awards
at December 31, 1997, will eventually be forfeited. At December 31, 1997, a
total of 128,631 authorized shares remain available for granting.
10--PROFIT SHARING PLAN:
The Company has a profit sharing plan for substantially all employees.
Contributions are made at the discretion of the Board of Directors. A $300,000
contribution was made for 1995 and 1996. A $300,000 contribution was approved
for 1997.
11--GEOGRAPHIC SEGMENTS:
The Company's operations are located primarily in the United States and
Canada. Inter-area sales are not significant to the total revenue of any
geographic area. Information about the Company's operations in different
geographic areas for the years ended December 31, 1996 and 1997, is as
follows:
<TABLE>
<S> <C> <C> <C> <C>
1996
----
<CAPTION>
U.S. CANADA ELIMINATIONS CONSOLIDATED
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues.................. $212,507,777 $23,888,584 $ (797,162) $235,599,199
Operating income.......... 17,426,252 793,713 -- 18,219,965
Identifiable assets....... 159,976,020 23,283,660 (9,655,410) 173,604,270
Depreciation and
amortization............. 12,530,449 1,361,895 -- 13,892,344
Capital expenditures...... 20,243,835 332,708 -- 20,576,543
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
1997
----
<CAPTION>
U.S. CANADA MEXICO ELIMINATIONS CONSOLIDATED
------------ ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Revenues...... $252,942,603 $33,818,166 $ 356,065 $ (1,069,709) $286,047,125
Net operating income.... 19,977,129 913,745 202,020 -- 21,092,894
Identifiable assets..... 178,347,163 26,340,103 4,574,919 (15,225,804) 194,036,381
Depreciation and
amortization........... 14,707,920 2,483,677 143,524 -- 17,335,121
Capital expenditures.... 23,042,573 8,332,387 3,745,916 -- 35,120,876
</TABLE>
12--SUBSEQUENT EVENTS:
On February 10, 1998, the Company entered into an agreement with Sombrero
Acquisition Corporation (Sombrero), an affiliate of Apollo Management LP
(Apollo), pursuant to which Sombrero will merge with the Company. According to
the terms of the merger agreement, stockholders of the Company will receive
$40 per share in cash. The total transaction value is approximately $250
million, including outstanding stock options, fees and approximately $54
million of net debt.
The transaction will be subject to the customary conditions, including the
affirmative vote of the holders of a majority of the outstanding stock of the
Company.
F-16
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company will be funded by an equity investment of approximately $70
million from Apollo and members of the Company's existing management.
Approximately $200 million of senior subordinated and bank debt will be used
to finance the acquisition. Additionally, a $100 million revolving credit
facility will be available to the Company for working capital and acquisition
purposes.
13--GUARANTOR SUBSIDIARIES:
The 10% Series B Senior Subordinated Notes issued in June 1998 and due 2006
are unconditionally guaranteed on a senior unsecured basis pursuant to
guarantees by all the Company's direct and indirect domestic subsidiaries (the
Guarantors). In 1996, the Company acquired Levy Transport, Ltd., a Canadian
Corporation, which is the only non-guarantor subsidiary.
The Company conducts all of its business through and derives virtually all
its income from its subsidiaries. Therefore, the Company's ability to make
required principal and interest payments with respect to the Company's
indebtedness (including the notes) and other obligations depends on the
earnings of subsidiaries and its ability to receive funds from its
subsidiaries through dividends or other payments.
The following condensed consolidating financial information presents:
1. Condensed consolidating balance sheets at December 31, 1997 and 1996
and condensed consolidating statements of operations and of cash
flows for the two years then ended.
2. The parent company and combined guarantor subsidiaries.
3. Elimination entries necessary to consolidate the parent company and
all its subsidiary.
F-17
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT AND
GUARANTOR NON-GUARANTOR
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 1,002,411 $ 374,817 $ -- $ 1,377,228
Accounts receivable,
net.................. 35,714,253 5,266,998 (2,809,294) 38,171,957
Inventories........... 622,120 335,704 -- 957,824
Prepaid expenses and
other current
assets............... 10,739,656 4,372,312 (3,443,115) 11,668,853
------------ ----------- ------------ ------------
Total current
assets............. 48,078,440 10,349,831 (6,252,409) 52,175,862
Property and equipment,
net.................... 122,056,705 14,453,672 -- 136,510,377
Goodwill, net........... 750,039 1,253,434 -- 2,003,473
Notes receivable........ 1,986,908 -- -- 1,986,908
Other assets............ 10,049,990 283,166 (8,973,395) 1,359,761
------------ ----------- ------------ ------------
$182,922,082 $26,340,103 $(15,225,804) $194,036,381
============ =========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses..... $ 18,366,290 $ 4,521,461 $ (2,780,463) $ 20,107,288
Current maturities of
indebtedness......... 1,852,285 1,458,330 (1,003,754) 2,306,861
Independent
contractors payable.. 6,357,875 73,690 -- 6,431,565
Income taxes payable.. 798,292 -- -- 798,292
------------ ----------- ------------ ------------
Total current
liabilities........ 27,374,742 6,053,481 (3,784,217) 29,644,006
Long-term debt, less
current maturities..... 41,788,205 13,377,339 (2,732,079) 52,433,465
Obligations under
capital leases......... 357,732 -- -- 357,732
Accrued loss and damage
claims................. 5,064,843 -- -- 5,064,843
Deferred income tax..... 25,340,024 1,664,016 -- 27,004,040
------------ ----------- ------------ ------------
Total liabilities... 99,925,546 21,094,836 (6,516,296) 114,504,086
Shareholders' equity:
Common stock and
additional paid-in-
capital.............. 34,049,645 5,148,815 (8,693,823) 30,504,637
Retained earnings..... 48,946,891 293,742 -- 49,240,633
Cumulative translation
adjustments.......... -- (197,290) (15,685) (212,975)
------------ ----------- ------------ ------------
Total shareholders'
equity............. 82,996,536 5,245,267 (8,709,508) 79,532,295
------------ ----------- ------------ ------------
$182,922,082 $26,340,103 $(15,225,804) $194,036,381
============ =========== ============ ============
</TABLE>
F-18
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT AND NON-
GUARANTOR GUARANTOR
SUBSIDIARY SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............ $ 37,861 $ 656,990 $ -- $ 694,851
Accounts receivable,
net.................... 27,307,838 6,100,936 (913,063) 32,495,711
Inventories............. 581,094 296,588 -- 877,682
Prepaid expenses and
other current assets... 10,901,272 4,412,335 (3,593,602) 11,720,005
------------ ----------- ----------- ------------
Total current assets.. 38,828,065 11,466,849 (4,506,665) 45,788,249
Property and equipment,
net...................... 110,749,532 10,153,585 -- 120,903,117
Goodwill, net............. 774,202 1,659,549 -- 2,433,751
Notes receivable.......... 3,284,918 -- -- 3,284,918
Other assets.............. 6,339,303 3,677 (5,148,745) 1,194,235
------------ ----------- ----------- ------------
$159,976,020 $23,283,660 $(9,655,410) $173,604,270
============ =========== =========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses....... $ 16,526,422 $ 3,011,148 $ (534,359) $ 19,003,211
Current maturities of
indebtedness........... 3,184,007 1,599,715 (559,680) 4,224,042
Income taxes payable.... 50,186 101,772 -- 151,958
------------ ----------- ----------- ------------
Total current
liabilities.......... 19,760,615 4,712,635 (1,094,039) 23,379,211
Long-term debt, less
current maturities....... 44,443,683 10,656,728 (3,399,820) 51,700,591
Obligations under capital
leases................... 318,455 1,086,034 -- 1,404,489
Accrued loss and damage
claims................... 4,528,354 -- -- 4,528,354
Deferred income tax....... 22,149,511 1,528,791 -- 23,678,302
------------ ----------- ----------- ------------
Total liabilities..... 91,200,618 17,984,188 (4,493,859) 104,690,947
Shareholders' equity:
Common stock and
additional paid-in-
capital................ 30,184,766 5,148,816 (5,148,816) 30,184,766
Retained earnings....... 38,590,636 166,634 -- 38,757,270
Cumulative translation
adjustments............ -- (15,978) (12,735) (28,713)
------------ ----------- ----------- ------------
Total shareholders'
equity............... 68,775,402 5,299,472 (5,161,551) 68,913,323
------------ ----------- ----------- ------------
$159,976,020 $23,283,660 $(9,655,410) $173,604,270
============ =========== =========== ============
</TABLE>
F-19
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues
Transportation............ $233,347,342 $33,379,815 $ (357,987) $266,369,170
Other..................... 19,951,326 438,351 (711,722) 19,677,955
------------ ----------- ----------- ------------
Total Revenues.......... 253,298,668 33,818,166 (1,069,709) 286,047,125
Operating Expenses
Purchased transportation.. 167,462,564 11,723,624 (1,069,709) 178,116,479
Compensation, options and
bonus.................... 21,583,421 9,982,839 -- 31,566,260
Depreciation and
amortization............. 14,851,444 2,483,677 -- 17,335,121
Other operating expenses.. 29,222,089 8,714,282 -- 37,936,371
------------ ----------- ----------- ------------
Operating income or
(loss)................. 20,179,150 913,744 -- 21,092,894
Interest expense, net....... 2,553,346 621,480 -- 3,174,826
Other expense............... 38,482 -- -- 38,482
------------ ----------- ----------- ------------
Income before taxes....... 17,587,322 292,264 -- 17,879,586
Income taxes................ 7,231,060 165,163 7,396,223
------------ ----------- ----------- ------------
Net income.................. $ 10,356,262 $ 127,101 $ -- $ 10,483,363
============ =========== =========== ============
</TABLE>
F-20
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING INCOME STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenues
Transportation.......... $194,296,971 $23,888,584 $(373,610) $217,811,945
Other................... 18,210,806 -- (423,552) 17,787,254
------------ ----------- --------- ------------
Total revenues........ 212,507,777 23,888,584 (797,162) 235,599,199
Operating Expenses
Purchased
transportation......... 139,228,442 7,464,176 (797,162) 145,895,456
Compensation, options
and bonus.............. 19,691,207 6,509,516 -- 26,200,723
Depreciation and
amortization........... 12,530,449 1,361,895 -- 13,892,344
Other operating
expenses............... 23,631,427 7,759,284 -- 31,390,711
------------ ----------- --------- ------------
Operating income or
(loss)............... 17,426,252 793,713 -- 18,219,965
Interest expense, net..... 3,017,207 477,269 -- 3,494,476
Other income, net......... (214,820) -- -- (214,820)
------------ ----------- --------- ------------
Income before taxes..... 14,623,865 316,444 -- 14,940,309
Income taxes.............. 5,953,794 149,808 -- 6,103,602
------------ ----------- --------- ------------
Net income................ $ 8,670,071 $ 166,636 -- $ 8,836,707
============ =========== ========= ============
</TABLE>
F-21
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARENT AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash provided by (used
for) Operating
activities:
Net income............. $ 10,356,262 $ 127,101 $ -- $10,483,363
Adjustments for non
cash charges.......... 18,055,139 2,581,853 -- 20,636,992
Changes in assets and
liabilities........... (2,665,468) 2,013,338 3,363,983 2,711,853
------------ ---------- ---------- -----------
Net cash provided by
operating
activities.......... 25,745,933 4,722,292 3,363,983 33,832,208
Investing activities:
Capital expenditures... (26,788,489) (8,332,387) -- (35,120,876)
Proceeds from asset
dispositions.......... 800,296 1,340,565 -- 2,140,861
Payments received as
other receivables..... 1,196,594 -- -- 1,196,594
Other.................. 93,263 -- -- 93,263
------------ ---------- ---------- -----------
Net cash used for
investing
activities.......... (24,698,336) (6,991,822) $ -- (31,690,158)
Financing activities:
Proceeds from issuance
of long term debt..... -- 3,975,847 -- 3,975,847
Payment of
obligations........... (3,947,920) (2,051,927) 201,186 (5,798,661)
Issuance of common
stock--net............ 3,864,873 -- (3,545,008) 319,865
------------ ---------- ---------- -----------
Net cash provided by
financing
activities.......... (83,047) (1,923,920) (3,343,822) (1,502,949)
Net increase in cash... 964,550 (345,610) 20,161 639,101
Effect of exchange rate
changes on cash....... -- 63,437 (20,161) 43,276
Cash, beginning of
period................ 37,861 656,990 -- 694,851
------------ ---------- ---------- -----------
Cash, end of period.... $ 1,002,411 $ 374,817 $ -- $ 1,377,228
</TABLE>
F-22
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARENT AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Cash provided by (used
for) Operating
activities:
Net income............. $ 8,670,071 $ 166,636 -- $ 8,836,707
Adjustments for non
cash charges.......... 14,227,114 2,868,846 -- 17,095,960
Changes in assets and
liabilities........... (1,518,843) (2,475,727) 365,898 (3,628,672)
------------ ----------- --------- ------------
Net cash provided by
(used for) operating
activities.......... 21,378,342 559,755 365,898 22,303,995
Investing activities:
Capital expenditures... (20,243,835) (332,708) -- (20,576,543)
Proceeds from asset
dispositions.......... 2,053,294 179,919 -- 2,233,213
Investments............ (4,725,502) -- -- (4,725,502)
Payments received on
other receivables..... 1,025,614 -- -- 1,025,614
Other.................. 262,930 -- -- 262,930
------------ ----------- --------- ------------
Net cash used for
investing
activities.......... (21,627,499) (152,789) -- (21,780,288)
Financing activities:
Proceeds from sale of
lease receivables..... 1,181,245 -- -- 1,181,245
Proceeds from issuance
of long term debt..... 31,000,000 4,409,834 (365,898) 35,043,936
Payment of
obligations........... (32,264,049) (4,143,433) -- (36,407,482)
Issuance of common
stock--net............ 47,714 -- -- 47,714
------------ ----------- --------- ------------
Net cash provided by
financing
activities.......... (35,090) 266,401 (365,898) (134,587)
Net increase in cash..... (284,247) 673,367 -- 389,120
Effect of exchange rate
changes on cash......... -- (16,377) -- (16,377)
Cash, beginning of
period.................. 322,108 -- -- 322,108
------------ ----------- --------- ------------
Cash, end of period...... $ 37,861 $ 656,990 -- $ 694,851
</TABLE>
F-23
<PAGE>
MTL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED) *
<S> <C> <C>
Current Assets
Cash............................................. $ 11,507 $ 1,377
Accounts receivable.............................. 97,054 40,152
Allowance for doubtful accounts.................. (2,463) (1,980)
Current maturities of other receivables.......... 1,163 1,163
Notes receivable................................. 664 547
Inventories...................................... 1,752 958
Prepaid expenses................................. 3,198 2,822
Prepaid tires.................................... 7,590 4,324
Income tax receivable............................ 4,107 --
Deferred income taxes............................ 6,125 2,686
Other............................................ 3,311 127
-------- --------
Total current assets........................... 134,008 52,176
Property, Plant and Equipment...................... 333,948 211,530
Less--accumulated depreciation and amortization.. (88,708) (75,020)
-------- --------
245,240 136,510
Goodwill and Other Intangibles..................... 138,049 2,003
Insurance proceeds and other environmental
receivables....................................... 46,035 --
Other Assets....................................... 36,360 3,347
-------- --------
$599,692 $194,036
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(UNAUDITED) *
<S> <C> <C>
Current Liabilities
Current maturities of indebtedness............... $ 2,940 $ 2,307
Accounts payable and accrued expenses............ 70,564 15,201
Independent contractors payable................ 9,639 6,432
Other current liabilities...................... 12,774 4,906
Income tax payable............................. 1,076 798
-------- --------
Total current liabilities.................... 96,993 29,644
Bank facility debt, less current maturities........ 292,033 52,433
Capital lease obligations, less current
maturities........................................ 230 358
Subordinated debt, less current maturities......... 140,000 --
Environmental liabilities.......................... 68,623 1,663
Accrued loss and damage claims..................... 15,178 3,402
Other long term liabilities........................ 6,856 --
Deferred income taxes.............................. 3,007 27,004
Commitments and contingent liabilities
Minority Interest in subs.......................... 4,825 --
Mandatorily redeemable preferred stock............. 15,500 --
Redeemable common stock............................ 1,210 --
Stockholders' Equity
Common stock..................................... 20 45
Additional paid-in-capital....................... 104,807 30,459
Retained earnings................................ 42,137 49,241
Stock recapitalization........................... (189,589) --
Other stockholders' equity....................... (741) (213)
Note receivable.................................. (1,397) --
-------- --------
Total stockholders' equity (deficit)............. (44,763) 79,532
-------- --------
$599,692 $194,036
======== ========
</TABLE>
- --------
* Condensed from audited financial statements.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-24
<PAGE>
MTL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ --------------------
1998 1997 1998 1997
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Operating Revenues
Transportation..................... $238,694 $198,694 $ 100,927 $ 68,967
Other.............................. 16,771 14,439 5,916 4,977
-------- -------- --------- ---------
255,465 213,133 106,843 73,944
Operating Expenses
Purchased transportation........... 152,828 132,147 61,395 44,082
Depreciation and amortization...... 18,126 12,580 8,210 4,529
Compensation, options and bonus.... 14,678 -- 1,235 --
Other operating expenses........... 66,605 52,469 30,721 19,599
-------- -------- --------- ---------
Operating income................. 3,228 15,937 5,282 5,734
Interest expense, net.............. 9,907 2,375 6,602 820
Other expense...................... (34) (48) (18) (29)
-------- -------- --------- ---------
Income (loss) before taxes....... (6,645) 13,610 (1,302) 4,943
Income taxes....................... (2,704) 5,593 (445) 2,015
-------- -------- --------- ---------
Net income (loss) before
extraordinary item.............. (3,941) 8,017 (857) 2,928
Extraordinary item (early
extinguishment of debt), net of
tax............................... 3,078 -- 2,455 --
-------- -------- --------- ---------
Net income (loss).................. $ (7,019) $ 8,017 $ (3,312) $ 2,928
======== ======== ========= =========
Preferred stock dividend........... $ 85 -- -- --
-------- -------- --------- ---------
Net income (loss) attributable to
common shareholders............... $ (7,104) $ 8,017 $ (3,312) $ 2,928
======== ======== ========= =========
Per Share Data:
Basic earnings per share
Net income (loss) before
extraordinary item................ $ (1.16) $ 1.77 $ (0.25) $ 0.65
Extraordinary item............... (0.89) N/A (0.71) N/A
-------- -------- --------- ---------
Net earnings (loss) per common
share......................... $ (2.05) $ 1.77 $ (0.95) $ 0.65
======== ======== ========= =========
Average shares outstanding......... 3,471 4,533 1,850 4,539
======== ======== ========= =========
Diluted earnings per common share
Net income before extraordinary
item............................ N/A $ 1.71 N/A $ 0.62
Extraordinary item............. N/A N/A N/A N/A
-------- -------- --------- ---------
Net earnings per share......... N/A $ 1.71 N/A $ 0.62
======== ======== ========= =========
Average shares outstanding........... N/A 4,700 N/A 4,719
======== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-25
<PAGE>
MTL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1998 1997
---------------- ---------------
<S> <C> <C>
Cash provided by (used for)
Operating activities:
Net income (loss).......................... $ (7,019) $ 8,017
Adjustments for non cash charges........... 2,181 15,296
Changes in assets and liabilities.......... (21,680) 2,988
---------------- --------------
Net cash provided by (used for) operating
activities................................ (26,518) 26,301
Investing activities:
Acquisition of Subsidiary.................. (203,844) (3,677)
Capital expenditures....................... (24,120) (23,028)
Proceeds from asset dispositions........... 1,263 (86)
Other...................................... (18,256) --
---------------- --------------
Net cash used for investing activities..... (244,957) (26,791)
Financing activities:
Proceeds from issuance of long term debt... 434,905 4,328
Payment of obligations..................... (55,053) (4,264)
Recapitalization expenditures.............. (189,590) --
Issuance of preferred stock - net.......... 15,500 --
Issuance of common stock - net............. 74,334 261
Other...................................... 1,528 --
---------------- --------------
Net cash provided by financing activities.. 281,624 325
---------------- --------------
Net decrease in cash......................... 10,149 (164)
Effect of exchange rate changes on cash...... (19) 81
Cash, beginning of period.................... 1,377 695
---------------- --------------
Cash, end of period.......................... $ 11,507 $ 612
================ ==============
Cash payments for:
Interest................................... $ 3,104 $ 2,823
Income taxes............................... $ 1,874 $ 2,051
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-26
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
The accompanying unaudited condensed, consolidated financial statements of
MTL Inc. ("the Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and notes for the year ended December 31, 1997, included in the
Company's Form 10K dated March 23, 1998. Operating results for the quarter
ended September 30, 1998 are not necessarily indicative of the results that
may be expected for the entire fiscal year.
2. RECAPITALIZATION:
On June 9, 1998, the Company completed the transactions contemplated by an
agreement with Sombrero Acquisition Corporation ("Sombrero"), an affiliate of
Apollo Management L.P. ("Apollo"), pursuant to which Sombrero merged with and
into the Company. According to the terms of the merger agreement, the
stockholders of the Company (other than certain management shareholders)
received $40.00 per share in cash. The total transaction value was
approximately $250.0 million, including payment for outstanding stock option
and payment of approximately $51.0 million in debt.
The transaction was accounted for as a leveraged recapitalization.
The recapitalization was funded by a cash equity investment of approximately
$62.3 million from Apollo, members of the Company's existing management, and
third party financing sources. Recapitalization expenditures charged to equity
were $189.6 million. $140.0 million of senior subordinated debt was used to
finance the acquisition along with $60.0 million of senior secured bank debt.
Additionally, a $100 million revolving credit facility was available to the
Company for working capital and acquisition purposes.
3. CHEMICAL LEAMAN CORPORATION TRANSACTIONS:
On August 28, 1998, the Company completed its agreement and plan of merger
with Chemical Leaman Corporation ("CLC") and the shareholders of CLC in a
transaction accounted for as a purchase. The total transaction value was
approximately $267 million, including the refinancing of approximately $171
million of debt. The sources of funds to consummate the merger were additional
loans of approximately $235.0 million, preferred equity of approximately $20.0
million and common equity of approximately $12.0 million. Approximately $136
million of the purchase price has been allocated to goodwill which are being
amortized over a period of 40 years. While the allocation of the purchase
price is not finalized due to the existence of certain contingencies at the
effective date of the acquisition of CLC (including certain indemnifications
related to the acquisition agreements, environmental liabilities and
integration implementation), management feels the final allocation will not
differ materially from the allocation at September 30, 1998.
In connection with the CLC Merger, an accrual was recorded for transaction
bonuses and planned severance, relocation and related expenses of $19.6
million. The Company has formulated a preliminary plan of integration
including termination and relocation of certain personnel of CLC. The
preliminary plan was prepared from an assessment performed by functional and
includes all regional and national administration and operational departments.
Management has begun to implement the preliminary plan and expects to finalize
and communicate plans to all affected employees within one year of the
consummation of the acquisition. Some uncertainties exist which may change the
plan during the initial implementation, although management does not believe
the final costs will differ materially from the reserve estimate at September
30, 1998. Management also expects to substantially complete the integration by
the end of 1999.
F-27
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
Additionally in connection with the CLC Merger, on July 28, 1998, the
Company commenced a Tender Offer for the $100 million principal amount of
outstanding 10 3/8% Senior Notes due 2005 issued by CLC. The Tender Offer was
subject to the consummation of the CLC Merger. The Company accepted all
validly tendered CLC Notes (constituting 100% of the outstanding CLC Notes)
for payment and paid to the holders the tender offer consideration and a
related consent payment. The purchase price was equal to:
(i) the present value on the payment date of $1,051.88 per note (the
amount payable on June 15, 2001, which is the first date on which the notes
are redeemable) ("the Earliest Redemption Date")) and all future interest
payments payable up to the Earliest Redemption Date, determined on the
basis of a yield to the Earliest Redemption Date equal to the sum of (x)
the yield on the 5 5/8% U.S. Treasury Notes due May 15, 2001, based on the
bid price for such security as of 2:00 p.m., New York City time, on August
19, 1998, the third business day immediately preceding the scheduled
expiration date of the tender offer, plus (y) 75 basis points less (ii) a
consent payment of $20.00 per $1,000.00 principal amount on notes for which
a valid consent to certain matters relating to the notes is received in
connection with the tender offer.
The following disclosure gives the effect to the acquisition between the
Company and CLC as if CLC had been owned for the entire periods presented.
Pro forma revenues for the nine months ended September 30, 1998, and 1997
were $494.5 million and $458.1 million, respectively. Pro forma net loss
before extraordinary items for the nine months ended September 30, 1998, and
1997 was ($11.0 million) and ($5.5 million), respectively. Pro forma basic and
diluted earnings per common share were ($2.92 million) and ($1.14 million) for
the nine months ended September 30, 1998 and 1997, respectively.
4. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS
130). SFAS 130 requires that an enterprise: (a) classify items of other
comprehensive income by their nature in the financial statements; and, (b)
display the accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in-capital in the stockholders' equity
section of the consolidated balance sheets for annual financial statements.
The Company adopted SFAS 130 in 1998 and accordingly, Comprehensive Income
is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30,
------------------- --------------------
1998 1997 1998 1997
--------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net Income or (loss) attributable
to common shareholders............ $ (7,104) $ 8,017 $ (3,312) $ 2,928
Other comprehensive income, net of
tax:
Foreign currency translation
adjustments....................... (528) (65) (286) (21)
--------- -------- --------- ---------
Comprehensive Income or (loss).... $ (7,632) $ 7,952 $ (3,598) $ 2,907
========= ======== ========= =========
</TABLE>
In June 1997, the Financial Accounting Standards Board released Statement of
Financial Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 requires that a public business
enterprise report financial and descriptive information about its reportable
segments. The Company is evaluating the effects of SFAS 131 on the
consolidated financial statements.
F-28
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
5. CONTINGENCIES/LITIGATION
MTL and CLC's activities involve the handling, transportation, storage, and
disposal of bulk liquid chemicals, many of which are classified as hazardous
materials, hazardous substances, or hazardous wastes. The combined companies'
tank wash and terminal operations engage in the storage or discharge of
wastewater and stormwater that may contain hazardous substances, and from time
to time MTL and CLC store diesel fuel and other petroleum products at their
terminals. As such, MTL and CLC are subject to environmental, health and
safety laws and regulations by U.S. federal, state, local and Canadian
government authorities. Environmental laws and regulations, are complex,
change frequently and have tended to become more stringent over time. There
can be no assurance that violations of such laws or regulations will not be
identified or occur in the future, or that such laws and regulations will not
change in a manner that could impose material costs on MTL and CLC.
As handlers of hazardous substances, MTL and CLC are potentially subject to
strict, joint and several liability for investigating and rectifying the
consequences of spills and other environmental releases of such substances
either under CERCLA or comparable state laws. From time to time, MTL and CLC
have incurred remedial cost and regulatory penalties with respect to chemical
or wastewater spills and releases at its facilities. In addition, MTL's
relationship could, under certain circumstances, result in MTL incurring
environmental liabilities attributable to affiliates operations, although MTL
has not incurred any such related liability in the past.
As a result of environmental studies being conducted at its facilities in
conjunction with its environmental program, MTL has identified environmental
contamination at certain of such sites which will require environmental
remediation. Additionally, MTL has been named a "potentially responsible
party," or has otherwise been alleged to have some level of responsibility,
under CERCLA or similar state laws for cleanup of off-site locations at which
MTL's waste, or material transported by MTL, has allegedly been disposed.
While the Company believes the environmental liability is a reasonable
estimate based on known probable events at September 30, 1998, certain
preacquisition contingencies exist (including, among other, success of
remediation plans, negotiations with state and federal agencies, final
allocation of responsibility for certain sites and settlement of certain
indemnifications and escrows created in connection with the acquisition of
CLC). These preacquisition contingencies may require adjustment to the
purchase price of CLC in accordance with SFAS 38, "Accounting for Certain
Preacquisition Contingencies of Purchased Enterprises."
As of September 30, 1998, MTL's recorded environmental liabilities include
two federal superfund sites where CLC is the sole party responsible for
remediation, certain sites where MTL or CLC have been named a potentially
responsible party and other sites where the Company has identified
environmental contamination. MTL's recorded assets as of September 30, 1998
include funds receivable from excess carriers related to the Company's
Bridgeport, New Jersey site and certain indemnifications (including escrow on
seller proceeds) from the former shareholders related to the CLC acquisition.
While the Company believes they may have valid insurance claims with respect
to liabilities in addition to Bridgeport, New Jersey, MTL has not recorded
assets with respect to these other sites. Due to the uncertainty of timing of
the actual receipts and disbursements of funds related to MTL's recorded
environmental assets and liabilities, amounts are recorded on an undiscounted
basis.
FEDERAL SUPERFUND SITES
CLC is currently the sole party responsible for remediation of the following
two federal Superfund sites:
Bridgeport, New Jersey
During 1991, CLC 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.),
F-29
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
with respect to its site located in Bridgeport, New Jersey, requiring CLC to
remediate groundwater contamination. The consent Decree required CLC to
undertake Remedial Design and Remedial Action ("RD/RA") related to the
groundwater operable unit of the cleanup.
In August 1994, the EPA issued a Record of Decision, ("ROD") selecting a
remedy for the wetlands operable unit at the Bridgeport site. In October 1998,
the EPA issued an administrative order that requires CLC to implement the
EPA's wetlands remedy. In April 1998, the federal and state natural resource
damages trustees indicated their intention to bring claims against CLC for
natural resource damages at the Bridgeport site. The trustees' have indicated
that their demand for natural resources damages is due to groundwater loss,
land use loss an oversight cost reimbursement. CLC is currently negotiating
with the state and federal trustees to enter a consent decree that will
resolve the natural resource damages claims. CLC has also entered an agreement
in principle to reimburse the EPA for past costs in investigating and
overseeing activities at the Site. In addition, the EPA has investigated
contamination in sit soils. No decision has been made as to the extent of soil
remediation to be required, if any.
CLC 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 at., 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 CLC 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, CLC and its
primary insurer settled all of CLC'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. In September 1997, the District Court issued an
order allocating liability among applicable policies. An appeal from the
allocation is currently pending before the Third Circuit. Since some of CLC's
insurance carriers are insolvent, allocation of the costs among the insurers
will affect the amount of recovery CLC can expect to receive. CLC anticipates
that it will recover the majority of the costs associated with remediation of
the Bridgeport site, including attorneys fees and expenses, from its insurance
carriers.
West Caln Township, PA.
The EPA has alleged that CLC disposed of Hazardous Materials at the William
Dick Lagoons Superfund Site in West Caln, Pennsylvania. On October 10, 1995,
CLC entered a Consent Decree with the EPA which required CLC to (1) pay the
EPA for installation of an alternate water line to provide water to area
residents; (2) perform an interim groundwater remedy at the site; and (3)
conduct soil remediation. U.S. v. Chemical Leaman Tank Lines, Inc., Civil
Action No. 95-CV-4264 (RJB) (E.D. Pa.). CLC has paid all costs associated with
installation of the waterline. CLC is currently performing a hydrogeologic
study, and upon completion of the study will construct a groundwater treatment
plant to pump and treat groundwater. The EPA anticipates that CLC will operate
the plant for about five years, at which time the EPA will evaluated
groundwater conditions and determine whether a final groundwater remedy is
necessary. Soil remediation has not yet commenced because CLC is awaiting the
EPA's approval for certain items required for the soil remedy. The Consent
Decree does not cover the final groundwater remedy or other site remedies or
claims, if any, for natural resource damage.
POTENTIALLY RESPONSIBLE PARTY AND OTHER SITES
Potentially Responsible Party Sites
CLC has been named as a PRP under CERCLA and similar state laws at
approximately 40 former waste treatment and/or disposal sites. In general, CLC
is among several PRPs named at these sites. Based upon the
F-30
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
information known at this time, CLC's involvement at these sites generally
arises from shipment of wastes by or for CLC 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 CLC's involvement and the
expected participation of a number of other PRP's at these sites, CLC 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. CLC is also incurring expenses
resulting from the remediation of certain CLC-owned sites.
In October of 1989, the New Jersey Department of Environmental Protection
filed a claim against CLC and other defendants seeking reimbursement of
response costs for remediation of the Helen Kramer Landfill in Mantua, New
Jersey. This case was consolidated with a similar case brought by the EPA
against many of the same defendants. The defendants in these cases have filed
third party claims against more than 250 third party defendants. In August
1998, the court entered three consent decrees whereby EPA, NJDEP and many of
the parties, including CLC, resolved the litigation and claims regarding the
site. The consent decrees require the settling defendants to make specified
payments over the next three years and to operate and maintain the site for
the next twenty six years.
Tonawanda
In April 1997, CLC 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 CLC
at its Tonawanda, New York Terminal. CLC has indicated its willingness to
perform a mutually acceptable Remedial Investigation and Feasibility Study.
Putnam County, West Virginia
On August 16, 1994, CLC 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 lagoon at its former
facility in Putnam County, West Virginia. Pursuant to the ACO, CLC agreed to
reimburse DEP's past costs and undertake an investigation and remediation of
conditions at the site. CLC has submitted a workplan to DEP which calls for
the removal, dewatering, treatment, and on-site disposal of sludge from a
former lagoon, and has retained a consultant for this purpose.
Other Identified Sites
During July and August 1998, in the course of the due diligence for the
acquisition of CLC, MTL conducted invasive sampling at a number of CLC's
properties and discovered previously unidentified environmental conditions.
MTL also quantified previously identified potential liabilities. CLC notified
governmental authorities of contamination at properties, as required by
applicable law. MTL is currently investigating and may need to remediate
certain of the other identified conditions. Based on limited invasive sampling
and review of the site information, MTL has estimated probable costs
associated with these identified environmental conditions.
CLC 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 is expected to be completed by the end of 1998.
MTL continues to monitor environmental conditions at all of its properties
and management plans to address environmental matters as they arise and
anticipates that it will continue to face environmental liabilities and incur
costs for environmental matters in connection with its business operations and
contractual obligations.
6. GUARANTOR SUBSIDIARIES
The 10% Series B Senior Subordinated Notes issued in June 1998 and due 2006
are unconditionally guaranteed on a senior unsecured basis pursuant to
guarantees by all the Company's direct and indirect domestic
F-31
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--(CONTINUED)
subsidiaries (the Guarantors). In 1996, the Company acquired Levy Transport,
Ltd., a Canadian Corporation, which is the only non-guarantor subsidiary.
The Company conducts all of its business through and derives virtually all
its income from its subsidiaries. Therefore, the Company's ability to make
required principal and interest payments with respect to the Company's
indebtedness (including the notes) and other obligations depends on the
earnings of subsidiaries and its ability to receive funds from its
subsidiaries through dividends or other payments.
The following condensed consolidating financial information presents:
1. Condensed consolidating balance sheets at September 30, 1998 and
condensed consolidating statements of operations and cash flows for
the nine months then ended.
2. The parent company and combined guarantor subsidiaries.
3. Elimination entries necessary to consolidate the parent company and
all its subsidiaries.
F-32
<PAGE>
MTL, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.............. $ 10,661 $ 846 $ -- $ 11,507
Accounts receivable, net.. 93,061 4,959 (3,429) 94,591
Inventories............... 397 267 664
Prepaid expenses and other
current assets........... 26,469 777 27,246
--------- ------- -------- ---------
Total current assets.... 130,588 6,849 (3,429) 134,008
Property and equipment,
net........................ 229,267 15,973 245,240
Intangibles and goodwill,
net........................ 136,964 1,085 138,049
Insurance proceeds and
environmental receivable... 46,035 46,035
Other assets................ 44,307 193 (8,140) 36,360
--------- ------- -------- ---------
$ 587,161 $24,100 $(11,569) $ 599,692
========= ======= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of
indebtedness............. $ 2,940 $ -- $ -- $ 2,940
Accounts payable and
accrued expenses......... 69,072 4,921 (3,429) 70,584
Independent contractors
payable.................. 9,531 108 9,639
Other current
liabilities.............. 12,774 12,774
Income taxes payable...... 1,076 1,076
--------- ------- -------- ---------
Total current
liabilities............ 95,393 5,029 (3,429) 96,993
Bank facility, less current
maturities................. 282,646 9,608 (221) 292,033
Obligations under capital
leases..................... 230 230
Subordinated debt........... 140,000 140,000
Other long term
liabilities................ 6,856 6,856
Environmental liabilities... 68,623 68,623
Accrued loss and damage
claims..................... 15,178 15,178
Deferred income tax......... 1,320 1,687 3,007
Minority interest in
subsidiaries............... 4,825 4,825
Mandatorily redeemable
preferred stock............ 15,500 15,500
Redeemable common stock..... 1,210 1,210
Shareholders' equity:
Common stock and
additional paid-in
capital.................. 104,827 8,771 (8,771) 104,827
Retained earnings......... 41,484 (171) 824 42,137
Stock recapitalization.... (189,535) (54) (189,589)
Other stockholders'
equity................... (769) 28 (741)
Notes receivable.......... (1,397) (1,397)
--------- ------- -------- ---------
Total shareholders'
equity................. (44,621) 7,777 (7,919) (44,763)
--------- ------- -------- ---------
$ 587,160 $24,101 $(11,569) $ 599,692
========= ======= ======== =========
</TABLE>
F-33
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Revenue
Transportation............ $220,879 $18,065 $(250) $238,694
Other..................... 16,771 534 (534) 16,771
-------- ------- ----- --------
Total revenues.......... 237,650 18,599 (784) 255,465
Operating Expenses
Purchased transportation.. 150,622 2,990 (784) 152,828
Compensation, options and
bonus.................... 15,891 2,235 18,126
Depreciation and
amortization............. 14,678 14,678
Other operating expense... 54,516 12,089 66,605
-------- ------- ----- --------
Operating income
(loss)................. 1,943 1,285 -- 3,228
Interest expense, net....... 9,361 546 9,907
Other expense (income)...... (34) (34)
-------- ------- ----- --------
Income before taxes....... (7,384) 739 -- (6,645)
Provision (benefit) for
income taxes............... (3,013) 309 (2,704)
-------- ------- ----- --------
Net income (loss) before
extraordinary item....... (4,371) 430 -- (3,941)
Extraordinary item (early
extinguishment of debt),
net of taxes............... 3,009 69 3,078
-------- ------- ----- --------
Net income (loss)......... $ (7,380) $ 361 $ -- $ (7,019)
======== ======= ===== ========
Preferred stock dividends... $ 85 $ 85
-------- ------- ----- --------
Net income (loss)
attributable to common
stockholders............... $ (7,465) $ 361 $ -- $ (7,104)
======== ======= ===== ========
</TABLE>
F-34
<PAGE>
MTL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1998
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARENT AND NON-
GUARANTOR GUARANTOR
SUBSIDIARIES SUBSIDIARY ELIMINATIONS CONSOLIDATED
------------ ---------- ------------ ------------
<S> <C> <C> <C> <C>
Cash provided by (used for)
Operating activities:
Net income................. $ (7,379) $ 360 $ (7,019)
Adjustments for non cash
charges................... (27) 2,208 2,181
Changes in assets and
liabilities............... (22,643) 963 (21,680)
--------- -------- ------- ---------
Net cash provided by
(used for) operating
activities.............. (30,049) 3,531 -- (26,518)
Investing activities:
Capital expenditures....... (203,844) (203,844)
Proceeds from asset
dispositions.............. (18,954) (5,166) (24,120)
Investments................ 977 286 1,263
Other...................... (21,036) 82 2,698 (18,256)
--------- -------- ------- ---------
Net cash used for
investing activities.... (242,857) (4,798) 2,698 (244,957)
Financing activities:
Proceeds from issuance of
long term debt............ 425,000 9,905 434,905
Payment of obligations..... (44,263) (10,863) 73 (55,053)
Recapitalization
expenditures.............. (189,535) (55) -- (189,590)
Issuance of preferred
stock, net................ 15,500 -- -- 15,500
Issuance of common stock--
net....................... 74,334 3,596 (3,596) 74,334
Other, net................. 1,528 (825) 825 1,528
--------- -------- ------- ---------
Net cash provided by
financing activities.... 282,564 1,758 2,698 281,624
--------- -------- ------- ---------
Net increase in cash......... 9,659 491 10,150
Effect of exchange rate
changes on cash............. -- (20) (20)
Cash, beginning of period.... 1,002 375 1,377
--------- -------- ------- ---------
Cash, end of period.......... $ 10,661 $ 846 $ -- $ 11,507
========= ======== ======= =========
</TABLE>
F-35
<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, 1997 and 1996, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 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, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements, in the
fourth quarter of fiscal 1997 the Company adopted the provisions of Emerging
Issues Task Force Issue No. 97-13, "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project That Combines
Business Process Reengineering and Information Technology Transformation."
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
March 20, 1998
F-36
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
-------------------
1996 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (includes restricted cash of
$3,541 at December 31, 1996, and $0 at
December 31, 1997)........................................ $ 5,788 $ 2,681
Accounts receivable, net of allowance of $570 at December
31, 1996, and $850 at December 31, 1997................... 36,859 22,871
Operating supplies......................................... 1,548 940
Prepaid expenses and other................................. 7,982 8,252
--------- ---------
Total current assets...................................... 52,177 34,744
PROPERTY AND EQUIPMENT:
Land....................................................... 5,131 5,131
Buildings and improvements................................. 26,728 28,233
Revenue equipment.......................................... 147,767 151,625
Other equipment............................................ 49,087 59,009
--------- ---------
Total property and equipment, at cost..................... 228,713 243,998
ACCUMULATED DEPRECIATION................................... 119,924 134,127
--------- ---------
PROPERTY AND EQUIPMENT, net................................ 108,789 109,871
--------- ---------
NOTES RECEIVABLE........................................... 3,500 3,500
RECOVERABLE ENVIRONMENTAL COSTS............................ 13,680 14,002
DEFERRED TAXES AND OTHER ASSETS............................ 4,398 15,397
--------- ---------
$ 182,544 $ 177,514
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts and drafts payable................................ $ 18,028 $ 19,317
Accrued salaries and wages................................. 4,336 5,383
Other accrued liabilities.................................. 3,828 4,028
Estimated self-insurance liabilities....................... 4,238 4,183
Current maturities of long-term debt....................... 4,364 462
Current maturities of equipment obligations................ 4,957 166
--------- ---------
Total current liabilities................................. 39,751 33,539
--------- ---------
LONG-TERM EQUIPMENT OBLIGATIONS............................ 53,484 10,177
--------- ---------
LONG-TERM DEBT............................................. 46,219 101,496
--------- ---------
ESTIMATED SELF-INSURANCE LIABILITIES....................... 16,783 18,889
--------- ---------
OTHER NONCURRENT LIABILITIES............................... 5,266 5,082
--------- ---------
REDEEMABLE PREFERRED STOCK................................. 5,318 5,318
--------- ---------
STOCKHOLDERS' EQUITY:
Common stock -- par value $2.50; 3,000,000 shares autho-
rized; 550,895 shares issued.............................. 2,677 2,677
Additional paid-in capital................................. 533 533
Retained earnings.......................................... 33,192 21,446
--------- ---------
36,402 24,656
Less --
Treasury stock, 2,593 shares, at cost...................... 16,881 16,881
Stock subscriptions receivable............................. 3,598 3,598
Minimum pension liability, net of tax...................... 200 1,164
--------- ---------
Total stockholders' equity................................ 15,723 3,013
--------- ---------
$ 182,544 $ 177,514
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-37
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING REVENUES......................... $ 245,706 $ 281,075 $ 329,977
---------- ---------- ----------
OPERATING EXPENSES:
Salaries, wages and benefits............... 63,546 67,737 70,788
Purchased transportation and rents......... 98,903 122,635 150,108
Operations and maintenance................. 50,240 52,924 71,451
Depreciation and amortization.............. 13,731 16,255 19,817
Taxes and licenses......................... 2,755 2,613 3,167
Insurance and claims....................... 3,483 4,766 6,782
Communication and utilities................ 6,056 7,213 6,880
---------- ---------- ----------
Loss from insolvency of insurers........... -- -- 4,772
Loss on sale of revenue equipment, net..... 573 290 275
---------- ---------- ----------
Total operating expenses................. 239,287 274,433 334,040
---------- ---------- ----------
OPERATING INCOME (LOSS).................... 6,419 6,642 (4,063)
INTEREST EXPENSE, net...................... 5,978 7,553 10,299
OTHER (INCOME) EXPENSE, net................ (110) (795) 165
---------- ---------- ----------
Income (loss) before income taxes.......... 551 (116) (14,527)
INCOME TAX PROVISION (BENEFIT)............. 220 46 (5,310)
---------- ---------- ----------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE.... $ 331 $ (162) $ (9,217)
---------- ---------- ----------
EXTRAORDINARY LOSS on early extinguishment
of debt, less applicable income taxes of
$133...................................... -- -- (199)
---------- ---------- ----------
CUMULATIVE EFFECT OF ACCOUNTING CHANGE,
less applicable income taxes of $1,018.... -- -- (1,975)
---------- ---------- ----------
NET INCOME (LOSS).......................... $ 331 $ (162) $ (11,391)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-38
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(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,
1995................... $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 divi-
dends.................. -- -- (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 divi-
dends.................. -- -- (355) -- -- -- (355)
Adjustment to recognize
minimum pension liabil-
ity.................... -- -- -- -- -- (200) (200)
BALANCE, DECEMBER 31,
1996................... $2,677 $ 533 $33,192 $(16,881) $(3,598) $ (200) $ 15,723
Net loss................ -- -- (11,391) -- -- -- (11,391)
Preferred stock divi-
dends.................. -- -- (355) -- -- -- (355)
Adjustment to recognize
minimum pension liabil-
ity.................... -- -- -- -- -- (964) (964)
BALANCE, DECEMBER 31,
1997................... $2,677 $ 533 $21,446 $(16,881) $(3,598) $(1,164) $ 3,013
====== ====== ======= ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-39
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)............................... $ 331 $ (162) $(11,391)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activi-
ties-- Depreciation and amortization............ 13,731 16,255 19,817
Provision for doubtful accounts................. 338 318 691
(Benefit) provision for deferred income taxes... (1,777) 813 (5,377)
Loss on sale of revenue equipment............... 573 290 275
Extraordinary loss--early extinguishment of
debt........................................... 199
Changes in assets and liabilities............... 4,248 (12,837) (15,954)
-------- -------- --------
Net cash provided by (used in) operating activi-
ties........................................... 17,444 4,677 (11,740)
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition of business......................... -- (15,517) --
Additions to property and equipment............. (13,270) (20,020) (24,345)
Proceeds from sales of property and equipment... 2,780 1,264 1,189
-------- -------- --------
Net cash used in investing activities........... (10,490) (34,273) (23,156)
-------- -------- --------
FINANCING ACTIVITIES:
Payments on equipment obligations............... (20,893) (11,149) (62,439)
Proceeds from issuance of equipment obliga-
tions.......................................... 15,986 40,554 5,891
(Decrease) increase in bank overdrafts.......... (1,529) 923 1,199
Proceeds from issuance of long-term debt........ -- 10,000 109,946
Payments on long-term debt...................... (2,211) (12,491) (22,121)
Payments on early extinguishment of debt........ -- -- (332)
Issuance of common stock........................ -- 175 --
Retirement of common stock...................... (640) (796) --
Preferred stock dividends....................... (157) (355) (355)
-------- -------- --------
Net cash (used in) provided by financing activi-
ties........................................... (9,444) 26,861 31,789
-------- -------- --------
Net decrease in cash and cash equivalents....... (2,490) (2,735) (3,107)
CASH AND CASH EQUIVALENTS:
Beginning of year............................... 11,013 8,523 5,788
-------- -------- --------
End of year..................................... $ 8,523 $ 5,788 $ 2,681
======== ======== ========
CHANGES IN ASSETS AND LIABILITIES:
Decrease (increase) in accounts receivable...... $ 1,912 $ (8,327) $(14,703)
Increase in prepaid expenses, operating supplies
and other assets............................... (2,560) (3,515) (4,133)
Decrease (increase) in recoverable environmental
costs.......................................... 9,853 (5,533) (322)
Increase in accounts payable.................... 270 3,132 90
(Decrease) increase in accrued salaries and
wages.......................................... (2,721) (154) 1,047
Increase in other accrued liabilities........... 1,644 1,042 200
(Decrease) increase in estimated self-insurance
liabilities.................................... (2,302) (94) 2,051
(Decrease) increase in other noncurrent liabili-
ties........................................... (1,848) 612 (184)
-------- -------- --------
$ 4,248 $(12,837) $(15,954)
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMA-
TION:
Cash paid during the period for--
Interest........................................ $ 6,038 $ 7,742 $ 10,153
Income taxes.................................... 2,601 326 52
Noncash investing and financing activities--
Issuance of capital lease obligations........... 5,716 6,889 2,867
Assets acquired with capital lease obligations.. (5,716) (6,889) (2,867)
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) --
Adjustment required to recognize minimum pension
liability...................................... -- 200 964
Stockholders' equity adjustment for minimum pen-
sion liability................................. -- (200) (964)
Off balance sheet treatment of asset backed cer-
tificate....................................... -- -- (28,000)
Off balance sheet treatment of accounts receiv-
able........................................... -- -- 28,000
Cumulative effect of change in accounting prin-
ciple.......................................... -- -- 1,975
Reduction of Other Equipment (See Note 2)....... -- -- (1,975)
</TABLE>
The accompanying notes are an integral part of these statements.
F-40
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
MTL derived approximately 94%, 84%, and 71% of its revenues from its wholly
owned trucking subsidiary, Chemical Leaman Tank Lines, Inc. ("CLTL"), for the
years ended December 31, 1995, 1996 and 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 15%, 16% and 19% of its revenues from a single
customer in the years ended December 31, 1995, 1996 and 1997, respectively.
CLTL's top ten customers accounted for approximately 45%, 47% and 51% of CLTL
revenues in the years ended December 31, 1995, 1996 and 1997, respectively.
The Company derives the majority of its remaining revenue from its wholly
owned trucking subsidiary, Fleet Transport Company, Inc. ("Fleet") (see Note
13), 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.
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-insurance liabilities
and environmental recoveries and liabilities. Actual results could differ from
these estimates.
Accounts Receivable
At December 31, 1995, 1996 and 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 5).
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.
F-41
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Prepaid Expenses
Prepaid expenses consist principally of tires and hoses placed in service
and are valued at cost and 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 and $11,584,000 at December 31,
1996 and 1997, respectively, 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 1998, which will also
be capitalized. These costs will be amortized over a period of seven years,
beginning in the second quarter of 1998, when the Company expects to complete
the project. See "Changes in Accounting Principles"
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 11).
Other Assets
Other assets include deferred financing costs and the long term receivable
from insurers resulting from the settlement of an insurance claim (See Note
9).
Revenue Recognition
The Company recognizes revenue and related costs on the date freight is
delivered or when tank cleaning services are provided.
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. A valuation allowance is recorded
when it is more likely than not that a portion of the net deferred tax assets
will not be realized.
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 11).
F-42
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Estimated Self-Insurance Liabilities
The Company is currently self-insured up to the following per-occurrence
retention levels:
<TABLE>
<S> <C>
. Public liability and property damage, cargo losses, and sud-
den and accidental environmental losses....................... $1,000,000
. Workers' compensation........................................ $500,000
. Medical benefits for salaried employees...................... $100,000
. Collision and other environmental losses..................... No Limit
</TABLE>
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 December 31, 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 December
31, 1997 with a $2,000,000 deductible at December 31, 1996 and $1,000,000
deductible at December 31, 1997. Effective March 1, 1998, the Company's
deductible was reduced to $500,000.
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 (the case reserve
method). The case reserve method, although acceptable under generally accepted
accounting principles, results in reserve levels that are below the reserve
levels that would be determined actuarially on a fully developed basis.
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 balance sheets for cash,
accounts receivable, and accounts and drafts 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 $3,385,000 and
$3,426,000 as of December 31, 1996, and 1997, respectively.
Reclassifications
Certain prior period amounts have been reclassified to conform with the
December 31, 1997 presentation.
F-43
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Changes in Accounting Principles
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, 1996 or 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 was effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. 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 5). 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 December
31, 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 Company adopted this SOP
on January 1, 1997. The effect of the adoption was not material.
In November of 1997, the Emerging Issues Task Force (EITF) of the FASB
reached a consensus on Issue No. 97-13 "Accounting for Costs Incurred in
Connection with a Consulting Contract or an Internal Project That Combines
Business Process Reengineering and Information Technology Transformation." The
Task Force determined that the cost of business process reengineering
activities, whether done internally or by third parties, is to be expensed as
incurred. The consensus also applies when the business process reengineering
activities are part of a project to acquire, develop, or implement internal-
use software. The consensus requires companies to expense any previously
capitalized reengineering costs (for both current and previous projects) as a
cumulative change in accounting principle. Based upon the detailed guidance of
EITF 97-13, the Company recorded a charge of $1,975,000, net of tax, in the
fourth quarter of fiscal 1997. This charge is classified as a cumulative
effect of an accounting change in the accompanying consolidated statement of
operations.
In 1998, the American Institute of Certified Public Accountants issued SOP
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." This SOP provides authoritative guidance on the proper
accounting treatment for costs incurred in connection with computer software
developed or obtained for internal use and provides guidance for determining
whether computer software is for internal use. This SOP is effective for
fiscal years beginning after December 15, 1998. The Company will adopt this
statement
F-44
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
prospectively during the first quarter of 1999. The adoption in 1999 is not
expected to result in any material adjustment to the Company's financial
statements.
In June of 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information."
Under this Statement, reporting standards were established for the way that
public business enterprises report information about operating segments in
annual financial statements and selected information about operating segments
in interim financial reports issued to shareholders. Generally, financial
information is required to be reported on the basis that it is used internally
for evaluating segment performance and deciding how to allocate resources to
segments. This Statement is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of application,
comparative information for earlier years presented is to be restated. This
Statement need not be applied to interim financial statements in the initial
year of its application, but comparative information for interim periods in
the initial year of application is to be reported in financial statements for
interim periods in the second year of application. The Company will adopt this
statement prospectively for the year ended December 31, 1998.
3. INCOME TAXES:
The components of income tax expense (benefit) related to earnings (loss)
before the extraordinary loss and before the cumulative effect of the change
in accounting were as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1996 1997
----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. federal:
Current............................... $ 1,894 $ (776) $ --
Deferred.............................. (1,692) 918 (4,666)
State:
Current............................... 103 9 67
Deferred.............................. (85) (105) (711)
----------- --------- -----------
$ 220 $ 46 $ (5,310)
=========== ========= ===========
</TABLE>
A reconciliation of the statutory to actual income tax provision (benefit)
is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
---------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory tax (benefit) provision....... $ 187 $ (39) $ (4,939)
Increase (decrease) resulting from:
State income taxes, net of federal tax
benefit................................ 104 142 (125)
Provision (benefit) of foreign tax
credit carryforwards................... (102) 51 51
Other, net.............................. 31 (108) (297)
--------- --------- -----------
Actual tax provision (benefit).......... $ 220 $ 46 $ (5,310)
========= ========= ===========
</TABLE>
F-45
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Gross deferred tax assets at December 31, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax assets:
Self insurance liabilities.................................. $ 7,413 $ 5,536
Pensions.................................................... 1,205 1,455
Other Accruals.............................................. 851 1,103
AMT and other credit carryforwards.......................... 1,921 1,928
NOL carryovers.............................................. 1,487 6,764
Other....................................................... 2,220 2,018
------- -------
Total deferred tax assets................................. $15,097 $18,804
Valuation allowance......................................... -- 600
------- -------
Net deferred taxes.......................................... $15,097 $18,204
======= =======
Gross deferred tax liabilities at December 31, 1996 and 1997 consist of the
following:
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Gross deferred tax liabilities:
Depreciation................................................ $ 7,782 $ 8,365
Recoverable Environmental Costs............................. 5,145 2,638
Other....................................................... 2,821 772
------- -------
$15,748 $11,775
======= =======
</TABLE>
Net deferred tax assets (liabilities) at December 31, 1996, and 1997 were
$(651), and $6,429, respectively. The net deferred tax assets (liabilities)
are included in Other Noncurrent Liabilities at December 31, 1995 and 1996,
and are included in Deferred Taxes and Other Assets in 1997.
The Company has an alternative minimum tax ("AMT") credit carryforward of
approximately $1,911,000 at December 31, 1997 that can be used to offset
future regular taxes in excess of AMT. The Company has AMT net operating loss
("NOL") carryforwards of approximately $433,000 and $13,276,000 at December
31, 1996 and 1997, respectively, for financial reporting purposes which will
be used in future years to offset AMT income. The Company has a federal net
operating loss ("NOL") carryforward of $19,893,000 for tax purposes at
December 31, 1997 which begins to expire in 2012. The Company also has state
net operating loss ("NOL") carryforwards of $26,911,000 for tax purposes at
December 31, 1997 which expire over the next 3 to 15 years. The Company has
recorded a $600,000 valuation allowance against the deferred tax benefit of
the state NOL's since it is more likely than not that such portion of the
state NOL's will not be utilized within the carryforward period.
The Internal Revenue Service is presently reviewing the Company's federal
income tax return for the year ended December 31, 1996. Management believes
that the ultimate outcome of the review will not have a material adverse
effect on the financial condition or the results of operations of the Company.
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
F-46
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $696,000, $297,000 and
$337,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
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
Company does not provide any matching contributions to this plan.
The components of net periodic pension cost for the years ended December 31,
1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 814 $ 1,045 $ 1,072
Interest cost..................................... 2,305 2,377 2,509
Actual return on plan assets...................... (5,486) (3,037) (1,768)
Net amortization and deferral..................... 3,063 (88) (1,476)
------- ------- -------
$ 696 $ 297 $ 337
======= ======= =======
</TABLE>
The actuarial assumptions used in accounting for the plans are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------
1995 1996 1997
----------- ------ ------
<S> <C> <C> <C>
Discount rates................................... 8.25%-8.75% 7.75% 7.25%
Rate of assumed compensation increase............ 5% 5% 5%
Expected long-term rates of return on plan
assets.......................................... 9%-9.5% 9%-11% 9%-11%
</TABLE>
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,
1996 and 1997:
<TABLE>
<CAPTION>
ASSETS ACCUMULATED ACCUMULATED ACCUMULATED
EXCEED BENEFITS BENEFITS BENEFITS
ACCUMULATED EXCEED EXCEED EXCEED
BENEFITS ASSETS ASSETS ASSETS
----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of
benefit obligations:
Vested..................... $19,686 $ 8,700 $22,702 $ 9,948
Nonvested.................. 343 338 404 354
Accumulated benefit
obligations............... $20,029 $ 9,038 $23,106 $10,302
======= ======= ======= =======
Projected benefit
obligations............... $22,738 $ 9,038 $26,504 $10,302
Plan assets at market
value..................... 22,471 7,407 22,870 7,899
------- ------- ------- -------
Projected benefit
obligation less than (in
excess of) plan assets.... (267) (1,631) (3,634) (2,403)
Unrecognized actuarial gain
(loss).................... (3,272) 692 58 1,704
Unrecognized prior service
cost...................... 1,721 315 1,361 140
Unrecognized transition
amount.................... (894) 61 (298) 8
Adjustment required to
recognize minimum
liability................. -- (1,068) -- (1,853)
------- ------- ------- -------
Accrued pension liability,
included in other
noncurrent liabilities.... $(2,712) $(1,631) $(2,513) $(2,404)
======= ======= ======= =======
</TABLE>
F-47
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company charged to operations payments to multiemployer pension plans
required by collective bargaining agreements of $1,992,000, $1,870,000 and
$1,885,000 for the years ended December 31, 1995, 1996 and 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 9).
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 December 31, 1997.
5. LONG-TERM DEBT AND EQUIPMENT OBLIGATIONS:
Long-term debt as of December 31, 1996 and 1997 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------- --------
(IN THOUSANDS)
<S> <C> <C>
Senior Notes.............................................. $ -- $100,000
Asset-backed certificate.................................. 28,000 --
Capital lease obligations................................. 21,729 1,958
Mortgage notes............................................ 854 --
Less -- Amounts due in one year or less................... (4,364) (462)
------- --------
$46,219 $101,496
======= ========
</TABLE>
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 was in compliance with all of these covenants at December 31,
1997. 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.
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,
F-48
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 basis points. The Certificate is scheduled to mature in
December 1999. In accordance with the terms of the Agreements, the Company
held $3,541,400 and $0 in a restricted cash account at December 31, 1996 and
1997, respectively. 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 December
31, 1997. On June 11, 1997, the Agreements were amended and restated and the
provision requiring the net worth of the Company be $21,000,000 was lowered to
$15,000,000. In addition, the Termination Event provision of the Agreement was
amended and restated, thus defining a termination event as follows: (i) the
Company fails to maintain an average Fixed Charge Ratio of at least 1.75 to 1
for any twelve consecutive accounting periods, or (ii) a minimum Consolidated
Stockholders Equity, as defined, of at least $15,000,000. On December 31,
1997, the Agreements were amended and restated and the provision requiring the
net worth of the Company be $15,000,000 was lowered to $14,000,000. As a
result of a number of adjustments recorded in the fourth quarter of 1997, the
Agreements were further amended and restated and the net worth provision was
reduced to $7,000,000 effective December 31, 1997. The Company was in
compliance with the amended covenants of the Agreement as of December 31,
1997. Effective January 1998, the facility was increased from $28,000,000 to
$33,000,000.
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, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
$20,000,000 Revolving Credit Agreement.................... $ -- $ 8,450
$12,500,000 Revolving Credit Agreement.................... 6,829 --
$26,000,000 Revolving Credit Agreement.................... 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...... 18,432 1,893
Less -- Amounts due in one year........................... (4,957) (166)
------- -------
$53,484 $10,177
======= =======
</TABLE>
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.
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%. This agreement was terminated and all outstanding
amounts were repaid in June of 1997 with the proceeds of the Note Offering.
The $26,000,000 Revolving Credit Agreement was 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 was
terminated and all outstanding amounts were repaid in June of 1997 with the
proceeds of the Note Offering.
F-49
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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%. This agreement was terminated
and all outstanding amounts were repaid in June of 1997 with the proceeds of
the Note Offering.
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 of 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 had borrowings outstanding of
$8,450,000 at December 31, 1997 and $3,900,000 of stand-by letters of credit
which were rolled over from a previous 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 various 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. As a result of a number of
adjustments recorded in the fourth quarter of 1997, the Agreement was amended
and the tangible net worth provision was reduced to $7,000,000 as of December
31, 1997. The Company was in compliance with the amended covenants of the New
Revolving Credit Facility at December 31, 1997. Under the amended agreement,
the tangible net worth provision will be increased from $7 million to $9
million effective January 1, 1999.
The Company does not utilize interest rate swaps or other derivative
financing arrangements to limit its interest rate risk.
Annual maturities of debt following December 31, 1998, excluding letters of
credit, are as follows:
<TABLE>
<CAPTION>
LONG-
TERM EQUIPMENT
DEBT OBLIGATIONS
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
1999.................................................... $ 796 $ 8,631
2000.................................................... 610 198
2001.................................................... 90 215
2002.................................................... 234
2003.................................................... 899
Subsequent.............................................. 100,000 --
-------- -------
$101,496 $10,177
======== =======
</TABLE>
6. STOCKHOLDERS' EQUITY:
In January 1998, Mr. Boucher purchased 2,900 shares of Common Stock from the
Company for a purchase price of $87,000, payable under a promissory note
bearing interest at an annual rate of 7.25% and maturing in January 2008.
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.
F-50
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
7. 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 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
F-51
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
8. LEASES:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1996 1997
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Building, revenue equipment and other equipment
financed under capital leases..................... $20,757 $30,627 $4,869
Less--Accumulated depreciation..................... 7,234 10,409 3,630
------- ------- ------
$13,523 $20,218 $1,239
======= ======= ======
</TABLE>
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, $1,369,000 and $1,669,000 for the years
ended December 31, 1995, 1996, and 1997, respectively.
The following is a schedule of future minimum lease payments for capital and
operating leases as of December 31, 1997:
<TABLE>
<CAPTION>
CAPITAL LEASES
LEASES OPERATING
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998....................................................... $ 781 $ 4,132
1999....................................................... 792 3,166
2000....................................................... 664 1,975
2001....................................................... 99 1,150
Subsequent................................................. -- 2,038
------ -------
Total minimum lease payments............................... $2,336 $12,461
====== =======
Less--Amount representing interest......................... 378
------
Present value of minimum lease payments.................... $1,958
======
</TABLE>
9. COMMITMENTS AND CONTINGENT LIABILITIES:
Commitments to purchase revenue equipment amounted to approximately
$5,504,000 and $1,873,000 at December 31, 1996 and December 31, 1997,
respectively.
In 1997, the Company settled a dispute with a multiemployer pension plan
covering certain of the Company's union employees. Under the settlement
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.
F-52
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company was 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 sought damages claimed to
exceed $100 million resulting from a fire set to a building by trespassing
arsonists. On September 19, 1997, the Company agreed to settle all claims in
the lawsuit for $19 million. Although the Company had insurance coverage with
several companies and syndicates for that amount, a portion of the insurance
coverage was carried by insurers, which are currently insolvent. As a result,
the Company funded 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 received additional coverage payments of $794,659 in the fourth
quarter of 1997. 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 an aggregate amount of $3.2 million. As of December
31, 1997, the Company has recorded a long-term receivable of $1,830,000
representing the discounted value of the aggregate payments to be received
over 10 years. For the year ended December 31, 1997 the Company expensed
$4,772,000 for this lawsuit which represents the settlement, net of the
expected recoveries.
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
11).
10. RELATED-PARTY TRANSACTIONS:
The Company paid consulting fees of $730,000, $1,251,000 and $820,000 for
the years ended December 31, 1995, 1996 and 1997, respectively, to a director
of the Company. The Company also paid consulting fees totaling $162,000 per
year for the years ended December 31, 1995, 1996 and 1997, respectively, to
certain preferred stockholders.
In 1995 and 1996, the Company and a consulting firm (the "Consulting Firm")
entered into agreements under which the Consulting Firm agreed to assist in
the development and implementation of the Company's new information technology
system. The president, controlling stockholder and a director of the
Consulting Firm is a director of the Company. The Consulting Agreement
terminated on December 31, 1997. The Company paid $670,000, $2,525,000 and
$2,815,000 for the years ended December 31, 1995, 1996, and 1997,
respectively, to the consulting firm.
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.
11. 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
F-53
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and Remedial Action ("RD/RA") related to the groundwater operable unit of the
cleanup. Costs associated with performing the RD/RA were $443,000 in 1997. 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. The Company has offered to settle the EPA's claim for past response
costs associated with the soil, groundwater and wetlands operable units for
approximately $3.6 million, to be paid over a three-year period. The EPA has
not yet responded to the Company's offer.
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. On September 15, 1997, the District Court issued an order
and an accompanying opinion ruling on the allocation of damages among the
applicable policies as directed by the Court of Appeals. The District Court's
decision finds that the Company has already recovered $11,055,000 in past
Bridgeport investigation and remediation costs from its primary insurer under
the previously mentioned settlement agreement. The District Court's decision
further finds that the Company is entitled to have the balance of its past and
all future Bridgeport investigation and remediation costs allocated among
liable excess insurance carriers. In February 1998, both the Company and the
excess carriers appealed portions of the District Court's order. The Company
intents to argue one issue on appeal, i.e., that the District Court
erroneously ruled that $11,055,000 of the primary insurer settlement amount is
attributable to the Bridgeport site. The Company believes that the court
should have enforced the settlement agreement with the primary insurer, which
divides the primary insurer's payment of $11.5 million among all of the
Company's environmental claims, attributing approximately $5.225 million to
Bridgeport, and about $6.75 million to other sites. The Company's and the
excess carriers' appeals of the September 15, 1997 order are pending. The
Company has not accounted for this additional potential recovery.
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 for the litigation with the insurance carriers, is likely to occur.
The Company capitalized $4,243,000 and $322,000 during 1996 and 1997,
respectively, of current costs related to the Bridgeport site based upon their
probable future recovery. The recoverable costs of $13,680,000 and $14,002,000
are classified as recoverable costs in the consolidated balance sheets at
December 31, 1996 and 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.
F-54
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 $309,100 in November of 1995, $713,674 in June 1996, $713,674 in
October 1996, and $684,274 in October 1997. 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 perform
an interim groundwater remedy at the site, and to 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 Consent Decree
("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 October of 1989, the New Jersey Department of Environmental Protection
(NJDEP) filed a claim against the Company and other defendants seeking
reimbursement of response costs for remediation of the Helen Kramer Landfill
in Mantua, New Jersey. This case has been consolidated with a similar case
brought by the EPA against many of the same defendants. The defendants in
these cases have filed third-party claims against more than 250 third-party
defendants. The Company has been participating in settlement efforts, and
after a diligent search of its records, believes that its involvement at this
site is minimal. The Company is also participating in an offer to de minimis
parties to the action. The Company was part of a preliminary and nonbinding
allocation process at the site which assigned to it 1.32% of the total
liability, which the Company believes is materially overstated. The parties
are close to entering into a global settlement agreement with the United
States and State of New Jersey. The Company estimates that its share of the
settlement costs will be approximately $800,000, which will be payable over a
multi-year period. Based on the status of settlement discussions during the
fourth quarter of 1997, the Company recorded a charge to earnings of $800,000
for this site.
On August 16, 1994, the Company entered into an Administrative Consent Order
(ACO) with the West Virginia Division of Environmental Protection (DEP)
regarding its former facility in Putnam County, West Virginia. Pursuant to the
ACO, the Company agreed to reimburse DEP's past costs and undertake an
investigation and remediation of conditions at the site. The Company has
submitted a workplan to DEP which calls for the removal, dewatering,
treatment, and on-site disposal of sludge from a former lagoon, and has
retained a consultant for this purpose. The Company estimates that this work
will cost $1.4 million. Based on the developments at this site during the
fourth quarter of 1997, the Company recorded a charge to earnings of $1.4
million for this site.
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, West Caln Township, Helen Kramer Landfill, and Putnam County
sites, are not reasonably estimable at this time, it is anticipated that the
Company will expend substantial amounts with respect to such sites.
F-55
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has recorded total charges to income of $2,388,000, $2,280,000
and $4,659,000 for the years ended December 31, 1995, 1996 and 1997,
respectively, with regard to the foregoing environmental cleanup and related
charges. At December 31, 1995 and 1996, and December 31, 1997, the reserve for
environmental liabilities was approximately $15,309,000, $13,115,000 and
$13,461,000, respectively, and this reserve is included in estimated self-
insurance liabilities in the consolidated balance sheets.
12. GUARANTOR SUBSIDIARIES
The 10% Series B Senior Subordinated Notes issued in June 1998 and due 2006
are unconditionally guaranteed on a senior unsecured basis pursuant to
guarantees by all the Company's direct and indirect domestic subsidiaries (the
Guarantors). In 1996, the Company acquired Levy Transport, Ltd., a Canadian
Corporation, which is the only non-guarantor subsidiary.
The Company conducts all of its business through and derives virtually all
its income from its subsidiaries. Therefore, the Company's ability to make
required principal and interest payments with respect to the Company's
indebtedness (including the notes) and other obligations depends on the
earnings of subsidiaries and its ability to receive funds from its
subsidiaries through dividends or other payments.
The following condensed consolidating financial information presents:
1. Condensed consolidating balances sheet at December 31, 1997 and 1996 and
condensed consolidating statements of operations and of cash flows for
the two years then ended.
2. The parent company and combined guarantor subsidies.
3. Elimination entries necessary to consolidate the parent company and all
its subsidiaries.
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 $834,732 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 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 operating results of Fleet exceed
certain levels, as defined, for the 12-month period ended December 31, 1997.
Based on the revenues and operating results of Fleet for the year ended
December 31, 1997, the Company does not expect to make any 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 years ended December 31, 1996 and 1997, includes $461,000 and
$479,000, respectively, of net loss attributable to the Fleet acquisition.
F-56
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
JULY 5, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents............................ $ 2,639 $ 2,681
Accounts receivable, net of allowance of $1,122 at
July 5, 1998 and $850 at December 31, 1997.......... 20,018 22,871
Operating supplies................................... 949 940
Prepaid expenses and other........................... 9,510 8,252
-------- --------
Total current assets............................. 33,116 34,744
-------- --------
Property and equipment, net.......................... 111,938 109,871
Recoverable environmental costs...................... 14,685 14,002
Other assets......................................... 18,882 18,897
-------- --------
$178,621 $177,514
======== ========
<CAPTION>
JULY 5, DECEMBER 31,
1998 1997
----------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts and drafts payable.......................... $ 18,962 $ 19,317
Accrued salaries and wages........................... 4,277 5,383
Other accrued liabilities............................ 4,971 4,028
Estimated self-insurance liabilities................. 2,073 4,183
Current maturities of long-term debt................. 488 462
Current maturities of equipment obligations.......... 319 166
-------- --------
Total current liabilities........................ 31,090 33,539
Long-term equipment obligations...................... 18,858 10,177
Long-term debt....................................... 101,155 101,496
Estimated self-insurance liabilities................. 15,012 18,889
Other non-current liabilities........................ 5,184 5,082
Redeemable preferred stock........................... 5,318 5,318
Stockholders' equity
Common stock....................................... 2,677 2,677
Other stockholders' equity......................... (673) 336
-------- --------
Total stockholders' equity....................... 2,004 3,013
-------- --------
$178,621 $177,514
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-57
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
--------------------------
JULY 5, JUNE 29,
1998 1997
------------ ------------
<S> <C> <C>
OPERATING REVENUES................................. $ 183,082 $ 156,545
------------ ------------
OPERATING EXPENSES:
Salaries, wages and benefits....................... 36,512 34,947
Purchased transportation and rents................. 88,619 69,131
Operations and maintenance......................... 32,988 32,158
Depreciation and amortization...................... 10,867 9,336
Taxes and licenses................................. 1,800 1,457
Insurance and claims............................... 2,514 4,402
Communication and utilities........................ 3,847 3,320
Loss on disposition of revenue equipment, net...... 291 45
------------ ------------
Total operating expenses........................... 177,438 154,796
------------ ------------
OPERATING INCOME................................... 5,644 1,749
INTEREST EXPENSE, net.............................. 6,158 4,515
OTHER EXPENSE, net................................. 764 165
------------ ------------
Loss before income tax benefit..................... (1,278) (2,931)
INCOME TAX BENEFIT................................. (447) (1,223)
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM..................... (831) (1,708)
------------ ------------
EXTRAORDINARY LOSS on early extinguishment of debt,
less applicable
income taxes of $133.............................. -- (199)
------------ ------------
NET LOSS........................................... $ (831) $ (1,907)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-58
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
--------------------------
JUNE 29,
JULY 5, 1998 1997
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash provided by (used in) operating
activities...................................... $ 1,314 $ (3,519)
INVESTING ACTIVITIES:
Acquisition of business.......................... (1,598)
Additions to property and equipment.............. (12,834) (11,006)
Proceeds from the sales of property and
equipment....................................... 1,207 751
------------ ------------
Net cash used in investing activities............ (13,225) (10,255)
------------ ------------
FINANCING ACTIVITIES:
Payments on equipment obligations................ (162) (62,439)
Proceeds from issuance of equipment obligations.. 1,796 3,998
Proceeds from revolving credit facility.......... 7,200
(Decrease) increase in bank overdrafts........... (1,472) 2,882
Proceeds from issuance of long-term debt......... 100,000
Payments on long-term debt....................... (315) (21,355)
Payments on early extinguishment of debt......... (199)
Proceeds from sale of receivables................ 5,000
Preferred stock dividends........................ (178) (178)
------------ ------------
Net cash provided by financing activities...... 11,869 22,709
------------ ------------
Net (decrease) increase in cash and cash
equivalents................................... (42) 8,935
CASH AND CASH EQUIVALENTS:
Beginning of year................................ 2,681 5,788
------------ ------------
End of year...................................... $ 2,639 $ 14,723
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-59
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The unaudited condensed consolidated financial statements of Chemical Leaman
Corporation (the "Company") included herein have been prepared pursuant to the
rules and regulations of the Securities and Exchange Commission. Although
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, the Company believes that the disclosures included herein are
adequate to make the information presented not misleading. Operating results
for the three and six month periods ended July 5, 1998 and June 29, 1997 are
not necessarily indicative of the results that may be expected for the year
ended December 31, 1998 or for future fiscal periods. These unaudited
condensed consolidated financial statements should be read in conjunction with
the financial statements included in the Company's Form 10-K for the year
ended December 31, 1997, filed with the Securities and Exchange Commission
("Annual Report").
In the opinion of the Company, the unaudited condensed consolidated
financial statements contain all adjustments necessary for a fair statement of
the results of operations for the three and six month periods ended July 5,
1998 and June 29, 1997 and for a fair presentation of financial position at
July 5, 1998. All such interim adjustments are of a normal recurring nature.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" was issued in July 1997. The Company adopted SFAS No.
130 on January 1, 1998, as required. SFAS No. 130 established standards for
the reporting and display of comprehensive income and its components. The main
objective of the statement is to report a measure of all changes in equity
that result from transactions and other economic events of the period other
than transactions with owners. Such components of total comprehensive income
for the Company are net income and a minimum pension liability adjustment made
pursuant to SFAS No. 87. The effect of the minimum pension liability
adjustment for the first and second quarter of 1998 was immaterial.
NOTE 2--DECEMBER 31, 1997 BALANCE SHEET
The amounts presented in the balance sheet as of December 31, 1997 were
derived from the Company's audited consolidated financial statements which
were included in the Annual Report.
NOTE 3--CONTINGENCIES/LITIGATION
BRIDGEPORT, NEW JERSEY
The Company is in litigation with its insurers to recover its costs in
connection with the environmental cleanup at its Bridgeport, NJ 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,
F-60
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 and accompanying opinion ruling on the
allocation of damages among the applicable policies as directed by the Court
of Appeals. The District Court's decision found that the Company has already
recovered $11.5 million in past Bridgeport investigation and remediation costs
from its primary insurer under the aforementioned settlement agreement. The
District Court's decision further found that the Company is entitled to have
the balance of its past costs and all future Bridgeport investigation and
remediation costs allocated among the liable excess carriers, according to
specific percentages set forth in the District Court's Order. The Company and
its excess carriers are engaged in settlement negotiations in an effort to
resolve all of the Company's claims, including those relating to the
Bridgeport, NJ site.
It is the belief of the environmental counsel to the Company, and
management, that receipt of insurance proceeds sufficient to recover
substantially all of the costs of remediating the Bridgeport, NJ site,
including natural resources damages, and attorneys' fees and expenses, is
likely to occur.
NOTE 4--OTHER EVENTS
On June 24, 1998, the Company announced that Palestra Acquisition Corp.
("Palestra"), a Delaware corporation and a wholly owned subsidiary of MTL
Inc., a Florida corporation ("MTL"), had entered into an Agreement and Plan of
Merger ("CLC Merger Agreement"), dated as of June 23, 1998, by and among
Palestra, the Company and its shareholders (each a "Shareholders" and,
collectively, the "Shareholders"). On July 28, 1998, MTL announced that
Palestra and the Company had entered into an Amendment No. 1 ("Amendment") to
the CLC Merger Agreement. Under the terms of the CLC Merger Agreement, as
amended, MTL has agreed, subject to the satisfaction of certain terms and
conditions, to acquire all of the outstanding shares of common stock, $2.50
par value per share, of CLC ("CLC Common Stock") through the merger ("Merger")
of Palestra with and into the Company, which thereby will become a wholly-
owned subsidiary of MTL. The Shareholders have approved the consummation of
the Merger. The Merger is expected to close in August or September of 1998,
and has an outside closing date of October 31, 1998.
Under the terms of the CLC Merger Agreement, as amended, all shares
("Shares") of CLC Common Stock held by the Shareholders shall, by virtue of
the Merger, be converted into the right to receive an aggregate amount in cash
(and Common Stock of MTL, as described below) equal to $72.8 million less
Transaction Expenses (as defined in the CLC Merger Agreement, as amended) in
excess of $100,000, plus shares of preferred stock of MTL having a stated
value equal to $5.0 million (collectively "Merger Consideration"), subject to
certain setoffs as set forth in the CLC Merger Agreement. A portion of the
Shares held by certain Shareholders who are officers of CLC shall not be
converted into cash, but in lieu thereof, shall be converted into the shares
of the Common Stock of MTL as set forth in their employment agreements. In
connection with the transactions contemplated by the Merger, the Company will
transfer all of the common stock of Leaman Air Services, Inc., a subsidiary of
the Company, to a principal stockholder of the Company, as additional
consideration for the Shares held by such Shareholder.
The aggregate consideration for the outstanding shares of the Company's
Common Stock was determined based upon arms-length negotiation between
Palestra and the Company. Prior to the execution of the Merger Agreement, no
material relationship existed between the Company and MTL, or any of its
affiliates, any director or officer of CLC or any associate of any such
director or officer.
In conjunction with the Merger, Palestra has initiated detailed Phase I and
Phase II environmental studies related to certain environmental sites. The
results of these studies are not presently known.
F-61
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
On July 28, 1998, MTL initiated a tender offer and consent solicitation for
the Company's 10 3/8% senior notes due 2005 (the "Notes"). This tender offer
is scheduled to expire August 24, 1998 unless extended.
The closing of the Merger is subject to the completion of the tender offer
for the Notes and an amendment to certain of the terms of these Notes in
connection therewith, satisfaction of all of the conditions to MTL's financing
arrangements in connection with the Merger, and customary conditions.
Accordingly, there can be no assurance that the merger will be successfully
completed.
F-62
<PAGE>
CHEMICAL LEAMAN CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF END OF
PERIOD ADDITIONS DEDUCTIONS PERIOD
------------ --------- ---------- ----------
<S> <C> <C> <C> <C>
FOR YEAR ENDED DECEMBER 31, 1997
Accounts receivable allowance
for doubtful accounts.......... $570 $691 $(411) $850
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-63
<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 Registered or Certified Mail:
United States Trust Company
of New York
P.O. Box 844, Cooper Station
New York, New York 10276-0844
Attention: Corporate Trust Services
By Hand Delivery to 4:30 p.m.:
United States Trust Company
of New York
111 Broadway, Lower Level
New York, New York 10006
Attention: Corporate Trust Window
By Overnight Courier and by Hand Delivery
after 4:30 p.m. on the Expiration Date:
United States Trust Company
of New York
770 Broadway, 13th Floor
New York, New York 10003
Attention: Corporate Trust Services
By Facsimile Transmission:
(212) 780-0592
Attention: Customer Service
For Information or Confirmation by Telephone:
(800) 548-6565
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight delivery, or registered or certified mail.)
----------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY MTL. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY
IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN
SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE IN-
FORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF MTL SINCE SUCH DATE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
---------------------------
PROSPECTUS
---------------------------
[LOGO] MTL INC.
$140,000,000
$100,000,000 10% SERIES B SENIOR SUBORDINATED NOTES DUE 2006
$40,000,000 SERIES B FLOATING INTEREST
RATE SUBORDINATED TERM SECURITIES
DUE 2006 (FIRSTS SM)
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Bylaws of MTL (the "Bylaws") state that MTL shall, to the full extent
permitted by the Florida Business Corporation Act, as amended or interpreted
from time to time, (the "FBCA"), indemnify all directors, officers, employees
and persons who are or were serving at the request of MTL as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against reasonably incurred expenses and amounts
paid in settlement of any threatened, pending or completed action, suit or
other type of proceeding by or in the right of MTL. Such indemnification shall
only be authorized if such person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, the best interests of
MTL.
In addition, the Bylaws state that MTL shall, to the full extent permitted
by the FBCA indemnify any person who is or was a director or officer of MTL or
is or was serving at the request of MTL as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against judgments, amounts paid in settlement, penalties, fines and
expenses actually and reasonably incurred in connection with any action, suit
or other proceeding (other than an action by or in the right of MTL). Such
indemnification shall only be authorized if such person acted in good faith
and in a manner such person reasonably believed to be in, or not opposed to,
the best interests of MTL.
Section 607.0850 of the FBCA permits indemnification against expenses,
fines, judgments and settlements incurred by any director, officer or employee
of a company in the event of pending or threatened civil, criminal,
administrative or investigative proceedings, if such person was, or was
threatened to be made, a party by reason of the fact that he or she is or was
a director, officer, or employee of the company. Such indemnification shall
only be authorized if such person acted in good faith and in a manner such
person reasonably believed to be in, or not opposed to, the best interests of
MTL. Section 607.0850 also provides that the indemnification provided for
therein shall not be deemed exclusive of any other rights to which those
seeking indemnification may otherwise be entitled. In addition, MTL maintains
a directors' and officers' liability insurance policy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 --Agreement and Plan of Merger, dated as of February 10, 1998,
by and among MTL and Sombrero Acquisition Corp.*
2.2 --Agreement and Plan of Merger, dated as of June 23, 1998, by
and among Palestra Acquisition Corp., CLC and the shareholders
of CLC.*
2.3 --Amendment No. 1 to the Agreement and Plan of Merger, dated as
of July 27, 1998, by and among Palestra Acquistion Corp., CLC
and the shareholders of CLC.*
2.4 --Amendment No. 2 to the Agreement and Plan of Merger, dated as
of August 25, 1998, by and among Palestra Acquistion Corp., CLC
and the shareholders of CLC.
3.1 --Articles of Incorporation of MTL.*
3.2 --Bylaws of MTL.*
4.1 --Credit Agreement, dated as of June 9, 1998 and amended and
restated as of August 28, 1998, between MTL, Levy Transport,
Ltd., the lenders party thereto and Credit Suisse First Boston
Corporation, as administrative agent.*
4.2 --Indenture, dated as of June 9, 1998, by and among MTL, the
Guarantors and United States Trust Company of New York, as
trustee (including form of 10% Senior Subordinated Notes due
2006 and form of Floating Interest Rate Subordinated Term
Securities due 2006).*
4.3 --First Supplemental Indenture, dated as of August 28, 1998, by
and among MTL, CLC and its subsidiaries as Guarantors, to the
Indenture dated as of June 9, 1998.*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.4 --Articles of Amendment for 13.75% Senior Exchangeable Preferred
Stock.*
4.5 --Articles of Amendment for 8% Redeemable Preferred Stock.*
4.6 --Exchange Indenture re: 13.75% Senior Exchangeable Preferred
Stock.*
4.7 --Indenture, dated as of June 16, 1997 between CLC and First
Union Bank, as Trustee.*
4.8 --First Supplemental Indenture, dated as of August 12, 1998,
between CLC and First Union National Bank to the Indenture
dated as of June 16, 1997.*
4.9 --Form of 10% Senior Subordinated Notes due 2006 (filed as part
of Exhibit 4.2).*
4.10 --Form of Floating Interest Rate Subordinated Term Securities
due 2006 (filed as part of Exhibit 4.2).*
4.11 --Registration Rights Agreement, dated as of June 9, 1998, by
and among MTL, the Guarantors and BT Alex. Brown Incorporated,
Credit Suisse First Boston Corporation and Salomon Brothers
Inc.*
5.1 --Opinion of Dewey Ballantine LLP as to the legality of the
securities being registered.
10.1 --MTL 1998 Employee Stock Option Plan.*
10.2 --Employment Agreement, dated as of February 10, 1998, by and
between Charles J. O'Brien and Montgomery Tank Lines, Inc.*
10.3 --Supplemental Letter dated as of February 10, 1998 to
Employment Agreement between Charles J. O'Brien and Montgomery
Tank Lines, Inc.*
10.4 --Employment Agreement, dated as of February 10, 1998, by and
between Richard J. Brandewie and Montgomery Tank Lines, Inc.*
10.5 --Employment Agreement, dated as of February 10, 1998, by and
between Marvin Sexton and Montgomery Tank Lines, Inc.*
10.6 --Consulting Agreement between Montgomery Tank Lines and Elton
E. Babbit, dated February 10, 1998.*
10.7 --Shareholders' Agreement by and between Elton E. Babbit,
Charles J. O'Brien, Jr., Richard J. Brandewie, Marvin E.
Sexton and Apollo, dated as of February 10, 1998.*
10.8 --Non-Competition Agreement with Elton E. Babbit, dated as of
February 10, 1998.*
10.9 --Non-Competition Agreement with Gordon Babbit, dated as of
February 10, 1998.*
10.10 --Management Agreement between Apollo and MTL, dated as of
February 10, 1998.*
10.11 --Marvin Sexton Limited Recourse Secured Promissory Note, dated
as of June 9, 1998.*
12.1 --Statement of Computation of Ratio of Earnings to Fixed
Charges.
16.1 --Letter re: Change in Certifying Accountant.*
21.1 --List of the Subsidiaries of MTL.
23.1 --Consent of Arthur Andersen LLP re: MTL.
23.2 --Consent of Arthur Andersen LLP re: CLC.
23.3 --Consent of Dewey Ballantine LLP (included as part of its
opinion filed as Exhibit 5.1 hereto).
24.1 --Power of Attorney (included in Part II of this Registration
Statement).
25.1 --Form T-1 Statement of Eligibility of Trustee.
99.1 --Form of Letter of Transmittal.*
99.2 --Form of Notice of Guaranteed Delivery.*
</TABLE>
- --------
* Previously filed.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
1. The undersigned registrant hereby undertakes:
(a) 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 end 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 a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(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;
(b) 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.
(c) 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.
2. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
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.
4. 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 of 1933 and will be governed by the final adjudication of such
issue.
5. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of
II-3
<PAGE>
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
6. The undersigned registrant hereby undertakes to supply by means of post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
the registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
MTL INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Chairman of the December 16, 1998
- ------------------------------------- Board, President
CHARLES J. O'BRIEN and Chief Executive
Officer
/s/ Richard J. Brandewie Senior Vice December 16, 1998
- ------------------------------------- President,
RICHARD J. BRANDEWIE Treasurer and Chief
Financial Officer
(Principal
Accounting Officer)
/s/ Marvin E. Sexton Director December 16, 1998
- -------------------------------------
MARVIN E. SEXTON
/s/ Joshua J. Harris Director December 16, 1998
- -------------------------------------
JOSHUA J. HARRIS
/s/ Michael D. Weiner Director December 16, 1998
- -------------------------------------
MICHAEL D. WEINER
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Robert A. Katz Director December 16, 1998
- -------------------------------------
ROBERT A. KATZ
/s/ Marc J. Rowan Director December 16, 1998
- -------------------------------------
MARC J. ROWAN
/s/ John Kissick Director December 16, 1998
- -------------------------------------
JOHN KISSICK
</TABLE>
ii
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
MONTGOMERY TANK LINES, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
iii
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
QUALITY CARRIERS, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
iv
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
LAKESHORE LEASING, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
v
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
MEXICO INVESTMENTS, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
vi
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
MTL OF NEVADA
/s/ Leo Massey
By: _________________________________
LEO MASSEY
PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Leo Massey President and December 16, 1998
- ------------------------------------- Director (Principal
LEO MASSEY Executive Officer)
/s/ Monte L. Miller Chief Financial December 16, 1998
- ------------------------------------- Officer and
MONTE L. MILLER Director (Principal
Accounting Officer)
</TABLE>
vii
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
CHEMICAL LEAMAN CORPORATION
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
viii
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
CHEMICAL PROPERTIES, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
ix
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
CAPACITY MANAGEMENT SYSTEMS, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
x
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
CORE LOGISTICS MANAGEMENT, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xi
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
ENVIROPOWER, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xii
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
PICKERING WAY FUNDING CORP.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xiii
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
POWER PURCHASING, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xiv
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
AMERICAN TRANSINSURANCE GROUP, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xv
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
CHEMICAL LEAMAN TANKLINES, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xvi
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
FLEET TRANSPORT COMPANY, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xvii
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
QUALA SYSTEMS, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xviii
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
CLT SERVICES, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xix
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
LEAMAN LOGISTICS, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xx
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
TRANSPLASTICS, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xxi
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PLANT CITY, STATE OF
FLORIDA, ON DECEMBER 16, 1998.
QSI SERVICES, INC.
/s/ Charles J. O'Brien
By: _________________________________
CHARLES J. O'BRIEN
VICE PRESIDENT
KNOW ALL PERSONS BY THESE PRESENTS, THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW HEREBY SEVERALLY CONSTITUTES AND APPOINTS CHARLES J. O'BRIEN AND RICHARD
J. BRANDEWIE, AND EACH OF THEM, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT
AND AGENT, WITH FULL POWER OF SUBSTITUTION AND RESUBSTITUTION FOR HIM OR HER
AND IN HIS OR HER NAME, PLACE AND STEAD, IN ANY AND ALL CAPACITIES TO SIGN ANY
AND ALL AMENDMENTS (INCLUDING POST-EFFECTIVE AMENDMENTS) TO THE REGISTRATION
STATEMENT, AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO, AND OTHER
DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENTS, AND EACH OF THEM,
FULL POWER AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING
REQUISITE OR NECESSARY FULLY TO ALL INTENTS AND PURPOSES AS HE OR SHE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT EACH SAID
ATTORNEYS-IN-FACT AND AGENTS OR ANY OF THEM OR THEIR OR HIS OR HER SUBSTITUTE
OR SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE
DATE
/s/ Charles J. O'Brien Vice President and December 16, 1998
- ------------------------------------- Director (Principal
CHARLES J. O'BRIEN Executive Officer)
/s/ Richard J. Brandewie Chief Financial December 16, 1998
- ------------------------------------- Officer and
RICHARD J. BRANDEWIE Director (Principal
Accounting Officer)
</TABLE>
xxii
<PAGE>
Exhibit 2.4
AMENDMENT NO. 2 dated as of August 25, 1998
(this "Amendment") to the AGREEMENT AND PLAN OF
---------
MERGER dated as of June 23, 1998, by and among
PALESTRA ACQUISITION CORP., a Delaware
corporation ("Purchaser"), CHEMICAL LEAMAN
---------
CORPORATION, a Pennsylvania corporation (the
"Company"), and THE SHAREHOLDERS OF THE COMPANY
--------
NAMED ON SCHEDULE I ATTACHED TO THE ORIGINAL
----------
AGREEMENT (each, a "Shareholder", and
-----------
collectively, the "Shareholders"), as amended by
------------
Amendment No. 1 dated July 27, 1998 (as so
amended, the "Original Agreement" and, as amended
------------------
by this Amendment, this "Agreement"). Capitalized
---------
terms used but not defined herein shall have the
meanings ascribed to them in the Original
Agreement.
WHEREAS, the Board of Directors of the Company has adopted resolutions
approving this Amendment and the transactions to which the Company is a party
contemplated hereby, and has agreed, upon the terms and subject to the
conditions set forth herein, to recommend that the Company's shareholders
approve this Amendment.
NOW, THEREFORE, in consideration of the premises and the mutual
benefits to be derived from this Amendment and the representations, warranties,
covenants, agreements and conditions hereinafter set forth, the parties hereto
hereby agree as follows:
ARTICLE I
AMENDMENTS
1.1 LETTERS OF TRANSMITTAL.
- --- ----------------------
(a) Section 2.2(b) of the Original Agreement is hereby amended by
deleting "(together with a letter of transmittal signed by such holder in
substantially the form of EXHIBIT A attached hereto)" and "and such letter of
---------
transmittal" therefrom.
(b) EXHIBIT D to the Original Agreement is hereby deleted in its
---------
entirety.
1.2 CONDITIONS.
- --- ----------
(a) Purchaser acknowledges and agrees that the conditions set forth in
Section 7.3(p) is hereby deemed waived or satisfied and any further compliance
thereunder is hereby waived.
<PAGE>
(b) Section 7.3(l) of the Original Agreement is hereby deleted in its
entirety and replaced with the following: Subject to Section 6.14, the Company
shall have filed a General Information Notice (GIN) with the NJDEP with respect
to the Real Property located in New Jersey."
1.3 INDEMNIFICATION.
- --- ---------------
(a) Section 8.4(e)(i) of the Original Agreement is hereby amended by
deleting the following therefrom: "rate of interest on the notes sold by the
Surviving Corporation or its Affiliates in connection with the consummation of
the transactions contemplated by this Agreement" and replacing it with "10%."
(b) Section 8.6(b) of the Original Agreement is hereby amended by
deleting the following therefrom: "the sum of (i) $8,250,000 (the "Cap"), plus
--- ----
(ii) an amount equal to the Indemnity Cap Adjustment Amount (as adjusted, the
"Adjusted Cap")" and replacing it with the following "the sum of (i) $10,750,000
- -------------
(the "Cap"), plus (ii) the stated value of all shares of New Preferred Stock
--- ----
issued at the Effective Time in connection with the Merger (the "Closing Date
------------
Shares"), plus (iii) the stated value of all shares of New Preferred Stock
- ------ ----
issued as a payment-in-kind dividend ("PIK Shares") that are issued or are
----------
required to be issued pursuant to the terms of the New Preferred Stock as a
payment-in-kind dividend on Closing Date Shares (the "Initial PIK Shares") (the
------------------
sum of (i), (ii) and (iii), the "Adjusted Cap")."
------------
(c) Section 8.7 of the Original Agreement is hereby amended by (i)
deleting the words "L/C Cap" and replacing it with the words "Cap" each time
"L/C Cap" appears therein and (ii) deleting the last sentence thereof in its
entirety and adding the following:
"With respect to any Purchaser Losses (including, without
limitation, payments referred to in Section 8.4) arising out of
conditions identified on Schedule 7.3(p)(2), the Purchaser shall only
------------------
draw upon the Qualified Letter of Credit and shall not reduce the
stated value of the outstanding shares of New Preferred Stock. With
respect to any payments referred to in Section 8.4 only (other than
those Purchaser Losses arising out of conditions identified on
Schedule 7.3(p)(2)), the Purchaser shall be entitled, in its sole
------------------
discretion, to either draw against the Qualified Letter of Credit or
reduce the stated value of the outstanding shares of New Preferred
Stock. In such event, Purchaser may make an election to draw against
the Qualified Letter of Credit by delivering a written notice to such
effect to the Shareholders' Representative. In the absence of such
notice, the Purchaser will be deemed to have elected to reduce the
stated value of the outstanding shares of New Preferred Stock.
Notwithstanding anything to the contrary contained in this Agreement,
David R. Hamilton and George McFadden shall be entitled to deliver the
Qualified Letters of Credit after the Effective Time. If the Purchaser
does not receive the Qualified Letters of Credit at the Effective
Time, it shall reduce the Cash Merger Consideration to be paid to each
Shareholder by the product of (x) such Shareholders Common Equity
2
<PAGE>
Percentage and (y) the amount of the Cap (the "Holdback Amount"). The
---------------
aggregate Holdback Amount shall be deposited by the Purchaser in a
segregated interest-bearing bank account and shall secure, in part,
the Shareholders' obligations pursuant to Article VIII. Purchaser
shall be entitled to withdraw amounts from such segregated bank
account to the same extent that it would have been entitled to draw
upon the Qualified Letters of Credit. Promptly after receipt of the
Qualified Letters of Credit, the Purchaser shall pay the Holdback
Amount to the Shareholders (together with interest earned thereon),
subject to any reductions pursuant to the immediately preceding
sentence.
Without limiting the foregoing, Mr. Hamilton and Mr. McFadden
agree to use their best efforts to obtain the Qualified Letters of
Credit within ninety days immediately following the Closing Date."
(d) Annex I to the Original Agreement is hereby amended by deleting
the definitions of "Indemnity Cap Adjustment Amount" and "Preferred Stock
Adjustment Amount" therefrom.
1.4 SETOFFS.
- --- -------
Section 8.8 of the Original Agreement is hereby deleted in its entirety and
replaced with the following: "Except as expressly contemplated by this Agreement
or the terms of the New Preferred Stock, sums due under this Article VIII shall
------------
not be set off against or subject to set-off by, other sums due to and from the
parties hereto."
1.5 NEW PREFERRED.
- --- -------------
Exhibit 2.1(b) to the Original Agreement is hereby amended by deleting
the first paragraph in the second column of the row entitled "Stated Value" and
replacing it with the following:
"$5,000,000. The stated value of the outstanding shares of New
Preferred Stock (including Initial PIK Shares but excluding all other
PIK Shares) will be reduced by $1 for each $1 of Purchaser Losses
(including, without limitation, payments referred to in Section 8.4)
in respect of which the Purchaser does not elect (if applicable) to
draw against the Qualified Letter of Credit in accordance with and as
limited by Section 8.7 of the Agreement.
In the event that any Person sells, transfers or otherwise
disposes of shares of New Preferred Stock to any Person (including the
Company) in accordance with the terms thereof, such Person shall
deposit simultaneously with such sale, transfer or other disposition
the then applicable Escrow Amount with an escrow agent selected by the
Company (the "Escrow Agent"). The Escrow Amount shall be held by the
------------
Escrow Agent pursuant to an escrow agreement that is satisfactory to
the Purchaser and the Shareholders' Representative. The Escrow Agent
shall pay to the Purchaser Indemnified Person such amounts and at such
times
3
<PAGE>
as the stated value of the sold, transferred or disposed of shares of
New Preferred Stock would have been reduced pursuant to the terms
thereof (together with interest earned thereon). The remaining Escrow
Amount shall be released to such Person upon resolution of the matters
referred to in Section 8.4 and payment of amounts due thereunder. For
purposes hereof, "Escrow Amount" shall mean the Stated Value of all
-------------
shares of New Preferred Stock that are being sold, transferred or
otherwise disposed of."
1.6 D&O INSURANCE.
- --- -------------
The Original Agreement is hereby amended by adding a new Section 6.18,
which shall read in its entirety as follows:
"6.18 D&O Insurance. Purchaser acknowledges that prior to the
-------------
Effective Time, the Company may obtain and pay for an insurance policy
pursuant to which the officers and directors of the Company and its
Subsidiaries shall have, for a period of six years following the Effective
Time, fully-paid and non-cancelable directors and officers insurance
relating to events occurring prior to the Closing Date. The parties agree
that the fees and expenses incurred or to be incurred in connection with
such insurance policy, including any premiums related thereto, shall
constitute Transaction Expenses. Purchaser agrees (a) not to cancel or
otherwise amend or modify the terms of such insurance and (b) to reasonably
cooperate with the Shareholders Representative, the Company issuing and
underwriting such insurance policy and the broker relating thereto as
necessary or appropriate from time to time in connection with such
insurance and/or claims thereunder (it being understood that after the
Effective Time, none of the Purchaser, the Company or any of their
respective Affiliates shall have any obligation to incur any expenses in
connection with any such cooperation). Nothing contained in this Section
6.18 shall limit or eliminate any existing indemnity obligation that the
Company currently has to its directors and officers under any
indemnification or employment agreement, under the Company's Articles of
Incorporation or By-laws (in each case, as disclosed to Purchaser pursuant
to this Agreement) each as in effect on the date hereof) or under
applicable law."
1.7 ARTICLES OF INCORPORATION.
- --- -------------------------
(a) EXHIBIT A and EXHIBIT B to the Original Agreement are hereby
--------- ---------
deleted in their entirety and replaced with EXHIBIT A and EXHIBIT B hereto,
--------- ---------
respectively.
(b) Section 1.4 of the Original Agreement is hereby amended by
deleting "and restated in their entirety to read as set forth in EXHIBIT C
---------
hereto" and replacing it with the following: "as set forth in the exhibit to
the Delaware Certificate of Merger."
(c) EXHIBIT C to the Original Agreement is hereby deleted in its
---------
entirety.
4
<PAGE>
ARTICLE II
MISCELLANEOUS PROVISIONS
2.1 AGREEMENT.
- --- ---------
Except as modified by this Amendment, the Original Agreement shall remain
in full force and effect, enforceable in accordance with its terms.
2.2 COUNTERPARTS.
- --- ------------
This Amendment may be executed in any number of counterparts, and each such
counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute one agreement.
2.3 GOVERNING LAW.
- --- -------------
THIS AMENDMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY CHOICE OF
LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK, OR ANY
OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL
LAW OF THE STATE OF NEW YORK WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF
THIS AMENDMENT, EVEN IF UNDER SUCH JURISDICTION'S CHOICE OF LAW OR CONFLICT OF
LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY
APPLY. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AMENDMENT OR ANY
RELATED DOCUMENT MAY BE BROUGHT EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW
YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK AND, BY
EXECUTION AND DELIVERY OF THIS AMENDMENT, EACH PARTY HERETO HEREBY IRREVOCABLY
ACCEPTS FOR ITSELF OR HIMSELF AND IN RESPECT OF ITS OR HIS PROPERTY AND ASSETS,
GENERALLY AND UNCONDITIONALLY THE JURISDICTION OF THE AFORESAID COURTS.
* * *
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date first written above.
THE PURCHASER:
PALESTRA ACQUISITION CORP.
By: /s/ Charles J. O'Brien, Jr.
---------------------------------
Name: Charles J. O'Brien, Jr.
Title:
THE COMPANY:
CHEMICAL LEAMAN CORPORATION
By: /s/ David M. Boucher
---------------------------------
Name: David M. Boucher
Title: Senior Vice President &
Secretary
<PAGE>
DAVID R. HAMILTON
CATHARINE C. HAMILTON
CATHARINE ELIZABETH HAMILTON
TENNESSEE ALEXIS HAMILTON
HAMILTON FAMILY TRUST
SAMUEL C. HAMILTON
GEORGE MCFADDEN
JOHN H. MCFADDEN
TRUSTEES U/W/O ALEXANDER B.
MCFADDEN, DECEASED, F/B/O JOHN,
MARY AND GEORGE MCFADDEN
TRUSTEES U/W/O GEORGE MCFADDEN,
DECEASED, F/B/O GEORGE MCFADDEN
TRUSTEES U/W/O GEORGE MCFADDEN
DECEASED, F/B/O JOHN H. MCFADDEN
TRUSTEES U/W/O GEORGE MCFADDEN,
DECEASED, F/B/O MARY JOSEPHINE
MCFADDEN
LESLEY TAYLOR
TRUSTEES F/B/O ELIZABETH CUTTING
MCFADDEN
EUGENE C. PARKERSON
DAVID M. BOUCHER
PHILIP J. RINGO
REUBEN M. ROSENTHAL
JACK H. ELROD
J. STEPHEN HAMILTON
LEON F. PALMER
DENNIS R. COPELAND
F.C. COLON-OSORIO
G. MICHAEL CRONK
KAREN SZABO LLOYD
FRANK LLOYD
By: /s/ George McFadden
---------------------------------
George McFadden
Attorney-in-Fact
<PAGE>
DAVID R. HAMILTON
CATHARINE C. HAMILTON
CATHARINE ELIZABETH HAMILTON
TENNESSEE ALEXIS HAMILTON
HAMILTON FAMILY TRUST
SAMUEL C. HAMILTON
GEORGE MCFADDEN
JOHN H. MCFADDEN
TRUSTEES U/W/O ALEXANDER B.
MCFADDEN, DECEASED, F/B/O JOHN,
MARY AND GEORGE MCFADDEN
TRUSTEES U/W/O GEORGE MCFADDEN,
DECEASED, F/B/O GEORGE MCFADDEN
TRUSTEES U/W/O GEORGE MCFADDEN
DECEASED, F/B/O JOHN H. MCFADDEN
TRUSTEES U/W/O GEORGE MCFADDEN,
DECEASED, F/B/O MARY JOSEPHINE
MCFADDEN
LESLEY TAYLOR
TRUSTEES F/B/O ELIZABETH CUTTING
MCFADDEN
EUGENE C. PARKERSON
DAVID M. BOUCHER
PHILIP J. RINGO
REUBEN M. ROSENTHAL
JACK H. ELROD
J. STEPHEN HAMILTON
LEON F. PALMER
DENNIS R. COPELAND
F.C. COLON-OSORIO
G. MICHAEL CRONK
KAREN SZABO LLOYD
FRANK LLOYD
By: /s/ David R. Hamilton
---------------------------
David R. Hamilton
Attorney-in-Fact
<PAGE>
CERTIFICATE OF MERGER
OF
PALESTRA ACQUISITION CORP.
INTO
CHEMICAL LEAMAN CORPORATION
Pursuant to Section 252 of the
Delaware General Corporation Law
The undersigned corporation organized and existing under and by
virtue of the General Corporation Law of Delaware.
DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger is as follows:
NAME State of Incorporation
---- ----------------------
PALESTRA ACQUISITION Delaware
CORP.
CHEMICAL LEAMAN Pennsylvania
CORPORATION
SECOND: That an Agreement and Plan of Merger between the parties to
the merger has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 252 of the General Corporation Law of Delaware.
THIRD: That the name of the surviving corporation of the merger is
Chemical Leaman Corporation.
FOURTH: That the existing Articles of Incorporation of the surviving
corporation shall be amended as set forth in Exhibit A attached hereto.
---------
FIFTH: That the executed Agreement and Plan of Merger is on file at
the principal place of business of the surviving corporation, the address of
which is 102 Pickering Way, Exton, PA 19341-0200.
SIXTH: That a copy of the Agreement and Plan of Merger will be
furnished by the surviving corporation, on request and without cost, to any
stockholder of any constituent corporation.
<PAGE>
SEVENTH: That the surviving corporation may be served with process in
the State of Delaware in any proceeding for enforcement of any obligation of the
constituent corporation of this State, as well as for enforcement of any
obligation of the surviving corporation arising from the merger, including any
suit or other proceeding to enforce the right of any stockholders as determined
in appraisal proceedings pursuant to the provisions of Section 262 of the
General Corporation Law of the State of Delaware, and irrevocably appoints the
Secretary of State of the State of Delaware as its agent to accept service of
process in any such suit or proceedings. The address to which a copy of such
process shall be mailed by the Delaware Secretary of State is 102 Pickering Way,
Exton, PA 19341-0200.
EIGHTH: That this Certificate of Merger shall be effective upon its
filing with the Secretary of State of Delaware.
* * * * * * * * * *
<PAGE>
Dated: August __, 1998
CHEMICAL LEAMAN CORPORATION
By:______________________
Name:
Title:
<PAGE>
(CHANGES) BUREAU USE ONLY:
DOCKETING STATEMENT DSCB: 15-134B (Rev 95) ___ REVENUE ____ LABOUR & INDUSTRY
___ OTHER ________________________
FILING FEE: NONE FILE CODE ________________________
FILED DATE _______________________
This form (file in triplicate) and all accompanying documents shall be mailed
to:
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
P.O.BOX 8722
HARRISBURG, PA 17105-8722
<TABLE>
<S> <C>
Part I. COMPLETE FOR EACH FILING:
Current name of entity or registrant affected by the submittal to
which this statement relates: (survivor or new entity if merger or
consolidation)
Chemical Leaman Corporation
----------------------------------------------------------------------------------------------------------------------
Entity number, if known: 647190 NOTE: ENTITY NUMBER is the computer index number assigned to an entity upon initial
------
filing in the Department of State.
Incorporation/qualification date in Pa.: March 2, 1977 State of Incorporation: Pennsylvania
------------- ------------
Federal Identification Number: ___________________________________________________________
Specified effective date, if any: Upon filing
----------------------------------------------------------
Part II. COMPLETE FOR EACH FILING This statement is being submitted with (check proper box):
_____ AMENDMENT: complete Section A only
x MERGER, CONSOLIDATION OR DIVISION: complete Section B, C or D
-----
_____ CONSOLIDATION: complete Section C
_____ DIVISION: complete Section D
_____ CONVERSION: complete Section A and E only
_____ STATEMENT OF CORRECTION: complete Section A only
_____ STATEMENT OF TERMINATION: complete Section H
_____ STATEMENT OF REVIVAL: complete Section G
_____ DISSOLUTION BY SHAREHOLDERS OR INCORPORATORS BEFORE COMMENCEMENT OF BUSINESS: complete Section F only
PART III. COMPLETE IF APPROPRIATE: The delayed effective date of the accompanying submittal is:
___________________________________________________________________
month day year hour, if any
DSCB: 15-134B (Rev 95)-2
_____ Section A. CHANGES TO BE MADE TO THE ENTITY NAMED IN PART I: (Check box/boxes which pertain)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
______ Name: ____________________________________________________________________________________________________
______ Registered Office: _______________________________________________________________________________________
Number & street/RD number & box number City State Zip County
______ Purpose: _________________________________________________________________________________________________
______ Stock: aggregate number of shares authorized ______________________ (attach additional provisions, if any)
______ Term of Existence: _______________________________________________________________________________________
______ Other: ___________________________________________________________________________________________________
X SECTION B. MERGER (Complete Section A if any changes to surviving entity):
- ----
MERGING ENTITIES ARE: (List ONLY the MERGING ENTITIES-SURVIVOR IS LISTED IN PART 1)
1. Name: Chemical Leaman Corporation
--------------------------------------------------------------------------------------------------------
Entity Number, if known: 647190 Inc./quali. date in Pa.: 3/2/77 State of Incorporation: PA
--------------- --------------- -----
2. Name: Palestra Acquisition Corp.
--------------------------------------------------------------------------------------------------------
Entity Number, if known: _______________ Inc./quali. date in Pa.:_____________ State of Incorporation: DE
-------
Attach sheet containing above corporate information if there are any additional merging entities.
____ SECTION C. CONSOLIDATION (NEW entity information should be completed in Part 1. Also, complete and attach
DOCKETING STATEMENT DSCB:15-134A for the NEW entity formed.)
CONSOLIDATING ENTITIES ARE:
1. Name: ________________________________________________________________________________________________________
Entity Number, if known: _______________ Inc./quali. date in Pa.: _____________ State of Incorporation: ______
2. Name: ________________________________________________________________________________________________________
Entity Number, if known: _______________ Inc./quali. date in Pa.: _____________ State of Incorporation: ______
Attach sheet containing above corporate information if there additional consolidating entities.
</TABLE>
<PAGE>
_______ SECTION D. DIVISION (Forming NEW entity(s) named below. Also, complete
and attach DOCKETING STATEMENT DSCB:15-134A For EACH new
entity formed by division.)
_____________ 1. ______________________________________________________
Entity Number Name
_____________ 1. ______________________________________________________
Entity Number Name
Attach sheet if there are additional entities to be named:
CHECK ONE:
______ Entity named in Part I survives. (Any changes, complete Section
A)
______ Entity named in Part I does not survive.
_______ SECTION E. CONVERSION (Complete Section A)
CHECK ONE:
______ Converted from nonprofit to profit
______ Converted from profit to nonprofit
_______ SECTION F. DISSOLVED BY SHAREHOLDERS OR INCORPORATORS BEFORE
COMMMENCEMENT OF BUSINESS
_______ SECTION G. STATEMENT OF REVIVAL Entity named in Part I hereby revives
its charter or articles which were
forfeited by Proclamation or expired.
(Complete Section A if any changes
have been made to the revived
entity.)
_______ SECTION H. STATEMENT OF TERMINATION
_____________________ filed in the Department of State on
(type of filing made)
___________________________________ is/are hereby terminated.
month day year hour, if any
If merger, consolidation or division, list all entities involved, other
than that listed in Part I:
_____________ 1. ______________________________________________________
Entity Number Name
_____________ 2. ______________________________________________________
Entity Number Name
Attach sheet containing above information if there are additional
entities involved.
<PAGE>
Microfilm Number________ Filed with the Department of State on___________
Entity Number_____________
Secretary of the Commonwealth
ARTICLES OF MERGER-DOMESTIC BUSINESS CORPORATION
DSCB: 15-1926(Rev 90)
In compliance with the requirements of 15 Pa.C.S.(S) 1926 (relating to
articles of merger or consolidation), the undersigned business corporations,
desiring to effect a merger, hereby state that:
1. The name of the corporation surviving the merger is: Chemical Leaman
---------------
Corporation
-----------
2. (CHECK AND COMPLETE ONE OF THE FOLLOWING):
X The surviving corporation is a domestic business corporation and the
---
(a) ADDRESS of its current registered office in this Commonwealth or
(b) NAME of its commercial registered office provider and the county
of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
(a)_________________________________________________________________________
Number and Street City State Zip County
<TABLE>
<S> <C>
(b) c/o: CT Corporation System, 1635 Market Street, Philadelphia, PA 19103 Philadelphia
-----------------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
</TABLE>
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located for
venue and official publication purposes.
_______ The surviving corporation is a qualified foreign business corporation
incorporated under the laws of _______________ and the (a) ADDRESS of its
current registered office in this Commonwealth or (b) NAME of its commercial
registered office provider and the county of venue is (the Department is hereby
authorized to correct the following information to conform to the records of the
Department):
(a)___________________________________________________________________
Number and Street City State Zip County
(b) c/o:______________________________________________________________
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the
county in (b) shall be deemed the county in which the corporation is located
for venue and official publication purposes.
______ The surviving corporation is a nonqualified foreign business corporation
incorporated under the laws of __________ and the address of its principal
office under the laws of such domiciliary jurisdiction is:
______________________________________________________________________
Number and Street City State Zip
3. The NAME and the ADDRESS of the registered office in this Commonwealth or
NAME of its commercial registered office provider and the county of venue
of each other domestic business corporation and qualified foreign business
corporation which is a party to the plan of merger are as follows:
<TABLE>
<S> <C>
NAME OF CORPORATION ADDRESS OF REGISTERED OFFICE OR NAME OF COMMERCIAL REGISTERED OFFICE PROVIDER COUNTY
C.T.Corporation System 1635 Market Street, Philadelphia, PA 19103 Philadelphia
------------------------------------------------------------------------------------------------------------------------
________________________________________________________________________________________________________________________
</TABLE>
<PAGE>
<TABLE>
<S> <C>
4. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
X The plan of merger shall be effective upon filing these Articles of
----
Merger in the Department of State.
The plan of merger shall be effective on:__________________ at______________
----
Date Hour
5. The manner in which the plan of merger was adopted by each domestic corporation is as follows:
NAME OF CORPORATION MANNER OF ADOPTION
Chemical Leaman Corporation Adopted by the directors pursuant to 15 Pa. C.C.(S) 1924(a)
-----------------------------------------------------------------------------------------------
Palestra Acquisition Corp. Adopted by the directors pursuant to 15 Pa. C.C.(S) 1924(a)
-----------------------------------------------------------------------------------------------
6. (STRIKE OUT THIS PARAGRAPH IF NO FOREIGN CORPORATION IS A PARTY TO THE
MERGER). The plan was authorized, adopted or approved, as the case may be,
by the foreign business corporation (or each of the foreign business
corporations) party to the plan in accordance with the laws of the
jurisdiction in which it is incorporated.
7. (CHECK, AND IF APPROPRIATE COMPLETE, ONE OF THE FOLLOWING):
The plan of merger is set forth in full in Exhibit A attached hereto
and made a part hereof.
----
X Pursuant to 15 Pa.C.S.(S) 1901 (relating to omission of certain
----
provisions, if any, of the plan of merger that amend or constitute
the operative Articles of Incorporation of the surviving corporation
as in effect subsequent to the effective date of the plan are set
forth in full in Exhibit A attached hereto and made a part hereof.
The full text of the plan of merger is on file at the principal place of
business of the surviving corporation, the address of which is:
102 Pickering Way Exton Pennsylvania 19341-0200
------------------------------------------------------------------------------------------------------------------
Number and street City State Zip County
IN TESTIMONY WHEREOF, the undersigned corporation or each undersigned
corporation has caused these Articles of Merger to be signed by a duly
authorized officer thereof this________ day of __________, 19_____.
Chemical Leaman Corporation Palestra Acquisition Corp.
- --------------------------- -------------------------------
(Name of Corporation) (Name of Corporation)
BY:________________________ BY:____________________________
(Signature) (Signature)
TITLE:_____________________ TITLE:_________________________
</TABLE>
<PAGE>
EXHIBIT A
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
________________
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
CHEMICAL LEAMAN CORPORATION
________________
In compliance with the Business Corporation Law of 1988 and pursuant
to authorizing resolutions of the board of directors, the articles of
incorporation of Chemical Leaman Corporation are hereby amended as follows:
A. The first paragraph of Section 5 of the Articles of Incorporation
is hereby deleted and replaced with the following:
"5. The aggregate number of shares which the Corporation shall have
authority to issue is Eleven Thousand (11,000) shares, of which One
Thousand (1,000) shares shall be shares of Preferred Stock without par
value, and Ten Thousand (10,000) shares shall be shares of Common Stock
with a par value of $0.01 per share. Nothing contained herein shall amend
or modify in any way the Statements With Respect to Shares relating to the
Corporation's outstanding shares of Preferred Stock or adversely affect in
any way the terms thereof."
B. The Articles of Incorporation are hereby amended by adding the
following new Paragraphs 8, 9 and 10 thereto:
"8. A director of the corporation shall not be personally liable to
the corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, or (iii) for any transaction from which the director derived
any improper personal benefit. If the Business Corporation Law is amended after
the date of incorporation of the corporation to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Business Corporation Law, as so amended.
<PAGE>
Any repeal or modification of the foregoing paragraph by the shareholders
of the corporation shall not adversely affect any right or protection of a
director of the corporation existing at the time of such repeal or modification.
9. For the management of the business and for the conduct of the affairs
of the corporation, and in further definition, limitation and regulation of the
powers of the corporation and of its directors and shareholders, it is further
provided:
(a) In furtherance and not in limitation of the powers conferred by the
laws of the Commonwealth of Pennsylvania, the Board of Directors is expressly
authorized and empowered:
(i) to make, alter, amend or repeal the By-laws in any manner not
inconsistent with the laws of the Commonwealth of Pennsylvania or these Articles
of Incorporation;
(ii) without the assent or vote of the shareholders, to authorize
and issue securities and obligations of the corporation, secured or unsecured,
and to include therein such provisions as to redemption, conversion or other
terms thereof as the Board of Directors in its sole discretion may determine,
and to authorize the mortgaging or pledging, as security therefor, of any
property of the corporation, real or personal, including after-acquired
property;
(iii) to determine whether any, and if any, what part, of the net
profits of the corporation or of its surplus shall be declared in dividends and
paid to the shareholders, and to direct and determine the use and disposition of
any such net profits or such surplus; and
(iv) to fix from time to time the amount of net profits of the
corporation or of its surplus to be reserved as working capital or for any other
lawful purpose.
In addition to the powers and authorities herein or by statute expressly
conferred upon it, the Board of Directors may exercise all such powers and do
all such acts and things as may be exercised or done by the corporation,
subject, nevertheless, to the provisions of the laws of the Commonwealth of
Pennsylvania, of these Articles of Incorporation and of the By-laws of the
corporation.
(b) Any director or any officer elected or appointed by the shareholders
or by the Board of Directors may be removed at any time in such manner as shall
be provided in the By-laws of the corporation.
-2-
<PAGE>
(c) From time to time any of the provisions of these Articles of
Incorporation may be altered, amended, or repealed, and other provisions
authorized by the laws of the Commonwealth of Pennsylvania at the time in force
may be added or inserted, in the manner and at the time prescribed by said laws,
and all rights at any time conferred upon the shareholders of the corporation by
these Articles of Incorporation are granted subject to the provisions of this
paragraph (c).
10. Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its shareholders or any class of them, any court of equitable
jurisdiction within the Commonwealth of Pennsylvania may, on the application in
a summary way of the corporation or of any creditor or shareholder thereof or on
the application of any receiver or receivers appointed for the corporation or on
the application of trustees in dissolution, order a meeting of the creditors or
class of creditors, and/or of the shareholders or class of shareholders of the
corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the shareholders or class of
shareholders of the corporation, as the case may be, agree on any compromise or
arrangement and to any reorganization of the corporation as a consequence of
such compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the shareholders or class of shareholders, of the corporation, as the case
may be, and also on the corporation."
-3-
<PAGE>
EXHIBIT 5.1
[Letterhead of Dewey Ballantine LLP]
December 16, 1998
MTL Inc.
3108 Central Drive
Plant City, Florida 33567
Re: 10% Series B Senior Subordinated Notes due 2006 and Series B
Floating Interest Rate Subordinated Term Securities due 2006,
(together, the "Exchange Notes")
---------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for MTL Inc., a Florida corporation (the
"Company"), in connection with the Company's offer to exchange (the "Exchange
Offer") up to $140,000,000 aggregate principal amount of Exchange Notes which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act") for its existing 10% Senior Subordinated Notes due 2006 and
Floating Interest Rate Subordinated Term Securities due 2006 (together, the
"Old Notes"), as described in the Prospectus (the "Prospectus") contained in
the Registration Statement on Form S-4 (the "Registration Statement"), to be
filed with the Securities and Exchange Commission. The Old Notes were issued,
and the Exchange Notes are proposed to be issued, under an indenture dated as
of June 9, 1998 (the "Indenture"), between the Company and United States Trust
Company of New York, as Trustee. Capitalized terms not otherwise defined
herein shall have the meanings ascribed to them in the Registration Statement.
In arriving at the opinion expressed below, we have examined the
Registration Statement, the Prospectus contained therein, the Indenture and
Exchange Notes, which are filed as exhibits to the Registration Statement, and
originals or copies, certified or otherwise identified to our satisfaction, of
such other documents, records, certificates, agreements and other matters as
we have deemed necessary for the purposes of this opinion.
In such examination, we have assumed, without independent investigation, (i)
the genuineness of all signatures; (ii) the legal capacity of all individuals
who have executed any of the documents reviewed by us; (iii) the authenticity
of all documents submitted to us as originals; (iv) the conformity to executed
documents of all unexecuted copies submitted to us; and (v) the authenticity
of, and the conformity to, original documents of all documents submitted to us
as certified or photocopied copies. As to certain factual matters material to
our opinion, we have relied upon oral statements, written information and
certificates of officials and representatives of the Company and others, and
we have not independently verified the accuracy of the statements contained
therein.
Based on the foregoing, and subject to the assumptions, exceptions and
qualifications set forth herein, we are of the opinion that the Exchange Notes
to be offered and issued by the Company have been duly authorized and, when
executed and authenticated in accordance with the terms of the Indenture
pursuant to which they will be issued and delivered in exchange for the
applicable Old Notes in accordance with the Exchange Offer, will be validly
issued and constitute binding obligations of the Company, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.
In rendering the foregoing opinion, our examination of matters of law has
been limited to the laws of the State of New York and the federal laws of the
United States of America, as in effect on the date hereof.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference made to this firm under the
caption "Legal Matters" in the Prospectus. In giving this consent, we do
<PAGE>
not thereby admit that we are included within the category of persons whose
consent is required under Section 7 of the Securities Act, or the rules and
regulations of the Securities and Exchange Commission promulgated thereunder.
Very truly yours,
/s/ Dewey Ballantine LLP
-------------------------------------
DEWEY BALLANTINE LLP
<PAGE>
EXHIBIT 12.1
MTL INC.
COMPUTATION OF THE RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
9 MONTHS 9 MONTHS
ENDING ENDING
1993 1994 1995 1996 1997 9/30/98 9/30/97
---------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS:
Pre-tax income
(loss).............. $7,037,000 $10,545,000 $13,209,788 $14,940,309 $17,879,586 $(6,645,000) $13,610,000
Add:
Total Fixed
charges (as
calculated
below).......... 6,587,305 4,744,174 3,881,969 4,758,072 4,726,553 11,063,438 3,291,153
Amortization
expense of
previously
capitalized
interest........ -- -- -- -- -- -- --
Less:
Interest
capitalized
during the
period.......... -- -- -- -- -- -- --
---------- ----------- ----------- ----------- ----------- ----------- -----------
Earnings.......... 13,624,305 15,289,174 17,091,757 19,698,381 22,606,139 4,418,438 16,901,153
FIXED CHARGES:
Rent expense under
operating
leases X 1/3 of
Rent expenses..... 1,970,427 1,332,306 958,162 2,209,532 2,821,179 887,445 1,637,782
Interest portion
of rent expense... 656,809 444,102 319,387 736,511 940,393 295,815 545,927
Interest cost
(expensed and
capitalized)...... 5,760,500 4,222,912 3,543,867 3,959,669 3,706,137 10,307,234 2,675,345
Proforma interest
cost:
Interest cost
(on new debt)...
Fee for unused
portion of
Revolving Credit
Facility........
Debt amortization
expense........... 169,996 77,160 18,715 61,892 80,023 460,389 69,881
---------- ----------- ----------- ----------- ----------- ----------- -----------
TOTAL FIXED
CHARGES........... 6,587,305 4,744,174 3,881,969 4,758,072 4,726,553 11,063,438 3,291,153
RATIO OF EARNINGS TO
FIXED CHARGES(1)(2).. 2.07 3.22 4.40 4.14 4.78 -- 5.14
<CAPTION>
PROFORMA
---------------------------
12 MONTHS 9 MONTHS
ENDING ENDING
1997 9/30/98
------------- -------------
<S> <C> <C>
EARNINGS:
Pre-tax income
(loss).............. $(16,300,000) $(18,300,000)
Add:
Total Fixed
charges (as
calculated
below).......... 40,440,393 30,182,482
Amortization
expense of
previously
capitalized
interest........ -- --
Less:
Interest
capitalized
during the
period.......... -- --
------------- -------------
Earnings.......... 24,140,393 11,682,482
FIXED CHARGES:
Rent expense under
operating
leases X 1/3 of
Rent expenses..... 2,821,179 1,747,445
Interest portion
of rent expense... 940,393 582,482
Interest cost
(expensed and
capitalized)......
Proforma interest
cost:
Interest cost
(on new debt)... 37,700,000 28,300,000
Fee for unused
portion of
Revolving Credit
Facility........ 300,000 200,000
Debt amortization
expense........... 1,500,000 1,100,000
------------- -------------
TOTAL FIXED
CHARGES........... 40,440,393 30,182,482
RATIO OF EARNINGS TO
FIXED CHARGES(1)(2).. -- --
</TABLE>
- ----
(1) Earnings were insufficient to cover fixed charges by $6.6 million for the
nine months ended September 30, 1998 and $16.1 million and $18.3 million
for the pro forma year ended December 31, 1997 and nine months ended
September 30, 1998, respectively.
(2) During the six months ended September 30, 1998, the Company incurred a
non-recurring expense of $13.4 million related to the vesting of options
of MTL stock in connection with the MTL Transactions. Excluding this
expense, the ratio of earnings to fixed charges would have been 1.6x.
<PAGE>
EXHIBIT 21.1
LIST OF SIGNIFICANT SUBSIDIARIES OF MTL INC.
<TABLE>
<CAPTION>
NAME OF SUBSIDIARY STATE OF INCORPORATION PERCENTAGE OWNED
------------------ ---------------------- ----------------
<S> <C> <C>
1. Montgomery Tank Lines, Inc. Illinois 100%
2. Quality Carriers, Inc. Virginia 100%
3. Lakeshore Leasing, Inc. Indiana 100%
4. Mexico Investments, Inc. Florida 100%
5. MTL of Nevada Nevada 100%
6. Chemical Leaman Corporation Pennsylvania 100%
7. Chemical Properties, Inc. Pennsylvania 100%
8. Capacity Management Systems, Inc. Pennsylvania 100%
9. Core Logistics Management, Inc. Delaware 100%
10. EnviroPower, Inc. Delaware 100%
11. Pickering Way Funding Corp. Delaware 100%
12. Power Purchasing, Inc. Delaware 100%
13. American Transinsurance Group, Inc. Delaware 100%
14. Chemical Leaman Tank Lines, Inc. Delaware 100%
15. Fleet Transport Company, Inc. Delaware 100%
16. Quala Systems, Inc. Delaware 100%
17. CLT Services, Inc. Delaware 100%
18. Leaman Logistics, Inc. Delaware 100%
19. Transplastics, Inc. Delaware 100%
20. QSI Services, Inc. Delaware 100%
21. Levy Transport Ltd. Quebec, Canada 100%
</TABLE>
Additionally, MTL Inc. has a 1% ownership interest in MTL de Mexico, S.A. de
C.V., a Mexican corporation. Mexico Investments, Inc., a wholly owned
subsidiary of MTL Inc. owns the remaining 99% interest in MTL de Mexico.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the use of
our report dated February 27, 1998 (except with respect to the matter
discussed in Note 13, as to which the date is June 9, 1998), and to all
references to our firm included in or made a part of MTL Inc.'s registration
statement on Form S-4.
ARTHUR ANDERSEN LLP
Tampa, Florida
December 14, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 20, 1998 on the consolidated financial statements of Chemical
Leaman Corporation and subsidiaries as of December 31, 1996 and 1997 and for
each of the three years in the period ended December 31, 1997 and to all
references to our Firm included in or made a part of this Registration
Statement File No. 333-66711.
ARTHUR ANDERSEN LLP
Philadelphia, Pennsylvania
December 15, 1998
<PAGE>
EXHIBIT 25.1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
_________________________
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OFA CORPORATION
DESIGNATED TO ACT AS TRUSTEE
=====================
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
=====================
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. Employer
if not a U.S. national bank) Identification No.)
114 West 47th Street
New York, New York 10036-1532
(Address of principal (Zip Code)
executive offices)
None
(Name, address and telephone number of agent for service)
========================
MTL, INC.
(Exact name of obligor as specified in its charter)
DELAWARE
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
3108 Central Drive
Plant City, California 95112
(Address of principal executive offices) (Zip Code)
10% Senior Subordinated Notes due 2006
<PAGE>
-2-
Floating Interest Rate Subordinated Term Securities due 2006
(Title of the indenture securities)
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is
<PAGE>
incorporated by reference to Exhibit T-1.1 to Form T-1 filed
on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
-3-
16. List of Exhibits
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No. 33-
97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
====
As of October 16, 1998, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 16th of
October 1998.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By: /s/ Gerard F. Ganey
---------------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
December 19, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
--------------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1998
-------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 99,322
Short-Term Investments 171,315
Securities, Available for Sale 626,426
Loans 1,857,795
Less: Allowance for Credit Losses 16,708
----------
Net Loans 1,841,087
Premises and Equipment 59,304
Other Assets 122,476
----------
Total Assets $2,919,930
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 648,072
Interest Bearing 1,646,049
----------
Total Deposits 2,294,121
Short-Term Credit Facilities 306,807
Accounts Payable and Accrued Liabilities 144,419
----------
Total Liabilities $2,745,347
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,541
Retained Earnings 107,703
Unrealized Gains on Securities
Available for Sale (Net of Taxes) 2,344
----------
Total Stockholder's Equity 174,583
----------
Total Liabilities and
Stockholder's Equity $2,919,930
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
July 31, 1998
EXHIBIT T-1.7
