<PAGE> 1
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _____________ to ___________
Commission File Number 033-73270
Commission File Number 033-73270-1
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3486874
DELAWARE 13-3745313
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
345 PARK AVENUE
NEW YORK, NEW YORK 10154
(Address and zip code of principal executive offices)
(212) 935-2626
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
DOCUMENTS INCORPORATED BY REFERENCE: NONE
- -------------------------------------------------------------------------------
<PAGE> 2
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I
Item 1. Business ..................................................................................... 1
Item 2. Properties ................................................................................... 4
Item 3. Legal Proceedings ............................................................................ 7
Item 4. Submission of Matters to a Vote of Security Holders .......................................... 7
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters ......................... 8
Item 6. Selected Financial Data ...................................................................... 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 10
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .................................... 17
Item 8. Financial Statements and Supplementary Data .................................................. 18
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure ......... 47
PART III
Item 10. Directors and Executive Officers of Registrant ............................................... 48
Item 11. Executive Compensation ....................................................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and Management ............................... 54
Item 13. Certain Relationships and Related Transactions ............................................... 55
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .............................. 58
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
Transtar Holdings, L.P. is a Delaware limited partnership which was
originally formed in 1988 as Blackstone Transportation Partners L.P. (BTP) for
the sole purpose of holding voting stock and nonvoting stock of Transtar, Inc.
(Transtar or the Company). BTP was renamed Transtar Holdings, L.P. (Holdings) in
November 1993. Holdings has no operations of its own and owns 5,100 shares of
voting stock and 5,100 shares of nonvoting stock of Transtar, representing a 51%
voting and 53% economic interest in Transtar. Transtar Capital Corporation
(TCC), a Delaware corporation, is a wholly owned subsidiary of Holdings. TCC has
nominal assets and does not conduct any operations. TCC was formed in connection
with an offering of 13 3/8% Senior Discount Notes. Separate consolidated
financial statements of Transtar are included in this 10-K because Transtar is a
majority owned subsidiary of Holdings which is not consolidated in the
consolidated financial statements of Holdings. Holdings' earnings are derived
primarily from its 53% economic interest in Transtar. Blackstone Transportation
Company, Inc. (BTC), a Delaware corporation, is Holdings' sole general partner.
THE COMPANY
Transtar is a transportation holding company composed of two business
groups: The Railroad Group and the Marine Group. The Railroad Group is composed
of seven railroads Duluth, Missabe and Iron Range Railway Company (DMIR), Elgin,
Joliet and Eastern Railway Company (EJ&E), Bessemer and Lake Erie Railroad
Company (B&LE), Union Railroad Company (Union), The Lake Terminal Railroad
Company (Lake Terminal), McKeesport Connecting Railroad Company (McKeesport),
Birmingham Southern Railroad Company (Birmingham Southern), one dock
facility-Pittsburgh & Conneaut Dock Company (P&C Dock) and one in-plant rail
operation-Fairfield Southern Company, Inc. The Marine Group is composed of two
shipping operations-Great Lakes Fleet (GLF) and Warrior and Gulf Navigation
Company (WGN) and one salt water/fresh water dock facility-Mobile River Terminal
(MRT). The Railroad Group and Marine Group accounted for approximately 70% and
30% of revenues, respectively, in 1998.
Transtar provides the sole rail access to, as well as the primary
water transport for, nearly all the steel making plants of USX Corporation
(USX), servicing US Steel (USS), USS Mining Co., L.L.C. (USM) and the USS/Kobe
Steel Company (USS/Kobe) joint venture at Lorain, Ohio. Transtar derived 57% of
its revenues in 1998 from serving these USX facilities. These services are
provided under certain Transportation Services Agreements (See Item 13, Certain
Relationships and Related Transactions for a discussion of these agreements,
including their duration). Other steel-related customers generated an additional
19% of revenues, resulting in the steel industry accounting for 76% of
Transtar's revenues in 1998. Movements of coal to utilities and other customers
accounted for 13% of Transtar's revenues in 1998, while miscellaneous traffic
accounted for the remaining 11%.
The shareholders of Transtar are Holdings, which owns a 51% voting and
a 53% economic interest, USX, which owns a 49% voting and a 46% economic
interest, and Transtar's management which owns a 1% economic interest.
Management's direct interest has been reduced since Transtar's formation due to
repurchases of 704 shares of nonvoting stock from retiring managers. Certain
shares have been allocated to promoted managers in a stock option program.
Including the effect of this program, economic ownership of management would be
5%.
OPERATIONS OVERVIEW
The Company's transportation groups service USX and other domestic
steel producers by delivering raw materials, such as iron ore pellets
(taconite), limestone, coal and coke, to steel producing facilities, by moving
materials within certain steel plants and by transporting semi-finished and
finished steel products from such facilities. The Company also hauls coal and
other freight for numerous other customers.
Prior to December 1988, all of Transtar's subsidiaries were wholly
owned by USX. Transtar was formed in December 1988 to purchase these companies
from USX in a leveraged buyout. The Transtar subsidiaries carry a multitude of
raw materials, semi-finished products, and finished goods in Alabama, Illinois,
Indiana, Minnesota, Ohio, Pennsylvania, Wisconsin, and destinations on the Great
Lakes.
1
<PAGE> 4
RAILROAD GROUP
Each rail subsidiary is a regional or switching railroad with
individual specialties. Revenues from USX represented approximately 53% of the
Railroad Group's revenues in 1998. The following paragraphs describe Transtar's
major rail subsidiaries and their operations.
DMIR
The DMIR is located in northeastern Minnesota and northwestern
Wisconsin and includes two major storage and shipping facilities at Duluth and
Two Harbors, Minnesota. It is the sole rail carrier serving USX's Minntac
facility and also serves the taconite producing facilities of both EVTAC Mining
and Ispat Inland Mining. The DMIR hauls taconite to its Two Harbors and Duluth
docks where the taconite is loaded onto vessels for delivery to USX's Gary Works
and Mon Valley facilities and other lower lake steel plants including the
USS/Kobe's Lorain, Ohio facility. The DMIR also hauls taconite for interchange
to long haul railroads.
EJ&E
The EJ&E is a belt railroad that encircles Chicago, Illinois. It is
the sole serving carrier for USX's Gary, Indiana steel facility and transports
inbound coal, coke and scrap and outbound semi-finished and finished steel. The
EJ&E performs certain in-plant switching functions within the Gary Plant. It
also provides rail services to numerous other customers in the Chicago area. The
EJ&E provides trackage rights and haulage for other railroads.
B&LE
The B&LE services western Pennsylvania and northeastern Ohio and
transports coal, ore and limestone. Its principal northbound traffic is steam
coal destined for utility customers. The B&LE also delivers ore pellets via the
Union to USX's Edgar Thomson Works.
UNION
The Union is located in the Mon Valley, approximately 12 miles east of
Pittsburgh, Pennsylvania. It is the sole serving carrier for three USX
facilities: the Clairton Coke Works, the Edgar Thomson Works and the Irvin
Works. The Union transports coal, coke, ore, scrap and finished and
semi-finished steel products. In addition, it provides USX with in-plant
switching services at its Clairton Coke Works and maintenance services on USX's
own rolling stock and track at its Mon Valley plants. The Union also handles
coal for a variety of other customers at its river-to-rail transfer facility at
Duquesne, Pennsylvania.
LAKE TERMINAL
The Lake Terminal is located in Lorain, Ohio and is the sole-serving
rail carrier to the USS/Kobe facility there. The Lake Terminal also provided
USS/Kobe with in-plant switching services as well as maintenance of track and
equipment during 1998. USS/Kobe awarded the in-plant switching and maintenance
of track and equipment to a competing company at the end of 1998.
BIRMINGHAM SOUTHERN/FAIRFIELD SOUTHERN
The Birmingham Southern is located in the Birmingham, Alabama area and
is the sole-serving carrier for USX's Fairfield Works. It transports coal, coke,
iron ore, semi-finished and finished steel and other products. Fairfield
Southern, a Birmingham Southern subsidiary, provides all of the in-plant
switching at Fairfield Works.
MARINE GROUP
The Marine Group is comprised of a Great Lakes shipping fleet and an
inland barge operation. Revenues from USX represented approximately 65% of the
Marine Group's revenues in 1998. The following paragraphs describe Transtar's
marine subsidiaries and their operations.
2
<PAGE> 5
GLF
The GLF owns nine lake vessels and operates two other vessels under
long-term charter agreements. They operate in a market area throughout the five
Great Lakes, extending from the western end of Lake Superior to the eastern end
of Lake Ontario.
WGN/MRT
WGN, headquartered in Chickasaw, Alabama, operates on the Black
Warrior-Tombigbee waterway and the Tennessee-Tombigbee waterway, utilizing a
fleet of 248 barges (of which 183 are leased) and 20 towboats. MRT, WGN's
subsidiary is a salt water/fresh water transfer facility located at Mobile,
Alabama.
OPERATING REVENUES
Transtar's total operating revenues were $497.8 million in 1998. These
revenues were primarily earned from the transportation of freight. The revenues
incorporate traffic originated, terminated, and switched by rail operations as
well as commodities transported by marine operations. Dock handling revenues
were earned by both the rail and the marine operations.
Set forth below are freight revenues of Transtar by commodity groups
for the years 1996 through 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------
1998 1997 1996
---------- ---------- ----------
$ %of $ % of $ % of
(mil.) total (mil.) total (mil.) total
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Iron Ore $200.1 40.2 $219.9 41.8 $206.1 40.5
Coal 61.4 12.3 58.5 11.1 61.0 12.0
Coke 39.4 7.9 43.6 8.3 39.3 7.7
Steel & General Merch. 142.8 28.7 148.1 28.2 146.2 28.7
Dock Handling 26.7 5.4 23.3 4.4 23.5 4.6
Trucking 1.3 .3 1.3 .2 1.0 0.2
All other revenues 26.1 5.2 31.4 6.0 32.0 6.3
------ ----- ------ ----- ------ -----
Total Revenues $497.8 100.0 $526.1 100.0 $509.1 100.0
====== ===== ====== ===== ====== =====
</TABLE>
EMPLOYEES
Transtar employed an average of 3,346 employees in 1998, virtually the
same as 1997. Approximately 85% of Transtar's employees are covered by
collective bargaining agreements.
GOVERNMENTAL REGULATION
The Company's subsidiaries are subject to environmental, safety,
health and other regulations generally applicable to all businesses. In
addition, the Company's rail subsidiaries, like other rail common carriers, are
subject to regulation by the Surface Transportation Board, the Federal Railroad
Administration, state departments of transportation and other state and local
regulatory agencies. Government regulation of the railroad industry is a
significant determinant of the competitiveness and profitability of railroads.
Deregulation of certain rates and services under the Staggers Rail Act of 1980
(the Staggers Act) has substantially increased the flexibility of railroads to
respond to market forces, but has also resulted in highly competitive and
steadily decreasing rates. Various interests have sought and continue to seek
reimposition of government controls on the railroad industry in areas
deregulated in whole or in part by the Staggers Act. The Company's marine
operations are subject to regulation by the U.S. Coast Guard. Additional
regulation, changes in regulation, re-regulation and certain types of
de-regulation of the industry through legislative, administrative, judicial or
other action could materially affect the Company.
3
<PAGE> 6
COMPETITION
The Company faces competition from railroads, motor carriers, shipping
companies and inland barge operations depending upon the market served. The
ability to compete for freight traffic is dependent upon rates charged, as well
as the quality and reliability of the services provided.
ITEM 2. PROPERTIES
THE RAILROAD GROUP
Roadway, Yards and Structures
The Railroad Group has approximately 1,600 miles of track in
operation, consisting of approximately 600 miles of first main track (route
miles) and approximately 1,000 miles of additional main track, passing track,
way switching track and yard switching track.
Principal railroad yard facilities owned by the Railroad Group are
located at Two Harbors, Proctor, and Keenan, Minnesota; Joliet, Illinois; Gary,
Indiana; Conneaut, Ohio; and Greenville, Pennsylvania.
The following table summarizes the Railroad Group's track and roadway
activities for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Track miles of rail laid ........... 108 79 87
Ties inserted (thousands) .......... 128 137 142
Track miles resurfaced ............. 509 411 506
</TABLE>
The Railroad Group owns or leases the equipment described in the table
below.
<TABLE>
<CAPTION>
Owned Leased Total
------------------- ----------------- ------------------
Average Average Average
Description Units Age Units Age Units Age
- ------------------------------------------ ----- --- ----- --- ----- ---
<S> <C> <C> <C> <C> <C> <C>
Locomotives:
Road ................................... 115 33 20 27 135 32
Switcher ............................... 109 33 4 27 113 32
--- -- -- -- --- --
Total Locomotives .................... 224 33 24 27 248 32
=== == == == === ==
Freight Cars:
Box .................................... 69 21 -- -- 69 21
Gondola ................................ 3,641 27 987 20 4,628 25
Hopper ................................. 8,217 44 924 19 9,141 41
Flat ................................... 502 36 95 29 597 35
------ -- ----- -- ------ --
Total Freight Cars ................... 12,429 38 2,006 20 14,435 35
====== == ===== == ====== ==
</TABLE>
4
<PAGE> 7
Improvement and ongoing maintenance of roadway, structures and
equipment are essential components of the Company's efforts to improve service
and reduce operating costs. The Railroad Group has made the following capital
expenditures in order to maintain and improve train service:
Railroad Capital Expenditures
(dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Roadway and structures ..... $15.5 $12.7 $11.6
Railroad equipment:
Locomotives .............. 1.0 0.7 0.4
Freight cars ............. 5.7 5.8 2.1
Other ...................... 3.3 5.1 3.6
--- --- ---
Total .................. $25.5 $24.3 $17.7
===== ===== =====
</TABLE>
Capital expenditures for the Railroad Group for 1999 are expected to
be approximately $17.4 million, of which approximately $9.8 million are
anticipated for roadway and structures and approximately $3.4 million are for
railroad equipment.
The following table shows the Railroad Group's expenses for ongoing
maintenance and repairs of roadway, structures and railroad equipment (including
administrative and inspection costs) for the periods indicated.
Railroad Maintenance Expenditures
(dollars in millions)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Roadway and structures ..... $37.0 $41.9 $38.0
Railroad equipment:
Locomotives .............. 23.4 23.2 21.4
Freight cars ............. 21.9 22.9 21.6
Other ...................... 10.0 8.3 8.4
----- ----- -----
Total .................... $92.3 $96.3 $89.4
===== ===== =====
</TABLE>
Future maintenance programs will be determined by track, locomotive
and car requirements necessary to provide quality service at projected business
levels. The Railroad Group maintains full service car and locomotive shops in
Proctor, Minnesota; Joliet, Illinois; Gary, Indiana; and Greenville,
Pennsylvania.
THE MARINE GROUP
The GLF owns nine vessels and leases two additional vessels under
long-term charter agreements. All of the vessels are self-unloaders, with a
total cargo capacity of 362,900 gross tons (GT) at mid-summer draft.
Included in this fleet are four large beam vessels, the Roger Blough,
the Edwin H. Gott, the Edgar B. Speer, and the Presque Isle. These vessels are
the maximum size beam permitted through the locks at Sault Ste. Marie. They
range in size from 858 to 1,004 feet in length and are specifically designed for
and dedicated principally to carrying taconite pellets for USX. The Edgar B.
Speer and the Presque Isle are under long-term charter.
5
<PAGE> 8
It also owns four intermediate size self-unloading carriers which are
the John G. Munson, with a forward deck-mounted boom, the Arthur M. Anderson,
the Cason J. Callaway and the Philip R. Clarke.
The remaining vessels are three smaller, self-unloading vessels. These
include the George A. Sloan, the Calcite II and the Myron C. Taylor, which are
the three shortest vessels in the fleet at just over 600 feet in length with a
60-foot beam. These vessels serve some of the smaller volume cargoes in the
Great Lakes trade.
A list of the GLF's active vessels, all of which are dry bulk
self-unloaders, is set forth in the table below.
<TABLE>
<CAPTION>
Seasonal
Capacity Year Capacity
Vessel Length (feet) (GT)(1) Acquired (M-GT) (2)
------ ------------- ------- -------- ----------
Ore Fleet
- ---------
<S> <C> <C> <C> <C>
Gott ................... 1,004 62,200 1978 2,378
Speer(4) ............... 1,004 62,200 (3) 1980 2,378
Presque Isle(4) ........ 1,000 52,000 1973 1,930
Blough ................. 858 44,000 (3) 1972 1,914
Anderson ............... 767 25,300 1952 1,048
Callaway ............... 767 25,300 1952 1,048
Clarke ................. 767 25,300 1952 1,048
Stone Fleet
- -----------
Munson ................. 768 25,600 1952 1,867
Sloan .................. 620 15,600 1943 1,087
Calcite II ............. 604 12,900 1929 964
Taylor ................. 603 12,500 1929 1,005
------- ------
Total .................. 362,900 16,667
======= ======
</TABLE>
(1) Measured in gross tons of iron ore or taconite pellets at mid-summer draft
mark.
(2) Seasonal capacity in thousand gross tons (M-GT) for the ore fleet is for
shipping between Duluth/Two Harbors, Minnesota and Gary, Indiana and for
the stone fleet between Rogers City, Michigan and Gary, Indiana.
(3) Can be unloaded only at dedicated port facilities (Conneaut, Gary, and
Indiana Harbor).
(4) Leased vessels.
WGN owns 20 towboats and 65 barges and operates another 183 barges
utilizing long-term lease arrangements.
Capital expenditures for the Marine Group were $0.9 million in 1998
and are expected to be approximately $3.3 million in 1999.
6
<PAGE> 9
ITEM 3. LEGAL PROCEEDINGS
There have been no legal proceedings involving Holdings since its
formation. Transtar and certain of its operating subsidiaries are defendants in
lawsuits and actions incident to the normal conduct of its business. While the
results of these lawsuits and actions cannot be predicted with certainty,
Transtar believes the ultimate outcomes will not have a material adverse effect
on the operations, liquidity, capital resources and financial position of
Transtar.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
1998.
7
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Holdings is a Delaware limited partnership and as such its partnership
interests are privately held and are not freely transferable.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Transtar Holdings, L.P.
As of and for the year ended December 31,
--------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Income from equity in earnings of Transtar ........ $31.3 $36.3 $37.6 $31.1 $28.4
Interest and other financial expense .............. (24.1) (21.3) (18.8) (16.6) (14.7)
Income from continuing operations ................. 9.6 17.1 19.6 13.8 13.0
Balance Sheet Data:
Investment in Transtar ............................ $54.3 $23.8 $ 0.5 $(15.4) $(16.9)
Total assets ...................................... 105.5 74.1 50.9 14.0 (9.4)
Long-term debt .................................... 192.7 169.3 148.8 130.7 114.8
Partners' equity (deficit) ........................ (87.4) (95.4) (98.6) (117.3) (124.9)
</TABLE>
8
<PAGE> 11
<TABLE>
<CAPTION>
Transtar, Inc.
As of and for the year ended December 31,
------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Operating revenues .................................. $497.8 $526.1 $509.1 $494.5 $478.5
Operating expenses (excluding item shown below)(1) .. 367.5 376.3 360.4 352.1 331.7
Depreciation and amortization ....................... 25.5 26.8 26.4 26.7 27.7
------ ------ ------ ------ ------
Operating income .................................. 104.8 123.0 122.3 115.7 119.1
Other income (expense) .............................. 2.3 3.9 1.7 1.1 (8.7)
Interest income ..................................... 1.5 1.0 1.0 1.2 1.0
Interest and other financial expense ................ (12.9) (17.4) (21.3) (24.1) (25.3)
------ ------ ------ ------ ------
Income before income taxes ........................ 95.7 110.5 103.7 93.9 86.1
Provision for income taxes .......................... 36.7 42.1 32.8 35.2 32.4
------ ------ ------ ------ ------
Income from continuing operations ................... $59.0 $68.4 $70.9 $58.7 $ 53.7
====== ====== ====== ====== ======
Other Data:
Consolidated Cash Flow(2) ........................... $138.0 $160.5 $152.5 $148.6 $149.9
Cash provided by operating activities ............... 91.9 106.0 113.8 94.0 99.8
Cash provided by (used for) investing activities .... (21.2) (19.9) (15.8) (16.9) 1.2
Cash used for financing activities .................. (73.6) (86.4) (83.9) (87.0) (99.1)
Capital expenditures ................................ 26.4 25.6 19.6 20.3 13.7
Dividends paid ...................................... -- 24.1 40.9 55.8 --
Non-cash interest(3) ................................ 0.6 0.7 0.7 0.8 1.0
Consolidated Cash Flow to cash interest ............. 11.2x 9.6x 7.4x 6.4x 6.2x
Fixed charge coverage ratio(4) ...................... 10.7x 9.2x 7.2x 6.2x 5.9x
Ratio of earnings to fixed charges(5) ............... 5.6x 5.4x 4.6x 4.1x 3.7x
Balance Sheet Data:
Cash and cash equivalents ........................... $21.4 $24.3 $24.7 $ 10.6 $ 20.5
Total assets ........................................ 502.8 522.0 515.1 513.7 530.6
Long-term debt less current portion ................. 66.3 128.8 196.4 265.2 329.0
</TABLE>
(1) Operating expenses include non-recurring charges (credits) of $3.5 million,
$7.0 million, $(1.0) million and $(1.7) million for the years ended
December 31, 1998, 1997, 1996, and 1994, respectively. These items relate
to non-recurring labor costs, permanent impairments of certain assets and
environmental credits.
(2) Consolidated Cash Flow represents earnings before interest expense,
provision for income taxes, extraordinary item, cumulative effect of change
in accounting principle, depreciation, amortization, special charges and
non-cash SFAS 106 expenses related to other post-retirement benefits.
Consolidated Cash Flow is a non-GAAP measure of performance and should not
be considered as an alternative to net income, or any other GAAP measure of
performance, or to cash flows from operating, investing or financing
activities as a measure of liquidity. Consolidated Cash Flow is presented
because it is a defined term in an indenture and because management
believes it provides useful information regarding the Company's ability to
service and/or incur debt.
(3) Non-cash interest represents amortization of debt issuance costs.
(4) Fixed Charge Coverage Ratio is equal to Consolidated Cash Flow to Fixed
Charges. Fixed charges consist of interest expense and amortization of debt
issuance costs.
(5) Earnings used in computing the ratio of earnings to fixed charges consist
of income before income taxes, cumulative effect of change in accounting
principle and extraordinary items, plus fixed charges. Fixed charges
consist of interest expense, amortization of debt issuance costs, and a
portion of operating lease rental expense that is representative of the
interest factor.
9
<PAGE> 12
ITEM 7.
TRANSTAR HOLDINGS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations is presented as an analysis of Transtar Holdings, L.P.'s
(Holdings) equity investment in Transtar, Inc. (Transtar). Holdings' earnings
are derived primarily from its 53% economic interest in Transtar. The following
discussion should be read in conjunction with Holdings' Consolidated Financial
Statements and Transtar's Consolidated Financial Statements and the related
notes thereto included in Item 8 of Part II of this 10-K.
1998 VERSUS 1997 AND 1996
OVERALL
Substantially all of the earnings of Holdings consists of Holdings'
share in the earnings of Transtar accounted for by the equity method. Holdings'
equity earnings of Transtar were $31.3 million in 1998 compared to $36.3 million
in 1997 and $37.6 million in 1996. For a discussion of the results of operations
of Transtar, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for Transtar.
In 1998, Holdings' net income totaled $9.6 million, a decrease of $7.5
million from $17.1 million in 1997 and a $10.0 million decrease from the $19.6
million recorded in 1996.
REVENUES AND EXPENSES
Holdings did not produce any revenues in 1998, 1997, or 1996.
Holdings' operating expenses of $0.2 million in 1998 remained unchanged from
1997, and are $0.3 million less than the $0.5 million incurred in 1996. As a
result of the accretion of certain discount notes sold by Holdings in December
1993, interest and other financial expenses grew from $18.8 million in 1996, to
$21.3 million in 1997, and $24.1 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
On December 7, 1993, Holdings and Transtar Capital Corporation (TCC)
issued $218 million aggregate principal amount of 13 3/8% Series A Senior
Discount Notes due December 15, 2003. In 1994, Holdings and TCC exchanged the
Series A Notes for Series B Notes (Notes). The first cash interest payment on
the Notes is due on June 15, 2000.
Transtar declared no dividends during 1998.
On both October 30 and December 19, 1997, Transtar declared cash
dividends in the amount of $625 per share on both its Class A Voting Common
Stock and its Class B Nonvoting Common stock to holders of record of the stock
on October 28 and December 17, 1997, respectively. During 1997, Holdings
received $12.8 million representing its 53% economic interest in the Transtar
dividends. Pursuant to an Indenture relating to the issuance of the Notes (the
Notes Indenture), both dividend payments were deposited into an escrow account.
In February 1998 and 1997, in accordance with the Notes Indenture,
Holdings offered to repurchase a portion of the Notes at a price equal to 101 %
of the accreted value of such Notes on the date of purchase. The offer to
purchase the Notes was made by a notice to holders of the Notes and was held
open for 20 business days. During 1998, in accordance with the Notes Indenture
and an agreement governing the escrow account, Holdings withdrew from the escrow
account $0.7 million to distribute to its partners and $0.2 million to pay
certain administrative expenses.
10
<PAGE> 13
TRANSTAR HOLDINGS, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on Notes, make certain payments
permitted under the Notes Indenture, purchase or optionally redeem Notes or to
pay administrative expenses of Holdings. As of December 31, 1998 the escrow
balance is $47.3 million. Interest earned on the escrow balance amounted to $2.6
million, $2.4 million, and $1.4 million in 1998, 1997 and 1996, respectively.
The only business activity of Holdings is its investment in Transtar.
Holdings does not require any additional liquidity or capital resources, other
than for professional fees and certain other administrative expenses, until the
first interest payment is due on the Notes.
Future dividends of Transtar are governed by Transtar's bylaws which
require unanimous approval by the Company's directors to declare a dividend or
other distribution (absent a decision by an independent consultant breaking a
deadlocked vote). Holdings and USX each have the right, pursuant to a
Stockholders Agreement dated as of December 28, 1988, as amended (the
Stockholders' Agreement), to designate certain directors to the board of
directors of the Company. As such, Holdings' ability to cause the Company to
declare and pay a dividend or other distribution is dependent upon the
concurrence of USX.
11
<PAGE> 14
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Transtar, Inc. (Transtar or the Company) is a holding company
consisting of two business groups, the Railroad Group and the Marine Group.
1998 VERSUS 1997
OVERALL
Transtar reported net income of $59.0 million in 1998, compared to net
income of $68.4 million in 1997. Transtar's results in 1998 were driven by
weakening of the domestic steel industry due to lower priced imported steel and
by revenue concessions granted in recently approved long-term Transportation
Services Agreements with USX and USS/Kobe.
OPERATING REVENUES
Operating revenues in 1998 totaled $497.8 million, or $28.3 million
less than in 1997. Revenue decreases of $9.0 million and $19.3 million were
reported by the Railroad Group and Marine Group, respectively. The softening of
the domestic steel market due to the increase of imported foreign steel, coupled
with implementation of new Transportation Services Agreements in 1998 severely
impacted revenues. Revenues generated by the transportation and handling of raw
materials used in the steel production process, such as ore and coke, as well as
outbound steel products all showed decreases from 1997 amounting to $34.9
million. Approximately one-third of this change was driven by rate reductions
granted in the new Transportation Services Agreements. Demurrage revenues,
resulting primarily from industry retention of railroad freight cars, increased
$2.3 million. In spite of rate reductions included in the new Transportation
Services Agreements, coal and associated dock handling revenues improved by $7.8
million, due to the increased demand for coal deliveries to Great Lakes
customers and increased shipments from Alabama origins destined for export.
OPERATING EXPENSES
Operating expenses decreased $10.1 million from 1997 levels to $393.0
million in 1998. Contributing to the overall cost decrease were: 1) lower diesel
fuel prices which contributed to a $7.0 million reduction in fuel expense; 2)
favorable property tax adjustments recorded in 1998 which reduced state and
local taxes by $1.2 million; 3) changes in asset lives which resulted in
decreased depreciation expense of $1.3 million; 4) recognition in 1997 of $7.0
million of expense associated with a limited early retirement program and an
accounting department consolidation; 5) increased recovery in 1998 of
maintenance expenses which are shared with third parties in the amount of $2.7
million; 6) decreases in casualty expense and liability insurance of $2.3
million; 7) a $1.2 million reduction in shifting and towing expense and mobile
equipment rentals on the barge lines; and 8) increased allocation of labor
forces to capital improvement projects which reduced operating expenses by $1.5
million. Partially offsetting these cost decreases were: 1) increased labor
expense of $6.3 million reflecting contractual wage increases, additional hours
worked and higher health insurance costs; 2) additional lease cost of $0.8
million reflecting new leases of freight cars and barges commencing during 1998;
3) reduced net car hire earnings (a contra-cost) of $1.1 million due to the
weakened domestic steel market and fewer off-line loadings for a large portion
of Transtar's gondola freight car fleet; and 4) recognition of $3.5 million of
expense associated with a partial curtailment of services provided by the Lake
Terminal Railroad due to a reduction in business at USS/Kobe, and further
accounting department consolidation.
12
<PAGE> 15
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
OTHER INCOME AND EXPENSE
Transtar's net interest expense decreased by $4.9 million in 1998 from
1997. This decrease is primarily attributed to the retirement of $72.0 million
of term debt during 1998. Fewer land sales agreements by the Railroad Group in
1998 and decreased equity income recorded by the Marine Group resulted in a
reduction of $1.5 million in other income.
PROVISION FOR INCOME TAXES
Transtar's provision for income taxes in 1998 was $36.7 million or a
decrease of $5.4 million from 1997, and is directly related to the decline in
before tax profit in 1998.
1997 VERSUS 1996
OVERALL
Transtar reported net income of $68.4 million in 1997, compared to net
income of $70.9 million in 1996. Transtar's results in 1997 were driven by the
economy's continued strength, particularly within the domestic steel industry,
which shipped at record levels. Transtar's income before taxes in 1997 totaled
$110.6 million or $6.9 million more than was earned in 1996. The decline in net
income between years was a result of a $7.1 million reduction of prior years tax
reserves that had been recognized in 1996.
OPERATING REVENUES
Operating revenues in 1997 totaled $526.1 million, or $17.0 million
greater than in 1996. Revenue increases achieved by the Railroad Group and
Marine Group were $10.4 million and $6.6 million, respectively. Domestic steel
shipments increased by 3.8 percent in 1997 and Transtar shared in this
improvement. Raw materials used in the steel production process, such as ore and
coke, as well as outbound steel products all showed increases over 1996. Ore
revenues improved by $13.8 million, coke revenues improved by $4.3 million and
steel and general merchandise revenues improved by $1.9 million. Coal revenues
decreased by $2.5 million primarily due to the diversion of certain shipments
originating in Alabama to destinations not served by Transtar carriers.
OPERATING EXPENSES
Operating expenses increased $16.3 million from 1996 levels to $403.2
million in 1997. Contributing to cost increases were: 1) increased labor expense
of $2.8 million reflecting contractual wage increases and increased operating
labor and maintenance requirements; 2) increased repair and maintenance
materials' expense of $3.4 million; 3) increases in state and local taxes of
$1.6 million associated with increased earnings and favorable property tax
adjustments recorded in 1996; 4) a lease cost increase of $0.9 million
reflecting new leases involving freight cars, locomotives and barges commencing
in late 1996 and during 1997; 5) a $7.0 million recognition of expense
associated with a limited early retirement program and an accounting department
consolidation; and 6) a $1.0 million reduction to cost recorded in the second
quarter of 1996 resulting from the settlement of environmental litigation.
Partially offsetting these cost increases was a decrease in diesel fuel prices
which contributed to a $1.9 million reduction in fuel expense.
13
<PAGE> 16
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
OTHER INCOME AND EXPENSE
Transtar's net interest expense decreased by $4.0 million in 1997 from
1996. This decrease is primarily attributed to the retirement of $62.0 million
of term debt during 1997. Land sales in 1997 by the Railroad Group generated an
additional $2.0 million of the before tax income.
PROVISION FOR INCOME TAXES
Transtar's provision for income taxes in 1997 was $42.1 million, or an
increase of $9.4 million over 1996. In 1996, Transtar completed a review of its
tax reserves and concluded that certain reserves were no longer necessary. This
decrease in reserve requirements resulted in a credit of $7.1 million to the
1996 tax provision.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
Transtar ended 1998 with cash and cash equivalents totaling $21.4
million, which was $2.9 million less than the $24.3 million it had at year end
1997. During 1998, Transtar retired $72.0 million of its term loan obligations
compared to $62.0 million retired during 1997. Transtar paid no dividends in
1998 and paid dividends of $24.1 million to its shareholders in 1997. A 1997
amendment to its Credit Agreement permitted Transtar to pay dividends during
1997 not to exceed $25.0 million.
At December 31, 1998, Transtar had $124.0 million term loan
obligations remaining, including $57.7 million due in June and December 1999.
Transtar expects to repay its 1999 obligation from its operating cash flow.
On August 1, 1999, USX and USS/Kobe, along with several major steel
companies, face the expiration of their labor agreements with the United
Steelworkers of America. Their ability to negotiate an acceptable labor contract
is essential to maintaining the level of Transtar's ongoing operations. A
prolonged labor interruption at USX could have a material adverse effect on
Transtar's operations, financial results and cash flow.
Contractual commitments in the amount of $45.0 million and $14.7
million have been made to acquire a tug barge vessel and to acquire components
for the assembly of 280 freight cars, respectively, at December 31, 1998.
Acquisition of the freight car components is in response to a commitment under
the new Transportation Services Agreement with USX to spend up to $20.0 million
to assure the continuance of in-plant coke movements at its Gary Works. It is
anticipated that the freight cars and the tug barge will be financed by
operating leases.
Transtar and certain of its operating subsidiaries are defendants in
lawsuits and actions in which claims have been made against the Company. While
the results of these lawsuits and actions cannot be predicted with certainty,
the Company believes the ultimate outcomes will not have a material adverse
effect on the operations, liquidity, capital resources, or financial position of
Transtar.
CAPITAL RESOURCES
Net cash used for investing activities in 1998 of $21.2 million was
$1.3 million more than 1997. This change reflects increased capital spending in
1998 of $0.8 million and a $0.5 million decrease in proceeds from disposition of
assets.
14
<PAGE> 17
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
Cash used for financing activities in 1998 decreased $12.9 million
from 1997. Cash used for term loan debt payments increased by $10.0 million from
1997. In 1998, Transtar repaid $72.0 million of its term debt obligations versus
the $62.0 million it repaid in 1997 and the $23.0 million it repaid in 1996. In
1998, no dividends were paid to stockholders, compared with $24.1 million in
1997 and $40.9 million in 1996.
CAPITAL EXPENDITURES
Transtar's capital requirements during 1999 are forecasted to be
approximately $20.7 million. Internally generated funds from operations are
expected to be sufficient to fund Transtar's mandatory debt payments as well as
future capital requirements.
In 1998, capital expenditures of $26.4 million increased $0.8 million
from 1997. Capital expenditures in 1997 totaled $25.6 million, or $6.0 million
more than in 1996. In addition to these capital expenditures, the Company spent
$113.2 million in 1998, $117.6 million in 1997, and $110.6 million in 1996 for
repair and maintenance of its facilities and equipment.
ENVIRONMENTAL MATTERS
Transtar is subject to federal, state, and local laws and regulations
relating to the environment. These laws regulate discharges into the
environment, as well as the handling, storage, transportation, and disposal of
waste and hazardous materials. These laws also require responsible parties to
undertake remediation of hazardous waste disposal sites. Transtar provides for
remediation costs and penalties when the responsibility to remediate is probable
and the amount of associated costs is reasonably determinable. Certain Transtar
operating subsidiaries have been identified as potentially responsible parties
under the Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA) and are required to share the cost to remediate certain Superfund sites
identified by the Environmental Protection Agency (EPA). In those instances
where the probable costs of cleanup are estimable, Transtar has recorded a
liability. At December 31, 1998 and 1997, accrued liabilities for remediation
totaled $0.4 million. The Company has considered the other potentially
responsible parties in determining this accrual. For the period 1989 through
1998, actual cash payments associated with environmental expense have totaled
$10.2 million.
Transtar and USX have entered into an environmental indemnification
agreement, whereby USX has agreed to indemnify Transtar against 75 percent of
certain environmental claims, losses, liabilities, obligations, damages,
deficiencies, costs, and expenses (collectively, Environmental Liabilities) in
excess of $10 million. This environmental indemnification agreement covers
Environmental Liabilities relating to certain assets and properties transferred
by USX to Transtar upon the formation of Transtar, which Environmental
Liabilities existed or occurred prior to such formation. Of the $10.2 million
expended since 1988, $7.8 million is applicable to the $10 million threshold.
Although it is not presently possible to estimate the ultimate amount of all
remediation and compliance costs that might be incurred or the penalties that
may be imposed, management does not believe these potential costs will have a
material adverse effect on the Company.
YEAR 2000
Transtar is committed to addressing the Year 2000 issue that could
impact its existing computer and operating systems. Management continues to
execute a plan which addresses mainframe information systems, non-information
technology systems and third parties. A plan to identify and address Year 2000
issues as they apply to mainframe information systems was completed in mid-1997.
An outside contractor was hired to assist in the implementation of the plan
during 1997, 1998 and 1999. Transtar expects to spend approximately $4.1 million
on
15
<PAGE> 18
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
mainframe applications, of which $3.2 million has already been incurred.
Management believes that Transtar has made substantial progress in determining
outside vendor Year 2000 compliance on all acquired software, and in formulating
plans for ensuring that compliant versions of vendor code are implemented prior
to the year 2000. The last component of the mainframe arena is hardware.
Transtar has assessed the compliance of its mainframe components and, based on
ongoing internal testing and review of information received from its vendors,
believes that vendor compliance will meet its requirements. Comprehensive tests
are scheduled for mid-1999, where hardware, system software and applications
software will be combined in an advanced date scenario at Transtar's disaster
recovery facility.
An assessment of non-information technology systems that are an
integral part of Transtar's rail and marine operations was initiated during the
fourth quarter of 1997 to determine the Year 2000 compliance status. This review
encompassed train and process control systems, navigation systems, communication
systems, as well as any other equipment in which embedded chip technology could
create date functionality problems. This assessment has been substantially
completed and recommendations have been made for upgrades and replacement, if
necessary, to ensure Year 2000 compliance. Including non-information technology
systems, Transtar expects to spend in excess of $5.1 million to become Year 2000
ready.
In order to ensure that third party vendors will be Year 2000
compliant, Transtar initiated a vendor compliance survey program during the
second quarter of 1998. Follow-up contacts with major vendors have been
completed and indicate that approximately three-fourths are either compliant or
in the process of ensuring compliance. Transtar believes that alternate sources
are available to replace those vendors who are unable to perform due to Year
2000 problems. Additionally, Transtar has modified the language of its purchase
orders to require that all products with electrical/electronic elements come
equipped with Year 2000 certified components.
While Transtar management believes that Transtar's critical
information and operating systems will be Year 2000 ready, there can be no
guarantee that it will be completely successful. Transtar's management has not
yet quantified the impact of partial non-compliance or a likely worst case
scenario on the operating results of Transtar. Formal contingency plans are
being developed for those potential Year 2000 failures which would pose the
greatest risks to Transtar's operations. No assurance can be given that the
effect of any such partial non-compliance will not have a material adverse
effect on the operating results of Transtar.
TRANSPORTATION SERVICES AGREEMENTS WITH USX
On June 30, 1998 Transtar reached agreement in principle with USX on
new Transportation Services Agreements with final agreement reached December 21,
1998. (See Note 13 to Consolidated Financial Statements). The new Agreements
were approved by the lending institutions who participate in Transtar's Credit
Agreement on February 12, 1999. These agreements generally extend through
December 31, 2004, and ensure Transtar's position as a participant at all of the
US Steel and US Steel Mining facilities it presently services. Third parties
will be permitted to handle certain volumes of selected commodities. The new
Transportation Services Agreements rate reductions, including a $6.25 million
revenue refund recorded in June 1998, reduced Transtar's operating revenues and
operating income by $14.4 million in 1998. These revenue reductions are
anticipated to have an approximate $15.0 million per year impact on future years
operating revenues and operating income based on currently expected volume
levels.
16
<PAGE> 19
TRANSTAR, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- (CONTINUED)
USS/KOBE STEEL MILLS
Since 1895, the Lake Terminal Railroad (a Transtar subsidiary) has
performed intra-plant switching of hot metal and other steel products within the
USS/Kobe Steel mill, maintained the rail line that operates inside and around
this facility, and provided maintenance services to USS/Kobe's freight car and
locomotive fleet. In 1998 USS/Kobe elected to terminate the in-plant switching
services provided by the Lake Terminal Railroad on tracks owned by USS/Kobe, as
well as the maintenance services. As of December 29, 1998 under the terms of a
new Transportation Services Agreement which extends through December 31, 2008,
the Lake Terminal Railroad will provide interchange service between linehaul
carriers and the in-plant rail provider for this facility. As a result, it is
anticipated that Transtar will experience an annual decrease of approximately
$8.0 million in revenues, with no material impact on operating income.
FORWARD-LOOKING STATEMENTS
Statements in this report that are not historical (including, but not
limited to, statements regarding the future impact of the Transportation
Services Agreements) are forward-looking statements subject to risk and
uncertainties that could cause actual results to differ materially. Such risk
and uncertainties include fluctuations in economies worldwide, in general, and
the industries that Transtar serves, in particular, fluctuations in Transtar's
customer demand for transportation and related services, changes in
relationships with key customers (including the loss of certain major
customers), changes in variations in weather and climatic patterns, competitive
pressure from other carriers, changes in governmental regulations, changes in
terms from lenders, ability to retain key management and to reach agreement on
labor issues, or other factors identified in this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
17
<PAGE> 20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
TRANSTAR HOLDINGS, L.P.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants ........................................................................ 19
Consolidated Balance Sheet as of December 31, 1998 and 1997 .............................................. 20
Consolidated Statement of Income for the Years Ended December 31, 1998, 1997 and 1996 .................... 21
Consolidated Statement of Partners' Equity for the Years Ended December 31, 1998, 1997 and 1996 .......... 21
Consolidated Statement of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 ................ 22
Notes to Consolidated Financial Statements ............................................................... 23
TRANSTAR, INC.
Report of Independent Accountants ........................................................................ 26
Consolidated Balance Sheet as of December 31, 1998 and 1997 .............................................. 27
Consolidated Statement of Income for the Years Ended December 31, 1998, 1997 and 1996 .................... 28
Consolidated Statement of Retained Earnings for the Years Ended December 31, 1998, 1997 and 1996 ......... 28
Consolidated Statement of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 ................ 29
Notes to Consolidated Financial Statements ............................................................... 30
</TABLE>
18
<PAGE> 21
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of TRANSTAR HOLDINGS, L.P.
In our opinion, the consolidated financial statements of Transtar
Holdings, L.P., as listed in the accompanying index on page 18 of the Annual
Report on Form 10-K, present fairly, in all material respects, the financial
position of Transtar Holdings, L.P. and its subsidiary, Transtar Capital
Corporation (TCC), (together, "Holdings") at December 31, 1998, and 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Holdings' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Transtar, Inc. is a significant equity investment of Holdings (as
described in Note 1, page 23); accordingly, the financial statements of
Transtar, Inc. should be read in connection with the consolidated financial
statements of Holdings.
PricewaterhouseCoopers LLP
600 Grant Street
Pittsburgh, PA 15219
February 22, 1999
19
<PAGE> 22
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
------------------------
1998 1997
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) ......................... $ 286 $ 260
Other current assets ....................................... 8 --
-------- -------
Total current assets ..................................... 294 260
Restricted cash (Note 4) ..................................... 47,328 45,694
Investment in Transtar ....................................... 54,258 23,825
Other assets ................................................. 3,629 4,367
-------- -------
Total assets ............................................. $105,509 $74,146
======== =======
LIABILITIES
Current liabilities:
Accounts payable and other current liabilities ............. $ 205 $ 186
Long-term debt (Note 3) ...................................... 192,736 169,330
------- -------
Total liabilities ........................................ 192,941 169,516
PARTNERS' EQUITY (DEFICIT) ............................... (87,432) (95,370)
-------- -------
Total liabilities and partners' equity (deficit) ......... $105,509 $74,146
======== =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
20
<PAGE> 23
TRANSTAR HOLDINGS, L.P.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
For the year ended December 31,
----------------------------------------
1998 1997 1996
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Revenues ....................................................... $ -- $ -- $ --
-------- -------- ---------
Operating expenses:
Selling, general and administrative expenses ............... 198 236 551
-------- -------- ---------
Operating (loss) ....................................... (198) (236) (551)
Interest income ................................................ 2,604 2,369 1,399
Interest and other financial expenses .......................... (24,143) (21,301) (18,832)
(Loss) before equity in earnings of Transtar ............... (21,737) (19,168) (17,984)
Equity in earnings of Transtar ................................. 31,349 36,267 37,584
-------- -------- ---------
Net income ................................................. $ 9,612 $ 17,099 $ 19,600
======== ======== =========
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY
Partners' equity (deficit), beginning of year .................. $(95,370) $(98,606) $(117,306)
Distribution to partners (Note 4) .............................. (745) (13,692) (900)
Net income ..................................................... 9,612 17,099 19,600
Other adjustments to partners' equity (Note 5) ................. (929) (171) --
-------- -------- ---------
Partners' equity (deficit), end of year ........................ $(87,432) $(95,370) $( 98,606)
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
21
<PAGE> 24
TRANSTAR HOLDINGS, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
--------------------------------------------
1998 1997 1996
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ................................................... $ 9,612 $ 17,099 $ 19,600
Adjustments to reconcile net income to net cash used
by operating activities:
Amortization ............................................... -- 345 380
Non-cash interest and other financial expenses ............. 24,143 21,301 18,832
Non-cash interest income ................................... (2,578) (2,358) (1,393)
Equity in earnings of Transtar ............................. (31,349) (36,267) (37,584)
Changes in:
Accounts payable ......................................... 19 (543) 114
All other changes - net .................................. (21) (3) (343)
--------- --------- ---------
Net cash used for operating activities ................. (174) (426) (394)
--------- --------- ---------
INVESTING ACTIVITIES:
Dividends received ........................................... -- 12,750 21,675
--------- --------- ---------
Net cash provided by investing activities .............. -- 12,750 21,675
--------- --------- ---------
FINANCING ACTIVITIES:
Restricted cash .............................................. -- (12,750) (21,675)
Distribution to partners ..................................... (745) (13,692) (900)
Withdrawal from restricted cash .............................. 945 13,992 1,585
--------- --------- ---------
Net cash used for financing activities ................. 200 (12,450) (20,990)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ............... 26 (126) 291
Cash and cash equivalents at beginning of period ............... 260 386 95
--------- --------- ---------
Cash and cash equivalents at end of period ..................... $ 286 $ 260 $ 386
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
22
<PAGE> 25
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION AND RELATED
PARTIES
On December 28, 1988, agreements were executed forming a new holding
company, Transtar, Inc. (Transtar). Transtar, in turn, purchased certain former
directly or indirectly wholly owned subsidiaries (the transportation
subsidiaries) of USX Corporation (USX). As a result of these agreements,
Blackstone Capital Partners L.P. (BCP) and Blackstone Transportation Partners
L.P. (BTP), investment partnerships (collectively, Blackstone) controlled by
their general partner Blackstone Management Associates L.P. (BMA), owned a 51
percent economic and voting interest in Transtar. USX held a 44 percent economic
and 49 percent voting interest, and the remaining 5 percent of Transtar's equity
was held as nonvoting shares by a management stock trust. A Technical Services
Agreement, an Agreement as to Tax Matters between Transtar and USX, and other
ancillary agreements exist as a result of this transaction. Transportation
Services Agreements with USX and other related parties which existed at the time
of the transaction were renegotiated in 1998 (See Note 13 of the Transtar, Inc.
Financial Statements for additional details).
BTP was originally formed in 1988 for the sole purpose of holding
voting stock and nonvoting stock in Transtar. BTP was renamed Transtar Holdings,
L.P. (Holdings) in November 1993. Additionally, in November 1993, BMA withdrew
from its role as general partner of Holdings and substituted Blackstone
Transportation Company, Inc. (BTC) as the general partner of Holdings. Transtar
Capital Corporation, a Delaware corporation and wholly owned subsidiary of
Holdings (TCC), was formed in connection with an Offering of 13 3/8% Series A
Senior Discount Notes. In 1994, Holdings and TCC exchanged the Series A Notes
for Series B Notes (Notes). Holdings and TCC have no operations of their own.
TCC is a shell corporation which has nominal assets and equity and no
liabilities, operations or cash flows. Accordingly, the financial statements of
TCC are not presented because they do not provide material information to
investors. Holdings owns 51 percent of the voting shares and 53 percent of the
economic interest in the capital stock of Transtar.
The consolidated financial statements presented herein reflect the
ownership by Holdings of the outstanding shares of Transtar capital stock
formerly held by Blackstone. Since Holdings and BCP are under common control,
the contribution of BCP's Transtar shares to Holdings has been accounted for in
a manner similar to a pooling of interests.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements
of Holdings include the accounts of Holdings and TCC, a wholly owned subsidiary.
The investment in Transtar, over which Holdings has significant influence in
management and control, is accounted for using the equity method and is carried
in the investment account at Holdings' share of net assets plus advances. A
proportionate share of Transtar's income is included as equity in earnings of
Transtar.
Cash and Cash Equivalents -- Cash and cash equivalents includes cash
on hand and time deposits, certificates of deposit, high-grade commercial paper,
and government securities, all purchased with maturities of three months or
less, and all of which are carried at cost which approximates market.
Income Taxes -- No current or deferred United States federal income
taxes or state income taxes have been provided for Holdings since, as a
partnership, Holdings is not subject to such taxes.
Deferred Debt Issue Costs -- Deferred debt issue costs represent the
unamortized portion of capitalized fees and expenses relating to issuance of the
Notes on December 7, 1993. At that time, fees and expenses amounting to $7.0
million were capitalized. During 1994, additional fees amounting to $0.3 million
were capitalized.
23
<PAGE> 26
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2: (CONTINUED)
Use of Estimates -- Generally accepted accounting principles require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
year-end and the reported amounts of revenues and expenses during the year.
NOTE 3: LONG-TERM DEBT
<TABLE>
<CAPTION>
Interest December 31, December 31,
Rate (%) Maturity 1998 1997
-------- -------- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Series B Senior Discount Notes ................ 13.375 2003 $192,736 $169,330
Less amount due within one year ............. -- --
-------- --------
Long-term debt due after one year ........... $192,736 $169,330
======== ========
</TABLE>
On December 7, 1993, Holdings and TCC (Issuers) issued $218 million
aggregate principal amount of 13.375 percent Series A Senior Discount Notes due
December 15, 2003. In 1994, Holdings and TCC exchanged the Series A Notes for
Series B Notes (Notes). The Notes are the joint and several obligations of the
Issuers. An original issue discount of $118 million will be amortized over a six
year period commencing December 15, 1993 and ending December 15, 1999. Interest
will be payable semi-annually in arrears on June 15 and December 15 commencing
on June 15, 2000. The Notes have a principal at maturity of $218 million. The
carrying value represents the principal at maturity less the unamortized
discount. The fair value of the Notes at December 31, 1998 and 1997 was $214.8
million and $198.5 million, respectively. Fair value of the Notes is based on
quoted market prices. The Notes are not guaranteed by Transtar or any of its
subsidiaries and are subordinated to all existing and future liabilities of the
Issuers' subsidiaries. Interest expense attributable to the Notes was $23.4
million, $20.6 million and $18.1 million in 1998, 1997 and 1996, respectively.
The Issuers will be dependent on sales of, or dividends or
distributions on, Holdings' Transtar stock in order to meet their obligations
under the Notes or new notes as applicable. Except as noted below, Transtar's
December 7, 1993 Credit Agreement (the Credit Agreement) prohibits the payment
of dividends exceeding $1.5 million annually by Transtar until the sixth
anniversary of the issuance of the Notes or new notes, as applicable. Commencing
on the sixth anniversary of the issuance of the Notes or new notes, the Credit
Agreement will permit the payment of dividends sufficient to fund the next cash
interest payment on the Notes or new notes so long as no default with respect to
that Credit Agreement has occurred and is continuing at such time or would
result from the payment of such dividends. Transtar's by-laws require unanimous
approval of Transtar's directors to declare a dividend or other distribution
(absent a decision by an independent consultant breaking a deadlocked vote).
Holdings and USX each have the right, pursuant to a Stockholders Agreement dated
as of December 28, 1988, as amended (the Stockholders Agreement), to designate
certain directors to the board of directors of Transtar. As such, Holdings'
ability to cause Transtar to declare and pay a dividend or other distribution is
dependent upon the concurrence of USX.
On October 9, 1997, Transtar and the lending institutions that are
party to the Credit Agreement approved an amendment that permitted Transtar to
pay dividends during the fiscal year ending December 31, 1997 in an amount not
to exceed $25.0 million. (See Note 4)
24
<PAGE> 27
TRANSTAR HOLDINGS, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: RELATED PARTY TRANSACTIONS
On October 27, 1997, Transtar declared a cash dividend in the amount
of $625 per share on both its Class A Voting Common Stock (Voting Stock) and its
Class B Nonvoting Common Stock (Nonvoting Stock) to holders of record of the
stock on October 27, 1997. Holdings received $6.4 million on October 30, 1997,
representing its 53% economic interest in the Transtar dividend. Pursuant to an
Indenture relating to the issuance of the Notes (the Notes Indenture), the
dividend payment was paid into an escrow account. On December 16, 1997, Transtar
declared a cash dividend of $625 per share on both its Voting Stock and its
Nonvoting Stock to holders of record of the stock on December 16, 1997. Holdings
received $6.4 million on December 19, 1997, representing its 53% economic
interest in the Transtar dividend. In accordance with the Notes Indenture, this
dividend was paid into the escrow account.
In February 1998, in accordance with the Notes Indenture, Holdings
offered to repurchase a portion of the Notes at an offer price equal to 101% of
the accreted value of such Notes on the date of purchase. The offer to purchase
the Notes was made by a notice to holders of the Notes and was held open for 20
business days. No Notes were tendered for repurchase.
In February 1997, in accordance with the Notes Indenture and related
to certain dividends paid into the escrow account in 1996, Holdings offered to
repurchase a portion of the Notes at an offer price equal to 101% of the
accreted value of such Notes on the date of purchase. The offer to purchase the
Notes was made by a notice to holders of the Notes and was held open for 20
business days. No Notes were tendered for repurchase.
Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on the Notes, make certain
payments permitted under the Notes Indenture, purchase or optionally redeem
Notes or to pay administrative expenses of Holdings. In 1998, 1997 and 1996, in
accordance with the Notes Indenture and an agreement governing the escrow
account, Holdings withdrew from the escrow account $0.7 million, $13.7 million
and $0.9 million, respectively, to distribute to its partners, and withdrew $0.2
million,$0.3 million and $0.7 million, respectively, to pay certain
administrative expenses. Interest earned on the escrow balance amounted to $2.6
million, $2.4 million and $1.4 million in 1998, 1997 and 1996, respectively.
NOTE 5: PARTNERS' EQUITY
In 1998 and 1997, Holdings recorded adjustments to Partners Equity of
$(0.9) million and $(0.2) million, respectively. These adjustments were recorded
as a result of changes in ownership related to Transtar repurchases of treasury
stock from its Management Stock Trust.
25
<PAGE> 28
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
TRANSTAR, INC.
In our opinion, the consolidated financial statements of Transtar,
Inc., as listed in the accompanying index on page 18 of this Annual Report on
Form 10-K, present fairly, in all material respects, the financial position of
Transtar, Inc., and its subsidiaries (the Company) at December 31, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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 of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
600 Grant Street
Pittsburgh, PA 15219
February 22, 1999
26
<PAGE> 29
TRANSTAR, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
---- ----
(dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (Note 2) ................................... $ 21,428 $ 24,316
Accounts receivable from related parties (Note 13) ................... 14,499 16,274
Accounts receivable from trade customers ............................. 48,368 56,459
Other current assets (Note 6) ........................................ 10,181 9,726
-------- --------
Total current assets ............................................... 94,476 106,775
Property, plant, and equipment,
less accumulated depreciation (Note 7) ............................... 377,697 384,118
Operating parts and supplies ........................................... 14,930 15,551
Other assets (Note 8) .................................................. 15,701 15,548
-------- --------
Total assets ....................................................... $502,804 $521,992
======== ========
LIABILITIES
Current liabilities:
Accounts payable ..................................................... $ 64,560 $ 73,663
Payroll and benefits payable ......................................... 38,614 38,456
Accrued taxes ........................................................ 6,215 12,143
Accrued interest ..................................................... 1,146 2,177
Current portion of long-term debt (Note 9) ........................... 57,700 68,464
Other current liabilities ............................................ 1,498 1,096
-------- --------
Total current liabilities .......................................... 169,733 195,999
Long-term debt less current portion (Note 9) ........................... 66,300 128,766
Postretirement benefits other than pensions (Note 3) ................... 110,425 106,270
Deferred credits and other liabilities (Note 11) ....................... 53,704 45,887
-------- --------
Total liabilities .................................................. 400,162 476,922
STOCKHOLDERS' EQUITY
Common stock (Note 12) ................................................. 1,000 1,000
Paid-in capital (Note 12) .............................................. 23,417 23,979
Retained earnings (deficit) ............................................ 85,577 26,538
Treasury stock (Note 12) ............................................... (7,352) (6,447)
-------- --------
Total stockholders' equity ......................................... 102,642 45,070
-------- --------
Total liabilities and stockholders' equity ......................... $502,804 $521,992
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
27
<PAGE> 30
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Revenues from related parties (Note 13) ................. $ 281,338 $ 309,206 $ 293,601
Revenues from others .................................... 216,479 216,909 215,525
--------- --------- ---------
Total revenues ........................................ 497,817 526,115 509,126
--------- --------- ---------
Operating expenses (excluding items shown below) ........ 355,146 363,784 348,188
Selling, general, and administrative expenses ........... 12,370 12,558 12,190
Depreciation ............................................ 25,519 26,820 26,483
--------- --------- ---------
Total operating expenses .............................. 393,035 403,162 386,861
--------- --------- ---------
Operating income .................................... 104,782 122,953 122,265
Other income ............................................ 2,380 3,899 1,703
Interest income ......................................... 1,537 1,085 1,060
Interest and other financial expenses ................... (12,942) (17,358) (21,314)
--------- --------- ---------
Income before income taxes ............................ 95,757 110,579 103,714
Less provision for income taxes (Note 5) ................ 36,718 42,134 32,783
--------- --------- ---------
Net income ............................................. $ 59,039 $ 68,445 $ 70,931
========= ========= =========
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
Retained earnings (deficit), beginning of period ........ $ 26,538 $ (17,822) $ (47,847)
Dividends paid (Note 12) ................................ -- (24,085) (40,906)
Net income .............................................. 59,039 68,445 70,931
--------- --------- ---------
Retained earnings (deficit), end of period .............. $ 85,577 $ 26,538 $ (17,822)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
28
<PAGE> 31
TRANSTAR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................... $ 59,039 $ 68,445 $ 70,931
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ........................................................... 25,519 26,820 26,483
Non cash interest expense .............................................. 554 652 731
Deferred taxes ......................................................... 5,740 5,879 (459)
Gain on sale of assets ................................................. (1,141) (2,676) (399)
Non cash postretirement benefits expense (Note 3) ...................... 4,253 3,781 4,759
Changes in:
Accounts receivable .................................................. 9,866 (7,787) 286
Accounts payable ..................................................... (9,103) 7,633 14,648
Deferred credits ..................................................... 2,195 (183) (4,708)
All other changes - net .............................................. (5,017) 3,387 1,526
-------- -------- ---------
Net cash provided by operating activities ............................ 91,905 105,951 113,798
-------- -------- ---------
INVESTING ACTIVITIES:
Capital expenditures ................................................... (26,414) (25,644) (19,634)
Proceeds from the sale of assets ....................................... 5,178 5,730 3,828
-------- -------- ---------
Net cash used for investing activities ............................... (21,236) (19,914) (15,806)
-------- -------- ---------
FINANCING ACTIVITIES:
Repayment of long-term borrowings ...................................... (72,000) (62,002) (23,013)
Repayments - revolver .................................................. -- -- (20,000)
Dividends paid ......................................................... -- (24,085) (40,906)
Payments to acquire treasury stock ..................................... (1,557) (325) --
-------- -------- ---------
Net cash used for financing activities ............................... (73,557) (86,412) (83,919)
-------- -------- ---------
Increase (decrease) in cash and cash equivalents ......................... (2,888) (375) 14,073
Cash and cash equivalents at beginning of period ......................... 24,316 24,691 10,618
-------- -------- ---------
Cash and cash equivalents at end of period ............................... $ 21,428 $ 24,316 $ 24,691
======== ======== =========
SUPPLEMENTAL INFORMATION:
Income taxes paid ...................................................... $ 36,006 $ 35,537 $ 32,443
Interest paid .......................................................... $ 13,242 $ 17,394 $ 22,003
NONCASH INVESTING AND FINANCING ACTIVITIES:
New long-term borrowings - capital leases .............................. $ (1,230) $ 1,230 $ --
======== ======== =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
29
<PAGE> 32
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: FORMATION OF HOLDING COMPANY AND RELATED PARTIES
On December 28, 1988, agreements were executed to form a new holding
company, Transtar, Inc. (Transtar). Transtar, in turn, purchased certain former
directly or indirectly wholly owned subsidiaries (the transportation
subsidiaries) of USX Corporation (USX). As a result of these agreements,
Blackstone Capital Partners, L.P. and Blackstone Transportation Partners, L.P.
(BTP), investment partnerships (collectively, Blackstone) controlled by their
general partner Blackstone Management Associates, L.P. (BMA), owned a 51 percent
economic and voting interest in Transtar. USX held a 44 percent economic and 49
percent voting interest, and the remaining 5 percent of Transtar's equity was
held as nonvoting shares by a management stock trust. A Technical Services
Agreement, an Agreement as to Tax Matters between Transtar and USX, and other
ancillary agreements exist as a result of this transaction. Transportation
Services Agreements with USX and other related parties which existed at the time
of the transaction were renegotiated in 1998. A significant part of Transtar's
operations are with related parties (See Note 13). Transtar's operations are
conducted in two business segments -- railroad operations and marine operations.
BTP was originally formed in 1988 for the sole purpose of holding
voting stock and nonvoting stock in Transtar. In November 1993, BTP was renamed
Transtar Holdings, L.P., a Delaware limited partnership (Holdings), which
assumed ownership of BTP's then 51.8 percent economic interest and 51 percent
voting interest in the capital stock of Transtar. Holdings has no operations of
its own.
Since its formation, Transtar has repurchased certain shares of
nonvoting stock from its management stock trusts and has recorded these shares
as Treasury Stock. As of December 31, 1998 and 1997, Holdings owns 53 percent
economic interest and 51 percent voting interest in the capital stock of
Transtar; USX owns 46 percent economic interest and 49 percent voting interest;
and the management stock trust holds the remaining 1 percent economic interest.
The Transtar transaction was accounted for as a purchase transaction
prescribed by Accounting Principles Board Opinion (APB) No. 16 as modified by
the Financial Accounting Standards Board's Emerging Issues Task Force Consensus
No. 86-16, "Carryover of Predecessor Cost in Leveraged Buyout Transactions"
(EITF 86-16). EITF 88-16, "Basis in Leveraged Buyout Transactions," subsequently
superseded EITF 86-16. However, this transaction was completed prior to the
effective date of EITF 88-16.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -- The consolidated financial statements of
Transtar include the accounts of Transtar and its subsidiaries. All significant
intercompany transactions and balances have been eliminated from the
consolidated financial statements.
Cash and Cash Equivalents -- Cash and cash equivalents include cash on
hand and time deposits, certificates of deposit (CD), high-grade commercial
paper, or government securities, all purchased with maturities of 3 months or
less, and all of which are carried at cost which approximates market.
Operating Parts and Supplies -- Operating parts and supplies consist
primarily of repair and replacement materials for railroad and marine equipment
and facilities, and are carried at the lower of average cost or market, defined
as replacement cost.
30
<PAGE> 33
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: (CONTINUED)
Fuel Oil Hedging -- Transtar from time to time enters into agreements
to hedge exposure to price fluctuations in connection with the purchase of fuels
for propulsion. Such transactions are accounted for as part of the commodity
being hedged and are settled on a monthly basis. (See additional information in
Note 10.)
Interest Rate Hedging -- Transtar from time to time is party to
interest rate protection agreements with several financial institutions to
reduce the potential impact of increases in variable interest rates associated
with the December 7, 1993, Credit Agreement and an amendment to the Credit
Agreement dated March 12, 1997. If required, interest expense associated with
these agreements is accrued monthly and settled quarterly. (See additional
information in Notes 9 and 10.)
Property, Plant, and Equipment -- Properties acquired by Transtar at
December 28, 1988 are stated at a combination of historical cost and fair value
as a result of the accounting for the purchase transaction prescribed by APB 16,
as modified by EITF 86-16. Subsequent property acquisitions are recorded at
cost. Depreciation is generally computed on the straight-line method, utilizing
a composite or grouped asset approach, based on estimated lives of the assets,
which are generally from 3 to 50 years. Proceeds from the sale of those
facilities depreciated on a group basis are credited to the depreciation
reserve, which is subject to periodic adjustments through depreciation studies
performed on a scheduled basis.
When facilities depreciated on an individual basis are sold, the
difference between the selling price and the remaining undepreciated value is
reflected in income. When nondepreciable assets are sold, any gain or loss is
reflected in income.
Ordinary maintenance and repairs are charged to expense as incurred.
Deferred Dry Dock Costs -- USS Great Lakes Fleet, Inc. (a Transtar
subsidiary) is required by the U.S. Coast Guard to inspect and perform certain
maintenance on each of its lake-going vessels every 5 years. Costs to perform
this operation (dry dock costs) are deferred and amortized on a straight-line
basis over 60 months from the time each vessel is dry docked.
Deferred Lump-Sum Compensation -- Certain Transtar labor contracts
contain provisions for compensation in the form of lump-sum payments. Lump-sum
compensation that is determined to benefit future periods is deferred and
amortized over the period of the contract in accordance with the provisions of
EITF 88-23, "Lump-Sum Payments Under Union Contracts."
Acquisition Debit -- The Transtar transaction was accounted for as a
business combination following the requirements of APB 16, as modified by EITF
86-16. These principles were used to determine the cost basis of Transtar. The
difference between the purchase price and the new cost basis of Transtar
resulted in the recognition of a $17.4 million acquisition debit in retained
earnings in the consolidated financial statements.
Revenue Recognition -- Revenues are generally recognized upon
completion of a service, usually a transportation movement.
Pension and Other Postretirement Benefits Costs -- Substantially all
hourly and salary employees of Transtar are covered by qualified pension plans.
Pension expense is based on a number of factors, including years of service,
career earnings, and actuarial assumptions that are applied to plan assets and
liabilities. Transtar accounts for pension
31
<PAGE> 34
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2: (CONTINUED)
costs in accordance with Statement of Financial Accounting Standards (SFAS) No.
87, "Employers' Accounting for Pensions." Transtar provides certain health care
and life insurance benefits for retirees. Substantially all employees may become
eligible for these benefits upon retirement. Transtar accounts for costs related
to these benefits in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions."
In 1998, the Company adopted SFAS No. 132 "Employers Disclosures about
Pensions and Other Postretirement Benefits." The provisions of SFAS No. 132
revise employers disclosures about pension and other postretirement benefit
plans. It does not change the measurement or recognition of these plans.
Insurance -- Transtar insures its rail, marine, property, and casualty
exposures. Certain self-insured retentions are maintained. Catastrophic coverage
is also carried. Costs resulting from noninsured losses are charged against
income upon occurrence.
Postemployment Benefits -- Transtar provides certain benefits to former
or inactive employees after employment but before retirement. Substantially all
employees may become eligible for these benefits. Transtar accounts for costs
related to these benefits in accordance with SFAS No. 112, "Employers'
Accounting for Postemployment Benefits."
Use of estimates -- Generally accepted accounting principles require
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities at
year end and the reported amounts of revenues and expenses during the year.
New Accounting Standards -- The Financial Accounting Standards Board
has issued a new accounting standard:
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities" requires that companies recognize all derivatives as either assets
or liabilities in the statement of financial position and measure those
instruments at fair value. Transtar plans to adopt the standard, effective with
its first quarter 2000 financial statements, as required.
Reclassifications -- Certain reclassifications of prior years' data
have been made to conform to 1998 classifications.
NOTE 3: PENSIONS AND OTHER POSTRETIREMENT BENEFITS
Effective January 1, 1989, Transtar adopted a noncontributory defined
benefit plan covering substantially all employees and a defined benefit plan
covering salary employees. Both plans recognize service and earnings as accrued
under the predecessor USX plans, but contain offset provisions for the amount of
pension benefits accrued as of December 28, 1988, the liability for which was
retained by USX. Pension benefits for employees that retired prior to Transtar's
formation on December 28, 1988 are the responsibility of USX. Assets of the
plans generally consist of corporate debt and equity securities and government
obligations.
Transtar provides certain medical and life insurance benefits to
eligible retired employees and their dependents under defined benefit plans. The
majority of benefits under provisions of these plans have not been prefunded.
Medical and life insurance benefits for employees retired prior to Transtar's
formation are obligations of USX. Assets of the plan generally consist of high
quality corporate and government obligations.
32
<PAGE> 35
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: (CONTINUED)
The following provides a reconciliation of benefit obligations, plan
assets and funded status of the plans.
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1 ....... $137,125 $114,219 $91,849 $88,782
Service cost .......................... 7,377 6,508 1,771 1,777
Interest cost ......................... 9,858 8,826 6,406 6,639
Amendments ............................ 1,439 1,353 -- --
Curtailments .......................... 2,007 2,956 -- --
Actuarial (gain) loss ................. 5,847 14,486 (168) (1,355)
Benefits paid from plan assets ........ (10,935) (11,223) -- (10)
Benefits paid by company .............. -- -- (3,243) (3,984)
-------- -------- ------- -------
Benefit obligation at December 31 ..... $152,718 $137,125 $96,615 $91,849
======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Change in plan assets:
Fair value of plan assets at
January 1 ............................ $ 97,551 $ 79,808 $ 214 $ 176
Actual return on plan assets .......... 15,032 16,403 13 11
Company contributions ................. 13,310 12,563 40 40
Benefits paid from plan assets ........ (10,935) (11,223) -- (10)
Administrative payments ............... -- -- (3) (3)
-------- -------- ------- -------
Fair value of plan assets at
December 31 ......................... $114,958 $ 97,551 $ 264 $ 214
======== ======== ======= =======
</TABLE>
33
<PAGE> 36
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: (CONTINUED)
<TABLE>
<CAPTION>
Other
Pension Benefits (a) Postretirement Benefits
-------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Funded status of the plans ............... $(37,760) $(39,574) $ (96,351) $ (91,635)
Unrecognized prior service cost .......... 3,188 3,499 746 993
Unrecognized net actuarial (gain) loss ... 33,156 32,436 (19,056) (19,766)
Unrecognized net transition obligation ... 3,287 3,945 -- --
-------- -------- --------- ---------
Prepaid (accrued) benefit cost ........... $ 1,871 $ 306 $(114,661) $(110,408)
======== ======== ========= =========
</TABLE>
(a) Includes a small plan that has an accumulated benefit obligation in excess
of plan assets:
Accumulated benefit obligation $(1,899) $(1,462)
Projected benefit obligation $(2,119) $(1,770)
Plan assets -- --
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Weighted average assumptions
as of December 31:
Discount rate ............................ 6.75% 7.0% 6.75% 7.0%
Expected return on plan assets ........... 11.0% 11.0% 6.0% 6.0%
Rate of compensation increase ............ 3.6% 3.6% 4.0% 4.0%
Assumed health care cost trend rate ...... -- -- 5.0% 5.0%
</TABLE>
The assumed health care cost trend rate in 1999 and thereafter is 5%
34
<PAGE> 37
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3: (CONTINUED)
Net periodic pension and other postretirement benefit costs include the
following components:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
---------------- -----------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost ...................... $ 7,377 $ 6,508 $ 6,413 $ 1,771 $ 1,777 $ 1,954
Interest cost ..................... 9,858 8,826 7,829 6,406 6,639 6,486
Expected return on plan assets .... (11,171) (9,310) (6,597) (14) (12) (10)
Amortization and deferrals ........ 4,052 3,242 2,988 (667) (619) (251)
-------- ------- ------- ------- ------- -------
Benefit cost .................... $ 10,116 $ 9,266 $10,633 $ 7,496 $ 7,785 $ 8,179
======== ======= ======= ======= ======= =======
</TABLE>
Pension
- -------
As a result of a reduction in business at The Lake Terminal Railroad (a
Transtar subsidiary) Transtar, in addition to the benefit cost shown above,
recognized a curtailment loss of $2.6 million in 1998. Also in addition to the
benefits cost shown above, programs of early retirements and separations caused
recognition of a curtailment loss of $4.0 million in 1997.
Transtar participates in certain defined benefit multi-employer plans
of maritime unions. Expenses related to these plans amounted to $0.2 million,
$1.0 million, and $1.1 million in 1998, 1997, and 1996, respectively. The
company also sponsors certain defined contribution pension plans. Participation
in these plans is available to substantially all salaried employees and to
certain groups of hourly employees. Company contributions to the salary plan are
based on matching of employee contributions up to certain limits specified by
the provisions of the plan. The cost of this plan was $1.5 million, $1.5 million
and $1.4 million in 1998, 1997 and 1996, respectively.
Other Postretirement Benefits
- -----------------------------
A one percentage point change in assumed health care cost trend rates
would have the following effects:
1% increase 1% decrease
----------- -----------
(in thousands)
Effect on total of service and
interest cost components ............. $ 1,242 $(1,000)
Effect on postretirement benefit
obligation ........................... $12,824 $(9,840)
35
<PAGE> 38
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: OPERATING SEGMENTS
Transtar adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in 1998 which establishes new standards for
reporting information about its operating segments. Transtar consists of two
reportable segments: Railroad Group and Marine Group. The two reportable
segments provide different services, have different methods of distributing
their services and operate in different regulatory environments.
Railroad Group - This segment is composed of nine business units which
are primarily railroad companies. The Railroad Group provides rail transport and
material handling services for nearly all of the steel making plants of USX
Corporation, servicing US Steel, USS Mining Co. and USS/Kobe Steel Company at
Lorain, Ohio. Some of the business units provide rail service to other steel
related customers, utilities, and miscellaneous other customers in the midwest,
south and eastern United States.
Marine Group - This segment is composed of two shipping operations and
one fresh water/saltwater dock facility that provide primary water transport for
essentially the same USX facilities as the rail group, as well as utilities and
miscellaneous other customers.
The accounting policies of the reportable segments are the same as
those disclosed in Note 2. Transtar evaluates the performance of its operating
segments based on the operating income of the respective business units.
Summarized financial information concerning reportable segments is shown on the
following table. The "Other" column includes non-allocated corporate related
items and the elimination of inter-business unit transactions.
36
<PAGE> 39
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4: (CONTINUED)
<TABLE>
<CAPTION>
Railroad Marine
Group Group Other Total
----- ----- ----- -----
<S> <C> <C> <C> <C>
1998
- ----
Revenues - external customers ...... $349,618 $148,199 $ -- $497,817
Operating income ................... 77,863 26,899 20 104,782
Depreciation ....................... 19,895 5,624 -- 25,519
Interest and other financial expense 10,532 2,739 (329) 12,942
Income tax expense ................. 27,366 9,326 26 36,718
Total assets ....................... 405,212 119,191 (21,599) 502,804
Capital expenditures ............... 25,522 892 -- 26,414
1997
- ----
Revenues - external customers ...... $358,597 $167,518 $ -- $526,115
Operating income ................... 86,893 36,313 (253) 122,953
Depreciation ....................... 20,070 6,750 -- 26,820
Interest and other financial expense 13,904 3,684 (230) 17,358
Income tax expense ................. 29,936 12,230 (32) 42,134
Total assets ....................... 414,443 122,855 (15,306) 521,992
Capital expenditures ............... 24,387 1,257 -- 25,644
1996
- ----
Revenues - external customers ...... $348,248 $160,878 $ -- $509,126
Operating income ................... 94,356 27,746 163 122,265
Depreciation ....................... 19,674 6,809 -- 26,483
Interest and other financial expense 16,972 5,078 (736) 21,314
Income tax expense ................. 24,841 7,925 16 32,782
Total assets ....................... 411,110 122,278 (13,018) 520,370
Capital expenditures ............... 17,688 1,946 -- 19,634
</TABLE>
The majority of revenues earned are attributed to customers located in
the United States and all assets are located in the United States. See Note 13
regarding information about major customers.
37
<PAGE> 40
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 5: INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Current federal ............................. $ 27,239 $ 32,307 $ 29,316
Current state, local, and foreign ........... 3,739 3,948 3,926
Deferred taxes .............................. 5,740 5,879 (459)
-------- -------- --------
Total ....................................... $ 36,718 $ 42,134 $ 32,783
======== ======== ========
</TABLE>
The reconciliation of the U.S. statutory income tax rate to the total
provision is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------ ------------------ -------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Statutory rate applied to income
before tax ........................ 33,515 35.00% $ 38,703 35.00% $ 36,300 35.00%
State income tax after federal income
tax impact ........................ 3,021 3.15 3,259 2.95 3,458 3.33
Revision of prior years tax provision
estimates ......................... -- -- -- -- (7,126) (6.87)
Other, net .......................... 182 .19 172 .15 151 .15
-------- ----- -------- ----- -------- -----
Total ............................... $ 36,718 38.34% $ 42,134 38.10% $ 32,783 31.61%
======== ===== ======== ===== ======== =====
</TABLE>
Deferred tax assets and liabilities are composed of the following:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
Assets Liabilities Assets Liabilities
------ ----------- ------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Accrual differences ..... $ 3,662 $ -- $ 5,573 $ --
Postretirement benefits.. 45,338 -- 43,776 --
PP&E basis differences... -- 75,638 -- 70,212
------- ------- ------- -------
Total ................... $49,000 $75,638 $49,349 $70,212
======= ======= ======= =======
Net balance ............. $26,638 $20,863
======= =======
</TABLE>
38
<PAGE> 41
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6: OTHER CURRENT ASSETS
<TABLE>
<CAPTION>
December 31,
----------------
1998 1997
---- ----
(dollars in thousands)
<S> <C> <C>
Deferred tax asset .............................. $ 4,661 $ 4,779
Supplies - current .............................. 1,670 1,536
Employee homes acquired ......................... 1,341 483
Prepaid insurance ............................... 1,151 1,278
Deferred lease costs - current .................. 587 --
Deferred compensation ........................... 271 1,111
Other current assets ............................ 500 539
------- -------
Total ........................................... $10,181 $ 9,726
======= =======
</TABLE>
NOTE 7: PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
---- ----
(dollars in thousands)
<S> <C> <C>
Railroad equipment .......................................... $ 413,264 $ 398,291
Lake vessels and related equipment .......................... 88,918 88,535
Barges, tows, and related equipment ......................... 36,112 35,855
Buildings ................................................... 32,192 29,300
Other ....................................................... 3,971 11,678
--------- ---------
Subtotal - depreciable property ........................... 574,457 563,659
Less - accumulated depreciation ........................... (244,082) (227,185)
--------- ---------
Net depreciable property .................................... 330,375 336,474
Land ........................................................ 47,322 47,644
--------- ---------
Property, plant, and equipment, less accumulated depreciation $ 377,697 $ 384,118
========= =========
</TABLE>
The above amounts include equipment leased under capital leases of zero
and $1.2 million at December 31, 1998 and 1997, respectively. For capital lease
assets, depreciation expense for the years ended December 31, 1998, 1997, and
1996 was $27 thousand, $2 thousand, and $8 thousand, respectively. Accumulated
depreciation at December 31, 1998 and 1997 was zero. Transtar leases a variety
of facilities and equipment, including marine vessels, railroad equipment,
barges, office equipment, and office space. Some of these leases contain
purchase and renewal options and a residual value guarantee at the end of their
lease term. Rent expense for operating leases was $26.9 million, $26.8 million,
and $25.6 million for 1998, 1997, and 1996, respectively.
39
<PAGE> 42
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7: (CONTINUED)
Total commitments under operating leases are as follows:
(dollars in thousands)
<TABLE>
<CAPTION>
Year
- ----
<C> <C>
1999 .............................. $ 21,626
2000 .............................. 21,354
2001 .............................. 18,225
2002 .............................. 16,973
2003 .............................. 15,949
Later years ....................... 89,476
--------
Total minimum lease payments .... $183,603
========
</TABLE>
NOTE 8: OTHER ASSETS
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
(dollars in thousands)
<S> <C> <C>
Long-term receivables and other investments ................... $ 5,429 $ 5,879
Deferred lease costs .......................................... 4,188 4,201
Deferred dry dock costs ....................................... 3,123 2,734
Deferred debt issue costs ..................................... 398 952
Other deferred charges ........................................ 2,563 1,782
------- -------
Total ....................................................... $15,701 $15,548
======= =======
</TABLE>
Deferred debt issue costs represent the unamortized portion of
capitalized fees and expenses relating to the term loan and revolving credit
facilities obtained in connection with a refinancing on December 7, 1993. Fees
and expenses amounting to $4.2 million were capitalized and are being amortized
over the life of the term loan.
40
<PAGE> 43
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: LONG-TERM DEBT
<TABLE>
<CAPTION>
December 31
-----------------------
Interest
Rates (%) Maturity 1998 1997
--------- -------- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Term loan (a) ......................... (b) 2000 $124,000 $196,000
Capital leases ........................ -- -- 1,230
-------- --------
Total long-term debt (c) ......... 124,000 197,230
Less amount due within 1 year .... (57,700) (68,464)
-------- --------
Long-term debt due after 1 year .. $ 66,300 $128,766
======== ========
</TABLE>
(a) This Credit Agreement with a group of lending institutions is dated
December 7, 1993 and provides for a series of short-term variable rate
loans over a 7 year life, which are secured by the stock of the
Transtar subsidiaries. Principal payments are scheduled semi-annually
on June 30 and December 31 in installments ranging from $20 million to
$42 million. The first scheduled payment was due on June 30, 1994, and
the last scheduled payment is due on December 31, 2000. Terms of the
agreement require that the first $5 million of excess cash flow
prepayments be applied in the inverse order of maturity and that sale
leaseback prepayments be applied ratably over the remaining scheduled
payment dates. All other voluntary or asset sale prepayments are to be
applied in the order of maturity. In 1998, voluntary or asset sales
prepayments of $72 million were applied to payments scheduled for June
30, 1998, December 31, 1998, and June 30, 1999. In 1997, voluntary or
asset sales prepayments of $62 million were applied to payments
scheduled for June 30, 1997, December 31, 1997 and June 30, 1998.
Interest accrues at variable rates based on either an alternate base
rate, an adjusted CD rate, or an adjusted London Interbank Offered
Rate. Transtar periodically selects from these debt instruments to
determine the variable rates of the loan. Interest rates are available
in multiples of $1 million of borrowings in durations ranging from 1
day to 6 months.
(b) Transtar's debt interest expense in 1998, 1997, and 1996 was $11.9
million, $16.3 million, and $20.2 million, respectively. The average
effective rates for the comparable periods were 7.2 percent, 7.2
percent, and 7.1 percent, respectively. As required by the December 7,
1993 Credit Agreement, Transtar protected the variable interest rate on
at least 40 percent of the outstanding term debt balance through March
12, 1997. An amendment to the Credit Agreement dated March 12, 1997
eliminated the interest rate protection covenant. Transtar had no
interest rate protection agreements in place at December 31, 1998.
During 1998, 1997 and 1996, there was no interest expense attributable
to rate protection agreements.
(c) Required payments of long-term debt for 1999 and 2000 are $57.7 million
and $66.3 million, respectively.
Transtar has a revolving credit agreement with a consortium of banks.
This loan facility of up to $25 million is available for working capital and
letter of credit purposes through December 31, 2000. Interest accrues at the
same variable rates as the term debt. There is an annual commitment fee of 1/2
of 1 percent of the unused portion of the loan facility. Outstanding letters of
credit are $0.9 million at December 31, 1998 and 1997. Transtar did not borrow
from this facility in 1998 or 1997.
The above debt agreements contain certain restrictions on capital
spending, levels of new indebtedness, and the payment of dividends, as well as
certain financial covenant requirements.
41
<PAGE> 44
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9: (CONTINUED)
On October 9, 1997, Transtar and the lending institutions that are
party to the Credit Agreement approved an amendment that permitted Transtar to
pay dividends during the fiscal year ending December 31, 1997 in an amount not
to exceed $25.0 million. (See Note 12)
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined
by Transtar using the best available market information and appropriate
valuation methodologies. However, considerable judgment was necessary in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented are not necessarily indicative of the amounts that
Transtar could realize in a current market exchange or the value that ultimately
will be realized upon maturity or disposition. Additionally, because of the
variety of valuation techniques permitted under SFAS No. 107, "Disclosures about
Fair Values of Financial Instruments," comparability of fair values among
entities may not be meaningful. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------
1998 1997
---------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents ............. $ 21,428 $ 21,428 $ 24,316 $ 24,316
Noncurrent receivables ................ 2,236 2,236 3,081 3,081
Liabilities:
Current maturities of long-term debt .. 57,700 57,700 68,464 68,464
Long-term debt ........................ 66,300 66,300 128,766 128,766
Off-balance-sheet financial instruments:
Interest rate protection .............. -- -- -- --
Fuel oil hedges ....................... -- (228) -- --
</TABLE>
The following methods and assumptions were used to estimate the fair
value of those financial instruments for which it was practicable to estimate
that value.
Cash and cash equivalents - The carrying amount for cash and cash
equivalents approximates fair value.
Noncurrent receivables - The carrying amount for noncurrent receivables
approximates fair value.
Current debt and long-term debt - The carrying amount of Transtar's
borrowings under the credit facility and capital leases approximates fair value,
because most of Transtar's borrowings have variable rates of interest.
42
<PAGE> 45
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10: (CONTINUED)
Interest rate agreements - The fair value of interest rate protection
agreements is the amount that Transtar would receive or pay to terminate the
agreements, considering interest rates and remaining maturities based on quoted
market prices or discounted cash flow methods, or the cost to replace the
agreement. Transtar had no interest rate protection agreements in place at
December 31, 1998 or 1997.
Fuel oil hedges - The fair value of fuel oil hedges is based on the
futures index for NYMEX No. 2. Transtar had a fuel oil hedging agreement in
place for 1.0 million gallons per month at December 31, 1998, and no fuel oil
hedging agreements in place at December 31, 1997. Transtar generated expense of
$0.3 million in 1998, no income or expense in 1997, and income of $0.4 million
in 1996 as a result of fuel oil hedges.
NOTE 11: DEFERRED CREDITS AND OTHER LIABILITIES
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
---- ----
(dollars in thousands)
<S> <C> <C>
Deferred taxes ........................... $31,299 $25,642
Personal injuries ........................ 16,827 14,588
Deferred credits - leases ................ 2,083 2,013
Other .................................... 3,495 3,644
------- -------
Total ............................... $53,704 $45,887
======= =======
</TABLE>
NOTE 12: EQUITY
As of December 31, 1998 and 1997, Transtar had authorized and issued
10,000 shares of Class A Voting Common Stock (Voting Stock) with no par value
and 10,000 shares of Class B Nonvoting Common Stock (Nonvoting Stock) with no
par value. Holdings owns 5,100 shares of the Voting Stock and 5,100 shares of
the Nonvoting Stock; USX owns 4,900 shares of the Voting Stock and 3,900 shares
of the Nonvoting Stock; and 296 shares of the Nonvoting Stock are held by
management stock trusts. An additional 704 shares of the Nonvoting Stock,
previously repurchased from the management stock trusts, are being held as
Treasury Stock at cost.
On October 27, 1997, Transtar declared a cash dividend of $625 per
share on both its Voting Stock and its Nonvoting Stock to holders of record of
the stock on October 27, 1997. The dividend of $12.0 million was paid on October
30, 1997. On December 16, 1997 Transtar declared a cash dividend of $625 per
share on its Voting Stock and its Nonvoting Stock to holders of record of the
stock on December 16, 1997. The dividend of $12.0 million was paid on December
19, 1997.
During 1994, Transtar implemented a stock option plan to promote the
interests of Transtar and its stockholders by attracting and retaining key
management employees. The total number of options granted in 1994 was 750, all
of which were subject to a five-year vesting schedule commencing December 28,
1993, unless vesting was waived by Transtar's Compensation Committee. All
options granted in 1994 have an exercise price of
43
<PAGE> 46
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12: (CONTINUED)
$8,364.05, which was the estimated fair market value of the Company's common
stock at the date of grant. The options became exercisable up to 20 percent per
year and do not have an expiration date. Shares exercised were 103 and 48 in
1998 and 1997, respectively. As of December 31, 1998, there were 599 options
vested and exercisable under the 1994 grant.
In 1996, Transtar adopted SFAS No. 123, "Accounting for Stock-Based
Compensation." The statement defines a fair-value-based method of accounting for
employee stock options, but allows companies to continue to record compensation
cost using currently accepted recognition principles. Companies electing to
continue using currently accepted recognition principles must make proforma
disclosures of net income as if the fair-value-based method of accounting had
been applied to options granted in fiscal years beginning after December 15,
1994. Transtar adopted the disclosure-only options under SFAS No. 123. In 1998,
105 options were granted under the plan, all of which are subject to a five-year
vesting schedule commencing December 28, 1997. All options granted in 1998 have
an exercise price of $24,687.80 which was the estimated fair market value of the
Company's common stock at the date of grant. These options become exercisable up
to 20 percent per year and do not have an expiration date. The effect on net
income that would have been reflected in the income statement if the
fair-value-based method of accounting had been used to account for the issuance
of these options is immaterial. There were no options granted during the years
1995 through 1997.
NOTE 13: RELATED-PARTY TRANSACTIONS
The Transportation Services Agreements which existed at the formation
of Transtar provided Transtar with certain rights including: (i) sole serving
rail carrier status at USX's Minntac, Gary, Fairfield and Mon Valley facilities
as well as USS/Kobe's Lorain facility; (ii) sole rights to perform specified USX
in-plant switching services; (iii) sole serving Great Lakes Fleet bulk commodity
carrier status for USX, including USS/Kobe; and (iv) primary inland barge
operator status for the water transport of USX's commodities originating at or
destined for Birmingham, Alabama. With respect to the services referred to in
clause (i) above, the Transportation Services Agreements provided that such
services would continue indefinitely as long as a non-Transtar rail carrier had
not obtained access to the USX facility being served; with respect to the
services referred to in clause (ii) above, the agreements were exclusive through
1998 and provided that such services would continue indefinitely so long as USX
had not purchased from Transtar or otherwise obtained the Transtar track on
which such services were provided; with respect to the services referred to in
clause (iii) above, the agreements provided that such services would continue
for a term ending on March 15,1999 for USS/Kobe and March 15, 2000 for the other
USX facilities, which terms would have been automatically renewed for successive
one-year periods unless either USX or Transtar had given the other at least
three years prior written notice of termination; with respect to the services
described in clause (iv) above, the agreements provided that such services would
generally continue until December 28, 1998. The agreements also provided that
USX should not, at any time, take any action (a) which would in any way, either
directly or indirectly, encourage any non-Transtar rail carrier to attempt to
obtain access to any of the USX plants for which Transtar is the sole serving
rail carrier or (b) which would in any way assist in and/or support any such
rail carrier in any efforts to obtain such access; provided that USX could,
after December 28, 1998, request that an independent arbitrator determine
whether it is reasonable and equitable under the facts, circumstances and the
regulatory and competitive conditions in effect at that time, at one or more
facilities, for USX to seek access for a non-Transtar rail carrier.
44
<PAGE> 47
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13: (CONTINUED)
With respect to the services referred to in clause (ii) above, USS/Kobe
Steel Company elected to terminate in-plant switching services provided by the
Lake Terminal Railroad (a Transtar subsidiary) effective December 29, 1998.
USS/Kobe has not purchased or otherwise obtained any Transtar track at this
facility. In-plant switching services provided by parties other than Transtar
will be performed on tracks currently owned by USS/Kobe. The annual impact on
Transtar will be a revenue reduction of approximately $8.0 million, with no
material impact on operating income.
With respect to the services referred to in clause (iii) above,
USS/Kobe Steel Company, on March 14, 1996, provided written notice to terminate
on March 15, 1999, the end of their primary term. USX on February 12, 1997
provided written notice of their intent to terminate effective March 15, 2000.
In December 1998, Transtar, USX and USS/Kobe (for USS/Kobe Great Lakes
Fleet bulk commodity carrier service only) executed new Transportation Services
Agreements which, among other things, extend the time and exclusivity periods of
the original agreements. The new agreements were approved on February 12, 1999
by the lending institutions who participate in Transtar's Credit Agreement. The
new agreements were retroactively effective July 1, 1998 and will extend through
December 31, 2004 for the services referred to in clauses (i), (ii) and (iv)
above, with the exception of rail and rail related services at USS/Kobe Steel
(see below), and will extend through March 15, 2005 for the services referred to
in clause (iii) above. With respect to the services referred to in clause (i)
above, the new Transportation Services Agreements provide that such services
will continue indefinitely as long as a non-Transtar rail carrier has not
obtained access to the USX facility being served; with respect to the services
referred to in clause (ii) above, the agreements are exclusive through 2004 and
provide that such services will continue indefinitely so long as USX has not
purchased from Transtar or otherwise obtained the Transtar track on which such
services are provided. The new agreements cover all of the services currently
provided by Transtar, except that a third party may provide transportation
services for: with respect to the services referred to in clause (i) above, a
maximum per year of forty percent of blast furnace burden tonnage destined for
USX's Edgar Thomson facility in the Mon Valley; with respect to the services
referred to in clause (iii) above, a maximum of six hundred thousand gross tons
of iron ore pellets destined for USS/Kobe Steel in 1998 and through March 15,
1999, a maximum per year of ten percent of tonnage via the Great Lakes from
March 16, 1999 through March 15, 2003 and a maximum per year of fifteen percent
of tonnage via the Great Lakes from March 16, 2003 through March 15, 2005; and
with respect to the services referred to in clause (iv) above, a maximum per
year of ten percent of imported iron ore and coke tonnage destined for USX's
Fairfield, Alabama facility, a maximum per year of ten percent of export coal
tonnage originating at US Steel's Concord Preparation Plant and a maximum per
year of ten percent of domestic coal tonnage via barge originating at US Steel's
Concord Preparation Plant. The agreements provide that USX shall not, at any
time, take any action (a) which would in any way, either directly or indirectly,
encourage any non-Transtar rail carrier to attempt to obtain access to any of
the USX plants for which Transtar is the sole serving rail carrier or (b) which
would in any way assist in and/or support any such rail carrier in any efforts
to obtain such access; provided that USX may, after December 31, 2004, request
that an independent arbitrator or mediator determine whether it is reasonable
and equitable under the facts, circumstances and the regulatory and competitive
conditions in effect at that time, at one or more facilities, for USX to seek
access for a non-Transtar rail carrier. Transtar is required to acquire certain
coke rail cars, not to exceed a maximum expenditure of $20 million. The
agreements also provide for certain price concessions and market based price
changes. USX is entitled to a refund of approximately $6.3 million (with an
equal reduction in Transtar's operating income which was recognized in June
1998) for services provided during the first half of 1998. Including this
refund, total price concessions for 1998 reduced Transtar's revenue and
operating income by $14.4 million.
45
<PAGE> 48
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13: (CONTINUED)
On December 29, 1998, Transtar and USS/Kobe executed a new
Transportation Services Agreement for sole service carrier work including
absorbed switching, single line movements and other related transportation
services. This agreement was approved on February 12, 1999 by the lending
institutions who participate in Transtar's Credit Agreement. The new agreement
was effective December 29, 1998 and extends through December 31, 2008 for the
sole service carrier work. In-plant scrap handling via rubber tire vehicles is
under contract until July 31, 2000. The agreement provides that USS/Kobe shall
not, during the term of the agreement, take any action (a) which would in any
way, either directly or indirectly, encourage any non-Transtar rail carrier to
attempt to obtain access to the USS/Kobe Works or (b) which would in any way
assist in and/or support any such rail carrier in any efforts to obtain such
access. The agreement provides for market based price changes and no price
concessions.
Transtar earns a significant portion of its revenues from
transportation and related services provided to USX. For 1998, 1997, and 1996,
transactions with USX represented 57 percent, 59 percent, and 58 percent of
total revenues, respectively. Receivables from USX as of December 31, 1998 and
1997 represented 23 percent and 22 percent of total receivables, respectively.
Terms of these transactions are similar to those of nonrelated customers.
On August 1, 1999, USX and USS/Kobe, along with several major steel
companies, face the expiration of their labor agreements with the United
Steelworkers of America. Their ability to negotiate an acceptable labor contract
is essential to maintaining the level of Transtar's ongoing operations. A
prolonged labor interruption at USX could have a material adverse effect on
Transtar's operations, financial results and cash flow.
Transtar provides maintenance services to USX. Proceeds from services
provided amounted to $5.8 million, $6.4 million, and $7.2 million for 1998,
1997, and 1996, respectively.
USX provided several corporate services associated with ongoing
business activities of Transtar. Total expenses for these services were $ 0.8
million, $0.6 million, and $0.6 million for 1998, 1997, and 1996, respectively.
Transtar purchased materials from USX amounting to $0.6 million, $1.1
million, and $0.5 million, in 1998, 1997, and 1996, respectively. USX purchased
materials from Transtar amounting to $0.5 million, $0.7 million and $0.8 million
in 1998, 1997 and 1996, respectively.
Pursuant to an Asset Purchase Agreement related to the formation of
Transtar in December 1988, Transtar reimbursed USX $1.0 million, $1.1 million,
and $1.4 million for certain benefits paid to Transtar retirees by USX in 1998,
1997, and 1996, respectively.
Transtar pays, to USX and a Blackstone affiliate, a monitoring fee of
0.15 percent of consolidated revenue. Total monitoring fees (0.3 percent of
revenue) paid and accrued were $1.5 million, $1.6 million, $1.5 million in 1998
1997, and 1996, respectively. These fees were accounted for as operating
expense.
46
<PAGE> 49
TRANSTAR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 14: COMMITMENTS AND OTHER CONTINGENCIES
Transtar is subject to federal, state, local, and foreign laws and
regulations relating to the environment. These laws generally provide for
control of pollutants released into the environment and require responsible
parties to undertake remediation of hazardous waste disposal sites. Penalties
may be imposed for noncompliance. Transtar provides for remediation costs and
penalties when the responsibility to remediate is probable and the amount of
associated costs is reasonably determinable. At December 31, 1998 and 1997,
accrued liabilities for remediation totaled $0.4 million. For the period 1989
through 1998 actual cash payments associated with environmental expense have
totaled $10.2 million.
Transtar and USX have entered into an environmental indemnification
agreement, whereby USX has agreed to indemnify Transtar against 75 percent of
certain environmental claims, losses, liabilities, obligations, damages,
deficiencies, costs, and expenses (collectively, Environmental Liabilities) in
excess of $10 million. This environmental indemnification agreement covers
Environmental Liabilities relating to certain assets and properties transferred
by USX to Transtar upon the formation of Transtar, which Environmental
Liabilities existed or occurred prior to such formation. Of the $10.2 million
expended since 1988, $7.8 million is applicable to the $10 million threshold. It
is not presently possible to estimate the ultimate amount of all remediation
costs that might be incurred or the penalties that may be imposed.
At year end 1998, a Transtar subsidiary had a commitment in the amount
of $45 million to exercise its purchase option by March 29, 1999 on a lake
vessel currently operated under a Bareboat Charter. It is anticipated that this
vessel will be financed by operating lease.
At year end 1997, certain Transtar subsidiaries had purchase
commitments in the amount of $3.9 million for the acquisition of rail and marine
equipment. In January 1997, a Transtar subsidiary entered into an agreement to
purchase 9.5 million net gallons of fuel oil per shipping season for the
shipping seasons of 1997, 1998 and 1999. The purchase price for the fuel oil
will be based upon market prices subject to certain minimum price provisions.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
47
<PAGE> 50
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below is certain information about each of BTC's (Holdings'
sole general partner) and TCC's executive officers and directors. Unless
otherwise indicated, positions listed are for both BTC and TCC. Each executive
officer holds office until his successor shall have been appointed or until his
death, resignation or removal. The directors and executive officers of BTC and
TCC receive no compensation.
Name Age, Business Experience and Other Directorships
---- ------------------------------------------------
James J. Mossman age 40, Director since November 1993 and
President and Director President since November 1993; a Member of
Blackstone Group Holdings (BGH) L.L.C.; a
General Partner of BGH L.P. from 1990 to
February 1996; Vice President of The
Blackstone Group L.P. (The Blackstone Group)
from 1987 to 1989. Mr. Mossman is a director
of Collins & Aikman Corporation and Transtar.
Peter G. Peterson age 72, Director since November 1993;
Director Co-Founding Member of BGH L.L.C.; Co-Founding
Partner of BGH L.P. from 1985 to February
1996; and, Chairman of The Blackstone Group
since 1985. Mr. Peterson is a director of Sony
Corporation and Transtar, and he is the Vice
Chairman of the Federal Reserve Bank of New
York. He is also Chairman of the Council on
Foreign Relations, Chairman of the Institute
for International Economics, and Founding
President of The Concord Coalition.
Stephen A. Schwarzman age 52, Director since November 1993;
Director Co-Founding Member of BGH L.L.C.; Co-Founding
Partner of BGH L.P. from 1985 to February
1996; and President & Chief Executive Officer
of The Blackstone Group since 1985. Mr.
Schwarzman is a director of Collins & Aikman
Corporation and Transtar.
Howard A. Lipson age 35, Treasurer since November 1993; Mr.
Treasurer Lipson joined The Blackstone Group in 1988 and
is a member of BGH L.L.C. Mr. Lipson is a
director of Rose Hills, Inc., Prime Succession
Holdings, Inc., AMF Group Inc., Graham
Packaging, Allied Waste Industries, Volume
Service, Inc., and Ritvik Holdings, Inc.
The following table sets forth certain information concerning the
officers of Transtar.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert S. Rosati................... 60 President and Chief Executive Officer
Frank J. Habic..................... 59 Vice President-Operations
Joseph W. Schulte.................. 57 Vice President-Finance and
Chief Financial Officer
James P. Bobich.................... 54 Vice President-Administration
Rade Vignovic...................... 64 Vice President-Marketing
Robert N. Gentile.................. 47 Vice President-Law, General Counsel
and Secretary
</TABLE>
48
<PAGE> 51
Mr. Rosati is President and Chief Executive Officer, a position he has
held since January 1, 1994. Mr. Rosati had been Vice President-Finance and Chief
Financial Officer of Transtar and its subsidiaries. Mr. Rosati had also been
Comptroller of B&LE until December 1, 1988, when he was elected Vice
President-Finance of the Railroads. His railroad experience of 33 years includes
positions as Manager-Audit Division, Manager of Marketing, and Dock
Superintendent with DM&IR, and Superintendent in the Transportation Department
with EJ&E. Prior experience with the firm of Ernst & Ernst, Pittsburgh, Pa.,
1960-1965. Mr. Rosati is a Director of the Transtar subsidiaries and is a member
of the Pennsylvania Institute of Certified Public Accountants. He is a graduate
of the University of Pittsburgh, BBA-1961 and attended the Graduate Business
Program at the University of Minnesota-Duluth, 1976-1979.
Mr. Habic was elected Vice President-Operations of Transtar on July 1,
1993. He is responsible for the operations of all Transtar subsidiaries. His
railroad experience encompasses 34 years. He held a succession of increasingly
responsible Operating Department positions within the Railroad Group. He was
appointed General Superintendent of Transportation of the EJ&E in 1978. He was
appointed General Superintendent of The Pittsburgh & Conneaut Dock in 1983. In
1984, he was appointed General Manager of the B&LE and several shortline
railroads. Mr. Habic is also a Director of the Transtar subsidiaries. He holds a
B.S. from the U.S. Military Academy at West Point and an M.B.A. from
Northwestern University.
Mr. Schulte is Vice President-Finance of Transtar and CFO. Mr. Schulte
had previously been Comptroller of Transtar and its subsidiaries. Mr. Schulte
had also been Comptroller of the Railroad Group beginning January, 1989. Since
joining the Union Railroad in 1966, he progressed through various accounting
positions on the Railroads. He was appointed Treasurer for the Railroads in
1981, Director of Internal Audit in 1983, and Comptroller of the DM&IR and EJ&E
Railroads in 1985. Mr. Schulte is a Director of the Transtar subsidiaries and is
a member of the American and Pennsylvania Institutes of Certified Public
Accountants. He holds a B.S. in Accounting from The Pennsylvania State
University.
Mr. Bobich was elected Vice President-Administration of Transtar on
March 1, 1998. He began his career on the Bessemer and Lake Erie Railroad in the
Information Systems Department and since then has held positions of increasing
responsibility in accounting and information systems. In 1986, Mr. Bobich was
named Treasurer of the Railroad subsidiaries and in 1989 was named Treasurer of
Transtar, Inc. On July 1, 1997, he was appointed Assistant to President. He is a
Director of the Transtar subsidiaries and is a 1966 graduate of Ohio University
with a BBA in Accounting.
Mr. Vignovic is Vice President-Marketing of Transtar. Mr. Vignovic
began his railroad career on the B&LE as a Cost Analyst in 1964. From 1967 on,
Mr. Vignovic held a series of marketing positions within the Railroads. He was
appointed Vice President-Marketing of all of the Railroads in 1994. Mr. Vignovic
is a Director of all of the Transtar subsidiaries and is a member of the
National Freight Traffic Association and the Traffic Clubs of Chicago and
Pittsburgh. He holds a B.S. from Carnegie Mellon University and an MBA from the
University of Chicago.
Mr. Gentile is General Counsel and Secretary of Transtar, and all of
its subsidiaries, a position he has held since December 28, 1988. He is also
Vice President-Law of Transtar, a position he has held since May 1, 1995. Mr.
Gentile began his career with the Railroad Group in March 1979, holding
positions of increasing importance within the Legal Department. He was appointed
General Claim Agent in 1984, named Senior General Claim Agent in 1986. Mr.
Gentile is a Director of all of the Transtar subsidiaries. Prior to joining the
Railroad Group, Mr. Gentile was in private practice as a trial lawyer. Mr.
Gentile is a member of the American, Pennsylvania and Allegheny County Bar
Associations and American Corporate Counsel Association. He is a graduate of the
University of Pittsburgh, BA-1973 (summa cum laude, Phi Beta Kappa), University
of Pittsburgh, JD-1976, LaRoche College, MS-1984, University of Pittsburgh, MBA
(Beta Sigma Gamma)-1989.
49
<PAGE> 52
ITEM 11. EXECUTIVE COMPENSATION
The directors and executive officers of BTC (Holdings' sole general
partner) and TCC receive no compensation but are reimbursed for travel and
out-of-pocket expenses incurred in connection with their duties as directors and
executive officers.
The following table provides certain summary information concerning the
compensation paid or accrued by the Company on behalf of the Company's Chief
Executive Officer and the four other most highly-compensated executive officers
of the Company for the years ended December 31, 1998, December 31, 1997, and
December 31, 1996:
TRANSTAR, INC.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------- ---------------------- ------- ALL OTHER
SALARY & RESTRICTED LTIP COMPEN-
NAME AND BONUS OTHER ($) STOCK OPTIONS PAYOUTS SATION($)
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) TOTAL ($) (1) AWARDS($) (#) ($) (2)
------------------ ---- --------- -------- --------- ---------- ---------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
R. S. Rosati ......... 1998 275,000 350,000 625,000 13,544 0 0 0 29,628
President & Chief 1997 275,000 300,000 575,000 8,763 0 0 0 31,445
Executive Officer 1996 250,000 250,000 500,000 8,273 0 0 0 28,912
F. J. Habic .......... 1998 204,000 156,000 360,000 3,893 0 0 0 21,162
Vice President- 1997 196,000 160,000 356,000 5,874 0 0 0 22,058
Operations 1996 190,000 154,000 344,000 3,780 0 0 0 22,434
J. W. Schulte ........ 1998 182,000 124,000 306,000 7,505 0 0 0 18,019
Vice President- 1997 170,000 124,000 294,000 4,452 0 0 0 17,654
Finance and Chief 1996 160,000 115,000 275,000 3,501 0 0 0 16,713
Financial Officer
R. Vignovic .......... 1998 166,000 140,000 306,000 5,193 0 0 0 17,112
Vice President- 1997 155,000 113,000 268,000 5,121 0 0 0 17,907
Marketing 1996 145,000 105,000 250,000 4,034 0 0 0 16,043
R. N. Gentile ........ 1998 165,000 112,000 277,000 5,655 0 0 0 13,880
Vice President-Law, 1997 157,000 115,000 272,000 5,346 0 0 0 14,186
General Counsel and 1996 152,000 109,000 261,000 6,694 0 0 0 14,323
Secretary
</TABLE>
- -------------------
(1) Includes health additive; executive tax assistance and financial planning;
and imputed income for automobiles.
(2) This column includes amounts contributed or accrued in 1998 under the
Transtar Salaried Savings Fund Plan and the related Supplemental Savings
Plans ($14,892, $10,578, $9,662, $8,300, and $8,257 for Messrs. Rosati,
Habic, Schulte, Vignovic and Gentile, respectively); annual imputed income
associated with executive life insurance policies in 1998 ($1,951, $2,232,
$1,031, $997, and $594 for Messrs. Rosati, Habic, Schulte, Vignovic and
Gentile, respectively); and annual amounts attributable to split-dollar life
insurance provided by Transtar in 1998 ($12,785, $8,352, $7,326, $7,815, and
$5,029 for Messrs. Rosati, Habic, Schulte, Vignovic and Gentile,
respectively).
50
<PAGE> 53
STOCK OPTION PLAN
During 1994, Transtar implemented a stock option plan to promote the
interests of Transtar and its stockholders by attracting and retaining key
management employees. The total number of options granted was 750, all of which
were subject to a 5-year vesting schedule commencing December 28, 1993. These
options generally become exercisable at the vesting date and do not have an
expiration date. The option price per share is $8,364.05, and each exercised
option will be repurchased by the Company at a price calculated using a formula
set forth in the stock option plan.
<TABLE>
<CAPTION>
AGGREGATED 1998 OPTION EXERCISES
AND DECEMBER 31, 1998 OPTION VALUES
VALUE OF EXERCISABLE
NO. OF NO. OF EXERCISABLE IN-THE-MONEY
SHARES VALUE OPTIONS AT OPTIONS AT
NAME EXERCISED REALIZED ($) DECEMBER 31, 1998 DECEMBER 31, 1998($)
---- --------- ------------ ----------------- --------------------
<S> <C> <C> <C> <C>
R. S. Rosati 0 0 200 1,669,006
F. J. Habic 0 0 100 834,503
J. W. Schulte 0 0 100 834,503
R. Vignovic 0 0 100 1,464,228
R. N. Gentile 0 0 50 417,252
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The directors and executive officers of BTC (Holdings' sole general
partner) and TCC receive no compensation. See 'Management--Compensation of
Directors and Executive Officers.'
James J. Mossman, Peter G. Peterson and Stephen A. Schwarzman serve as
directors of BTC (Holdings' sole general partner) and TCC. Transtar pays a
monitoring fee of 0.15% of its consolidated revenue to Blackstone Management
Partners L.P. James J. Mossman, Peter G. Peterson and Stephen A. Schwarzman are
partners of Blackstone Management Partners L.P. Monitoring fees paid were
approximately $747,000 for 1998, $789,000 for 1997, and $765,000 for 1996.
PENSION BENEFITS
Transtar, Inc. pension benefits are comprised of two defined benefits:
the first, based on final earnings and the second, on career earnings. The
following table shows the annual final earnings pension benefits for retirement
at age 62 (or earlier under certain circumstances), for various levels of
eligible earnings which would be payable to employees retiring with
representative years of service based on a formula of a specified percentage
(dependent on years of service) of average annual eligible earnings in the five
consecutive years of the ten years prior to retirement in which such earnings
were highest. Eligible earnings are base earnings and exclude any bonuses paid.
As of December 31, 1998, Messrs. Rosati, Habic, Schulte, Vignovic, and Gentile
have 33, 34, 32, 34, and 19 credited years of service, respectively.
51
<PAGE> 54
TABLE OF PENSION BENEFITS
FINAL EARNINGS PENSION BENEFITS
<TABLE>
<CAPTION>
AVERAGE ANNUAL
ELIGIBLE EARNINGS
FOR HIGHEST FIVE
CONSECUTIVE YEARS
IN TEN-YEAR ANNUAL BENEFITS FOR YEARS OF SERVICE
PERIOD PRECEDING -----------------------------------------------------------------------------
RETIREMENT 15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS. 40 YRS.
- ----------------- -------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$125,000 $ 21,656 $ 28,875 $ 36,094 $ 43,313 $ 51,188 $ 59,063
150,000 25,988 34,650 43,313 51,975 61,425 70,875
175,000 30,319 40,425 50,531 60,638 71,663 82,688
200,000 34,650 46,200 57,750 69,300 81,900 94,500
225,000 38,981 51,975 64,969 77,963 92,138 106,313
250,000 43,313 57,750 72,188 86,625 102,375 118,125
300,000 51,975 69,300 86,625 103,950 122,850 141,750
350,000 60,638 80,850 101,063 121,275 143,325 165,375
400,000 69,300 92,400 115,500 138,600 163,800 189,000
450,000 77,963 103,950 129,938 155,925 184,275 212,625
500,000 86,625 115,500 144,375 173,250 204,750 236,250
</TABLE>
Annual career earnings pension benefits are equal to 1% of total career
eligible earnings plus a 30% supplement. The estimated annual career earnings
benefits payable at normal retirement age 65, assuming no increase in annual
earnings, will be $56,300 for Mr. Rosati, $48,430 for Mr. Habic, $45,070 for Mr.
Schulte, $31,530 for Mr. Vignovic, and $60,040 for Mr. Gentile. Benefits from
the final earnings and the career earnings reflected above are not subject to
any reduction or offset for Social Security entitlements. Benefits from the
final earnings reflected above are subject to a reduction or offset for a
portion of Railroad Retirement entitlements. Benefits may be paid as an
actuarially determined lump sum in lieu of monthly pensions under both the final
earnings and career earnings provisions of the Plan.
In addition to the pension benefit described above, R. S. Rosati is
entitled to the benefits shown in the table below based on bonuses paid under
the Annual Incentive Compensation Plan upon retirement after age 60.
SUPPLEMENTAL PENSION BENEFITS
<TABLE>
<CAPTION>
AVERAGE ANNUAL BONUS
EARNINGS FOR
THREE HIGHEST
YEARS IN TEN-YEAR ANNUAL BENEFITS FOR YEARS OF SERVICE
PERIOD PRECEDING ----------------------------------------------------------------------------
RETIREMENT 15 YRS. 20 YRS. 25 YRS. 30 YRS. 35 YRS. 40 YRS.
- ---------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
$100,000 $ 23,100 $ 30,800 $ 38,500 $ 46,200 $ 53,900 $ 61,600
200,000 46,200 61,600 77,000 92,400 107,800 123,200
300,000 69,300 92,400 115,500 138,600 161,700 184,800
</TABLE>
52
<PAGE> 55
EQUITY PARTICIPATION PLAN
Key management employees of Transtar and its subsidiaries are eligible
to participate in Transtar's Equity Participation Plan. Under the Equity
Participation Plan, Transtar's Board of Directors appoints a compensation
committee with full power to administer the plan. Participants in the plan
receive awards of restricted common stock of Transtar as determined in the
discretion of the compensation committee.
CERTAIN TRANSACTIONS
Transtar pays to each of USX and Blackstone Management Partners L.P. a
monitoring fee of 0.15% of Transtar's consolidated revenue. Total monitoring
fees paid were approximately $1.5 million for 1998, $1.6 million for 1997 and
$1.5 million for 1996.
On October 27, 1997, Transtar declared a cash dividend in the amount of
$625 per share on both its Class A Voting Common Stock (Voting Stock) and its
Class B Nonvoting Common Stock (Nonvoting Stock) to holders of record of the
stock on October 27, 1997. Holdings received $6.4 million on October 30, 1997,
representing its 53% economic interest in the Transtar dividend. Pursuant to an
Indenture relating to the issuance of the Notes (the Notes Indenture), the
dividend payment was paid into an escrow account. On December 16, 1997 Transtar
declared a cash dividend of $625 per share on both its Voting Stock and its
Nonvoting Stock to holders of record of the stock on December 16, 1997. Holdings
received $6.4 million on December 19, 1997, representing its 53% economic
interest in the Transtar dividend. In accordance with the Notes Indenture, this
dividend was paid into the escrow account.
In February 1998, in accordance with the Notes Indenture, Holdings
offered to repurchase a portion of the Notes at an offer price equal to 101% of
the accreted value of such Notes on the date of purchase. The offer to purchase
the Notes was made by a notice to holders of the Notes and was held open for 20
business days. No Notes were tendered for repurchase.
In February 1997, in accordance with the Notes Indenture and related to
certain dividends paid into the escrow account in 1996, Holdings offered to
repurchase a portion of the Notes at an offer price equal to 101% of the
accreted value of such Notes on the date of purchase. The offer to purchase the
Notes was made by a notice to holders of the Notes and was held open for 20
business days. No Notes were tendered for repurchase.
Funds in the escrow account are invested in cash equivalents and may
only be released to pay interest and principal on the Notes, make certain
payments permitted under the Notes Indenture, purchase or optionally redeem
Notes or to pay administrative expenses of Holdings. In 1998, 1997 and 1996, in
accordance with the Notes Indenture and an agreement governing the escrow
account, Holdings withdrew from the escrow account $0.7 million, $13.7 million
and $0.9 million, respectively, to distribute to its partners, and withdrew $0.2
million,$0.3 million and $0.7 million, respectively, to pay certain
administrative expenses. As of December 31, 1998 the escrow balance is $47.3
million. Interest earned on the escrow balance amounted to $2.6 million, $2.4
million and $1.4 million in 1998, 1997 and 1996, respectively.
53
<PAGE> 56
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
THE ISSUERS
The following table and accompanying footnotes set forth the beneficial
ownership of partnership interests of Holdings. TCC is a wholly owned subsidiary
of Holdings.
<TABLE>
<CAPTION>
Percentage Economic
Name of Beneficial Owners Type of Interest of Class Interest (1)
------------------------- ---------------- ------ ------------
<S> <C> <C> <C>
BTC(2) General Partnership 100.000% 1.000%
Blackstone entities(3) Limited Partnership 91.574% 90.658%
Tyler Massachusetts L.P. 8.426% 8.342%
("Tyler")(4) Limited Partnership
James J. Mossman(5) General and Limited Partnership 0 0
Peter G. Peterson(5) General and Limited Partnership 0 0
Stephen A. Schwarzman(5) General and Limited Partnership 0 0
Howard A. Lipson(5) General and Limited Partnership 0 0
All executive officers and directors
as a group (4 persons)(5) General and Limited Partnership 0 0
</TABLE>
(1) Represents percentage of total partnership interests (including general
and limited partnership interests) in Holdings.
(2) BTC holds the sole general partnership interest in Holdings. The
address of BTC is 345 Park Avenue, New York, New York 10154.
(3) The following Blackstone entities own 91.574% of the limited
partnership interests in Holdings, which represents the following
economic interests in Holdings: Blackstone Transportation Capital
Partners L.P., 34.493%; Blackstone Domestic Capital Partners L.P.,
33.880%; Blackstone Offshore Capital Partners L.P., 14.943%; Blackstone
Family Investment Partnership I L.P., 5.987%; Blackstone Advisory
Directors Partnership L.P., 0.843%; and Blackstone Management
Associates L.P., 0.512%. The address of the Blackstone entities is 345
Park Avenue, New York, New York 10154.
(4) The address of Tyler is c/o Bain Venture Capital, 2 Copley Plaza,
Boston, Massachusetts 02116.
(5) Messrs. Mossman, Peterson, Schwarzman and Lipson are affiliated with
Blackstone in the capacities described under "Directors and Executive
Officers of the Registrant". Partnership interests data for these
individuals does not include any of the interests included in the above
table beneficially owned by Blackstone.
THE COMPANY
The authorized and outstanding capital stock of the Company consists of
10,000 shares of Class A Voting Stock (Voting Stock), without par value, and
10,000 shares of Class B Nonvoting Stock (Nonvoting Stock), without par value.
All of the voting and nonvoting stock of Transtar represents an equivalent
economic interest in the Company.
The following table sets forth the ownership of Transtar as of December 31,
1998:
<TABLE>
<CAPTION>
Voting Stock % of Voting Nonvoting % of Non- % of Total
Shareholder Owned Shares Stock Owned voting Shares Shares
----------- ----- ------ ----------- ------------- ------
<S> <C> <C> <C> <C> <C>
Transtar Holdings, L.P. .. 5,100 51% 5,100 55% 53%
USX Corporation .......... 4,900 49 3,900 42 46
Management ............... -- -- 296 3 1
------ --- ----- --- ---
Total ................ 10,000 100% 9,296 100% 100%
====== === ===== === ===
</TABLE>
54
<PAGE> 57
Management's direct interest has been reduced since Transtar's
formation due to repurchases of 704 shares of nonvoting stock from retiring
managers. Certain shares have been allocated to promoted managers in a stock
option program. Including the effect of this program, total economic ownership
of management would be 5 percent.
The Board of Directors of Transtar consists of five members, three of
which are designated by Blackstone and two by USX pursuant to a Stockholders'
Agreement.
As of December 31, 1998, all of the subsidiaries of Transtar were
wholly owned, directly or indirectly, by Transtar.
The Company's by-laws provide that certain matters presented to the
Board require unanimous approval of the directors, including, among other
things: (a) any proposal which, if approved, (i) would require any stockholder
entitled to vote (a "voting stockholder") to subscribe for additional shares of
capital stock of the Company or contribute additional capital to the Company or
would result in a diminution of any voting stockholder's proportionate voting
power among stockholders if such voting stockholder failed to contribute
additional capital voluntarily; (ii) would otherwise result in a diminution of a
voting stockholder's proportionate voting power among stockholders; or (iii)
results in the Company's subsidiaries being unable to perform adequately their
obligations under any of the Transportation Services Agreements; (b)
authorization or issuance of any shares of any equity security of the Company or
any option, warrant, right or instrument convertible into any equity security of
the Company or convertible or exchangeable into any option, warrant or right to
receive any such equity security; (c) redemption of any stock of the Company;
(d) any new borrowing by the Company or any subsidiary thereof (other than
borrowings to finance specific capital expenditures approved in the annual
capital budget), or the grant of any new lien, encumbrance or security interest
in connection therewith on any material assets of the Company or such subsidiary
not previously encumbered except in certain circumstances; (e) any merger,
consolidation, liquidation or dissolution of the Company or sale of
substantially all the assets thereof or sale of stock of any of the Company's
subsidiaries; (f) the sale or merger of any direct or indirect subsidiary of the
Company, or the sale of assets or discontinuance of operations of any direct or
indirect subsidiary of the Company which in either case results in such
subsidiary being unable to perform adequately its obligations under any of the
Transportation Services Agreements, except for certain subsidiaries; (g) any
amendment of any of the Transportation Services Agreements; (h) any expenditure
or commitment in excess of $5,000,000 for the acquisition by the Company or any
direct or indirect subsidiary thereof of any capital stock or other equity or
ownership or proprietary interest in any other corporation, partnership,
association, trust, joint venture or other entity, or of any debt obligation of
any thereof; (i) any lease of real or personal property or any renewal thereof
except for certain circumstances; (j) any sale and lease-back or any refinancing
thereof; (k) any filing by the Company or any direct or indirect subsidiary
thereof of a petition for protection under Federal bankruptcy statutes; (1)
declaration of any dividend or other distribution to stockholders; and (m)
selection of an independent consultant (the "Consultant").
In the event the members of the Board of Directors fail to agree
unanimously on any matter for which unanimous approval is required, the by-laws
provide that the Consultant shall render a decision on such matter which shall
be binding, provided that the Consultant shall have no authority to render a
decision on any of the matters covered by clauses (a), (b), (d), (e), (f) and
(m) described above. If the Board of Directors fails to agree unanimously on any
of the matters covered by clauses (a), (b), (d), (e), (f) and (m), the Company's
by-laws do not specify how deadlocks are to be resolved. Therefore, the Board of
Directors could remain deadlocked and would be unable to take any action on
matters requiring unanimous approval.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
DEPENDENCE UPON USX
For the year 1998, approximately 57% of Transtar's revenues were
derived from the provision of services to USX and its affiliates. Transtar's
operating relationship with USX is governed by certain Transportation Services
Agreements. These agreements, along with Transtar's exclusive rail access to
virtually all USX's steel facilities and its integration within these
facilities, provide some stability to Transtar's cash flows. The Transportation
Services Agreements which existed at the formation of Transtar provided Transtar
with certain rights including: (i) sole serving rail carrier status at USX's
Minntac, Gary, Fairfield and Mon Valley facilities as well as USS/Kobe's Lorain
facility; (ii) sole rights to perform specified USX in-plant switching services;
(iii) sole serving Great Lakes Fleet bulk
55
<PAGE> 58
commodity carrier status for USX, including USS/Kobe; and (iv) primary inland
barge operator status for the water transport of USX's commodities originating
at or destined for Birmingham, Alabama. With respect to the services referred to
in clause (i) above, the Transportation Services Agreements provided that such
services would continue indefinitely as long as a non-Transtar rail carrier had
not obtained access to the USX facility being served; with respect to the
services referred to in clause (ii) above, the agreements were exclusive through
1998 and provided that such services would continue indefinitely so long as USX
had not purchased from Transtar or otherwise obtained the Transtar track on
which such services were provided; with respect to the services referred to in
clause (iii) above, the agreements provided that such services would continue
for a term ending on March 15,1999 for USS/Kobe and March 15, 2000 for the other
USX facilities, which terms would have been automatically renewed for successive
one-year periods unless either USX or Transtar had given the other at least
three years prior written notice of termination; with respect to the services
described in clause (iv) above, the agreements provided that such services would
generally continue until December 28, 1998. The agreements also provided that
USX should not, at any time, take any action (a) which would in any way, either
directly or indirectly, encourage any non-Transtar rail carrier to attempt to
obtain access to any of the USX plants for which Transtar is the sole serving
rail carrier or (b) which would in any way assist in and/or support any such
rail carrier in any efforts to obtain such access; provided that USX could,
after December 28, 1998, request that an independent arbitrator determine
whether it is reasonable and equitable under the facts, circumstances and the
regulatory and competitive conditions in effect at that time, at one or more
facilities, for USX to seek access for a non-Transtar rail carrier.
With respect to the services referred to in clause (ii) above, USS/Kobe
Steel Company elected to terminate in-plant switching services provided by the
Lake Terminal Railroad (a Transtar subsidiary) effective December 29, 1998.
USS/Kobe has not purchased or otherwise obtained any Transtar track at this
facility. In-plant switching services provided by parties other than Transtar
will be performed on tracks currently owned by USS/Kobe. The annual impact on
Transtar will be a revenue reduction of approximately $8.0 million, with no
material impact on operating income.
With respect to the services referred to in clause (iii) above,
USS/Kobe Steel Company, on March 14, 1996, provided written notice to terminate
on March 15, 1999, the end of their primary term. USX on February 12, 1997
provided written notice of their intent to terminate effective March 15, 2000.
In December 1998, Transtar, USX and USS/Kobe (for USS/Kobe Great Lakes
Fleet bulk commodity carrier service only) executed new Transportation Services
Agreements which, among other things, extend the time and exclusivity periods of
the original agreements. The new agreements were approved on February 12, 1999
by the lending institutions who participate in Transtar's Credit Agreement. The
new agreements were retroactively effective July 1, 1998 and will extend through
December 31, 2004 for the services referred to in clauses (i), (ii) and (iv)
above, with the exception of rail and rail related services at USS/Kobe Steel
(see below), and will extend through March 15, 2005 for the services referred to
in clause (iii) above. With respect to the services referred to in clause (i)
above, the new Transportation Services Agreements provide that such services
will continue indefinitely as long as a non-Transtar rail carrier has not
obtained access to the USX facility being served; with respect to the services
referred to in clause (ii) above, the agreements are exclusive through 2004 and
provide that such services will continue indefinitely so long as USX has not
purchased from Transtar or otherwise obtained the Transtar track on which such
services are provided. The new agreements cover all of the services currently
provided by Transtar, except that a third party may provide transportation
services for: with respect to the services referred to in clause (i) above, a
maximum per year of forty percent of blast furnace burden tonnage destined for
USX's Edgar Thomson facility in the Mon Valley; with respect to the services
referred to in clause (iii) above, a maximum of six hundred thousand gross tons
of iron ore pellets destined for USS/Kobe Steel in 1998 and through March 15,
1999, a maximum per year of ten percent of tonnage via the Great Lakes from
March 16, 1999 through March 15, 2003 and a maximum per year of fifteen percent
of tonnage via the Great Lakes from March 16, 2003 through March 15, 2005; and
with respect to the services referred to in clause (iv) above, a maximum per
year of ten percent of imported iron ore and coke tonnage destined for USX's
Fairfield, Alabama facility, a maximum per year of ten percent of export coal
tonnage originating at US Steel's Concord Preparation Plant and a maximum per
year of ten percent of domestic coal tonnage via barge originating at US Steel's
Concord Preparation Plant. The agreements provide that USX shall not, at any
time, take any action (a) which would in any way, either directly or indirectly,
encourage any non-Transtar rail carrier to attempt to obtain access to any of
the USX plants for which Transtar is the sole serving rail carrier or (b) which
would in any way assist in and/or support any such rail carrier in any efforts
to obtain such access; provided that USX may, after December 31, 2004, request
that an independent arbitrator or mediator determine whether it is reasonable
and
56
<PAGE> 59
equitable under the facts, circumstances and the regulatory and competitive
conditions in effect at that time, at one or more facilities, for USX to seek
access for a non-Transtar rail carrier. Transtar is required to acquire certain
coke rail cars, not to exceed a maximum expenditure of $20 million. The
agreements also provide for certain price concessions and market based price
changes. USX is entitled to a refund of approximately $6.3 million (with an
equal reduction in Transtar's operating income which was recognized in June
1998) for services provided during the first half of 1998. Including this
refund, total price concessions for 1998 reduced Transtar's revenue and
operating income by $14.4 million.
On December 29, 1998, Transtar and USS/Kobe executed a new
Transportation Services Agreement for sole service carrier work including
absorbed switching, single line movements and other related transportation
services. This agreement was approved on February 12, 1999 by the lending
institutions who participate in Transtar's Credit Agreement. The new agreement
was effective December 29, 1998 and extends through December 31, 2008 for the
sole service carrier work. In-plant scrap handling via rubber tire vehicles is
under contract until July 31, 2000. The agreement provides that USS/Kobe shall
not, during the term of the agreement, take any action (a) which would in any
way, either directly or indirectly, encourage any non-Transtar rail carrier to
attempt to obtain access to the USS/Kobe Works or (b) which would in any way
assist in and/or support any such rail carrier in any efforts to obtain such
access. The agreement provides for market based price changes and no price
concessions.
57
<PAGE> 60
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1). FINANCIAL STATEMENTS
Financial Statements filed as part of this report are listed on the
Index to Consolidated Financial Statements on page 18.
(a)(2). FINANCIAL STATEMENT SCHEDULES
Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such
omitted schedules is set forth in the financial statements or the notes
thereto.
(a)(3). EXHIBITS
Footnote Exhibit
Ref. No Description
---- -- -----------
(a) 3.1 Certificate of Incorporation of Transtar Capital
Corporation, filed with the Secretary of State of the
State of Delaware on November 23, 1993.
(a) 3.2 By-laws of Transtar Capital Corporation.
(a) 3.3 Certificate of Incorporation of Blackstone Transportation
Company, Inc., the controlling general partner of Transtar
Holdings, L.P. (Holdings), filed with the Secretary of
State of the State of Delaware on November 23, 1993.
(a) 3.4 By-laws of Blackstone Transportation Company, Inc., the
controlling general partner of Transtar Holdings, L.P.
(a) 3.5 Second Amended and Restated Agreement of Limited
Partnership of Transtar Holdings, L.P.
(a) 3.6 Amended and Restated Certificate of Limited Partnership of
Holdings
(a) 3.7 By-laws of Transtar, Inc.
(a) 4.2 Specimen Certificate of 13 3/8% Series B Senior Discount
Notes due 2003 (the Notes) (included in Exhibit 4.3
hereto).
(a) 4.3 Indenture, dated as of December 7, 1993, among Holdings,
TCC and the United States Trust Company of New York, as
trustee, pursuant to which the Notes were issued.
(a) 10.3 Credit Agreement, dated as of December 7, 1993, among
Transtar, Inc. and Chemical Bank as Agent and Issuing Bank
thereunder.
(d) 10.3.1 Second amendment dated as of September 15, 1995 to
the Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and Chemical Bank as Agent and Issuing Bank
thereunder.
(g) 10.3.2 Amendment and Waiver dated as of March 12, 1997 to the
Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and the Chase Manhattan Bank as Agent and
Issuing Bank thereunder.
(g) 10.3.3 Third Amendment and Waiver dated as of October 9, 1997 to
the Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and the Chase Manhattan Bank as Agent and
Issuing Bank thereunder.
(a) 10.4 Stockholders Agreement, dated as of December 28, 1988, by
and among Blackstone Capital Partners L.P., Blackstone
Transportation Partners L.P., USX Corporation and
Transtar, Inc.
(a) 10.5 Transportation Services Agreement, dated December 28,
1988, between Transtar, Inc. and USX Corporation.
10.5.1 Transportation Services Agreement, dated July 1, 1998,
between Transtar, Inc. and USX Corporation.
10.5.2 Transportation Services Agreement, dated December 29,
1998, between Transtar, Inc. and USS/Kobe Steel Company.
(a) 10.6 Transportation Agreement, dated March 16, 1988, between
USX Corporation and USS Great Lakes Fleet, Inc.
58
<PAGE> 61
Footnote Exhibit
Ref. No Description
---- -- -----------
10.6.1 Transportation Services Agreement, dated July 1, 1998
between USS Great Lakes Fleet, Inc. and USX Corporation
and USS/Kobe Steel Company.
(a) 10.7 Transportation Services Agreement, dated December 28,
1988, between Transtar, Inc. and U.S. Steel Mining.
10.7.1 Transportation Services Agreement, dated July 1, 1998,
between Transtar, Inc. and U.S. Steel Mining Co., LLC.
(a) 10.8 Management Stock Trust Agreement, dated December 28, 1988,
between Transtar, Inc. and Pittsburgh National Bank.
(a) 10.10 Transtar, Inc. Equity Participation Plan, dated December
28, 1988, as amended.
(e) 10.13 Transtar, Inc. Savings Plan for Salaried Employees,
effective January 1, 1989 as amended through January 1,
1996.
(a) 10.14 Transtar, Inc. Flexible Compensation Plan for
Non-Represented Employees of Transtar, Inc. and Subsidiary
Companies, effective January 1, 1989.
(e) 10.14.1 Transtar, Inc. Split Dollar Life Insurance Plan, effective
July 1, 1994.
(a) 10.15 Layoff Unemployment Benefit Program for Non-Union Salaried
Employees as amended January 1, 1989.
(e) 10.16 Transtar, Inc. Salaried Retirement Plan, effective January
1, 1989 as amended through January 1, 1996.
(g) 10.16.1 Second Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1997.
(g) 10.16.2 Fifth Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1998.
10.16.3 Sixth Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1999.
(g) 10.17 Transtar, Inc. Non Tax-Qualified Pension Plan, effective
January 1, 1994.
(g) 10.18 Transtar, Inc. Supplemental Thrift Program, effective
January 1, 1994.
(g) 10.19 Transtar, Inc. Supplemental Pension Program, effective
January 1, 1994.
(a) 10.20 Amendment No. 1 to Bareboat Charter, dated as of September
29, 1989, between PNC Leasing Corp and Transtar, Inc.
(a) 10.21 Bareboat Charter, dated as of June 1, 1990, between PNC
Leasing Corp and Transtar, Inc.
(a) 10.22 Bareboat Charter Party, dated as of September 30, 1991,
between Joy Finance Company and Transtar, Inc.
(a) 10.23 Lease Agreement, dated as of May 1, 1980, between GATX
Leasing Corporation, successor to Gould Leasing Services,
Inc., and Bessemer and Lake Erie Railroad Company.
(a) 10.24 Equipment Lease, dated as of May 30, 1980, between the
Bessemer and Lake Erie Railroad Company and State Street
Bank as Trustee.
(a) 10.25 Master Railcar Lease Agreement, dated as of April 30,
1993, between The CIT Group/Equipment Financing, Inc. and
Elgin, Joliet and Eastern Railway Company.
(a) 10.26 Railroad Equipment Lease, dated as of November 15, 1989,
between Elgin, Joliet & Eastern Railway Company and Mellon
Financial Services Corporation #3.
(a) 10.27 Bareboat Charter, dated as of June 1, 1989, between PNC
Leasing Corp and Transtar, Inc.
(a) 10.28 Amendment No. 1 to Indenture of Trust and First Preferred
Ship Mortgage, dated March 19, 1982, between The
Connecticut Bank and Trust Company, as Owner Trustee, and
Mercantile-Safe Deposit and Trust Company, as Indenture
Trustee.
(a) 10.29 Note Purchase Agreement, dated as of May 26, 1983.
(a) 10.30 Charter, dated as of September 1, 1980, between The
Connecticut Bank and Trust Company and United States Steel
Corporation.
(a) 10.31 Assignment Agreement and Supplement No. 2 to First
Preferred Fleet Mortgage, dated as of December 3, 1987.
(a) 10.32 Assignment of Second Transportation Services Agreement,
dated as of July 1, 1981, between United States Steel
Corporation and USS Great Lakes Fleet, Inc.
(a) 10.33 Option Agreement, dated as of July 2, 1975, among Litton
Industries, Inc. and Litton Industries Leasing Corporation
and United States Steel Corporation.
59
<PAGE> 62
Footnote Exhibit
Ref. No Description
---- -- -----------
(a) 10.34 Release, dated as of July 2, 1975, between Litton Great
Lakes Corporation and United States Steel Corporation.
(a) 10.35 Consent, dated as of December 21, 1988, from Xerox
Corporation to USX Corporation.
(a) 10.36 Guaranty, dated as of December 27, 1988, from USX
Corporation to Litton Industries, Inc., Litton Credit
Corporation, Litton Great Lakes Corp. and Litton
Industries Leasing Corporation.
(a) 10.37 Assignment of Engineering and Maintenance Agreement, dated
as of July 1, 1991, between United States Steel
Corporation and USS Great Lakes Fleet Services, Inc.
(a) 10.38 Lease Renewal, dated as of October 24, 1991, between USS
Great Lakes Fleet, Inc. and Labovitz Enterprises.
(a) 10.40 Assignment of Leases, dated as of May 31, 1984, between
Duluth, Missabe and Iron Range Railway Company and Joel
Labovitz.
(a) 10.41 Indenture of Lease, dated as of April 7, 1982, between
Duluth, Missabe and Iron Range Railway Company and USS
Great Lakes Fleet Services, Inc.
(a) 10.42 Environmental Indemnification Agreement, dated as of
December 28, 1988, among USX Corporation, Transtar and
certain subsidiaries of Transtar.
(b) 10.43 Settlement Agreement among Transtar, Inc., Bessemer and
Lake Erie Railroad Company and USX Corporation dated
October 6, 1994.
(f) 10.44.1 Transtar, Inc. Amended Stock Option Plan.
(c) 10.45 Equipment Lease Agreement dated as of July 15, 1994
between GATX Third Aircraft Corporation and Elgin, Joliet
and Eastern Railway Company.
(c) 10.46 Bareboat Charter dated as of June 30, 1994 between GATX
Third Aircraft Corporation and Transtar, Inc.
(e) 10.47 Master Equipment Lease Agreement dated as of December 28,
1995 between Birmingham Southern Railroad company and
Nationsbanc Leasing Corporation of North Carolina.
(e) 10.48 Master Equipment Lease Agreement dated as of December 28,
1995 between Duluth, Missabe and Iron Range Railway
company and Heller Financial Leasing, Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges.
(a) 21.1 Significant Subsidiaries of Transtar Holdings, L.P.
27 Financial Data Schedule.
- -------------------
(a) Previously filed with Registration Statement No. 33-73270 under
corresponding Exhibit number.
(b) Previously filed with Form 8-K on October 7, 1994.
(c) Previously filed with Form 10-K on March 24, 1995.
(d) Previously filed with Form 10-Q on November 1, 1995.
(e) Previously filed with Form 10-K on March 22, 1996.
(f) Previously filed with Form 10-K on March 21, 1997.
(g) Previously filed with Form 10-K on March 27, 1998.
(B). REPORTS ON 8-K
Holdings and TCC did not file any reports on Form 8-K during the
quarter ended December 31, 1998.
(C). EXHIBITS
See Exhibits to this Form 10-K under separate cover.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.
Holdings and TCC have not sent an annual report or proxy material to their
security holders. The only annual report to be sent to Holdings and TCC's
securities holders will be a copy of this Form 10-K.
60
<PAGE> 63
SIGNATURES
Pursuant to the requirements of Section 15(a) of the Securities Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 25th of March, 1999.
TRANSTAR HOLDINGS, L.P.
By Blackstone Transportation Company, Inc.
its controlling general partner
By /s/ Howard A. Lipson
----------------------------------
Name: Howard A. Lipson
Title: Treasurer
TRANSTAR CAPITAL CORPORATION
By /s/ Howard A. Lipson
----------------------------------
Name: Howard A. Lipson
Title: Treasurer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons in the capacities indicated on
March 25, 1999.
<TABLE>
<CAPTION>
SIGNATURES TITLE
---------- -----
<S> <C>
/s/ James J. Mossman Director and President (Principal Executive Officer)
------------------------------- of BTC and TCC
James J. Mossman
/s/ Howard A. Lipson Treasurer (Principal Financial Officer and Principal
------------------------------- Accounting Officer) of BTC and TCC
Howard A. Lipson
/s/ Stephen A. Schwarzman Director of BTC and TCC
-------------------------------
Stephen A. Schwarzman
/s/ Peter G. Peterson Director of BTC and TCC
-------------------------------
Peter G. Peterson
</TABLE>
61
<PAGE> 64
-----------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
EXHIBITS
filed with
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-----------------------------------
TRANSTAR HOLDINGS, L.P.
TRANSTAR CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
6719
6719
(Primary Standard Industrial
Classification Code Number)
-----------------------------------------------------
<PAGE> 65
INDEX TO EXHIBITS
FOOTNOTE EXHIBIT
REF. NO DESCRIPTION
---- -- -----------
(a) 3.1 Certificate of Incorporation of Transtar Capital
Corporation, filed with the Secretary of State of the
State of Delaware on November 23, 1993.
(a) 3.2 By-laws of Transtar Capital Corporation.
(a) 3.3 Certificate of Incorporation of Blackstone
Transportation Company, Inc., the controlling general
partner of Transtar Holdings, L.P. (Holdings), filed with
the Secretary of State of the State of Delaware on
November 23, 1993.
(a) 3.4 By-laws of Blackstone Transportation Company, Inc., the
controlling general partner of Transtar Holdings, L.P.
(a) 3.5 Second Amended and Restated Agreement of Limited
Partnership of Transtar Holdings, L.P.
(a) 3.6 Amended and Restated Certificate of Limited Partnership of
Holdings
(a) 3.7 By-laws of Transtar, Inc.
(a) 4.2 Specimen Certificate of 13 3/8% Series B Senior Discount
Notes due 2003 (the Notes) (included in Exhibit 4.3
hereto).
(a) 4.3 Indenture, dated as of December 7, 1993, among
Holdings, TCC and the United States Trust Company of New
York, as trustee, pursuant to which the Notes were issued.
(a) 10.3 Credit Agreement, dated as of December 7, 1993, among
Transtar, Inc. and Chemical Bank as Agent and Issuing Bank
thereunder.
(d) 10.3.1 Second amendment dated as of September 15, 1995 to
the Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and Chemical Bank as Agent and Issuing Bank
thereunder.
(g) 10.3.2 Amendment and Waiver dated as of March 12, 1997 to
the Credit Agreement dated as of December 7, 1993 among
Transtar, Inc. and the Chase Manhattan Bank as Agent and
Issuing Bank thereunder.
(g) 10.3.3 Third Amendment and Waiver dated as of October 9,
1997 to the Credit Agreement dated as of December 7, 1993
among Transtar, Inc. and the Chase Manhattan Bank as Agent
and Issuing Bank thereunder.
(a) 10.4 Stockholders Agreement, dated as of December 28,
1988, by and among Blackstone Capital Partners L.P.,
Blackstone Transportation Partners L.P., USX Corporation
and Transtar, Inc.
(a) 10.5 Transportation Services Agreement, dated December 28,
1988, between Transtar, Inc. and USX Corporation.
10.5.1 Transportation Services Agreement, dated July 1, 1998,
between Transtar, Inc. and USX Corporation.
10.5.2 Transportation Services Agreement, dated December 29,
1998, between Transtar, Inc. and USS/Kobe Steel Company.
(a) 10.6 Transportation Agreement, dated March 16, 1988, between
USX Corporation and USS Great Lakes Fleet, Inc.
10.6.1 Transportation Services Agreement, dated July 1, 1998
between USS Great Lakes Fleet, Inc. and USX Corporation
and USS/Kobe Steel Company.
(a) 10.7 Transportation Services Agreement, dated December 28,
1988, between Transtar, Inc. and U.S. Steel Mining.
10.7.1 Transportation Services Agreement, dated July 1, 1998,
between Transtar, Inc. and U.S. Steel Mining Co., LLC.
(a) 10.8 Management Stock Trust Agreement, dated December 28, 1988,
between Transtar, Inc. and Pittsburgh National Bank.
(a) 10.10 Transtar, Inc. Equity Participation Plan, dated December
28, 1988, as amended.
(e) 10.13 Transtar, Inc. Savings Plan for Salaried Employees,
effective January 1, 1989 as amended through January 1,
1996.
(a) 10.14 Transtar, Inc. Flexible Compensation Plan for
Non-Represented Employees of Transtar, Inc. and Subsidiary
Companies, effective January 1, 1989.
(e) 10.14.1 Transtar, Inc. Split Dollar Life Insurance Plan, effective
July 1, 1994.
<PAGE> 66
FOOTNOTE EXHIBIT
REF. NO DESCRIPTION
---- -- -----------
(a) 10.15 Layoff Unemployment Benefit Program for Non-Union Salaried
Employees as amended January 1, 1989.
(e) 10.16 Transtar, Inc. Salaried Retirement Plan, effective January
1, 1989 as amended through January 1, 1996.
(g) 10.16.1 Second Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1997.
(g) 10.16.2 Fifth Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1998.
10.16.3 Sixth Amendment to the Transtar, Inc. Salaried Retirement
Plan, effective January 1, 1999.
(g) 10.17 Transtar, Inc. Non Tax-Qualified Pension Plan, effective
January 1, 1994.
(g) 10.18 Transtar, Inc. Supplemental Thrift Program, effective
January 1, 1994.
(g) 10.19 Transtar, Inc. Supplemental Pension Program, effective
January 1, 1994.
(a) 10.20 Amendment No. 1 to Bareboat Charter, dated as of September
29, 1989, between PNC Leasing Corp and Transtar, Inc.
(a) 10.21 Bareboat Charter, dated as of June 1, 1990, between PNC
Leasing Corp and Transtar, Inc.
(a) 10.22 Bareboat Charter Party, dated as of September 30, 1991,
between Joy Finance Company and Transtar, Inc.
(a) 10.23 Lease Agreement, dated as of May 1, 1980, between GATX
Leasing Corporation, successor to Gould Leasing Services,
Inc., and Bessemer and Lake Erie Railroad Company.
(a) 10.24 Equipment Lease, dated as of May 30, 1980, between the
Bessemer and Lake Erie Railroad Company and State Street
Bank as Trustee.
(a) 10.25 Master Railcar Lease Agreement, dated as of April 30,
1993, between The CIT Group/Equipment Financing, Inc. and
Elgin, Joliet and Eastern Railway Company.
(a) 10.26 Railroad Equipment Lease, dated as of November 15, 1989,
between Elgin, Joliet & Eastern Railway Company and Mellon
Financial Services Corporation #3.
(a) 10.27 Bareboat Charter, dated as of June 1, 1989, between PNC
Leasing Corp and Transtar, Inc.
(a) 10.28 Amendment No. 1 to Indenture of Trust and First Preferred
Ship Mortgage, dated March 19, 1982, between The
Connecticut Bank and Trust Company, as Owner Trustee, and
Mercantile-Safe Deposit and Trust Company, as Indenture
Trustee.
(a) 10.29 Note Purchase Agreement, dated as of May 26, 1983.
(a) 10.30 Charter, dated as of September 1, 1980, between The
Connecticut Bank and Trust Company and United States Steel
Corporation.
(a) 10.31 Assignment Agreement and Supplement No. 2 to First
Preferred Fleet Mortgage, dated as of December 3, 1987.
(a) 10.32 Assignment of Second Transportation Services Agreement,
dated as of July 1, 1981, between United States Steel
Corporation and USS Great Lakes Fleet, Inc.
(a) 10.33 Option Agreement, dated as of July 2, 1975, among Litton
Industries, Inc. and Litton Industries Leasing Corporation
and United States Steel Corporation.
(a) 10.34 Release, dated as of July 2, 1975, between Litton Great
Lakes Corporation and United States Steel Corporation.
(a) 10.35 Consent, dated as of December 21, 1988, from Xerox
Corporation to USX Corporation.
(a) 10.36 Guaranty, dated as of December 27, 1988, from USX
Corporation to Litton Industries, Inc., Litton Credit
Corporation, Litton Great Lakes Corp. and Litton
Industries Leasing Corporation.
(a) 10.37 Assignment of Engineering and Maintenance Agreement,
dated as of July 1, 1991, between United States Steel
Corporation and USS Great Lakes Fleet Services, Inc.
(a) 10.38 Lease Renewal, dated as of October 24, 1991, between USS
Great Lakes Fleet, Inc. and Labovitz Enterprises.
(a) 10.40 Assignment of Leases, dated as of May 31, 1984, between
Duluth, Missabe and Iron Range Railway Company and Joel
Labovitz.
(a) 10.41 Indenture of Lease, dated as of April 7, 1982, between
Duluth, Missabe and Iron Range Railway Company and USS
Great Lakes Fleet Services, Inc.
(a) 10.42 Environmental Indemnification Agreement, dated as of
December 28, 1988, among USX Corporation, Transtar and
certain subsidiaries of Transtar.
(b) 10.43 Settlement Agreement among Transtar, Inc., Bessemer and
Lake Erie Railroad Company and USX Corporation dated
October 6, 1994.
<PAGE> 67
FOOTNOTE EXHIBIT
REF. NO DESCRIPTION
---- -- -----------
(f) 10.44.1 Transtar, Inc. Amended Stock Option Plan.
(c) 10.45 Equipment Lease Agreement dated as of July 15, 1994
between GATX Third Aircraft Corporation and Elgin, Joliet
and Eastern Railway Company.
(c) 10.46 Bareboat Charter dated as of June 30, 1994 between GATX
Third Aircraft Corporation and Transtar, Inc.
(e) 10.47 Master Equipment Lease Agreement dated as of December 28,
1995 between Birmingham Southern Railroad company and
Nationsbanc Leasing Corporation of North Carolina.
(e) 10.48 Master Equipment Lease Agreement dated as of December 28,
1995 between Duluth, Missabe and Iron Range Railway
company and Heller Financial Leasing, Inc.
12.1 Statement of Computation of Ratio of Earnings to Fixed
Charges.
(a) 21.1 Significant Subsidiaries of Transtar Holdings, L.P.
27 Financial Data Schedule.
- ------------------
(a) Previously filed with Registration Statement No. 33-73270 under
corresponding Exhibit number.
(b) Previously filed with Form 8-K on October 7, 1994.
(c) Previously filed with Form 10-K on March 24, 1995.
(d) Previously filed with Form 10-Q on November 1, 1995.
(e) Previously filed with Form 10-K on March 22, 1996.
(f) Previously filed with Form 10-K on March 21, 1997.
(g) Previously filed with Form 10-K on March 27, 1998.
<PAGE> 1
EXHIBIT 10.5.1
TRANSPORTATION SERVICES AGREEMENT
DATED JULY 1, 1998
BY AND BETWEEN
USX CORPORATION - U. S. STEEL GROUP
AND
TRANSTAR, INC.
<PAGE> 2
TRANSPORTATION SERVICES AGREEMENT
BETWEEN USX CORPORATION - U. S. STEEL GROUP
AND
TRANSTAR, INC.
INDEX
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
1 SCOPE 2
2 TERM 3
3 ADDITIONAL TERM 3
4 INTENT OF AGREEMENT 4
5 EXISTING CONTRACTS 5
6 RATES, TERMS AND/OR CONDITIONS FOR SERVICE 6
6(a) Rail Service by Sole Service Carriers 6
6(b) Single-Line Bessemer Service 7
6(c) In-Plant Rail Switching Service 8
6(d) In-Plant Rubber Tire Service 9
6(e) Miscellaneous In-Plant Services 9
6(f) WGN 10
6(g) Mobile River 12
6(h) Adjustments to Initial Base Rates, Terms and Conditions and Base Rates, Terms 15
and Conditions on Single-Line and Joint-Line Switching and Single-Line
Line-Haul Service
6(i) Adjustments to Joint-Line Rates 19
6(j) Car Hire Adjustments to Rail Earnings 22
6(k) Regulatory Change 22
6(l) Drafting 22
6(m) Determination of Competitive Rates Under Certain Circumstances 23
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
7 TRANSPORTATION COMMITMENTS 23
7(a) Rail Service by Sole Service Carriers 23
7(b) Bessemer 24
7(c) In-Plant Rail Switching Service 25
7(d) In-Plant Rubber Tire Service 27
7(e) Miscellaneous In-Plant Services 27
7(f) WGN 27
7(g) Mobile River 28
7(h) Bid Terms 29
8 SERVICE LEVELS 30
9 MAINTENANCE OF TRANSPORTATION ASSETS 31
10 MAINTENANCE OF INTERCHANGES 33
11 AUDIT 33
12 LIQUIDATED DAMAGES 34
13 SEVERABILITY 36
14 INEQUITIES 36
15 MEDIATION 37
16 ARBITRATION 38
17 ASSIGNMENT 40
18 NOTICES 41
19 LAW GOVERNING 42
20 NON-OPERATING FACILITIES 42
21 RELATIONSHIP OF PARTIES 43
22 INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES 43
23 ENTIRETY OF AGREEMENT; AMENDMENTS 43
24 MUTUAL RELEASE 43
25 FORCE MAJEURE 44
</TABLE>
69
<PAGE> 4
TRANSPORTATION SERVICES AGREEMENT
This Agreement, made and concluded this 21st day of December, 1998, but
effective the 1st day of July 1998, by and between USX CORPORATION - U. S. STEEL
GROUP (hereinafter "USS"), a Delaware corporation with offices at 600 Grant
Street, Pittsburgh, Pennsylvania 15219, and TRANSTAR, INC. (hereinafter
"Transtar"), a Delaware corporation with offices at 135 Jamison Lane,
Monroeville, Pennsylvania 15146.
W I T N E S S E T H:
WHEREAS, Transtar is the shareholder of certain transportation
operating companies including the Duluth, Missabe and Iron Range Railway Company
(hereinafter "DMIR"), the Elgin, Joliet and Eastern Railway Company (hereinafter
"EJ&E"), the Bessemer and Lake Erie Railroad Company (hereinafter "Bessemer"),
Union Railroad Company (hereinafter "Union"), McKeesport Connecting Railroad
Company (hereinafter "McKeesport"), Birmingham Southern Railroad Company
(hereinafter "Birmingham Southern") and its subsidiary Fairfield Southern
Company, Inc. (hereinafter "Fairfield Southern"), Warrior and Gulf Navigation
Company (hereinafter "WGN") and its subsidiary Mobile River Terminal Company
(hereinafter "Mobile River" and collectively the "Transtar Units"); and
1
<PAGE> 5
WHEREAS, USS and Transtar are parties to a Transportation Services
Agreement dated December 28, 1988 (hereinafter the "1988 TSA"); and
WHEREAS, USS and Transtar desire to enter into a new Transportation
Services Agreement to set forth the terms of a commercial business relationship
between USS and the Transtar Units and to replace the 1988 TSA;
NOW, THEREFORE, the parties hereto, intending to be legally bound, and
in consideration of the mutual agreements herein contained, hereby agree as
follows:
1. SCOPE. This Agreement sets forth the understanding of the parties
concerning transportation and transportation-related services to be provided to
USS by Transtar Units. More specific transportation contracts, tariffs, purchase
orders or other agreements may be executed, issued and/or published by USS and
the individual Transtar Units in order to implement this Agreement. To the
extent required by law, such individual agreements shall be filed with the
Surface Transportation Board ("STB") and/or the appropriate state agency.
This Agreement also sets forth the respective rights and obligations of
USS and Transtar concerning regulated rail service at certain non-operating
facilities as described in Section 20.
2
<PAGE> 6
2. TERM. This Agreement shall become effective on July 1, 1998 and
shall remain in effect through December 31, 2004 ("Initial Term"). At the end of
the Initial Term of this Agreement or at the end of the Additional Term
established in Section 3 herein, if any of the services previously performed by
any Transtar Unit pursuant to this Agreement are subject to competitive bidding,
the Transtar Unit shall be offered an opportunity to participate in any
competitive bidding for such services.
3. ADDITIONAL TERM. Following the expiration of the Initial Term of
this Agreement, all of its terms and/or conditions, insofar as they apply to the
service referenced in Sections 6(a) and 7(a), and insofar as they apply to
service referenced in Sections 6(c) and 7(c) which is provided on track owned by
a Transtar Unit, shall continue to apply to the Union, McKeesport, EJ&E, DMIR
and Birmingham Southern (hereinafter "Sole Service Carriers"). If during the
Additional Term, a non-Transtar rail carrier obtains access to the USS Mon
Valley Works, USS Clairton Works, Gary Works, Minntac, the Camp-Hill Corporation
facility, or Fairfield Works (hereinafter "USS Facilities"), USS shall have the
option of canceling this Agreement, in whole or in part, insofar as it applies
to the service referenced in Sections 6(a), 6(c), 7(a) and 7(c) herein which is
provided by the Sole
3
<PAGE> 7
Service Carrier at the facility so accessed. If during the Additional Term, USS
purchases or otherwise obtains railroad track from a Transtar Unit on which
service referenced in Sections 6(c) and 7(c) is provided, then USS shall have
the option of canceling this Agreement, in whole or in part, insofar as it
applies to the service provided on such track.
During the Initial Term or the Additional Term, USS shall not take any
action which would in any way, either directly or indirectly, encourage any
non-Transtar rail carrier to attempt to obtain access to any of the USS
Facilities or which would in any way assist and/or support any such rail carrier
in any efforts to obtain such access; provided, however, that, during the
Additional Term, USS may request non-binding mediation pursuant to Section 15
and/or request that an arbitrator, pursuant to the provisions set forth in
Section 16 herein, determine whether it is reasonable and equitable for USS to
seek competitive access, under the facts, circumstances and the regulatory and
competitive conditions in effect at that time, at the USS Facility where USS
seeks competitive access.
4. INTENT OF AGREEMENT. The parties hereto intend that they shall
mutually benefit from the rates, terms, conditions and provisions of this
Agreement and that no party shall be either unreasonably enriched or
unreasonably harmed by any
4
<PAGE> 8
implementation and/or interpretation of said rates, terms, conditions and
provisions. In addition, the parties hereto agree and intend that the rates,
terms and conditions (including, but not limited to, payment and drafting terms)
in effect as of the effective date of this Agreement shall continue in effect
except as modified by this or other agreements of the parties and that no party
to this Agreement shall seek to change rates, terms and conditions through the
arbitration procedures set forth in Section 16 hereof, unless there is a
material change in existing facts and circumstances that causes the party
seeking such change to suffer a gross inequity. This Agreement, and all
agreements implementing this Agreement, shall be administered and interpreted in
order to fulfill the intent stated in this Section 4. Any arbitrator considering
disputes pursuant to Section 16 hereof shall render a decision which fulfills
the intent stated in this Section 4.
5. EXISTING CONTRACTS. All existing contracts, purchase orders and
other agreements between USS and the Transtar Units shall remain in effect for
the terms stated therein. To the extent that any conflict exists between
Sections 6 or 7 of this Agreement and the rate or service provisions of any such
contract, purchase order or other agreement, the terms of this Agreement shall
supersede and take precedence, provided, however, that every reasonable
5
<PAGE> 9
effort shall be made to construe such provisions consistently, and that nothing
contained in this Agreement shall be construed or implemented to shorten the
term of any such contract, purchase order or other agreement.
6. RATES, TERMS AND/OR CONDITIONS FOR SERVICE.
(a) Rail Service by Sole Service Carriers. Initial Base
Rates, terms and/or conditions for all Sole Service Carrier services shall be
those in effect in contracts, tariffs or other agreements as of the effective
date of this Agreement. The rates between USS and Sole Service Carriers set
forth in Exhibits I and III attached to this Agreement (including single-line
and joint-line switching and single-line and joint-line line-haul services)
together with other rates in effect as of the effective date of this Agreement
shall be referred to herein as "Initial Base Rates." Any new rates established
during the term of this Agreement shall be deemed "Base Rates" as of the date
they are established.
Initial Base Rates and Base Rates for single-line and joint-line
switching and single-line line-haul service shall be adjusted annually to be
effective January 1, 1999 and each January 1 thereafter in accordance with the
procedures set forth in Section 6(h) herein. Joint-line Initial Base Rates and
joint-line Base Rates shall be adjusted in
6
<PAGE> 10
accordance with the procedures set forth in Section 6(i) herein.
(b) Single Line Bessemer Service. Initial Base Rates, terms and/or
conditions for services shall be those in effect in contracts, tariffs or other
agreements as of the effective date of this Agreement. The rates between USS and
Bessemer set forth in Exhibit II shall be referred to herein as "Initial Base
Rates." During the Initial Term of this Agreement, any changes, modifications,
additions and/or deletions to the terms and/or conditions for the rail single
line service provided by Bessemer under this Agreement, shall be negotiated in
good faith by the parties and upon agreement implemented either through tariffs,
contracts or other agreements. Prior to December 1, 1998 and each December 1
thereafter through December 1, 2003, USS and Bessemer shall in good faith
negotiate revised rates which shall be competitive with rates available to USS
at that time from viable competitors of the Bessemer capable of offering the
same or substantially similar services and volumes to USS. In the event the
parties fail to reach agreement by December 1, the preceding year's rates will
be used in the interim until agreement is reached. Either party shall have the
right to request non-binding mediation pursuant to Section 15 and invoke the
arbitration procedures set forth in Section 16
7
<PAGE> 11
herein and request that the appropriate competitive rates for the succeeding
year be determined through those procedures. Any interim rates will be revised
retroactively to whatever rates were agreed upon in non-binding mediation or
were determined through the arbitration procedures set forth in Section 16. If
USS advises Bessemer that any third party buying unloading and/or storage
services at Conneaut is permitted by contract to pass on Bessemer charges for
such services to USS, then Bessemer charges to such third party shall not exceed
the charges and conditions including payment terms, excluding drafting, which
would have applied if USS had purchased the service directly. Such tonnage will
be considered as USS tons in meeting the volume commitment in Section 7(b).
(c) In-Plant Rail Switching Service. Initial Base Rates, terms and/or
conditions for in-plant rail switching services shall be those in effect in
contracts, tariffs or other agreements as of the effective date of this
Agreement. The in-plant rail switching rates between USS and Union, EJ&E,
Birmingham Southern, Fairfield Southern, and McKeesport (hereinafter "In-Plant
Rail Switching Service Carriers") referenced in Exhibit III together with other
rates in effect as of the effective date of this Agreement shall be referred to
herein as "Initial Base Rates." Any new rates established
8
<PAGE> 12
during the term of this Agreement shall be deemed "Base Rates" as of the date
they are established. Unless otherwise agreed by the parties, the Base RCAF-U
for any such Base Rate shall be the most recent RCAF-U published prior to
agreement upon the Base Rate.
Initial Base Rates and Base Rates for In-Plant Rail
Switching Carriers shall be adjusted annually to be effective January 1, 1999
and each January 1 thereafter in accordance with the procedures set forth in
Section 6(h) herein.
Existing in-plant rail switching services provided by USS
plant personnel and Transtar Units are identified on the attached Exhibit IV.
(d) In-Plant Rubber Tire Service. The in-plant rubber tire services
identified on Exhibit V shall be provided pursuant to the terms and conditions
of the purchase orders or other agreements in effect as of the effective date of
this Agreement. Upon the expiration of any such purchase order or agreement, USS
shall have the option to subject the rubber tire service involved to competitive
bidding; provided, however, that Transtar Units shall be offered an opportunity
to participate in any competitive bidding of such services.
(e) Miscellaneous In-Plant Services. During the Initial Term of this
Agreement, USS shall have the option to subject all or any such services as set
forth in Exhibit VI to competitive bidding; provided, however, that Transtar
Units
9
<PAGE> 13
shall be offered an opportunity to participate in any competitive bidding for
the services set forth in Exhibit VI and any additional transportation and
transportation related services required by USS.
(f) WGN. Rates between USS and WGN set forth in Exhibits VII and VIII
together with other rates in effect as of the effective date of this Agreement
shall be referred to herein as "Initial Base Rates." Any new rates established
during the term of this Agreement shall be deemed "Base Rates" as of the date
they are established. Initial Base Rates as adjusted and, unless otherwise
agreed by the parties, Base Rates as adjusted, shall be subject to the Fuel Cost
Adjustment set forth in Exhibit IX. Upon request for any new service required by
USS, WGN shall offer rates, terms and/or conditions which are competitive with
the rates, terms and/or conditions offered by viable competing water carriers or
stevedores for similar services in the same geographic area. Base Rates for
commodities other than iron ore, iron ore pellets and coke shall be established
by mutual agreement of the parties and, failing such agreement, by the dispute
resolution procedures set forth in Sections 15 and 16 of this Agreement. Prior
to December 1, 1999 and each December 1 thereafter through December 1, 2003, USS
and WGN shall in good faith negotiate adjusted Initial Base Rates and adjusted
Base
10
<PAGE> 14
Rates which shall be competitive with rates available to USS at that time from
viable competitors of WGN capable of offering the same or substantially similar
services and volumes to USS. In the event the parties fail to reach agreement by
December 1 on adjusted Initial Base Rates or adjusted Base Rates, the preceding
year's rates will be used as interim rates. If after good faith negotiations,
the parties fail to reach agreement on the amount of the annual adjustment to
the Initial Base Rates set forth in Exhibit VIII, such Initial Base Rates shall
be adjusted up or down by one hundred percent (100%) of the cumulative
percentage change between the October 1998 Producer Price Index All Commodities
Unadjusted ("PPI-U") and the most recent October PPI-U published prior to the
January 1 effective date of the adjusted Initial Base Rate, provided however,
that the adjusted Initial Base Rate shall never fall below the originally
established level.
If after good faith negotiations, the parties fail to reach
agreement on the amount of the annual adjustment to the Base Rates, Base Rates
shall be adjusted up or down by one hundred percent (100%) of the cumulative
percentage change between the PPI-U published immediately prior to the effective
date of the Base Rate and the most recent October PPI-U published prior to the
January 1 effective date of the
11
<PAGE> 15
adjusted Base Rate, provided however, that the adjusted Base Rate shall never
fall below the originally established level.
Neither party shall have the right to request non-binding
mediation pursuant to Section 15 and invoke the arbitration procedures set forth
in Section 16 to request that an adjusted Initial Base Rate or adjusted Base
Rate be agreed upon or determined through these procedures unless the party is
able to prove it has suffered a gross inequity as a result of the implementation
of the adjusted Initial Base Rate or the adjusted Base Rate. In no event shall
the dispute resolution procedures result in the adjusted Initial Base Rate ever
falling below the Initial Base Rate or the adjusted Base Rate ever falling below
the originally established Base Rate. Any interim rates will be revised
retroactively to whatever rates were agreed upon through non-binding mediation
or were determined through the dispute resolution procedures set forth in
Section 16.
(g) Mobile River. Rates between USS and Mobile River set forth in
Exhibit X together with other rates in effect as of the effective date of this
Agreement shall be referred to herein as "Initial Base Rates." Any new rates
established during the term of this Agreement shall be deemed "Base Rates" as of
the date they are established. Upon request for any new service required by USS,
Mobile River shall offer stevedoring
12
<PAGE> 16
rates, terms and/or conditions competitive with those offered by similar
facilities for similar service in the same geographic area. Base Rates for
commodities other than iron ore, iron ore pellets and coke shall be established
by mutual agreement of the parties and, failing such agreement, by the dispute
resolution procedures set forth in Sections 15 and 16 of this Agreement. Prior
to December 1, 1998 and each December 1 thereafter through December 1, 2003, USS
and Mobile River shall in good faith negotiate adjusted Initial Base Rates and
adjusted Base Rates which shall be competitive with rates available to USS at
that time from viable competitors of Mobile River capable of offering the same
or substantially similar services and volumes to USS in the Mobile area. In the
event the parties fail to reach agreement by December 1 on adjusted Initial Base
Rates or adjusted Base Rates, the preceding year's rates will be used as interim
rates. If after good faith negotiations, the parties fail to reach agreement on
the amount of the annual adjustment to the Initial Base Rates set forth in
Exhibit X, such Initial Base Rates shall be adjusted up or down by one hundred
percent (100%) of the cumulative percentage change between the October 1997
Producer Price Index All Commodities Unadjusted ("PPI-U") and the most recent
October PPI-U published prior to the January 1 effective date of the adjusted
Initial Base Rate, provided however, that the adjusted Initial Base Rate shall
never fall below the originally established level. If after good faith
negotiations, the parties fail to reach agreement on the amount of the annual
adjustment to the Base Rates, Base Rates shall be adjusted up or down by one
hundred percent (100%) of the cumulative percentage change between the PPI-U
published immediately prior to the effective date of the Base Rate and the most
recent October PPI-U published prior to the January 1 effective date of the
adjusted Base Rate,
13
<PAGE> 17
provided however, that the adjusted Base Rate shall never fall below the
originally established level.
If after good faith negotiations, the parties fail to reach
agreement on the amount of the annual adjustment to the Base Rates, Base Rates
shall be adjusted up or down by one hundred percent (100%) of the cumulative
percentage change between the PPI-U published immediately prior to the effective
date of the Base Rate and the most recent October PPI-U published prior to the
January 1 effective date of the adjusted Base Rate, provided however, that the
adjusted Base Rate shall never fall below the originally established level.
Neither party shall have the right to request non-binding
mediation pursuant to Section 15 and invoke the arbitration procedures set forth
in Section 16 to request that an adjusted Initial Base Rate or Base Rate be
agreed upon or determined through these procedures unless the party is able to
prove it has suffered a gross inequity as a result of the implementation of the
adjusted Initial Base Rate or the adjusted Base Rate. In no event shall the
dispute resolution procedures result in the adjusted Initial Base Rate ever
falling below the Initial Base Rate or the adjusted Base Rate ever falling below
the originally established Base Rate. Any interim rates will be revised
retroactively to whatever rates were agreed upon through non-binding mediation
or were determined through the dispute resolution procedures set forth in
Section 16.
14
<PAGE> 18
If USS advises Mobile River that any third party buying
unloading and/or storage services at Mobile River is permitted by contract to
pass on Mobile River charges for such service to USS, then Mobile River charges
to such third party shall not exceed the charges and conditions including
payment terms, excluding drafting, which would have applied if USS had purchased
the service directly. Such tonnage will be considered as USS tons in meeting the
volume commitments in Section 7(g).
(h) Adjustments to Initial Base Rates, Terms and Conditions and Base
Rates, Terms and Conditions on Single-Line and Joint-Line Switching and
Single-Line Line-Haul Service. The Initial Base Rates and Base Rates for
single-line and joint-line switching and single-line line-haul service for Sole
Service Carrier and Fairfield Southern services shall be adjusted annually, to
be effective January 1, 1999 and each January 1 thereafter. Such adjustments, as
well as any other increases, decreases, changes, modifications, additions and/or
deletions to Initial Base Rates, terms and/or conditions and Base Rates, terms
and/or conditions for any such rail service during the Initial or any Additional
Term shall be negotiated in good faith by the parties and upon agreement
implemented either through tariffs, contracts or other agreements. If,
15
<PAGE> 19
after good faith negotiation during the Initial Term the parties fail to reach
agreement on the amount of the annual adjustment to the Initial Base Rates and
Base Rates, then (1) the Initial Base Rates shall be adjusted up or down by
eighty percent (80%) of the amount of the percentage change between the 4th
quarter 1997 Rail Cost Adjustment Factor, unadjusted for productivity ("RCAF-U")
of 1.00, as rebased by the STB and published in Ex Parte No. 290 (Sub No. 5)
(98-1) Table A decided on or about December 12, 1997 ("Base RCAF-U") and the
most recent 4th quarter RCAF-U published prior to the January 1 effective date
of the adjusted Initial Base Rate , provided however, that the adjusted Initial
Base Rate shall never fall below the Initial Base Rate and (2) the Base Rates
shall be adjusted up or down by eighty percent (80%) of the amount of the
percentage change between the most recent RCAF-U published prior to the time
that the Base Rate was established and the most recent 4th quarter RCAF-U
published prior to the January 1 effective date of the adjusted Base Rate,
provided however, that the adjusted Base Rate shall never fall below its
original established level. (See examples in Exhibits XVIII and XIX attached to
this Agreement.)
16
<PAGE> 20
At the end of the Initial Term, Transtar shall elect
whether to apply the maximum cumulative allowable rate adjustment to any rate in
effect on December 31, 2004 to be adjusted and to become effective January 1,
2005.
If after good faith negotiations during the Additional Term
of this Agreement, the parties fail to reach agreement on the amount of the
annual adjustment to the Initial Base Rates and the Base Rates, then (1) the
Initial Base Rates and adjusted Initial Base Rates in effect prior to January 1,
2005 shall be adjusted up or down by one hundred percent (100%) of the amount of
the percentage change between the 4th quarter 2003 Rail Cost Adjustment Factor
("RCAF-U") as published by the STB ("Base RCAF-U") and the most recent 4th
quarter RCAF-U published prior to the January 1 effective date of the adjusted
Initial Base Rate, provided however, that the Initial Base Rate and adjusted
Initial Base Rate shall never fall below their January 1, 2004 level and (2) the
Base Rates and adjusted Base Rates established prior to January 1, 2005 shall be
adjusted up or down by one hundred percent (100%) of the amount of the
percentage change between the 4th Quarter 2003 RCAF-U and the most recent 4th
Quarter RCAF-U published prior to the January 1 effective date of the adjusted
Base Rate, provided however, that the Base Rate and adjusted Base Rate shall
never fall below their most recent level prior to
17
<PAGE> 21
January 1, 2005 and (3) any Base Rates established during the Additional Term of
this Agreement shall be adjusted up or down by one hundred percent (100%) of the
amount of the percentage change between the most recent RCAF-U published prior
to the time that the Base Rate was established and the most recent 4th quarter
RCAF-U published prior to the January 1 effective date of the adjusted Base
Rate, provided, however, that such adjusted Base Rate shall never fall below its
originally established level. Such adjusted Initial Base Rates and adjusted Base
Rates shall be implemented effective each January 1 for the ensuing year.
Neither party shall have the right to invoke the dispute
resolution procedures set forth in Sections 15 and 16 to request an appropriate
rate adjustment be determined through these procedures, unless the party is able
to prove it has suffered a gross inequity as a result of the implementation of
the adjusted Initial Base Rate or the adjusted Base Rate. In no event during the
Initial Term of this Agreement shall the dispute resolution procedures result in
the adjusted Initial Base Rate ever falling below the Initial Base Rate or the
adjusted Base Rate ever falling below its original established level. In no
event during the Additional Term of this Agreement shall the dispute resolution
procedures result in the Initial Base Rate and the adjusted Initial Base Rate
ever falling below the January 1, 2004
18
<PAGE> 22
level, the Base Rate and adjusted Base Rate in effect on January 1, 2005 ever
falling below their January 1, 2005 level and the Base Rate and adjusted Base
Rate established during the Additional Term ever falling below their originally
established level. During the Initial and Additional Term of this Agreement, per
car rates reflected in this Agreement for single-line and/or in-plant coke
movements may be adjusted upward proportionally to the increase in car carrying
capacity or cube size whenever such car carrying capacity or cube size increases
by more than 5%. During the Additional Term, such adjustments may be sought for
movement of any other commodities but may be implemented if mutually agreed upon
by the parties or, failing such agreement, pursuant to the dispute resolution
procedures set forth in Sections 15 and 16 of this Agreement. Any arbitrator
considering a request for such an adjustment shall attempt to follow prevailing
practice in the rail industry.
(i) Adjustments to Joint-Line Rates. Sole Service Carrier
earnings on existing joint line rates may be adjusted up or down by an amount
not to exceed the same percentage increase or decrease as implemented by the
trunk line for its portion of earnings on the through rate, provided the Sole
Service Carrier's earnings shall never fall below its earnings under the
joint-line Initial Base Rate as may be adjusted as
19
<PAGE> 23
set forth in Section 6(j) and provided Sole Service Carrier's earnings shall
never fall below its earnings under the originally established joint-line Base
Rates as may be adjusted as set forth in Section 6(j). The dollar amount of Sole
Service Carrier earnings shall equal the dollar amount of its earnings under the
joint-line Initial Base Rate or the joint-line Base Rate, as may be adjusted as
set forth in Section 6(j), while the adjusted Initial Base Rate is equal to or
lower than the joint-line Initial Base Rate or the adjusted Base Rate is equal
to or lower than the originally established joint-line Base Rate. Once the
adjusted rate exceeds the Initial Base Rate or Base Rate, Sole Service Carrier
earnings shall be the same percentage of the adjusted joint-line Initial Base
Rate or the adjusted joint-line Base Rate as Sole Service Carrier percentage
under the Initial Base Rate or the originally established Base Rate except as
may be adjusted as set forth in Section 6(j). (See examples in Exhibits XX and
XXI attached to this Agreement.) If there is more than one other line-haul
carrier included in the joint rate with the Sole Service Carrier, Sole Service
Carrier earnings may be adjusted by an amount not to exceed the weighted average
percentage of the other participating carriers. With respect to new joint line
rates, Sole Service Carriers shall not seek requirements that are higher than
earnings on existing rates
20
<PAGE> 24
for movements of the same commodities from the same or a comparable junction
point to the same or comparable destination in similar quantities and equipment.
USS shall have the right to audit Sole Service Carrier records to ensure
compliance with this provision, provided however, such audit shall be conducted
by an independent auditor to be nominated by USS, subject to written approval by
the Transtar Unit to be audited, which approval shall not be unreasonably
withheld. The auditor shall only certify to USS whether Sole Service Carrier was
in compliance and shall keep all information confidential. Sole Service Carriers
shall notify USS whenever a division of a joint-line rate deviates from the
percentage division in effect at the time the Initial Base Rate or Base Rate was
established. Transtar and Sole Service Carriers hereby consent to USS
requesting, and trunk line carriers advising, only whether the division has
changed or whether the Transtar Unit has priced its division on a new movement
in accordance with existing rates for movement of the same commodities from the
same or a comparable junction point to the same or comparable destination in
similar quantities and equipment. Under no circumstances do Transtar or the Sole
Service Carriers consent to the trunk lines disclosing the amount or the
percentage of the divisions or of USS requesting the same.
21
<PAGE> 25
(j) Car Hire Adjustments to Rail Earnings. With respect to
Sole Service Carriers earnings for services specified in this Agreement,
Transtar shall have the right to make adjustments as necessary for increases in
cost of rail cars forced upon Transtar or Transtar Units by others pursuant to
car hire deprescription or revisions to Car Hire Rules or Car Service
Regulations. Transtar shall provide USS with reasonable supporting documentation
for any adjustment pursuant to this Section at the time such adjustment is
proposed.
(k) Regulatory Change. Any new laws and/or regulations which
become effective during the Initial Term or Additional Term of this Agreement,
which place new obligations on Transtar rail or barge carriers, including, but
not limited to, obligations with respect to competitive access and/or
obligations to quote segments of joint line movements, and which apply to rail
and/or barge service provided to USS' competitors, shall be applicable to
service provided hereunder.
(l) Drafting. Drafting procedures applicable to shipments
via Transtar Units to and from USS may be modified, as desired by USS, acting in
its sole discretion, in accordance with the following schedule:
22
<PAGE> 26
No Earlier Than: Transtar Unit
---------------- -------------
7-1-2000 BLE, URR
7-1-2001 EJ&E
7-1-2002 BS, FS
7-1-2003 WGN, MRT
7-1-2004 DMIR
In those instances where drafting procedures are modified, appropriate
procedures will be put into place by the parties which provide for payment
within fifteen (15) days of receipt of billing.
(m) Determination of Competitive Rates Under Certain
Circumstances. During the term of this Agreement if the combined rate of WGN,
MRT and BS, as adjusted (excluding any FS rate) for transportation from Mobile
to Fairfield Works is not reasonably competitive with a bona fide offer for such
transportation from a viable competitor of the Transtar Units (including any
mode or any transportation group offering joint service in conjunction with one
or more Transtar Units) capable of providing transportation from Mobile to
Fairfield Works on a sustained and continual basis, then either party may invoke
the dispute resolution procedures set forth in Sections 15 and 16 to request
that a competitive combined Transtar Unit rate be agreed upon or determined
through these procedures.
7. TRANSPORTATION COMMITMENTS. (a) Rail Service by Sole Service
Carriers. During the Initial Term and the Additional Term of this Agreement, USS
shall ship via rail Transtar Units
23
<PAGE> 27
one hundred percent (100%) of the rail traffic originating or terminating at the
Clairton Works, Gary Works, Fairfield Works, Mon Valley Works and Minntac and
one hundred percent (100%) of USS-controlled rail traffic originating or
terminating at Camp-Hill Corporation.
If USS does not ship one hundred percent (100%) of the coke shipments
originating at Clairton Works during the Initial Term via URR, USS shall pay URR
liquidated damages of $1.60 for each net ton of coke which originates at
Clairton and does not move via URR during said Initial Term, provided however,
such liquidated damages shall not exceed $1,920,000 in any single calendar year.
(b) Bessemer. During each calendar year of the Initial Term of this
Agreement, USS shall ship via Bessemer not less than sixty percent (60%) of the
Mon Valley Works' total ore burden (regardless of source) including but not
limited to blast furnace trim, iron ore and/or iron ore pellets. For the six (6)
month period July 1, 1998 through December 31, 1998, calendar year 1998
shipments will be used to judge performance.
If USS ships less than the minimum percentage, it shall pay
Bessemer liquidated damages of $2.00 GT, escalated in accordance with the
provisions of Section 12 herein, for each ton less than the minimum percentage,
within thirty (30) days of receipt of billing for such liquidated damages.
24
<PAGE> 28
(c) In-Plant Rail Switching Service. During the Initial Term and
Additional Term of this Agreement, Transtar Units shall have the right to
provide one hundred percent (100%) of the in-plant rail switching services
identified on the attached Exhibit IV as being provided by them at the effective
date of this Agreement, so long as such in-plant rail switching services are
required by USS from any source provided that Transtar Units shall have the
right to 100% of any new rail switching service at facilities currently served
by Transtar Units that develops during the Initial Term and Additional Term of
this Agreement which USS chooses not to provide or perform with their forces.
USS may, at any time, in its sole discretion, choose to have such rail
transportation services provided by a non-rail mode. During the Initial Term and
Additional Term of this Agreement USS shall grant to Transtar a right of first
refusal to provide any new or additional rail transportation services required
by USS at facilities currently served by Transtar Units. Such right of first
refusal shall pertain only to the rail transportation service and shall not
apply to any construction of new railroad track and/or maintenance of any such
track. USS shall retain, at all times, the right to subject track construction
and/or track maintenance to competitive bidding. USS shall notify a Transtar
Unit in
25
<PAGE> 29
writing that such service will be required and shall designate reasonable
specifications required for such service. The Transtar Unit shall advise in
writing within thirty (30) days of receipt of such notice if it is willing and
able to provide the service in accordance with the specifications. A negative
response or a failure to respond in thirty (30) days shall cause the Transtar
Unit to lose its right of first refusal and permit USS to subject such service
to competitive bidding. Following receipt of notice by USS that the Transtar
Unit desires to provide the service, USS and the Transtar Unit shall promptly
meet to negotiate, in good faith, rates for such service which are competitive
with rates available to USS from third parties capable of providing such service
on a continual and sustained basis with financial resources adequate to provide
such services. If the parties fail to reach an Agreement within thirty (30) days
of the commencement of negotiations, either party may subject the dispute to the
dispute resolution procedures set forth in Sections 15 and 16 herein in order to
have an appropriate competitive rate established pursuant to those procedures.
USS shall retain, at all times, the right to choose, in its sole discretion, to
provide rail transportation service at any new facility with its own employees.
26
<PAGE> 30
(d) In-Plant Rubber Tire Service. Transtar Units shall have the right
to provide one hundred percent (100%) of the in-plant rubber tire services
identified on the attached Exhibit V pursuant to the terms and conditions of the
purchase orders or other agreements in existence on the effective date of this
Agreement. Following the expiration of any existing purchase orders or other
agreements, such services may be subject to competitive bid, provided, however,
Transtar Units shall be permitted to participate in bidding. Transtar Units
shall also be permitted to participate in bidding for new or additional rubber
tire services of the nature identified in Exhibit V required by USS.
(e) Miscellaneous In-Plant Services. Transtar Units shall be permitted
to participate in bidding for miscellaneous in-plant services identified in
Exhibit VI. Transtar Units shall also be permitted to participate in bidding new
or additional transportation-related in-plant services.
(f) WGN. During each calendar year of the Initial Term of this
Agreement, USS shall ship via WGN not less than ninety percent (90%) of its iron
ore, iron ore pellets, and coke received from ocean vessels at Mobile for
shipment to Fairfield Works. For the six (6) month period July 1, 1998 through
December 31, 1998, calendar year 1998 shipments will be used to judge
performance.
27
<PAGE> 31
If during the Initial Term of this Agreement any significant
change occurs to the type of commodity used to source Fairfield Works' iron
requirements, then WGN and USS shall meet and in good faith negotiate a rate for
any significant iron substitute tonnage received by ocean vessel at Mobile for
transshipment to Fairfield Works. If the parties are unable to agree upon a
rate, the matter shall be submitted to dispute resolution pursuant to Sections
15 and 16 of this Agreement. Following any such significant change, the
movements of such iron substitute tonnage shall be subject to the same ninety
percent (90%) requirement as the iron ore, iron ore pellets and coke tonnage.
If USS ships less than ninety percent (90%)via WGN, it shall
pay WGN liquidated damages of $2.00 NT escalated in accordance with the
provisions of Section 12 herein, for each ton less than this minimum percentage
within thirty (30) days of receipt of billing for such liquidated damages.
(g) Mobile River. During each calendar year of the Initial Term of this
Agreement, USS shall provide Mobile River not less than ninety percent (90%) of
its iron ore, iron ore pellets, and coke unloaded from ocean vessels at Mobile,
Alabama for movement to Fairfield Works. For the six (6) month period July 1,
1998 through December 31, 1998, calendar year 1998 shipments will be used to
judge performance.
28
<PAGE> 32
If during the Initial Term of this Agreement any significant
change occurs to the type of commodity used to source Fairfield Works' iron
requirements, then WGN and USS shall meet and in good faith negotiate a rate for
any significant iron substitute tonnage received by ocean vessel at Mobile for
transshipment to Fairfield Works. If the parties are unable to agree upon a
rate, the matter shall be submitted to dispute resolution pursuant to Sections
15 and 16 of this Agreement. Following any such significant change, the
movements of such iron substitute tonnage shall be subject to the same ninety
percent (90%) requirement as the iron ore, iron ore pellets and coke tonnage.
If USS ships less than ninety percent (90%) via Mobile
River, it shall pay Mobile River liquidated damages of $.85 NT escalated in
accordance with the provisions of Section 12 herein, for each ton less than this
minimum percentage within thirty (30) days of receipt of billing for such
liquidated damages.
(h) Bid Terms. From and after the effective date of this Agreement,
neither Transtar nor any of the Transtar Units shall be required to indemnify or
hold harmless any party to this Agreement as a condition to bidding for, or
being awarded the right to provide, transportation or transportation-related
services, whether such services are within the scope of any Transportation
Services Agreement or otherwise, and the
29
<PAGE> 33
absence of any such indemnity or hold harmless provision in any such bid shall
not be taken into consideration to determine the competitiveness of such bid.
The intent of this provision is (1) to relieve Transtar and the Transtar Units
from the requirement of indemnifying or holding harmless any other party to this
Agreement in contracts, agreements, sales and purchase orders for transportation
or transportation-related services that are amended or entered into upon and
after the effective date of this Agreement and (2) to abolish the requirement
that Transtar or the Transtar Units undertake such indemnification or hold
harmless obligations in order to be deemed competitive in bidding for, or as a
precondition to be awarded the right to provide, such transportation and
transportation-related services. In lieu of any such hold harmless and
indemnification agreements, Transtar Units shall be obligated to agree to
apportion liability pursuant to the terms of that certain Memorandum of
Understanding Regarding Financial Responsibility dated December 21, 1998 as such
Memorandum may be amended from time to time.
8. SERVICE LEVELS. During the Initial Term and the Additional Term of
this Agreement, Transtar Units shall maintain service levels which are
reasonably required to provide service hereunder and in a manner consistent with
and competitive with other carriers in the area. The originating rail Transtar
Unit shall be responsible for arranging for car
30
<PAGE> 34
supply consistent with the availability of rail cars from other carriers,
provided that the Transtar Unit rail carrier may not require USS to utilize
Transtar Unit hopper cars for coke shipments in lieu of otherwise available more
efficient rail cars. The Transtar Unit shall have car ownership obligations on
in-plant and single-line switching and line-haul movements but shall have no car
ownership obligations when it functions as a switch carrier on interline freight
movements. Any dispute between the parties concerning service levels shall be
referred to dispute resolution in accordance with the provisions of Sections 15
and 16 hereof.
9. MAINTENANCE OF TRANSPORTATION ASSETS. Transtar Units shall maintain
in good and serviceable condition those transportation assets used to provide
service to USS pursuant to this Agreement, including, but not limited to, way
and structures, locomotives, railcars, signaling systems, tugs, barges, rubber
tire equipment and transshipment facilities.
EJ&E shall acquire sufficient high cube coke racks to
protect present Gary Works' in-plant coke movements subject to a maximum
expenditure of $20 million. EJ&E shall direct its best efforts to acquire said
cars by December 31, 2000 or sooner, if possible.
31
<PAGE> 35
During the remainder of 1998, BLE and USS shall jointly
study the issue of fines generation during the rail-lake-rail movement and
attempt to identify a mutually agreeable solution. If the parties are unable to
agree upon a solution by December 31, 1998, USS shall have the option, at any
time thereafter during the Initial Term of this Agreement, upon reasonable
notice in writing to BLE, to require BLE to construct a screening facility at
Conneaut subject to a maximum expenditure of $2 million.
DMIR will replace individual ore cars used to provide
services to USS under this Agreement when replacement is necessary. The cost for
any DMIR ore cars replaced shall be borne by DMIR without any increase in the
transportation rate other than that provided in Section 6(h). DMIR shall not
invoke the force majeure provisions of Section 25 because of a failure of the
Federal Railroad Administration to grant any waiver authorizing continued use of
any of the ore cars now existing.
Any dispute between the parties concerning maintenance of
transportation assets shall be referred to the dispute resolution procedures in
accordance with the provisions of Sections 15 and 16 hereof.
32
<PAGE> 36
10. MAINTENANCE OF INTERCHANGES. Transtar Units shall maintain
interchanges, gateways and/or terminals operable as of the date of this
Agreement which are reasonably required to provide service hereunder. Any
dispute between the parties concerning maintenance of interchanges, gateways
and/or terminals shall be referred to dispute resolution in accordance with the
provisions of Sections 15 and 16 hereof.
11. AUDIT. Each party shall have the right to audit the other's records
insofar as necessary to ensure compliance with all of the terms and conditions
of this Agreement. Except as provided in Section 6(i) herein, such audits shall
be performed by an internal or external auditor, provided however, that the
party being audited shall have the right to require that any audit be conducted
by a mutually agreeable independent auditor and that the details of the
information examined in such audit be kept confidential from the party
requesting the audit, except to the extent necessary to resolve any controversy
that is pursued in good faith. The first $20,000 of cumulative total audit
expense annually incurred for audit services required by either party to be
performed by independent auditors shall be shared equally by the parties.
Thereafter, such audit expense shall be borne by the party requesting the audit.
33
<PAGE> 37
12. LIQUIDATED DAMAGES. The parties acknowledge that in light of the
nature of the investments and expenditures to be made by Transtar and the
Transtar Units to comply with obligations under this Agreement, the actual
damages which will be sustained in the event of a failure of USS to meet its
obligations under Sections 7(a), (b), (f) and (g) are uncertain and difficult to
ascertain. Accordingly, the parties have agreed to appropriate measures of
liquidated damages for each ton below the applicable minimum percentages set
forth in Sections 7(a) (pertaining to Clairton coke shipments only),(b), (f) and
(g).
Liquidated damages provided in Section 7(b), shall be
adjusted annually during the Initial Term of this Agreement, to be effective
January 1, 1999 and each January 1 thereafter, up or down by eighty percent
(80%) of the amount of the percentage change between the 4th Quarter 1997 Rail
Cost Adjustment Factor, unadjusted for productivity ("RCAF-U") of 1.00, as
rebased by the STB and published in Ex Parte No. 290 (Sub No. 5) (98-1) Table A
decided on or about December 12, 1997 ("Base RCAF-U") and the most recent 4th
Quarter RCAF-U published prior to the January 1 effective date of the adjusted
liquidated damages and shall never fall below the initial liquidated damages.
34
<PAGE> 38
Liquidated damages provided in Sections 7(f) and 7(g) shall
be adjusted annually during the Initial Term of this Agreement to be effective
January 1, 1999 and each January 1 thereafter up or down by one hundred percent
(100%) of the cumulative percentage change between the October 1997 PPI-U and
the most recent PPI-U published immediately prior to the January 1 effective
date of the adjusted liquidated damages but shall never fall below the
originally established level.
If during the Initial Term of this Agreement, USS, for any
reason other than force majeure, fails to meet any of its volume commitments set
forth in Sections 7(b), (f) and (g) hereof for any given calendar year other
than the final calendar year of the Initial Term, USS may, in lieu of paying
liquidated damages, make up the deficit volume during the immediately succeeding
calendar year by shipping such deficit volume plus an additional 10% of the
deficit volume over the Transtar Unit to which the volume commitment was made,
in addition to shipping its annual volume commitment for such succeeding year.
If any portion of the deficit volume plus an additional 10% of the deficit
volume has not been shipped by the end of the immediately succeeding calendar
year, USS shall pay the liquidated damages (as then escalated) for such portion
no later than thirty (30) days after billing by the
35
<PAGE> 39
Transtar Unit. It is the intent of the parties that the provisions of the final
paragraph of this Section 12 shall not apply to the volume commitment set forth
in Subsection 7(a) pertaining to Clairton coke shipments.
13. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the fullest extent permissible under the laws and
public policies to be applied thereto. Accordingly, if any particular portion of
this Agreement shall be adjudicated to be void, invalid or unenforceable, this
Agreement shall be deemed to be amended to delete herefrom the portion thus
adjudicated to be void, invalid, or unenforceable, unless such change alters the
purpose and intent of this Agreement, in which case this Agreement shall be null
and void.
14. INEQUITIES. The parties intend that they shall mutually benefit
from the terms, conditions and provisions of this Agreement. If any party
suffers a gross inequity resulting from such terms, conditions or provisions, or
from a substantial change in circumstances or conditions, the parties shall
negotiate in good faith to resolve or remove such inequity. In the event the
parties fail to reach an agreement concerning any alleged gross inequity, the
dispute shall be referred to the dispute resolution procedures of Sections 15
and 16 hereof. It is mutually understood and agreed, however,
36
<PAGE> 40
that nothing herein shall be construed to relieve any party of any of its
obligations under this Agreement or under any related transportation contract,
purchase order or other agreement. The parties further agree that, unless
otherwise required by law, no party shall assert or cause to be asserted in any
suit, action, proceeding or other adjudication that any of the terms, conditions
or provisions of this Agreement are or will be unenforceable, unjust,
unreasonable, unreasonably discriminatory, preferential or prejudicial, or
otherwise in violation of any provision of any act or statute or any rule, order
or regulation thereof.
15. MEDIATION. At any time prior to the start of sworn testimony in
arbitration, provided under Section 16 of this Agreement, a party may submit a
dispute arising hereunder to non-binding mediation. The mediator shall be
selected by the party submitting the dispute with or without the concurrence of
the other party. Neither submission of a dispute to mediation nor conclusion of
the mediation process shall be a condition precedent to exercise of the
arbitration procedures available to the parties under this Agreement. If a
dispute is submitted to mediation:
1) the parties shall mediate the dispute in good faith;
2) mediation shall occur in Allegheny County, Pennsylvania;
37
<PAGE> 41
3) final decision makers for each party on any matter in dispute shall
personally attend all mediation sessions;
4) the mediator shall have complete control of the mediation timing and
process, provided, however, that the mediation shall conclude no later than
fourteen (14) calendar days from the day of the initial meeting between the
mediator and the parties;
5) all agreements reached in mediation shall be reduced to writing before
concluding the mediation process;
6) the parties may jointly agree to have the mediator make a final
and binding decision;
7) no discovery will be taken during the mediation process;
8) the mediation process shall be confidential and each party participating
shall have the right to designate any information provided to the mediator as
"Confidential and Proprietary."
16. ARBITRATION. All disputes arising under this Agreement shall be
referred to binding arbitration conducted expeditiously in accordance with
Center for Public Resources Rules for Non-Administered Arbitration of Business
Disputes ("CPR Rules") by a three person panel of arbitrators, each party
choosing one arbitrator and the two arbitrators so chosen selecting a third,
neutral arbitrator. The failure or inability of either party to choose an
arbitrator or of the
38
<PAGE> 42
arbitrators chosen by the parties to select a third neutral arbitrator shall be
resolved in accordance with the CPR Rules. Arbitration shall be conducted at a
mutually convenient location in Allegheny County, Pennsylvania or at such other
location as the parties may agree. The award in writing signed by any two of the
arbitrators shall be final and binding. In order to resolve any disputes
hereunder, the arbitrators shall implement the specific rights and obligations
set forth in this Agreement while fulfilling the intent stated in Section 4
hereof. Either party shall have the right to seek, and the arbitrators shall
determine, declaratory relief of the nature generally set forth in the Uniform
Declaratory Judgments Act (as in effect in the Commonwealth of Pennsylvania and
as the same may be amended from time to time) including, but not limited to,
questions of construction of this Agreement, or a declaration of rights, status
or other legal relations hereunder. The arbitrators shall apply the substantive
statutory and common law of the Commonwealth of Pennsylvania to the dispute and
the evidentiary laws of the Commonwealth of Pennsylvania to the arbitration
proceeding. The arbitration shall be governed by the United States Arbitration
Act, 9 U.S.C. Sections 1-16, and judgment upon the award entered by the
arbitrators may be entered by any court having jurisdiction thereof. The
arbitrators shall not award damages in excess of compensatory
39
<PAGE> 43
damages. The costs and expenses of the arbitration (other than attorneys' fees,
if any) shall be borne one-half by USS and one-half by the Transtar Unit. The
arbitrators shall be permitted to review existing documents or records of any
party to the extent that, in the sole discretion of the neutral arbitrator, such
documents and/or records are deemed to be relevant and to the extent the parties
are permitted by law or by contract to convey such documents or records to the
arbitrator. Either party shall have the right to designate any information
sought in discovery or provided to the arbitrators at their request as
confidential and/or proprietary in which case the neutral arbitrator shall
determine whether the information sought shall be disclosed in discovery or, if
such information is provided to the arbitrators at their request, shall not
convey such information to the other party.
17. ASSIGNMENT. No party to this Agreement shall assign or transfer
this Agreement or any interest herein, other than to the lenders providing
financing to Transtar, Inc. (which lenders will act through a single agent)
without the prior written consent of the other party, which consent shall not be
unreasonably withheld. Subject to the provisions of this Section 17, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns to the parties. USS shall not directly or indirectly sell, transfer or
40
<PAGE> 44
otherwise dispose of all or a substantial portion of the assets of any facility
served by Transtar Units during the term of this Agreement to any party which
intends to operate a facility at that location for the production of steel or
steel-related products, unless the purchaser, acquiror or other transferee of
such facility assumes, in a writing reasonably satisfactory to Transtar, all of
the rights and obligations set forth in this Agreement.
18. NOTICES. Unless otherwise specified herein, any and all notices
under this Agreement shall be in writing and shall be delivered to the party
entitled to receive the same: (1) by hand delivery; (2) by registered or
certified mail, return receipt requested; (3) by overnight delivery service
which provides proof of delivery; or (4) by telecopy, with a duplicate copy sent
via first class mail, postage pre-paid addressed as follows:
If to USS:
USX Corporation-U. S. Steel Group
600 Grant Street - Room 2382
Pittsburgh, Pennsylvania 15219-2749
Attention: Director - Raw Materials Planning,
Procurement and Distribution
Phone: 412-433-3620
Fax: 412-433-3624
USX Corporation-U. S. Steel Group
600 Grant Street - Room 460
Pittsburgh, Pennsylvania 15219-2749
Attention: General Manager-Distribution and Logistics
Phone: 412-433-3155
Fax: 412-433-3085
41
<PAGE> 45
USX Corporation-U. S. Steel Group
600 Grant Street - Room 431
Pittsburgh, Pennsylvania 15219-2749
Attention: General Manager-Purchasing
Phone: 412-433-2460
Fax: 412-433-2449
If to a Transtar Unit:
Transtar, Inc.
135 Jamison Lane
Monroeville, Pennsylvania 15146
Attention: Vice President-Marketing
Phone: 412-829-3420
Fax: 412-829-6603
19. LAW GOVERNING. This Agreement shall be construed in accordance with
the laws of the Commonwealth of Pennsylvania excluding its conflict of laws
provision.
20. NON-OPERATING FACILITIES. During the Initial Term and Additional
Term of this Agreement, USS shall not initiate or participate in any activity or
discussions adverse to the sole common carrier railroad status of the respective
rail Transtar Units at the non-operating facilities identified on Exhibit XI
provided, however, that USS shall not be required to forego sale of any such
non-operating facility in any instance where the buyer, as a condition of the
sale and after discussions with Transtar representatives, refuses to accept a
sole serving carrier for the facility. If any potential buyer expresses interest
in rail service, USS shall refer such buyer to the appropriate Transtar Unit.
During such term, the respective Transtar Units shall not take any action to
abandon
42
<PAGE> 46
their common carrier obligation to provide rail service at any of the
facilities identified on Exhibit XI unless they have obtained the prior written
consent of USS.
21. RELATIONSHIP OF PARTIES. The relationship between USS and Transtar
Units under this Agreement shall be that of independent contractors. Nothing in
this Agreement shall be deemed to constitute a relationship of agency, joint
venture, partnership, or any relationship other than that specified.
22. INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES. In no event shall a
party be liable for any indirect, special or consequential damages as a result
of a breach of any provision of this Agreement.
23. ENTIRETY OF AGREEMENT; AMENDMENTS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof. No
change, modification, or alteration of this Agreement shall be effective unless
reduced to writing and signed by the parties. Waiver of any breach of the
Agreement by a party shall not be construed as a waiver of any other breach.
24. MUTUAL RELEASE. The parties fully release and discharge each other
from all claims, known and unknown, arising under the 1988 Agreement which any
party may have against any other party to this Agreement. This provision is not
intended to apply to personal injury or property damage
43
<PAGE> 47
claims that either party may have against the other.
25. FORCE MAJEURE. The parties understand that performance by a party
may be interrupted or delayed by an occurrence outside of its control, including
but not limited to the following: an act of God, war, riot, sovereign conduct,
equipment failure, strikes, lockouts, conduct of third parties, or other similar
causes beyond the reasonable control of the parties. If that should occur, such
party shall be excused from performance for as long as it is reasonably
necessary to cure the Force Majeure condition. In case of any dispute as to the
reasonableness of a resulting delay in performance, the parties shall submit the
matter to dispute resolution in accordance with the procedures set forth in
Sections 15 and 16.
44
<PAGE> 48
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
USX CORPORATION - U. S. STEEL GROUP
By /s/ Paul J. Wilhelm
------------------------------------
Title: President
TRANSTAR, INC.
By /s/Robert S. Rosati
------------------------------------
Title: President
45
<PAGE> 1
EXHIBIT 10.5.2
TRANSPORTATION SERVICES AGREEMENT
DATED DECEMBER 29, 1998
BY AND BETWEEN
USS/KOBE STEEL COMPANY
AND
TRANSTAR, INC.
<PAGE> 2
TRANSPORTATION SERVICES AGREEMENT
BETWEEN USS/KOBE STEEL COMPANY
AND
TRANSTAR, INC.
INDEX
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
1 SCOPE 2
2 TERM 2
3 COMPETITIVE ACCESS 2
4 INTENT OF AGREEMENT 3
5 EXISTING CONTRACTS 4
6 RATES, TERMS AND/OR CONDITIONS FOR SERVICE 4
6(a) Rail Service by Sole Service Carriers 4
6(b) In-Plant Rubber Tire Service 5
6(c) Miscellaneous In-Plant Services 5
6(d) Adjustments to Initial Base Rates, Terms and Conditions and Base Rates, 6
Terms and Conditions on Absorbed Switching
6(e) Car Hire Adjustments to Rail Earnings 8
7 TRANSPORTATION COMMITMENTS 8
7(a) Rail Service by Sole Service Carrier 8
7(b) In-Plant Rail Switching Service 9
7(c) In-Plant Rubber Tire Service 9
7(d) Miscellaneous In-Plant Services 9
7(e) Bid Terms 9
8 SERVICE LEVELS 11
9 MAINTENANCE OF TRANSPORTATION ASSETS 11
10 MAINTENANCE OF INTERCHANGES 11
11 AUDIT 12
12 SEVERABILITY 12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
13 INEQUITIES 13
14 MEDIATION 14
15 ARBITRATION 15
16 ASSIGNMENT 17
17 NOTICES 17
18 LAW GOVERNING 18
19 RELATIONSHIP OF PARTIES 18
20 INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES 19
21 ENTIRETY OF AGREEMENT; AMENDMENTS 19
22 MUTUAL RELEASE 19
23 ALLOCATION OF FINANCIAL RESPONSIBILITY 19
24 FORCE MAJEURE 21
</TABLE>
<PAGE> 4
TRANSPORTATION SERVICES AGREEMENT
This Agreement, made and concluded as of the 29th day of December 1998,
by and between USS/KOBE STEEL COMPANY (hereinafter "USS/KOBE"), an Ohio General
Partnership with offices at 1807 East 28th Street, Lorain, Ohio 44055, and
TRANSTAR, INC. (hereinafter "Transtar"), a Delaware corporation with offices at
135 Jamison Lane, Monroeville, Pennsylvania 15146.
W I T N E S S E T H:
WHEREAS, Transtar is the shareholder of certain transportation
operating companies including The Lake Terminal Railroad Company (hereinafter
"Lake Terminal"); and
WHEREAS, USS/KOBE and Transtar are parties to a Transportation Services
Agreement dated December 28, 1988 (hereinafter the "1988 TSA"); and
WHEREAS, USS/KOBE and Transtar desire to enter into a new
Transportation Services Agreement to set forth the terms of a commercial
business relationship between USS/KOBE and Lake Terminal and to replace the 1988
TSA;
NOW, THEREFORE, the parties hereto, intending to be legally bound, and
in consideration of the mutual agreements herein contained, hereby agree as
follows:
1
<PAGE> 5
1. SCOPE. This Agreement sets forth the understanding of the parties
concerning transportation and transportation-related services to be provided to
USS/KOBE by Lake Terminal. More specific transportation contracts, tariffs,
purchase orders or other agreements may be executed, issued and/or published by
USS/KOBE and Lake Terminal in order to implement this Agreement. To the extent
required by law, such individual agreements shall be filed with the Surface
Transportation Board ("STB") and/or the appropriate state agency.
2. TERM. This Agreement shall become effective on December 29, 1998 and
shall remain in effect through December 31, 2008.
3. COMPETITIVE ACCESS. During the Term of this Agreement, USS/KOBE
shall not take any action which would in any way, either directly or indirectly,
encourage any non-Transtar rail carrier to attempt to obtain access to the
USS/KOBE Works or which would in any way assist and/or support any such rail
carrier in any efforts to obtain such access, provided however, that after
January 1, 2007, USS/KOBE is permitted to take any action necessary to enable it
to evaluate the transportation service options and to make arrangements for the
continuation of such services following the Term of this Agreement, provided
further, that such
2
<PAGE> 6
actions would have no effect upon the transportation services provided under
this Agreement during its Term.
4. INTENT OF AGREEMENT. The parties hereto intend that they shall
mutually benefit from the Base Rates, terms, conditions and provisions of this
Agreement and that no party shall be either unreasonably enriched or
unreasonably harmed by any implementation and/or interpretation of said Base
Rates, terms, conditions and provisions. In addition, the parties hereto agree
and intend that the rates, terms and conditions (including, but not limited to,
payment terms) in effect as of the effective date of this Agreement shall
continue in effect except as modified by this or other agreements of the parties
and that no party to this Agreement shall seek to change Base Rates, terms and
conditions through the arbitration procedures set forth in Section 15 hereof,
unless there is a material change in existing facts and circumstances that
causes the party seeking such change to suffer a gross inequity. This Agreement,
and all agreements implementing this Agreement, shall be administered and
interpreted in order to fulfill the intent stated in this Section 4. Any
arbitrator considering disputes pursuant to Section 15 hereof shall render a
decision which fulfills the intent stated in this Section 4.
3
<PAGE> 7
5. EXISTING CONTRACTS. All existing contracts, purchase orders and
other agreements between USS/KOBE and Lake Terminal shall remain in effect for
the terms stated therein. To the extent that any conflict exists between
Sections 6 or 7 of this Agreement and the rates or service provisions of any
such contract, purchase order or other agreement, the terms of this Agreement
shall supersede and take precedence, provided, however, that every reasonable
effort shall be made to construe such provisions consistently, and that nothing
contained in this Agreement shall be construed or implemented to shorten the
term of any such contract, purchase order or other agreement. A list of existing
Purchase Orders, Contracts and Agreements is attached to this Agreement and
marked Exhibit I.
6. RATES, TERMS AND/OR CONDITIONS FOR SERVICE.
(a) Rail Service by Sole Service Carrier. Initial Base Rates, terms
and/or conditions for all Sole Service Carrier services shall be those in effect
in contracts, tariffs or other agreements as of the effective date of this
Agreement. The rates between USS/KOBE and Sole Service Carrier set forth in
Exhibits II and III attached to this Agreement (including absorbed switching,
single-line movements and other related transportation services) shall be
referred to herein as "Initial Base Rates." Any new rates
4
<PAGE> 8
established during the term of this Agreement shall be deemed "Base Rates" as of
the date they are established. Unless otherwise agreed by the parties, the Base
RCAF-U for any such Base Rate shall be the most recent RCAF-U published prior to
agreement upon the Base Rate.
Initial Base Rates and Base Rates for absorbed switching movements
shall be adjusted annually to be effective January 1, 2000 and each January 1
thereafter in accordance with the procedures set forth in Section 6(d) herein.
(b) In-Plant Rubber Tire Service. The in-plant rubber tire services
identified on Exhibit IV shall be provided pursuant to the terms and conditions
of the purchase orders or other agreements in effect as of the effective date of
this Agreement. Upon the expiration of any such purchase order or agreement,
USS/KOBE shall have the option to subject the rubber tire service involved to
competitive bidding; provided, however, that Lake Terminal shall be offered an
opportunity to participate in any competitive bidding of such services.
(c) Miscellaneous In-Plant Services. During the Term of this
Agreement, Lake Terminal shall be offered an opportunity to participate in any
competitive bidding for any additional transportation and transportation related
services required by USS/KOBE.
5
<PAGE> 9
(d) Adjustments to Initial Base Rates, Terms and Conditions and Base
Rates, Terms and Conditions on Absorbed Switching Rail Rates, Single-Line Rates
and Other Related Transportation Service Rates. The Initial Base Rates and Base
Rates for absorbed switching, single-line and other related transportation
service for Sole Service Carrier services shall be adjusted annually, to be
effective January 1, 2000 and each January 1 thereafter. Such adjustments, as
well as any other increases, decreases, changes, modifications, additions and/or
deletions to Initial Base Rates, terms and/or conditions and Base Rates, terms
and/or conditions for any such rail service shall be negotiated in good faith by
the parties and upon agreement implemented either through tariffs, contracts or
other agreements. If, after good faith negotiation the parties fail to reach
agreement on the amount of the annual adjustment to the Initial Base Rates and
Base Rates, then such (1) Initial Base Rates shall be adjusted up or down by one
hundred percent (100%) during the Term of this Agreement of the amount of the
percentage change between the 4th quarter 1998 Rail Cost Adjustment Factor,
unadjusted for productivity ("RCAF-U") of 1.003, as rebased by the STB and
published in Ex Parte No. 290 (Sub No. 5)(98-1) Table A decided on or about
December 12, 1997 ("Base RCAF-U") and the most recent 4th quarter RCAF-U
published prior to the January 1 effective date
6
<PAGE> 10
of the adjusted Initial Base Rate, provided however, that the adjusted Initial
Base Rate shall never fall below the Initial Base Rate and (2) Base Rates shall
be adjusted up or down by one hundred (100%) during the Term of this Agreement
of the amount of the percentage change between the most recent RCAF-U published
prior to the time that the Base Rate was established and the most recent 4th
quarter RCAF-U published prior to the January 1 effective date of the adjusted
Base Rate, provided, however, that the Adjusted Base Rate shall never fall below
its original established level. (See examples in Exhibits V and VI attached to
this Agreement.)
Such adjusted Initial Base Rates and adjusted Base Rates shall be
implemented effective each January 1 for the ensuing year. Neither party shall
have the right to invoke the dispute resolution procedures set forth in Sections
14 and 15 to request an appropriate rate adjustment be determined through these
procedures, unless the party is able to prove it has suffered a gross inequity
as a result of the implementation of the adjusted Initial Base Rate or the
adjusted Base Rate. In no event shall the dispute resolution procedures result
in the adjusted Initial Base Rate ever falling below the Initial Base Rate or
the adjusted Base Rate ever falling below its original established level.
Through December 31, 2004, per car rates reflected in this Agreement
7
<PAGE> 11
may be adjusted upward proportionally to the increase in car carrying capacity
or cube size whenever such car carrying capacity or cube size increases by more
than five percent (5%). After December 31, 2004, such adjustments may only be
implemented if mutually agreed upon by the parties or, failing such agreement,
shall be established pursuant to the dispute resolution procedures set forth in
Sections 14 and 15 of this Agreement. Any arbitrator considering a request for
such an adjustment shall attempt to follow prevailing practice in the rail
industry.
(e) Car Hire Adjustments to Rail Earnings. With respect to Sole
Service Carrier earnings for services specified in this Agreement, Lake Terminal
shall have the right to make adjustments as necessary for increases in cost of
rail cars forced upon Transtar or Lake Terminal by others pursuant to car hire
deprescription or revisions to Car Hire Rules or Car Service Regulations.
Transtar shall provide USS/KOBE with reasonable supporting documentation for any
adjustment pursuant to this Section at the time such adjustment is proposed.
7. TRANSPORTATION COMMITMENTS.
(a) Rail Service by Sole Service Carrier. During the Term of this
Agreement, USS/KOBE shall ship via rail Lake Terminal one hundred percent (100%)
of the rail traffic originating or terminating at the USS/KOBE Works.
8
<PAGE> 12
(b) In-Plant Rail Switching Service. During the Term of this
Agreement, Lake Terminal shall have the right to bid on any in-plant switching
services so long as such in-plant rail switching services are required by
USS/KOBE from any source.
(c) In-Plant Rubber Tire Service. Lake Terminal shall have the right
to provide one hundred percent (100%) of the in-plant rubber tire services
identified on the attached Exhibit II pursuant to the terms and conditions of
the purchase orders or other agreements in existence on the effective date of
this Agreement. Following the expiration of any existing purchase orders or
other agreements, such services may be subject to competitive bid, provided,
however, Lake Terminal shall be permitted to participate in bidding. Lake
Terminal shall also be permitted to participate in bidding for new or additional
rubber tire services.
(d) Miscellaneous In-Plant Services. Lake Terminal shall be
permitted to participate in bidding for miscellaneous transportation related
in-plant services.
(e) Bid Terms. From and after the effective date of this Agreement,
neither Transtar nor Lake Terminal shall be required to indemnify or hold
harmless any party to this Agreement as a condition to bidding for, or being
awarded the
9
<PAGE> 13
right to provide, transportation or transportation-related services, whether
such services are within the scope of any Transportation Services Agreement or
otherwise, and the absence of any such indemnity or hold harmless provision in
any such bid shall not be taken into consideration to determine the
competitiveness of such bid. The intent of this provision is (1) to relieve
Transtar and Lake Terminal from the requirement of indemnifying or holding
harmless any other party to this Agreement in contracts, agreements, sales and
purchase orders for transportation or transportation-related services that are
amended or entered into upon and after the effective date of this Agreement and
(2) to abolish the requirement that Transtar or Lake Terminal undertake such
indemnification or hold harmless obligations in order to be deemed competitive
in bidding for, or as a precondition to be awarded the right to provide, such
transportation and transportation-related services. In lieu of any such hold
harmless and indemnification agreements, Lake Terminal shall be obligated to
agree to apportion liability pursuant to the terms of that certain Memorandum of
Understanding Regarding Financial Responsibility (attached as Exhibit VII to
this Agreement) as such Memorandum may be amended from time to time.
8. SERVICE LEVELS. During the Term of this Agreement,
10
<PAGE> 14
Lake Terminal shall maintain service levels which are reasonably required to
provide service hereunder in a manner consistent with and competitive with other
carriers in the area. Lake Terminal shall be responsible for arranging for car
supply consistent with the availability of rail cars from other carriers,
provided that Lake Terminal shall have no car ownership obligations when it
functions as a switch carrier on interline freight movements. Any dispute
between the parties concerning service levels shall be referred to dispute
resolution in accordance with the provisions of Sections 14 and 15 hereof.
9. MAINTENANCE OF TRANSPORTATION ASSETS. Lake Terminal shall maintain
in good and serviceable condition those transportation assets used to provide
service to USS/KOBE pursuant to this Agreement, including, but not limited to,
way and structures, locomotives, railcars, signaling systems, and rubber tire
equipment.
Any dispute between the parties concerning maintenance of
transportation assets shall be referred to the dispute resolution procedures in
accordance with the provisions of Sections 14 and 15 hereof.
10. MAINTENANCE OF INTERCHANGES. Lake Terminal shall maintain
interchanges, gateways and/or terminals operable as of the date of this
Agreement which are reasonably required to
11
<PAGE> 15
provide service hereunder. Any dispute between the parties concerning
maintenance of interchanges, gateways and/or terminals shall be referred to
dispute resolution in accordance with the provisions of Sections 14 and 15
hereof.
11. AUDIT. Each party shall have the right to audit the other's records
insofar as necessary to ensure compliance with all of the terms and conditions
of this Agreement. Such audits shall be performed by an internal or external
auditor, provided however, that the party being audited shall have the right to
require that any audit be conducted by a mutually agreeable independent auditor
and that the details of the information examined in such audit be kept
confidential from the party requesting the audit, except to the extent necessary
to resolve any controversy that is pursued in good faith. The first $20,000 of
cumulative total audit expense annually incurred for audit services required by
either party to be performed by independent auditors shall be shared equally by
the parties. Thereafter, such audit expense shall be borne by the party
requesting the audit.
12. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the fullest extent permissible under the laws and
public policies to be applied thereto. Accordingly, if any particular portion of
this Agreement shall be adjudicated to be void, invalid or unenforceable, this
Agreement shall be deemed to be amended to delete herefrom the portion thus
adjudicated to be void,
12
<PAGE> 16
invalid, or unenforceable, unless such change alters the purpose and intent of
this Agreement, in which case this Agreement shall be null and void.
13. INEQUITIES. The parties intend that they shall mutually benefit
from the terms, conditions and provisions of this Agreement. If any party
suffers a gross inequity resulting from such terms, conditions or provisions, or
from a substantial change in circumstances or conditions, the parties shall
negotiate in good faith to resolve or remove such inequity. In the event the
parties fail to reach an agreement concerning any alleged gross inequity, the
dispute shall be referred to the dispute resolution procedures of Sections 14
and 15 hereof. It is mutually understood and agreed, however, that nothing
herein shall be construed to relieve any party of any of its obligations under
this Agreement or under any related transportation contract, purchase order or
other agreement. The parties further agree that, unless otherwise required by
law, no party shall assert or cause to be asserted in any suit, action,
proceeding or other adjudication that any of the terms, conditions or provisions
of this Agreement are or will be unenforceable, unjust, unreasonable,
unreasonably discriminatory, preferential or prejudicial, or otherwise in
violation of any provision of any act or statute or any rule, order or
regulation thereof.
13
<PAGE> 17
14. MEDIATION. At any time prior to the start of sworn testimony in
arbitration, provided under Section 15 of this Agreement, a party may submit a
dispute arising hereunder to non-binding mediation. The mediator shall be
selected by the party submitting the dispute with or without the concurrence of
the other party. Neither submission of a dispute to mediation nor conclusion of
the mediation process shall be a condition precedent to exercise of the
arbitration procedures available to the parties under this Agreement. If a
dispute is submitted to mediation:
1) the parties shall mediate the dispute in good faith;
2) mediation shall occur in Lorain County, Ohio;
3) final decision makers for each party on any matter in dispute shall
personally attend all mediation sessions;
4) the mediator shall have complete control of the mediation timing and
process, provided, however, that the mediation shall conclude no later than
fourteen (14) calendar days from the day of the initial meeting between the
mediator and the parties;
5) all agreements reached in mediation shall be reduced to writing before
concluding the mediation process;
6) the parties may jointly agree to have the mediator make a final and
binding decision;
7) no discovery will be taken during the mediation process;
14
<PAGE> 18
8) the mediation process shall be confidential and each party
participating shall have the right to designate any information provided to the
mediator as "Confidential and Proprietary."
15. ARBITRATION. All disputes arising under this Agreement shall be
referred to binding arbitration conducted expeditiously in accordance with
Center for Public Resources Rules for Non-Administered Arbitration of Business
Disputes ("CPR Rules") by a three person panel of arbitrators, each party
choosing one arbitrator and the two arbitrators so chosen selecting a third,
neutral arbitrator. The failure or inability of either party to choose an
arbitrator or of the arbitrators chosen by the parties to select a third neutral
arbitrator shall be resolved in accordance with the CPR Rules. Arbitration shall
be conducted at a mutually convenient location in Lorain County, Ohio or at such
other location as the parties may agree. The award in writing signed by any two
of the arbitrators shall be final and binding. In order to resolve any disputes
hereunder, the arbitrators shall implement the specific rights and obligations
set forth in this Agreement while fulfilling the intent stated in Section 4
hereof. Either party shall have the right to seek, and the arbitrators shall
determine, declaratory relief of the nature generally set forth in the Uniform
Declaratory Judgments Act (as in effect in the State of Ohio and as the same may
be
15
<PAGE> 19
amended from time to time) including, but not limited to, questions of
construction of this Agreement, or a declaration of rights, status or other
legal relations hereunder. The arbitrators shall apply the substantive statutory
and common law of the State of Ohio to the dispute and the evidentiary laws of
the State of Ohio to the arbitration proceeding. The arbitration shall be
governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16, and
judgment upon the award entered by the arbitrators may be entered by any court
having jurisdiction thereof. The arbitrators shall not award damages in excess
of compensatory damages. The costs and expenses of the arbitration (other than
attorneys' fees, if any) shall be borne one-half by USS/KOBE and one-half by
Lake Terminal. The arbitrators shall be permitted to review existing documents
or records of any party to the extent that, in the sole discretion of the
neutral arbitrator, such documents and/or records are deemed to be relevant and
to the extent the parties are permitted by law or by contract to convey such
documents or records to the arbitrator. Either party shall have the right to
designate any information sought in discovery or provided to the arbitrators at
their request as confidential and/or proprietary in which case the neutral
arbitrator shall determine whether the information sought shall be disclosed in
discovery or, if such information is
16
<PAGE> 20
provided to the arbitrators at their request, shall not convey such information
to the other party.
16. ASSIGNMENT. No party to this Agreement shall assign or transfer
this Agreement or any interest herein, other than to the lenders providing
financing to Transtar, Inc. (which lenders will act through a single agent)
without the prior written consent of the other party, which consent shall not be
unreasonably withheld. Subject to the provisions of this Section 16, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns to the parties. USS/KOBE shall not directly or indirectly sell, transfer
or otherwise dispose of all or a substantial portion of the assets of any
facility served by Lake Terminal during the term of this Agreement to any party
which intends to operate a facility at that location for the production of steel
or steel-related products, unless the purchaser, acquiror or other transferee of
such facility assumes, in a writing reasonably satisfactory to Lake Terminal,
all of the rights and obligations set forth in this Agreement.
17. NOTICES. Unless otherwise specified herein, any and all notices
under this Agreement shall be in writing and shall be delivered to the party
entitled to receive the same: (1) by hand delivery; (2) by registered or
certified mail, return receipt requested; (3) by overnight delivery service
which provides proof of delivery; or (4) by telecopy, with a
17
<PAGE> 21
duplicate copy sent via first class mail, postage pre-paid addressed as follows:
If to USS/KOBE:
USS/KOBE Steel Company
1807 East 28th Street
Lorain, Ohio 44055
Attention: Vice President Finance & Administration
Phone: 440-277-2401
Fax: 440-277-3552
If to a Transtar Unit:
Transtar, Inc.
135 Jamison Lane
Monroeville, Pennsylvania 15146
Attention: Director of Marketing
Phone: 412-829-3434
Fax: 412-829-6603
18. LAW GOVERNING. This Agreement shall be construed in accordance with
the laws of the State of Ohio excluding its conflict of laws provision.
19. RELATIONSHIP OF PARTIES. The relationship between USS/KOBE and Lake
Terminal under this Agreement shall be that of independent contractors. Nothing
in this Agreement shall be deemed to constitute a relationship of agency, joint
venture, partnership, or any relationship other than that specified.
18
<PAGE> 22
20. INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES. In no event shall a
party be liable for any indirect, special or consequential damages as a result
of a breach of any provision of this Agreement.
21. ENTIRETY OF AGREEMENT; AMENDMENTS. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof. No
change, modification, or alteration of this Agreement shall be effective unless
reduced to writing and signed by the parties. Waiver of any breach of the
Agreement by a party shall not be construed as a waiver of any other breach.
22. MUTUAL RELEASE. The parties fully release and discharge each other
from all claims, known and unknown, arising under the 1988 Agreement which any
party may have against any other party to this Agreement. This provision is not
intended to apply to personal injury or property damage claims that either party
may have against the other.
23. ALLOCATION OF FINANCIAL RESPONSIBILITY. During the Term of this
Agreement and notwithstanding any provision set forth in any of the Real Estate
Agreements referenced in the Agreement Concerning Leases, Licenses and Easements
(attached as an Exhibit to this Agreement) to the contrary, financial
responsibility for personal injuries (including death) and property damage
sustained by employees of USS/KOBE and Lake Terminal shall be allocated among
the parties to this
19
<PAGE> 23
Agreement according to the terms of that certain Memorandum of Understanding
Regarding Financial Responsibility (attached as an Exhibit to this Agreement) as
such Memorandum may be amended from time to time.
Lake Terminal and USS/KOBE will each indemnify and save harmless
the other, from and against any and all obligations, liabilities, claims and
demands for damage to property or injuries to any persons (other than employees
of the Lake Terminal or USS/KOBE), which may be asserted against the party
indemnified hereunder to have arisen as a result, in whole or in part, of the
negligent acts or omissions of the party providing such indemnity. Nothing set
forth herein is intended to indemnify Lake Terminal or USS/KOBE for its own
causal negligence or other legal fault, nor to require either Lake Terminal or
USS/KOBE to extend indemnity beyond the pro rata portion of its causal
negligence or other legal fault, nor is anything set forth herein intended to
modify the preceding paragraph of this Section 23 of this Agreement or the
Memorandum of Understanding Regarding Financial Responsibility (MOU) previously
entered into between Lake Terminal and USS/KOBE.
Lake Terminal and USS/KOBE acknowledge that the MOU addresses only
those situations where property damage or personal injury is sustained by an
employee of either the Lake
20
<PAGE> 24
Terminal or USS/KOBE and that this provision of the Agreement applies only to
those incidents which occur within the confines of the USS/KOBE Works.
24. FORCE MAJEURE. The parties understand that performance by a party
may be interrupted or delayed by an occurrence outside of its control, including
but not limited to the following: an act of God, war, riot, sovereign conduct,
equipment failure, conduct of third parties, or other similar causes beyond the
reasonable control of the parties. If that should occur, such party shall be
excused from performance for as long as it is reasonably necessary to complete
performance. In case of any dispute as to the reasonableness of a resulting
delay in performance, the parties shall submit the matter to dispute resolution
in accordance with the procedures set forth in Sections 14 and 15.
In the event of any concerted action by Lake Terminal organized
labor that results in an interruption to the interchange services ("Service")
performed by Lake Terminal at the USS/KOBE Works pursuant to this Agreement,
Lake Terminal will employ reasonable best efforts to continue to provide Service
to USS/KOBE during the interruption.
Such "reasonable best efforts" include, but are not necessarily
limited to (1) cooperation and communication with USS/KOBE aimed at efficiently
and effectively restoring
21
<PAGE> 25
uninterrupted Service to the USS/KOBE Works; (2) pursuit of those legal actions
and remedies which, in the reasonable opinion of counsel for Lake Terminal,
would prove prudent for Lake Terminal to exercise under the circumstances; (3)
having due regard for its own management and labor relations policies, pursuing
resolution of the underlying dispute, if any, which gives rise to the
interruption of Service; (4) exercise of reasonable best efforts to provide
qualified management or other personnel available to perform the service; and
(5) in the unlikely event of a secondary boycott, picketing or related
activities directed at USS/KOBE, Lake Terminal or any of its contractors which
spreads beyond Lake Terminal, using its influence and contacts in the railroad
and transportation industries to discourage, limit, work around or terminate
such activity.
Nothing set forth in this Agreement is intended as a guarantee by
Lake Terminal of uninterrupted Service to the USS/KOBE Works nor is anything set
forth in this Agreement intended as agreement by the parties that strikes,
lockouts or similar events are not events of force majeure for purposes of this
Section 24 of this Agreement.
22
<PAGE> 26
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
USS/KOBE STEEL COMPANY
By /s/ George F. Babcoke
-----------------------------------
Title: President
THE LAKE TERMINAL RAILROAD COMPANY
By /s/ Rade Vignovic
-----------------------------------
Title: V.P. - Marketing
23
<PAGE> 1
EXHIBIT 10.6.1
TRANSPORTATION SERVICES AGREEMENT
DATED JULY 1, 1998
BY AND BETWEEN
USX CORPORATION - U. S. STEEL GROUP
AND
USS/KOBE STEEL COMPANY
ON THE ONE HAND
AND
USS GREAT LAKES FLEET, INC.
ON THE OTHER HAND
<PAGE> 2
TRANSPORTATION SERVICES AGREEMENT
BY AND BETWEEN
USX CORPORATION - U. S. STEEL GROUP
AND
USS/KOBE STEEL COMPANY
ON THE ONE HAND
AND
USS GREAT LAKES FLEET, INC.
ON THE OTHER HAND
INDEX
<TABLE>
<CAPTION>
Article Title Page
- ------- ----- ----
<S> <C> <C>
1 TERM 2
2 TRANSPORTATION 2
3 SHIPPING SEASON 6
4 DECLARATION OF QUANTITIES 8
5 LOADING AND DISCHARGING OBLIGATIONS 11
6 LOADING AND DISCHARGING 12
7 FREIGHT AND RATES 13
8 SCOPE OF ACTIVITIES 14
9 FUEL COST ADJUSTMENT 15
10 EXTENDED SEASON FREIGHT SURCHARGE 16
11 AUDIT 17
12 LIENS 18
13 LIBERTIES 19
14 FORCE MAJEURE 19
15 LIMITATION OF THE CARRIER'S LIABILITY 21
16 GENERAL AVERAGE 22
17 BILLS OF LADING 23
18 MEDIATION 23
19 ARBITRATION 24
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Article Title Page
- ------- ----- ----
<S> <C> <C>
20 NOTICES 26
21 CHOICE OF LAW 27
22 INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES 27
23 ENTIRETY OF AGREEMENT; AMENDMENTS 28
24 ASSIGNMENT 28
25 RELATIONSHIP OF PARTIES 29
26 HEADINGS 29
27 MUTUAL RELEASE 29
</TABLE>
LIST OF EXHIBITS:
Exhibit A Ports of Loading and Discharge
Exhibit B Vessels Owned and/or Leased by GLF
Exhibit C Base Affreightment Rates for 1998 and 1999 Shipping Seasons
Exhibit D Calculation of Fuel Cost Adjustment
Exhibit E Form of Bill of Lading
<PAGE> 4
TRANSPORTATION AGREEMENT
THIS AGREEMENT made and concluded this 21st day of December, 1998 but
effective the 1st day of July, 1998, by and between USX CORPORATION - U. S.
STEEL GROUP, a Delaware corporation with an office at 600 Grant Street,
Pittsburgh, Pennsylvania 15219-2749 (hereinafter referred to as "USS")and
USS/KOBE STEEL COMPANY, an Ohio general partnership with an office at 1807 East
28th Street, Lorain, Ohio 44055 (hereinafter referred to as "USS/KOBE") each
referred to herein as a "SHIPPER" or collectively as "SHIPPERS," party of the
first part, on the one hand, and USS GREAT LAKES FLEET, INC., a Delaware
corporation with an office at 400 Missabe Building, Duluth, Minnesota 55802-1990
(hereinafter referred to as "CARRIER"), party of the second part.
W I T N E S S E T H:
WHEREAS, CARRIER owns and operates a fleet of vessels for the
transportation of various dry bulk commodities on the Great Lakes; and
WHEREAS, SHIPPERS desire to have CARRIER provide certain vessel
transportation services originating on the Great Lakes required by SHIPPERS for
domestically sourced iron ore, iron pellets, taconite ore used for blast furnace
trim, and limestone (excluding and excepting both the taconite ore used for
blast
1
<PAGE> 5
furnace trim and the limestone that are purchased by USS/KOBE on a delivered
basis) (hereinafter "COMMODITIES") and other dry bulk commodities which the
parties may agree to include within this agreement; and
WHEREAS, CARRIER is willing to provide said transportation services to
SHIPPERS.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth the parties hereto, intending to be legally bound, agree
as follows:
1. TERM.
This Agreement shall be effective on July 1, 1998 and shall
remain in effect until March 15, 2005 (2004 SHIPPING SEASON).
2. TRANSPORTATION.
For purposes of this Agreement, the term "DECLARED TONNAGE"
means the total tons of COMMODITIES forecasted for shipment on the Great Lakes
in SHIPPERS' Official Annual Business Plan as of November 30 of the prior
calendar year ("BUSINESS PLAN") (as reflected in the USS Raw Materials Balance
Sheets which shall include the latest information available from USS/KOBE) for
consumption, purchase, exchange or use by SHIPPERS during the SHIPPING SEASON.
2
<PAGE> 6
During each SHIPPING SEASON and absent consent of CARRIER,
SHIPPERS may ship via third parties other than CARRIER no more than the
following percentages of the DECLARED TONNAGE set forth in SHIPPERS' BUSINESS
PLAN ("THIRD PARTY TONNAGE"):
<TABLE>
<CAPTION>
SHIPPING THIRD-PARTY
SEASON TONNAGE
------ -----------
<S> <C>
1998 600,000 GT*
1999 10%
2000 10%
2001 10%
2002 10%
2003 15%
2004 15%
</TABLE>
*Given that this Agreement begins July 1, 1998, THIRD PARTY TONNAGE for 1998
SHIPPING SEASON will be expressed as and limited to 600,000 GT of pellets to
Lorain.
That portion of the DECLARED TONNAGE set forth in SHIPPERS' BUSINESS PLAN which
exceeds THIRD PARTY TONNAGE during the SHIPPING SEASON ("CARRIER'S TONNAGE")
shall be offered to CARRIER for transportation between the ports listed in
Exhibit A and such other ports as may be agreed upon ("PORTS"). The term
"CARRIER'S TONNAGE" does not include USS tonnage sold to or exchanged to third
parties where USS does not control the transportation of such tonnage under the
terms of sale or exchange, but does include all tonnage purchased by or
exchanged to USS. In those sales to and exchanges to third parties where USS
does not control the transportation of tonnage, USS shall use reasonable efforts
to induce the third party to utilize services of CARRIER for transportation of
all such tonnage.
3
<PAGE> 7
SHIPPERS shall make tonnage available to CARRIER for
transportation at dockside in monthly quantities sufficient to meet the INITIAL
FORECAST or any UPDATED FORECAST in such manner reasonably calculated to
maximize use of CARRIER'S vessels, and to permit CARRIER to transport all
CARRIER'S tonnage during the SHIPPING SEASON, SHIPPERS giving due consideration
to CARRIER'S available capacity of Class I and Class II vessels listed on
Exhibit B (including CARRIER'S ability to charter) and seasonal weather
conditions as well as the maximum monthly quantities established in Article
4(c). Except as provided in Articles 4(e) and 4(f) of this Agreement if, during
any SHIPPING SEASON, SHIPPERS ship via third parties other than CARRIER any
amount in excess of THIRD PARTY TONNAGE without first offering those tons to
CARRIER for transportation, then SHIPPERS shall pay CARRIER LIQUIDATED DAMAGES
of one dollar and ninety-six cents ($1.96 NT), as escalated in accordance with
the following paragraph of this Article 2 for every net ton of THIRD PARTY
TONNAGE so shipped, payable no later than fifteen (15) days from receipt of
invoice at the end of the SHIPPING SEASON.
If during the Term of this Agreement, SHIPPERS, for any reason
other than force majeure, fail to meet any of the volume commitments set forth
in Section 2 hereof for any given SHIPPING SEASON other than the final SHIPPING
SEASON of the Term, shippers may, in lieu of paying LIQUIDATED DAMAGES, make up
the deficit volume during the immediately succeeding SHIPPING SEASON
4
<PAGE> 8
by shipping such deficit volume plus an additional 10% of the deficit volume via
CARRIER, in addition to shipping its annual volume commitment for such
succeeding SHIPPING SEASON. If any portion of the deficit volume plus an
additional 10% of the deficit volume has not been shipped by the end of the
immediately succeeding SHIPPING SEASON, SHIPPERS shall pay the LIQUIDATED
DAMAGES (as then escalated) for such portion no later than thirty (30) days
after the end of such immediately succeeding SHIPPING SEASON.
LIQUIDATED DAMAGES shall be adjusted annually to be effective
January 1, 2000 and each January 1 thereafter up or down by the amount of the
cumulative percentage change between the October 1998 Producers Price Index, All
Commodities Unadjusted, published by the Bureau of Labor Statistics, U.S.
Department of Labor (PPI-U) and the most recent October PPI-U. If the PPI-U is
not available, then another Index mutually agreed to by the parties shall be
used. LIQUIDATED DAMAGES as adjusted shall never fall below the initial charges
of $1.96 NT.
In each SHIPPING SEASON, CARRIER shall use all reasonable
efforts to provide suitable and sufficient vessel capacity owned, leased or
chartered by CARRIER required to transport CARRIER'S TONNAGE, provided that a
nominated vessel may enter, depart and lie in all of said PORTS always safely
afloat. CARRIER shall make the vessels listed on Exhibit B,
5
<PAGE> 9
attached hereto and made a part hereof, available for transportation of
CARRIER'S TONNAGE and may charter vessel capacity to transport CARRIER'S
TONNAGE.
It is anticipated and intended (a) that SHIPPERS will advise
CARRIER of their requirements for transportation on the Great Lakes of dry bulk
materials other than COMMODITIES and for transportation on the Great Lakes
between Great Lakes ports other than those listed on Exhibit A; (b) that if
CARRIER can provide said services, CARRIER will propose competitive rates and
(c) that if mutual agreement is reached on all points, said requirements will be
tendered and transported pursuant to the provisions of this Agreement.
3. SHIPPING SEASON.
(a) For purposes of this Agreement, a SHIPPING SEASON is that
period extending from March 16 of one year through March 15 of the succeeding
year or such shorter period commencing March 16 or later that is determined by
the official seasonal opening and closing of navigating routes required for the
transportation in question. A SHIPPING SEASON consists of an "EARLY SEASON" that
starts at the commencement of the SHIPPING SEASON and lasts until April 7; a
"REGULAR SEASON" that starts on April 8 and extends through December 19 and an
"EXTENDED SEASON" that starts on December 20 and extends to the end of the
SHIPPING SEASON. Each SHIPPING SEASON shall be designated by the year in which
it commences, e.g., 1998 SHIPPING SEASON commences March 16, 1998.
6
<PAGE> 10
(b) CARRIER shall not be required to provide service hereunder
during the EARLY SEASON, if CARRIER determines, in its sole discretion, that
weather conditions are not conducive to effective and efficient operations
during all or any portion of such period, provided however, SHIPPERS may require
CARRIER to commence providing service hereunder during the EARLY SEASON if (1)
SHIPPERS agree to pay EXTENDED SEASON surcharges as set forth in Article 10; or
(2) if two of the three major fleets operating on the Great Lakes (i.e. American
Steamship, Oglebay Norton and/or Interlake) commence operations prior to April 8
from Head-of-the-Lakes PORTS to lower lake PORTS, in which case EXTENDED SEASON
surcharges shall not be applicable to that portion of the EARLY SEASON during
which two of the three major fleets operate. Any forecasted CARRIER'S TONNAGE
not transported by CARRIER during the EARLY SEASON due to CARRIER's decision not
to provide service shall be deferred for shipment by CARRIER to such times
during the balance of the SHIPPING SEASON as mutually designated by CARRIER and
SHIPPERS.
(c) CARRIER shall provide service hereunder during the
EXTENDED SEASON, without assessing EXTENDED SEASON surcharges, as long as
CARRIER, in its sole discretion, determines that weather conditions permit
effective and efficient operations. If CARRIER decides to cease operations
during any
7
<PAGE> 11
EXTENDED SEASON, it shall provide SHIPPERS not less than five days advance
notice of such cessation. SHIPPERS shall have the right to require CARRIER to
provide service after the date specified in such notice, but EXTENDED SEASON
surcharges, as set forth in Article 10, shall apply to any vessels loaded after
expiration of the 5-day period. Once notified of CARRIER'S intent to cease
EXTENDED SEASON operations, SHIPPERS shall also have the right to utilize the
vessel capacity of third parties still operating during the EXTENDED SEASON, and
any DECLARED TONNAGE transported by such third parties during the EXTENDED
SEASON shall be excluded from LIQUIDATED DAMAGES.
4. DECLARATION OF QUANTITIES.
SHIPPERS' INITIAL FORECAST and any UPDATED FORECAST shall
contain a monthly distribution of CARRIER'S TONNAGE which, when considering
CARRIER'S available vessel capacity (including CARRIER'S ability to charter) and
seasonal weather conditions, is reasonably calculated to permit CARRIER to
transport during the SHIPPING SEASON all tonnage that SHIPPERS must make
available to the CARRIER under this Agreement.
(a) On or before November 30 of each year, SHIPPERS shall
provide CARRIER with their BUSINESS PLAN showing the amounts of DECLARED
TONNAGE, THIRD PARTY TONNAGE, and CARRIER'S TONNAGE that SHIPPERS intend to
transport under this Agreement, each detailed by COMMODITIES and loading and
discharging PORTS
8
<PAGE> 12
for the succeeding SHIPPING SEASON. On or before February 15 of each year
SHIPPERS shall provide an initial written forecast ("INITIAL FORECAST") to
CARRIER detailing by COMMODITIES and loading and discharging PORTS their
requirements for transportation of CARRIER'S TONNAGE and THIRD-PARTY TONNAGE by
month and showing their distribution for each month of the SHIPPING SEASON
including tonnage SHIPPERS intend to transport during the EARLY SEASON and
EXTENDED SEASON. SHIPPERS and CARRIER shall confer and attempt to agree upon a
mutually acceptable distribution.
(b) At least 10 days prior to the beginning of each month of
the SHIPPING SEASON, SHIPPERS shall provide an updated written forecast
("UPDATED FORECAST") setting forth CARRIER'S TONNAGE and THIRD-PARTY TONNAGE
detailed by COMMODITIES and loading and discharging PORTS that they will require
to be transported during each remaining month of the SHIPPING SEASON, including
tonnage they will require to be transported during the EXTENDED SEASON.
(c) The maximum amount of tonnage which SHIPPER may require to
be transported by CARRIER in any given month is as follows:
9
<PAGE> 13
<TABLE>
<CAPTION>
Vessel Capacity in (Gross)
--------------------------
Tons Per Month (000's)
-------------------------------------
Class I# Class II*
-------- ---------
<S> <C> <C>
March (25 through 31) 210 --
April 875 240
May 1,040 315
June 1,040 315
July 1,040 315
August 1,040 315
September 1,040 315
October 1,040 315
November 875 240
December (through 20th) 640 130
</TABLE>
#Two Harbors to Gary. Two Harbors to Conneaut is 90% of these figures.
*Two Harbors to Lorain in Class II vessels.
SHIPPERS will designate and may prioritize monthly tonnage for
movement during the month and CARRIER will use reasonable efforts to move such
tonnage and to give priority to any portion designated as a priority shipment by
SHIPPERS.
(d) The INITIAL FORECAST shall be superseded by any UPDATED
FORECAST agreed upon by CARRIER and SHIPPERS. An UPDATED FORECAST shall be
superseded by any subsequent UPDATED FORECAST agreed upon by CARRIER and
SHIPPERS.
(e) If SHIPPERS' requirements during any SHIPPING SEASON
exceed the DECLARED TONNAGE set forth in SHIPPERS' BUSINESS PLAN ("EXCESS
DECLARED TONNAGE"), such EXCESS DECLARED TONNAGE shall be offered to, and, if
accepted, shall be transported by, CARRIER in accordance with the terms of this
Agreement. CARRIER will use reasonable efforts to arrange
10
<PAGE> 14
charter to supplement its capacity for movement of any EXCESS DECLARED TONNAGE,
contingent upon SHIPPERS right to approve any charter rates that exceed
CARRIERS' rates. Any portion of EXCESS DECLARED TONNAGE not accepted by CARRIER
for transportation may be shipped via third parties other than CARRIER and will
not be subject to LIQUIDATED DAMAGES.
(f) If during any month of a SHIPPING SEASON, CARRIER fails to
transport the amount of tonnage made available to it by SHIPPERS for shipment
and accepted by CARRIER for transportation, then SHIPPERS shall defer such
amount for shipment by CARRIER during the balance of the SHIPPING SEASON, as set
forth in subsequent UPDATED FORECASTS. If CARRIER does not agree it will be able
to transport such tonnage, SHIPPERS may ship such amount via third parties other
than CARRIER and such tonnage offered to and transported by third parties will
not be subject to LIQUIDATED DAMAGES.
5. LOADING AND DISCHARGING OBLIGATIONS.
SHIPPERS shall specify the Great Lakes loading PORT and
discharging PORT for each cargo, shall provide a berth at each port for the
nominated vessel, and shall make all arrangements for delivery of the cargo to
the loading PORT. Loading of COMMODITIES aboard CARRIER'S vessels shall be
accomplished by the SHIPPERS under the supervision of the Master of the vessel.
Each shipment shall be a minimum cargo size as set forth in Exhibit C.
11
<PAGE> 15
CARRIER shall transport each cargo from one safe berth at
loading PORT to one safe berth at discharging PORT and will deliver COMMODITIES
to SHIPPERS or to SHIPPERS' designee free end of boom ex-self-unloader. Without
limiting the duties and responsibilities of CARRIER hereunder, CARRIER will:
a. Comply with specifications and procedures required
of vessels loading or discharging COMMODITIES at the
designated PORTS and facilities and be responsible for all
charges imposed upon vessels loading or discharging at such
PORTS and facilities.
b. Prepare and issue all bills of lading, if any, and
other documents, notices and reports required in connection
with the transportation and discharge of COMMODITIES. Weights
of cargoes shall be determined according to established
practice at the various PORTS of loading or in such other
manner as shall be mutually agreed upon, but in any case shall
reflect actual weight to a degree reasonably practical.
6. LOADING AND DISCHARGING.
SHIPPERS shall load each entire cargo and shall accept
deliveries from self-unloading vessels day and night, Saturdays, Sundays and
holidays included. SHIPPERS shall diligently act to have facilities for the
loading and receipt of cargoes available and in good operating order upon the
arrival of any vessels and to load and receive cargo with all reasonable
12
<PAGE> 16
dispatch. CARRIER shall also diligently act to cause facilities for the loading
and receipt of cargoes that are owned or controlled by companies affiliated with
CARRIER to be available and in good operating order upon the arrival of any
vessels and to load and receive cargo with all reasonable dispatch.
7. FREIGHT AND RATES.
Freight shall be based on bill of lading weights and shall be
paid at the rates required by this Article 7, as adjusted for changes in the
price of fuel pursuant to Article 9. Freight shall be earned by CARRIER as the
cargo is loaded and shall be due and payable by SHIPPERS within fifteen (15)
days of receipt of billing, cargo and/or vessel lost or not lost. Affreightment
rates and related Benchmark Fuel Price for the 1998 and 1999 SHIPPING SEASONS
are set forth in Exhibit C attached hereto and made a part hereof.
Affreightment rates and related Benchmark Fuel Price for the
Year 2000 SHIPPING SEASON and each succeeding SHIPPING SEASON shall be agreed
upon annually before the beginning of the SHIPPING SEASON through good faith
negotiations conducted by CARRIER and SHIPPERS commencing in November of the
prior year. The affreightment rates negotiated by the parties shall be
competitive with affreightment rates offered for transportation services of
sizable magnitude by major competitors of CARRIER who are capable of providing
such services on a sustained basis, as indicated by the financial health and
operational capabilities of said competitors, as well as other
13
<PAGE> 17
indicators of ability. The parties acknowledge as of the effective date of this
Agreement the major competitors of CARRIER are American Steamship Company, The
Interlake Steamship Company, and Oglebay Norton Company. If an agreement has not
been reached on affreightment rates by January 1, the dispute may be referred to
the dispute resolution procedures in accordance with the provisions of Articles
18 and 19 herein.
If an agreement has not been reached by March 15, the dispute
will be referred to arbitration and appropriate competitive rates for the
pertinent SHIPPING SEASON shall be determined through those procedures. In all
cases, the preceding year's rates will be used in the interim until agreement is
reached or appropriate competitive rates are determined through the dispute
resolution procedures set forth in Articles 18 and 19 herein. Any interim rates
shall be revised retroactively to the rates agreed upon by the parties or
determined by the arbitration procedures set forth in Article 19. Any balance
due charges owed to CARRIER or refunds owed to SHIPPERS, shall be paid within
thirty (30) days of the date new rates are agreed upon or established.
8. SCOPE OF ACTIVITIES.
Unless otherwise mutually agreed, in the event CARRIER should
undertake movements (other than charters to other transportation companies) of
iron ore, pellets or stone in sizable quantities (quantities in any SHIPPING
SEASON in excess
14
<PAGE> 18
of 1.5% of CARRIER'S TONNAGE of iron ore, pellets or stone, for said SHIPPING
SEASON) which are destined for end use in blast furnaces other than SHIPPERS'
and/or by pellet producers other than USS, then the rates, terms and conditions
applicable to said services shall not be more favorable to such other shippers
than would be the rates, terms and conditions hereunder. If such services are
being provided by CARRIER on a basis more favorable to such other shippers than
the rates, terms and conditions then in effect under this Agreement, the rates,
terms and conditions for a like amount of similar service provided hereunder
shall be modified so that they are comparable to the rates, terms and conditions
provided to such other shipper.
9. FUEL COST ADJUSTMENT.
The BASE AFFREIGHTMENT RATES set forth on Exhibit C are based
on the weighted average price of fuels including any handling and delivery costs
where applicable of $0.4213 per gallon (Benchmark Fuel Price). Following each
month during a SHIPPING SEASON, CARRIER shall determine the value of the Fuel
Cost Adjustment. The Fuel Cost Adjustment is the difference between the
Benchmark Fuel Price and the CARRIER's actual weighted average cost for fuel
purchases during such month multiplied by the number of gallons consumed during
voyages hereunder which commenced during such month. Determination of the Fuel
Cost Adjustment is illustrated by the following formula:
15
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C> <C> <C>
[ ($0.4213) ] Total Gallons
Fuel Cost [Actual Weighted Benchmark ] Consumed
Adjustment = Average Fuel Cost - Fuel Price ] x During Month
[Per Gallon Per Gallon ] for SHIPPER's cargo
</TABLE>
CARRIER and SHIPPERS will share equally in the Fuel Cost Adjustment such that if
the Fuel Cost Adjustment is a positive amount, SHIPPERS shall pay fifty percent
(50%) of the Fuel Cost Adjustment within thirty (30) days of receipt of notice
of the determination. CARRIER shall supply supporting documentation for
calculation and determination of the charges. If the value of the Fuel Cost
Adjustment is a negative amount, CARRIER shall issue a credit to SHIPPERS within
thirty (30) days of the determination representing fifty percent (50%) of the
Fuel Cost Adjustment. It is the intent of the parties, that CARRIER and SHIPPERS
share in the risks of rising or the benefit of declining fuel prices through the
Fuel Cost Adjustment Procedure. An example of the application of the Fuel Cost
Adjustment Procedure set forth in Exhibit D.
10. EXTENDED SEASON FREIGHT SURCHARGE.
The applicable affreightment rate surcharge and fuel cost
adjustment will be assessed pursuant to the provisions of Article 3 for all
tonnage carried on voyages identified in Article 3 as requiring an EXTENDED
SEASON freight surcharge when the number of hours actually used in completing
said voyage exceeds the number of hours set forth below by using the following
table and formulas:
16
<PAGE> 20
<TABLE>
<CAPTION>
ORIGIN DESTINATION ALLOWED HOURS
------ ----------- -------------
<S> <C> <C>
Two Harbors/Silver Bay Gary 148.0
Duluth Gary 149.5
Marquette Gary 112.0
Escanaba Gary 76.0
Two Harbors/Silver Bay Lorain 159.0
Duluth Lorain 160.5
Marquette Lorain 120.0
Escanaba Lorain 107.0
Two Harbors/Silver Bay Conneaut 161.0
Duluth Conneaut 162.5
Marquette Conneaut 126.5
Escanaba Conneaut 114.0
Rogers City/Cedarville All Ports 76.8
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
EXTENDED SEASON [ Actual Voyage Hours - 1.00 ] x 0.71 (Freight Rate) x Number of
Surcharge ------------------- Tons on the
for a Voyage = [ Allowed Hours Voyage
</TABLE>
SHIPPERS shall also be surcharged for and reimburse CARRIER for the expenses of
any ice breaker or special tug service required for the navigation of a voyage
any part of which occurs during the EXTENDED SEASON. For purpose of this Article
10 a voyage shall be deemed to commence upon departure of the nominated vessel
from the port of discharging its prior cargo and shall terminate upon completion
of discharging the cargo hereunder.
11. AUDIT.
SHIPPERS AND CARRIER shall each have the right to audit the
other's records insofar as necessary to ensure compliance with all of the terms
and conditions of this
17
<PAGE> 21
Agreement. Such audits shall be performed by an internal or external auditor,
provided however, that the party being audited shall have the right to require
that any audit be conducted by a mutually agreeable independent auditor and that
the details of the information examined in such audit be kept confidential from
the party requesting the audit, except to the extent necessary to resolve any
controversy that is pursued in good faith. The first $20,000 of cumulative total
audit expense annually incurred for audit services required by any party to be
performed by independent auditors shall be shared equally by the parties.
Thereafter, such audit expense shall be borne by the party requesting the audit.
12. LIENS.
CARRIER shall have a lien on cargo shipped pursuant to this
Agreement for any and all freight, expenses, charges, indemnity or other monies
due to the CARRIER hereunder with respect to such cargo or any part thereof. If
a vessel is under charter to the CARRIER, then the CARRIER shall defend,
indemnify and hold the SHIPPERS harmless from any lien on cargo exercised by the
owner or chartered owner of the vessel arising from the failure of the CARRIER
to discharge its obligations under such charter.
18
<PAGE> 22
13. LIBERTIES.
Any vessel provided or intended to be provided hereunder shall
have liberty to bunker en route, to call at any ports in any order for any
reasonable purpose, to tow or assist vessels in all situations, and to deviate
for the purpose of saving life or property. Such vessel shall have the liberty
to comply with any directions or recommendations, whether as to departure,
arrival, routes, ports of call, stoppages, destinations, loading, discharging or
otherwise, given by any governmental authority or by any person or body acting
or purporting to act as or with the authority of any government. If in complying
with such directions or recommendations anything is done or is not done, it
shall not be deemed a deviation.
If a vessel puts into any port in distress or there is an
interruption of the voyage, CARRIER shall immediately notify SHIPPERS of same.
SHIPPERS may name an agent at such port to whom the cargo shall be consigned, if
it is to be discharged at such port. CARRIER shall likewise immediately notify
SHIPPERS if cargo or any part thereof must be jettisoned.
14. FORCE MAJEURE.
Neither CARRIER nor SHIPPERS, nor any vessel provided
hereunder, nor the Master, owner or chartered owner of any such vessel shall be
liable for damage, injury, delay, or breach of this Agreement resulting from any
condition of force majeure, except as otherwise provided in this Agreement.
19
<PAGE> 23
Force majeure shall be deemed to exist, if for any reason
beyond the control of the party declaring force majeure, performance hereunder
is rendered impossible or the Master, owner or chartered owner of the vessel
considers it unsafe, imprudent or unlawful to proceed to or reach or enter the
loading or discharging port without undue delay or expense whether or not such
condition is a temporary one. The term "force majeure" shall include, but is not
limited to, the following: act or state of war or warlike operations; civil
commotion, revolution, insurrection or riots; government requisition, embargo,
allocation, control or other restrictions; seizure under legal process;
governmental directions or recommendations; the operation of international law;
strikes, lock-outs, work stoppages, labor shortages, or other labor disruptions
of any nature; act of God; perils of the sea or other waters; accidents or
casualties whether or not involving a vessel hereunder which limit the efficient
operation of such vessel; ice or frost; fire on land or water; weather
conditions; act, neglect or default of the Master, mariner, pilot or the
servants of the shipowner or vessel operator; equipment failure; accident,
break-down or damage to any vessel provided or intended to be provided pursuant
to this Agreement, unless resulting from unseaworthiness caused by want of due
diligence on the part of CARRIER, owner or chartered owner of the vessel.
20
<PAGE> 24
Notwithstanding the occurrence of a condition of force
majeure, both CARRIER and SHIPPERS shall perform such of their duties and
obligations hereunder as conditions will reasonably permit. The party whose
performance is affected by any such occurrence shall promptly notify the other
party thereof, giving reasonable particulars regarding its commencement, nature
and expected duration, and shall take all reasonable steps to mitigate and
terminate said condition.
If a condition of force majeure occurs, CARRIER and SHIPPERS
shall, after consultation when possible, act to mitigate the cost impact of such
occurrences to their mutual best interests, provided however, no party to this
Agreement shall be obligated to settle any strike, lockout, work stoppage, or
labor dispute, except as such party deems advisable in its sole discretion.
15. LIMITATION OF THE CARRIER'S LIABILITY.
Transportation performed pursuant to this Agreement shall be
subject to the provision of the Carriage of Goods by Sea Act of the United
States, approved April 16, 1936, except to the extent modified by this
Agreement; nothing in this Agreement, however, shall be deemed a surrender by
CARRIER of any of its rights or immunities or an increase of any of its
responsibilities or liabilities under said Act or any other law applicable to
this Agreement. Owners and chartered owners of any vessels employed in the
service of SHIPPERS under this Agreement
21
<PAGE> 25
shall have all the rights, immunities and limitations of liability provided to
carriers by the Carriage of Goods by Sea Act of the United States. If the
operation of any term of this Agreement is repugnant to said Act to any extent,
such term shall be deemed void to that extent, but no further.
CARRIER may provide all or part of the transportation herein
contemplated by means of vessels chartered or to be chartered by CARRIER from
others. CARRIER shall be exempt from liability, however, for any delay or
failure of performance caused directly or indirectly by any condition beyond its
reasonable control which prevents or hinders it from chartering or keeping under
charter vessel tonnage suitable and sufficient for the transportation which the
CARRIER has undertaken to provide for SHIPPERS and other parties prior to
CARRIER'S becoming aware, or having reason to know, that it would be unable to
obtain or keep adequate vessel capacity under charter.
16. GENERAL AVERAGE.
In the event of accident, danger, damage or disaster before or
after the commencement of the voyage, resulting from any cause whatsoever,
whether due to negligence or not, for which, or for the consequences of which,
the CARRIER is not responsible, by statute, contract or otherwise, the goods,
shippers, consignees or owners of the goods shall contribute with the CARRIER in
general average to the payment of any sacrifices,
22
<PAGE> 26
losses or expenses of a general average nature that may be made or incurred and
shall pay salvage and special charges incurred in respect of the goods. If a
salving ship is owned or operated by the CARRIER, salvage shall be paid for as
fully as if such salving ship or ships belonged to strangers. This Article shall
apply only in circumstances where general average shall be applicable under this
Agreement.
17. BILLS OF LADING.
The transportation of cargo pursuant to this Agreement shall
be subject to the terms appearing in the "American Form 1942 Bill of Lading for
Bulk Cargoes Other than Grain and Seed" attached hereto as Exhibit E, the terms
of which are incorporated herein by this reference and which shall apply whether
or not said form is actually issued with regard to any given shipment. Should
there be any inconsistency between the terms so incorporated and the other terms
of this Agreement, this Agreement shall prevail.
18. MEDIATION.
At any time prior to the start of sworn testimony in
arbitration, provided under Article 19 of this Agreement, either party may
submit a dispute arising hereunder to non-binding mediation. The mediator shall
be selected by the parties from a panel of candidates provided by JAMS of
Pittsburgh, Pennsylvania or such other mediation service acceptable to the
parties. Neither submission of a dispute to a mediation nor conclusion of the
mediation process shall be a
23
<PAGE> 27
condition precedent to exercise of the arbitration remedy available to the
parties under this Agreement. If a dispute is submitted to mediation:
1) the parties shall mediate the dispute in good faith;
2) mediation shall occur in Allegheny County, Pennsylvania.
3) final decision makers for each party on any matter in dispute shall
personally attend all mediation sessions;
4) the mediator shall have complete control of the mediation timing and
process, provided however, that the mediation shall conclude no later
than fourteen (14) calendar days from the day of the initial meeting
between the mediator and the parties;
5) all agreements reached in mediation shall be reduced to writing before
concluding the mediation process;
6) the parties may jointly agree to have the mediator make a final and
binding decision;
7) no discovery will be taken during the mediation process;
8) the mediation process shall be confidential and each party shall have
the right to designate any information provided to the mediator as
"Confidential and Proprietary."
19. ARBITRATION.
All disputes arising under this Agreement shall be referred to
binding arbitration conducted expeditiously in accordance with CPR Rules for
Non-Administered Arbitration of Business Disputes ("CPR Rules") by a three
person panel of arbitrators, each party choosing one arbitrator and the two
24
<PAGE> 28
arbitrators so chosen selecting a third, neutral arbitrator. The failure or
inability of either party to choose an arbitrator or of the arbitrators chosen
by the parties to select a third neutral arbitrator shall be resolved in
accordance with the CPR Rules. Arbitration shall be conducted at a mutually
convenient location in Allegheny County, Pennsylvania or at such other location
as the parties may agree. The award in writing signed by any two of the
arbitrators shall be final and binding. Either party shall have the right to
seek, and the arbitrators shall determine, declaratory relief of the nature
generally set forth in the Uniform Declaratory Judgments Act (as in effect in
the Commonwealth of Pennsylvania and as the same may be amended from time to
time) including, but not limited to, questions of construction of this
Agreement, or a declaration of rights, status or other legal relations
hereunder. The arbitrators shall apply the substantive statutory and common law
of the Commonwealth of Pennsylvania to the dispute and the evidentiary laws of
the Commonwealth of Pennsylvania to the arbitration proceeding. The arbitration
shall be governed by the United States Arbitration Act, 9 U.S.C. Sections 1-16,
and judgment upon the award entered by the arbitrators may be entered by any
court having jurisdiction thereof. The arbitrators shall not award damages in
excess of compensatory damages. The costs and expenses of the arbitration (other
than attorneys' fees, if any)
25
<PAGE> 29
shall be borne one-half by each party. The arbitrators shall be permitted to
review existing documents or records of any party to the extent that, in the
sole discretion of the neutral arbitrator, such documents and/or records are
deemed to be relevant and to the extent the parties are permitted by law or by
contract to convey such documents or records to the arbitrator. Either party
shall have the right to designate any information sought in discovery or
provided to the arbitrators at their request as confidential and/or proprietary
in which case the neutral arbitrator shall determine whether the information
sought shall be disclosed in discovery or, if such information is provided to
the arbitrators at their request, shall not convey such information to the other
party.
20. NOTICES.
All notices, communications and payments to SHIPPERS or
CARRIER pertaining to this Agreement shall be deemed sufficiently made if in
writing and delivered (i) in person to an office of the intended recipient, or
(ii) by registered or certified mail, return receipt requested; or (iii) by
overnight delivery service which provides proof of delivery; or (iv) by
telecopy, with a duplicate copy sent via first class mail, postage prepaid,
addressed as follows or to such other address as SHIPPERS or CARRIER shall
designate in writing:
26
<PAGE> 30
If to SHIPPERS:
USX Corporation-U. S. Steel Group
600 Grant Street - Room 2382
Pittsburgh, Pennsylvania 15219-2749
Attention: Director - Raw Materials Planning,
Procurement and Distribution
Phone: 412-433-3620
Fax: 412-433-3624
USS/KOBE Steel Company
1807 East 28th Street
Lorain, Ohio 44055
Attention: Vice President-Finance and Administration
Phone: 440-277-2401
Fax: 440-277-3552
If to CARRIER:
USS Great Lakes Fleet, Inc.
400 Missabe Building
Duluth, Minnesota 55802-1990
Attention: Director of Marketing
Phone: 218-723-2424
Fax: 218-723-2455
21. CHOICE OF LAW.
To the extent the law of a state of the United States of
America will govern this Agreement, the law of the Commonwealth of Pennsylvania
shall apply, without regard to the principles therein pertaining to the
conflicts of laws.
22. INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES.
In no event shall either party be liable for any indirect,
special or consequential damages as a result of a breach of any provision of
this Agreement.
27
<PAGE> 31
23. ENTIRETY OF AGREEMENT; AMENDMENTS.
The Transportation Agreement between SHIPPERS and CARRIER
dated March 16, 1988, is superseded as of the effective date of this Agreement
and is of no further force and effect. This Agreement constitutes the entire
Agreement of the parties with respect to the subject matter hereof. No change,
modification or alteration of this Agreement shall be effective unless reduced
to writing and signed by the parties hereto. Waiver by either party of any
breach of this Agreement, shall not be construed as a waiver of any other
breach.
24. ASSIGNMENT.
Neither party to this Agreement shall assign or transfer this
Agreement or any interest herein, other than to the lenders providing financing
to Transtar, Inc. (which lenders will act through a single agent), without the
prior written consent of the other party, which consent shall not be
unreasonably withheld. Subject to the provisions of this Article 24, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns to the parties. Neither SHIPPER shall directly or indirectly sell,
transfer or otherwise dispose of all or a substantial portion of the assets of
the facilities served by CARRIER during the term of this Agreement to any party
which intends to operate these facilities for the production of steel or
steel-related products, unless the purchaser, acquiror or other transferee of
such facilities assumes, in a writing
28
<PAGE> 32
reasonably satisfactory to CARRIER, all of the rights and obligations set forth
in this Agreement.
25. RELATIONSHIP OF PARTIES.
The relationship between SHIPPERS and CARRIER under this
Agreement shall be that of independent contractors. Nothing contained in this
Agreement shall be deemed to constitute a relationship of agency, joint venture,
partnership, or any relationship other than that specified.
26. HEADINGS.
The headings in this Agreement are inserted for ease of
reference only and shall in no way be used to interpret any of the terms or the
intent of this Agreement.
27. MUTUAL RELEASE.
The parties fully release and discharge each other from all
claims, known and unknown, arising under the 1988 Agreement which either party
may have against the other party to this Agreement. This provision is not
intended to apply to personal injury or property damage claims that either party
may have against the other.
29
<PAGE> 33
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
USX CORPORATION - U. S. STEEL GROUP
By /s/ Paul J. Wilhelm
--------------------------------
Title: President
USS/KOBE STEEL COMPANY
By /s/ George F. Babcoke
--------------------------------
Title: President
USS GREAT LAKES FLEET INC.
By /s/ Robert S. Rosati
--------------------------------
Title: President
30
<PAGE> 1
EXHIBIT 10.7.1
TRANSPORTATION SERVICES AGREEMENT
DATED JULY 1, 1998
BY AND BETWEEN
U. S. STEEL MINING CO., LLC
AND
TRANSTAR, INC.
<PAGE> 2
TRANSPORTATION SERVICES AGREEMENT
BETWEEN U. S. STEEL MINING CO., LLC
AND
TRANSTAR, INC.
INDEX
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
1 SCOPE 2
2 TERM 2
3 ADDITIONAL TERM 3
4 INTENT OF AGREEMENT 4
5 EXISTING CONTRACTS 5
6 RATES, TERMS AND/OR CONDITIONS FOR SERVICE 5
6(a) Birmingham Southern Service 5
6(b) Fairfield Southern Transportation 6
6(c) Miscellaneous Fairfield Southern Service 7
6(d) WGN 7
6(e) Adjustments to Initial Base Rates, Terms and Conditions and Base Rates, 10
Terms and Conditions to Birmingham Southern Single-Line Rates and Fairfield
Southern Rates
6(f) Adjustments to Joint-Line Rates 13
6(g) Car Hire Adjustments to Birmingham Southern Earnings 16
6(h) Regulatory Change 16
6(i) Drafting 17
6(j) Determination of Competitive Rates Under Certain Circumstances 17
7 TRANSPORTATION COMMITMENTS 18
7(a) Birmingham Southern Rail Service 18
7(b) Fairfield Southern Transportation Service 18
7(c) Miscellaneous Fairfield Southern Services 18
7(d) WGN 18
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Section Title Page
- ------- ----- ----
<S> <C> <C>
7(e) Bid Terms 19
8 SERVICE LEVELS 20
9 MAINTENANCE OF TRANSPORTATION ASSETS 20
10 MAINTENANCE OF INTERCHANGES 21
11 AUDIT 21
12 LIQUIDATED DAMAGES 22
13 SEVERABILITY 23
14 INEQUITIES 24
15 MEDIATION 24
16 ARBITRATION 26
17 ASSIGNMENT 28
18 NOTICES 28
19 LAW GOVERNING 29
20 RELATIONSHIP OF PARTIES 29
21 INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES 30
22 ENTIRETY OF AGREEMENT; AMENDMENTS 30
23 MUTUAL RELEASE 30
24 FORCE MAJEURE 30
</TABLE>
<PAGE> 4
TRANSPORTATION SERVICES AGREEMENT
This Agreement, made and concluded this 21st day of December, 1998, but
effective the 1st day of July 1998, by and between U. S. STEEL MINING CO., LLC
(hereinafter "USM"), a Delaware Limited Liability Company with offices at 600
Grant Street, Pittsburgh, Pennsylvania 15219-2749, and TRANSTAR, INC.
(hereinafter "Transtar"), a Delaware corporation with offices at 135 Jamison
Lane, Monroeville, Pennsylvania 15146.
W I T N E S S E T H:
WHEREAS, Transtar is the shareholder of certain transportation
operating companies including Birmingham Southern Railroad Company (hereinafter
"Birmingham Southern") and its subsidiary Fairfield Southern Company, Inc.
(hereinafter "Fairfield Southern"), and Warrior and Gulf Navigation Company
(hereinafter "WGN") and its subsidiary Mobile River Terminal Company
(hereinafter "Mobile River" and collectively the "Transtar Units"); and
WHEREAS, USM and Transtar are parties to a Transportation Services
Agreement dated December 28, 1988 (hereinafter the "1988 TSA"); and
WHEREAS, USM and Transtar desire to enter into a new Transportation
Services Agreement to set forth the terms of a commercial business relationship
between USM and the Transtar Units and to replace the 1988 TSA;
1
<PAGE> 5
NOW, THEREFORE, the parties hereto, intending to be legally bound, and
in consideration of the mutual agreements herein contained, hereby agree as
follows:
1. SCOPE. This Agreement sets forth the understanding of the parties
concerning transportation and transportation-related services to be provided to
USM by Transtar Units. More specific transportation contracts, tariffs, purchase
orders or other agreements may be executed, issued and/or published by USM and
the individual Transtar Units in order to implement this Agreement. To the
extent required by law, such individual agreements shall be filed with the
Surface Transportation Board ("STB") and/or the appropriate state agency.
2. TERM. This Agreement shall become effective on July 1, 1998 and
shall remain in effect through December 31, 2004 ("Initial Term"). At the end of
the Initial Term of this Agreement or at the end of the Additional Term
established in Section 3 herein, if any of the services previously performed by
any Transtar Unit pursuant to this Agreement are subject to competitive bidding,
the Transtar Unit shall be offered an opportunity to participate in any
competitive bidding for such services.
2
<PAGE> 6
3. ADDITIONAL TERM. Following the expiration of the Initial Term of
this Agreement, all of its terms and/or conditions, insofar as they apply to the
Birmingham Southern service referenced in Sections 6(a), 6(e), 6(f) and 7(a),
shall continue to apply to Birmingham Southern. If during the Additional Term, a
non-Transtar rail carrier obtains access to the Concord Preparation Plant, USM
shall have the option of canceling this Agreement, in whole or in part, insofar
as it applies to the service referenced in Sections 6(a) and 7(a) herein which
is provided by Birmingham Southern. During the Initial Term or the Additional
Term, USM shall not take any action which would in any way, either directly or
indirectly, encourage any non-Transtar rail carrier to attempt to obtain access
to the Concord Preparation Plant or which would in any way assist and/or support
any such rail carrier in any efforts to obtain such access; provided, however,
that, during the Additional Term, USM may request non-binding mediation pursuant
to Section 15 and/or request that an arbitrator, pursuant to the provisions set
forth in Section 16 herein, determine whether it is reasonable and equitable,
under the facts, circumstances and the regulatory and competitive conditions in
effect at that time at the Concord Preparation Plant, for USM to seek
competitive access.
3
<PAGE> 7
4. INTENT OF AGREEMENT. The parties hereto intend that they shall
mutually benefit from the rates, terms, conditions and provisions of this
Agreement and that no party shall be either unreasonably enriched or
unreasonably harmed by any implementation and/or interpretation of said rates,
terms, conditions and provisions. In addition, the parties hereto agree and
intend that the rates, terms and conditions (including, but not limited to,
payment and drafting terms) in effect as of the effective date of this Agreement
shall continue in effect except as modified by this or other agreements of the
parties and that no party to this Agreement shall seek to change rates, terms
and conditions through the arbitration procedures set forth in Section 16
hereof, unless there is a material change in existing facts and circumstances
that causes the party seeking such change to suffer a gross inequity. This
Agreement, and all agreements implementing this Agreement, shall be administered
and interpreted in order to fulfill the intent stated in this Section 4. Any
arbitrator considering disputes pursuant to Section 16 hereof shall render a
decision which fulfills the intent stated in this Section 4.
4
<PAGE> 8
5. EXISTING CONTRACTS. All existing contracts, purchase orders and
other agreements between USM and the Transtar Units shall remain in effect for
the terms stated therein. To the extent that any conflict exists between
Sections 6 or 7 of this Agreement and the rates or service provisions of any
such contract, purchase order or other agreement, the terms of this Agreement
shall supersede and take precedence provided, however, that every reasonable
effort shall be made to construe such provisions consistently, and that nothing
contained in this Agreement shall be construed or implemented to shorten the
term of any such contract, purchase order or other agreement.
6. RATES, TERMS AND/OR CONDITIONS FOR SERVICE.
(a) Birmingham Southern Service. Initial Base Rates, terms and/or
conditions for all Birmingham Southern services shall be those in effect in
contracts, tariffs or other agreements as of the effective date of this
Agreement. The rate between USM and Birmingham Southern set forth in Exhibit I
attached to this Agreement together with other rates in effect as of the
effective date of this Agreement (including single-line and joint-line line-haul
rates) shall be referred to herein as "Initial Base Rates." Any new rates
established during the term of this Agreement shall be deemed "Base Rates" as of
the date they are established.
5
<PAGE> 9
Initial Base Rates and Base Rates for single-line movements
shall be adjusted annually to be effective January 1, 1999 and each January 1
thereafter in accordance with the procedures set forth in Section 6(e) herein.
Joint-line Initial Base Rates and joint-line Base Rates shall be adjusted in
accordance with the procedures set forth in Section 6(f) herein.
(b) Fairfield Southern Transportation. Initial Base Rates, terms
and/or conditions for all Fairfield Southern service shall be those in effect
pursuant to the Agreement, executed simultaneously herewith, between USM and
Fairfield Southern. The rates between USM and Fairfield Southern set forth in
Exhibit II together with other rates in effect as of the effective date of this
Agreement shall be referred to herein as "Initial Base Rates." Any new rates
established during the term of this Agreement shall be deemed "Base Rates" of
the date they are established.
Initial Base Rates and Base Rates for Fairfield Southern service
shall be adjusted annually to be effective January 1, 1999 and each January 1
thereafter in accordance with the procedures set forth in Section 6(e) herein.
6
<PAGE> 10
(c) Miscellaneous Fairfield Southern Service. During the Initial
Term of this Agreement, USM shall have the option to subject all or any such
miscellaneous Fairfield Southern services except track maintenance to
competitive bidding. Track maintenance may be subjected to competitive bidding
at any time after December 31, 2001. Fairfield Southern shall be offered an
opportunity to participate in any competitive bidding for such miscellaneous and
track maintenance services and any additional transportation and
transportation-related services required by USM.
(d) WGN. Rates between USM and WGN set forth in Exhibit III and
Exhibit IX together with other rates in effect as of the effective date of this
Agreement shall be referred to herein as "Initial Base Rates." Any new rates
established during the term of this Agreement shall be deemed "Base Rates" as of
the date they are established. Initial Base Rates and adjusted Initial Base
Rates and, unless otherwise agreed by the parties Base Rates and adjusted Base
Rates, shall be subject to the Fuel Cost Adjustment set forth in Exhibit IV.
Upon request for any new service required by USM, WGN shall offer rates, terms
and/or conditions which are competitive with the rates, terms and/or conditions
offered by viable competing water carriers or stevedores for similar services in
the same geographic area. Prior to December 1, 1999 and each
7
<PAGE> 11
December 1 thereafter through December 1, 2003, USM and WGN shall in good faith
negotiate adjusted Initial Base Rates and adjusted Base Rates which shall be
competitive with rates available to USM at that time from viable competitors of
WGN capable of offering the same or substantially similar services and volumes
to USM.
If after good faith negotiations, the parties fail to reach
agreement on the amount of the annual adjustment to the Export Coal Initial Base
Rates set forth in Exhibit III and Exhibit IX, such Export Coal Initial Base
Rates shall be adjusted up or down by one hundred percent (100%) of the
cumulative percentage change between the October 1998 Producer Price Index All
Commodities Unadjusted ("PPI-U") and the most recent October PPI-U published
prior to the January 1 effective date of the adjusted Export Coal Initial Base
Rate, provided however, that the adjusted Export Coal Initial Base Rate shall
never fall below the originally established level.
If after good faith negotiations, the parties fail to reach
agreement on the amount of the annual adjustment to the Export Coal Base Rates,
such Export Coal Base Rates shall be adjusted up or down by one hundred percent
(100%) of the cumulative percentage change between the PPI-U published
immediately prior to the effective date of the Export Coal Base Rate and the
most recent October PPI-U published prior to the January 1 effective date of the
8
<PAGE> 12
adjusted Export Coal Base Rate, provided however, that the adjusted Export Coal
Base Rate shall never fall below the originally established level. Neither party
shall have the right to invoke the dispute resolution procedures set forth in
Sections 15 and 16 to request an appropriate rate adjustment be determined
through these procedures, unless the party is able to prove it has suffered a
gross inequity as a result of the implementation of the adjusted Export Coal
Initial Base Rate or adjusted Export Coal Base Rate. In no event shall the
dispute resolution procedures result in the adjusted Export Coal Initial Base
Rate ever falling below the Export Coal Initial Base Rate or the adjusted Export
Coal Base Rate ever falling below its original established level.
If after good faith negotiations the parties fail to reach
agreement on the amount of the annual adjustment to the Domestic Coal Initial
Base Rates and Domestic Coal Base Rates, either party shall have the right to
request non-binding mediation pursuant to Section 15 and invoke the arbitration
procedures set forth in Section 16 to request that an adjusted Initial Base Rate
or adjusted Base Rate be agreed upon or determined through these procedures. In
no event shall the dispute resolution procedures result in the adjusted Domestic
Coal Initial Base Rate ever falling below the Domestic Coal Initial Base Rate or
the adjusted
9
<PAGE> 13
Domestic Coal Base Rate ever falling below its original established level. Any
interim rates will be revised retroactively to whatever rates were agreed upon
through non-binding mediation or were determined through the dispute resolution
procedures set forth in Section 16.
(e) Adjustments to Initial Base Rates, Terms and Conditions and Base
Rates, Terms and Conditions to Birmingham Southern Single-Line Rates and
Fairfield Southern Rates. The Initial Base Rates and Base Rates for Birmingham
Southern single-line service and Fairfield Southern rail service shall be
adjusted annually, to be effective January 1, 1999 and each January 1
thereafter. Such adjustments, as well as any other increases, decreases,
changes, modifications, additions and/or deletions to Initial Base Rates, terms
and/or conditions and Base Rates, terms and/or conditions for any such rail
service during the Initial or any Additional Term shall be negotiated in good
faith by the parties and upon agreement implemented either through tariffs,
contracts or other agreements. If, after good faith negotiation during the
Initial Term of this Agreement the parties fail to reach agreement on the amount
of the annual adjustment to the Initial Base Rates and Base Rates, then (1) the
Initial Base Rates shall be adjusted up or down by eighty percent (80%) of the
amount of the percentage change between the 4th quarter
10
<PAGE> 14
1997 Rail Cost Adjustment Factor, unadjusted for productivity ("RCAF-U") of
1.00, as rebased by the STB and published in Ex Parte No. 290 (Sub No. 5) (98-1)
Table A decided on or about December 12, 1997 ("Base RCAF-U") and the most
recent 4th quarter RCAF-U published prior to the January 1 effective date of the
adjusted Initial Base Rate, provided however, that the adjusted Initial Base
Rate shall never fall below the Initial Base Rate and (2) the Base Rates shall
be adjusted up or down by eighty percent (80%) of the amount of the percentage
change between the most recent RCAF-U published prior to the time that the Base
Rate was established and the most recent 4th quarter RCAF-U published prior to
the January 1 effective date of the adjusted Base Rate, provided however, that
the adjusted Base Rate shall never fall below its original established level.
(See examples in Exhibits V and VI attached to this Agreement.)
At the end of the Initial Term, Transtar shall elect whether to
apply the maximum cumulative allowable rate adjustment to any rate in effect on
December 31, 2004 to be adjusted and to become effective January 1, 2005.
If, after good faith negotiations during the Additional Term of
this Agreement, the parties fail to reach agreement on the amount of the annual
adjustment to the Initial Base Rates and Base Rates, then (1) the Initial Base
11
<PAGE> 15
Rates and adjusted Initial Base Rates in effect prior to January 1, 2005 shall
be adjusted up or down by one hundred percent (100%) of the amount of the
percentage change between the 4th quarter 2003 Rail Cost Adjustment Factor
("RCAF-U") as published by the STB ("Base RCAF-U") and the most recent 4th
quarter RCAF-U published prior to the January 1 effective date of the adjusted
Initial Base Rate, provided however, that the Initial Base Rate and adjusted
Initial Base Rate shall never fall below their January 1, 2004 level and (2) the
Base Rates and adjusted Base Rates established prior to January 1, 2005 shall be
adjusted up or down by one hundred percent (100%) of the amount of the
percentage change between the 4th Quarter 2003 RCAF-U and the most recent 4th
Quarter RCAF-U published prior to the January 1 effective date of the adjusted
Base Rate, provided however, that the Base Rate and adjusted Base Rate shall
never fall below their most recent level prior to January 1, 2005 and (3) any
Base Rates established during the Additional Term of this Agreement shall be
adjusted up or down by one hundred percent (100%) of the amount of the
percentage change between the most recent RCAF-U published prior to the time
that the Base Rate was established and the most recent 4th quarter RCAF-U
published prior to the January 1 effective date of the adjusted Base Rate,
provided, however, that the adjusted Base Rate shall never fall below its
originally
12
<PAGE> 16
established level. Such adjusted Initial Base Rates and Base Rates shall be
implemented effective each January 1 for the ensuing year.
Neither party shall have the right to invoke the dispute
resolution procedures set forth in Sections 15 and 16 to request an appropriate
rate adjustment be determined through these procedures, unless the party is able
to prove it has suffered a gross inequity as a result of the implementation of
the adjusted Initial Base Rate or adjusted Base Rate. In no event during the
Initial Term of this Agreement shall the dispute resolution procedures result in
the adjusted Initial Base Rate ever falling below the Initial Base Rate or the
adjusted Base Rate ever falling below its original established level. In no
event during the Additional Term of this Agreement shall the dispute resolution
procedures result in the Initial Base Rate and the adjusted Initial Base Rate
ever falling below the January 1, 2004 level, the Base Rate and adjusted Base
Rate in effect on January 1, 2005 ever falling below their January 1, 2005 level
and the Base Rate and adjusted Base Rate established during the Additional Term
ever falling below their originally established level.
(f) Adjustments to Joint-Line Rates. Birmingham Southern earnings on
existing joint line rates may be adjusted up or down by an amount not to exceed
the same percentage
13
<PAGE> 17
increase or decrease as implemented by the trunk line for its portion of
earnings on the through rate, provided Birmingham Southern's earnings shall
never fall below its earnings under the joint-line Initial Base Rate as may be
adjusted as set forth in Section 6(g)and provided Birmingham Southern earnings
shall never fall below its earnings under the originally established joint-line
Base Rate as may be adjusted as set forth in Section 6(g). The dollar amount of
Birmingham Southern's earnings shall equal the dollar amount of its earnings
under the joint-line Initial Base Rate or the joint-line Base Rate as may be
adjusted as set forth in Section 6(g) while the adjusted Initial Base Rate is
equal to or lower than the joint-line Initial Base Rate or the adjusted Base
Rate is equal to or lower than the originally established joint-line Base Rate.
Once the adjusted Base rate exceeds the Initial Base Rate or Base Rate,
Birmingham Southern's earnings shall be the same percentage of the adjusted
joint-line Initial Base Rate or the adjusted joint-line Base Rate as Birmingham
Southern's percentage under the Initial Base Rate or the originally established
Base Rate except as may be adjusted as set forth in Section 6(g). (See examples
in Exhibits VII and VIII attached to this Agreement.) If there is more than one
other line-haul carrier included in the joint rate with Birmingham Southern,
Birmingham Southern's earnings may be
14
<PAGE> 18
adjusted by an amount not to exceed the weighted average percentage of the other
participating carriers. With respect to new joint line rates, Birmingham
Southern shall not seek earnings requirements that are higher than earnings on
existing rates for movements of the commodities from the same or a comparable
junction point to the same or comparable destination in similar quantities and
equipment. USM shall have the right to audit Birmingham Southern's records to
ensure compliance with this provision, provided however, such audit shall be
conducted by an independent auditor to be nominated by USM, subject to written
approval by Birmingham Southern which approval shall not be unreasonably
withheld. The auditor shall only certify to USM whether Birmingham Southern was
in compliance and shall keep all information confidential. Birmingham Southern
shall notify USM whenever a division of a joint-line rate deviates from the
percentage division in effect at the time the Initial Base Rate or Base Rate was
established. Transtar and Birmingham Southern thereby consent to USM requesting,
and trunk line carriers advising, only whether the division has changed or
whether Birmingham Southern has priced its division on a new movement in
accordance with the existing rates for movement of commodities from the same or
a comparable junction point to the same or comparable destination in similar
quantities and
15
<PAGE> 19
equipment is unreasonable. Under no circumstances do Transtar or Birmingham
Southern consent to the trunk lines disclosing the amount or the percentage of
the divisions or of USM requesting the same.
(g) Car Hire Adjustments to Birmingham Southern Earnings. With
respect to Birmingham Southern's earnings for services specified in this
Agreement, Birmingham Southern shall have the right to make adjustments as
necessary for increases in cost of rail cars forced upon Birmingham Southern by
others pursuant to car hire deprescription or revisions to Car Hire Rules or Car
Service Regulations. Transtar shall provide USM with reasonable supporting
documentation for any adjustments pursuant to this Section at the time such
adjustments are implemented.
(h) Regulatory Change. Any new laws and/or regulations which become
effective during the Initial Term or Additional Term of this Agreement, which
place new obligations on Transtar rail or barge carriers, including, but not
limited to, obligations with respect to competitive access and/or obligations to
quote segments of joint-line movements, and which apply to rail and/or barge
service provided to USS' competitors, shall be applicable to service provided
hereunder.
16
<PAGE> 20
(i) Drafting. Drafting procedures applicable to shipments via
Birmingham Southern and WGN to and from the Concord Preparation Plant may be
modified, as desired by USM, acting in its sole discretion, no earlier than July
1, 2002 for Birmingham Southern and July 1, 2003 for WGN.
In those instances where drafting procedures are modified,
appropriate procedures will be put into place by the parties which provide for
payment within fifteen (15) days of receipt of billing.
(j) Determination of Competitive Rates Under Certain Circumstances.
During the term of this Agreement, if the combined rate of WGN and BS, as
escalated (excluding any FS rate) for transportation from Concord Preparation
Plant to Mobile is not reasonably competitive with a bona fide offer for such
transportation from a viable competitor of the Transtar Units (including any
mode or any transportation group offering joint service in conjunction with a
Transtar Unit) capable of providing transportation from Concord Preparation
Plant on a sustained and continual basis, then either party may invoke the
dispute resolution procedures set forth in Sections 15 and 16 to request that a
competitive combined Transtar Unit rate be agreed upon or determined through
these procedures.
17
<PAGE> 21
7. TRANSPORTATION COMMITMENTS. (a) Birmingham Southern Rail Service.
During the Initial Term and any Additional Term of this Agreement, USM shall
ship via Birmingham Southern one hundred percent (100%) of the rail traffic
originating or terminating at the Concord Preparation Plant.
(b) Fairfield Southern Transportation Service. During the Initial
Term of this Agreement, Fairfield Southern shall have the right to provide one
hundred percent (100%) of the rail transportation service specified in the
Agreement executed simultaneously herewith, so long as such rail transportation
services are required by USM from any source.
(c) Miscellaneous Fairfield Southern Services. Fairfield Southern
shall be permitted to participate in bidding for miscellaneous and track
maintenance services and shall also be permitted to participate in bidding for
new or additional transportation and transportation-related services required by
USM.
(d) WGN. During each calendar year of the Initial Term of this
Agreement, USM shall ship via WGN not less than ninety percent (90%) of USM coal
tonnage for export and originating at the Concord Preparation Plant ("Export
Coal").
18
<PAGE> 22
During each calendar year of the Initial Term of this
Agreement, USM shall ship via WGN not less than ninety percent (90%) of USM coal
tonnage shipped by barge to domestic destinations and originating at the Concord
Preparation Plant for which USM controls the routing ("Domestic Coal"). In
addition, USM will use all reasonable efforts to control the routing thereby
maximizing the use of WGN transportation services. For the six (6) month period
July 1, 1998 through December 31, 1998, calendar year 1998 shipments will be
used to judge performance.
If USM ships less than ninety percent (90%) of Export Coal
or less than ninety percent (90%) of Domestic Coal shipped by barge for which it
controls routing, it shall pay WGN liquidated damages of $2.00 NT, escalated in
accordance with the provisions of Section 12 herein, for each ton less than the
minimum percentage within thirty (30) days of receipt of billing for such
liquidated damages.
(e) Bid Terms. From and after the effective date of this
Agreement, neither Transtar nor any of the Transtar Units shall be required to
indemnify or hold harmless any party to this Agreement as a condition to bidding
for, or being awarded the right to provide, transportation or transportation
related services, whether such services are within the scope of any
Transportation Services Agreement or otherwise, and the absence of any such
indemnity or hold
19
<PAGE> 23
harmless provision in any such bid shall not be taken into consideration to
determine the competitiveness of such bid.
8. SERVICE LEVELS. During the Initial Term and the Additional Term
of this Agreement, Transtar Units shall maintain service levels which are
reasonably required to provide service hereunder and in a manner consistent with
and competitive with other carriers in the area. When Birmingham Southern
functions as the origin carrier in a joint-line movement, it shall be
responsible for arranging for car supply consistent with the availability of
rail cars from other carriers. Birmingham Southern shall have car ownership
obligations on single-line movements. Any dispute between the parties concerning
service levels shall be referred to dispute resolution in accordance with the
provisions of Sections 15 and 16 hereof.
9. MAINTENANCE OF TRANSPORTATION ASSETS. Transtar Units shall
maintain in good and serviceable condition those transportation assets used to
provide service to USM pursuant to this Agreement, including, but not limited
to, way and structures, locomotives, railcars, signaling systems, tugs, barges,
and transshipment facilities.
Any dispute between the parties concerning maintenance of
transportation assets shall be referred to the dispute resolution procedures in
accordance with the provisions of Sections 15 and 16 hereof.
20
<PAGE> 24
10. MAINTENANCE OF INTERCHANGES. Birmingham Southern shall maintain
interchanges, gateways and/or terminals operable as of the date of this
Agreement which are reasonably required to provide service hereunder. Any
dispute between the parties concerning maintenance of interchanges, gateways
and/or terminals shall be referred to dispute resolution in accordance with the
provisions of Sections 15 and 16 hereof.
11. AUDIT. Each party shall have the right to audit the other's
records insofar as necessary to ensure compliance with all of the terms and
conditions of this Agreement. Except as provided in Section 6(f) herein, such
audits shall be performed by an internal or external auditor, provided however,
that the party being audited shall have the right to require that any audit be
conducted by a mutually agreeable independent auditor and that the details of
the information examined in such audit be kept confidential from the party
requesting the audit, except to the extent necessary to resolve any controversy
that is pursued in good faith. The first $20,000 of cumulative total audit
expense annually incurred for audit services required by either party to be
performed by independent auditors shall be shared equally by the parties.
Thereafter, such audit expense shall be borne by the party requesting the audit.
21
<PAGE> 25
12. LIQUIDATED DAMAGES. The parties acknowledge that in light of the
nature of the investments and expenditures to be made by Transtar and WGN to
comply with obligations under this Agreement, the actual damages which will be
sustained in the event of a failure of USM to meet its obligations under Section
7(d) are uncertain and difficult to ascertain. Accordingly, the parties have
agreed to appropriate measures of liquidated damages for each ton below the
applicable minimum percentage set forth in Section 7(d).
Liquidated damages shall be adjusted annually, to be effective
January 1, 1999 and each January 1 thereafter, up or down by 100% of the amount
of the cumulative percentage change between the October 1997 Producer Price
Index All Commodities Unadjusted ("PPI-U") and the most recent October PPI-U,
published prior to the January 1 effective date of the adjusted liquidated
damages and that the adjusted rate shall never fall below the initial liquidated
damages. The adjusted liquidated damages shall never fall below $2.00 NT.
If during the Initial Term of this Agreement, USM, for any
reason other than force majeure, fails to meet any of its volume commitments set
forth in Section 7(d) hereof for any given calendar year other than the final
calendar year of the Initial Term, USM may, in lieu of paying liquidated
damages, make up the deficit volume during the immediately
22
<PAGE> 26
succeeding calendar year by shipping such deficit volume plus an additional 10%
of the deficit volume over the Transtar Unit to which the volume commitment was
made, in addition to shipping its annual volume commitment for such succeeding
year. If any portion of the deficit volume plus an additional 10% of the deficit
volume has not been shipped by the end of the immediately succeeding calendar
year, USM shall pay the liquidated damages (as then escalated) for such portion
no later than thirty (30) days after billing by WGN. It is the intent of the
parties that the provisions of the final paragraph of this Section 12 shall not
apply to the volume commitment set forth in Section 7(a) and 7(b).
13. SEVERABILITY. It is the desire of the parties hereto that this
Agreement be enforced to the fullest extent permissible under the laws and
public policies to be applied thereto. Accordingly, if any particular portion of
this Agreement shall be adjudicated to be void, invalid or unenforceable, this
Agreement shall be deemed to be amended to delete herefrom the portion thus
adjudicated to be void, invalid, or unenforceable, unless such change alters the
purpose and intent of this Agreement, in which case this Agreement shall be null
and void.
23
<PAGE> 27
14. INEQUITIES. The parties intend that they shall mutually benefit
from the terms, conditions and provisions of this Agreement. If any party
suffers a gross inequity resulting from such terms, conditions or provisions, or
from a substantial change in circumstances or conditions, the parties shall
negotiate in good faith to resolve or remove such inequity. In the event the
parties fail to reach an agreement concerning any alleged gross inequity, the
dispute shall be referred to the dispute resolution procedures of Section 15 and
16 hereof. It is mutually understood and agreed, however, that nothing herein
shall be construed to relieve any party of any of its obligations under this
Agreement or under any related transportation contract, purchase order or other
agreement. The parties further agree that, unless otherwise required by law, no
party shall assert or cause to be asserted in any suit, action, proceeding or
other adjudication that any of the terms, conditions or provisions of this
Agreement are or will be unenforceable, unjust, unreasonable, unreasonably
discriminatory, preferential or prejudicial, or otherwise in violation of any
provision of any act or statute or any rule, order or regulation thereof.
15. MEDIATION. At any time prior to the start of sworn testimony in
arbitration provided under Section 16 of this Agreement, a party may submit a
dispute arising hereunder
24
<PAGE> 28
to non-binding mediation. The mediator shall be selected by the party submitting
the dispute with or without the concurrence of the other party. Neither
submission of a dispute to mediation nor conclusion of the mediation process
shall be a condition precedent to exercise of the arbitration procedures
available to the parties under this Agreement. If a dispute is submitted to
mediation:
1) the parties shall mediate the dispute in good faith;
2) mediation shall occur in Allegheny County, Pennsylvania;
3) final decision makers for each party on any matter in dispute shall
personally attend all mediation sessions;
4) the mediator shall have complete control of the mediation timing and
process, provided, however, that the mediation shall conclude no later than
fourteen (14) calendar days from the day of the initial meeting between the
mediator and the parties;
5) all agreements reached in mediation shall be reduced to writing before
concluding the mediation process;
6) the parties may jointly agree to have the mediator make a final and
binding decision;
7) no discovery will be taken during the mediation process;
25
<PAGE> 29
8) the mediation process shall be confidential and each party shall have
the right to designate any information provided to the mediator as "Confidential
and Proprietary."
16. ARBITRATION. All disputes arising under this Agreement shall be
referred to binding arbitration conducted expeditiously in accordance with
Center for Public Resources Rules for Non-Administered Arbitration of Business
Disputes ("CPR Rules") by a three-person panel of arbitrators, each party
choosing one arbitrator and the two arbitrators so chosen selecting a third,
neutral arbitrator. The failure or inability of either party to choose an
arbitrator or of the arbitrators chosen by the parties to select a third neutral
arbitrator shall be resolved in accordance with the CPR Rules. Arbitration shall
be conducted at a mutually convenient location in Allegheny County, Pennsylvania
or at such other location as the parties may agree. The award in writing signed
by any two of the arbitrators shall be final and binding. In order to resolve
any disputes hereunder, the arbitrators shall implement the specific rights and
obligations set forth in this Agreement while fulfilling the intent stated in
Section 4 hereof. Either party shall have the right to seek, and the arbitrators
shall determine, declaratory relief of the nature generally set forth in the
Uniform Declaratory Judgments Act (as in effect in the State
26
<PAGE> 30
of Alabama and as the same may be amended from time to time) including, but not
limited to, questions of construction of this Agreement, or a declaration of
rights, status or other legal relations hereunder. The arbitrators shall apply
the substantive statutory and common law of the State of Alabama to the dispute
and the evidentiary laws of the State of Alabama to the arbitration proceeding.
The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C.
Sections 1-16, and judgment upon the award entered by the arbitrators may be
entered by any court having jurisdiction thereof. The arbitrators shall not
award damages in excess of compensatory damages. The costs and expenses of the
arbitration (other than attorneys' fees, if any) shall be borne one-half by USM
and one-half by the Transtar Unit. The arbitrators shall be permitted to review
existing documents or records of any party to the extent that, in the sole
discretion of the neutral arbitrator, such documents and/or records are deemed
to be relevant and to the extent the parties are permitted by law or by contract
to convey such documents or records to the arbitrator. Either party shall have
the right to designate any information sought in discovery or provided to the
arbitrators at their request as confidential and/or proprietary in which case
the neutral arbitrator shall determine whether the information sought
27
<PAGE> 31
shall be disclosed in discovery or, if such information is provided to the
arbitrators at their request, shall not convey such information to the other
party.
17. ASSIGNMENT. No party to this Agreement shall assign or transfer
this Agreement or any interest herein, other than to the lenders providing
financing to Transtar, Inc. (which lenders will act through a single agent)
without the prior written consent of the other party, which consent shall not be
unreasonably withheld. Subject to the provisions of this Section 17, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns to the parties. USM shall not directly or indirectly sell, transfer or
otherwise dispose of all or a substantial portion of the assets of the Concord
Preparation Plant during the term of this Agreement, unless the purchaser,
acquiror or other transferee assumes, in a writing reasonably satisfactory to
Transtar, all of the rights and obligations set forth in this Agreement.
18. NOTICES. Unless otherwise specified herein, any and all notices
under this Agreement shall be in writing and shall be delivered to the party
entitled to receive the same: (1) by hand delivery; (2) by registered or
certified mail, return receipt requested; (3) by overnight delivery service
which provides proof of delivery; or (4) by telecopy, with a
28
<PAGE> 32
duplicate copy sent via first class mail, postage pre-paid addressed as follows:
If to USM:
U. S. Steel Mining Co., LLC
600 Grant Street - Room
Pittsburgh, Pennsylvania 15219-2749
Attention: Manager-Commercial Distribution & Traffic
Phone: 412-433-4638
Fax: 412-433-5839
If to WGN:
Warrior & Gulf Navigation
50 Viaduct Road
Chickasaw, Alabama 36611
Attention: Director of Marketing
Phone: 334-452-6019
Fax: 334-452-6014
If to Birmingham Southern/Fairfield Southern:
Birmingham Southern/Fairfield Southern
6200 E. J. Oliver Boulevard
Fairfield,, Alabama 35064
Attention: Director of Marketing
Phone: 205-783-2640
Fax: 205-783-2463
19. LAW GOVERNING. This Agreement shall be construed in accordance
with the laws of the State of Alabama excluding its conflict of laws provision.
20. RELATIONSHIP OF PARTIES. The relationship between USM and
Transtar Units under this Agreement shall be that of independent contractors.
Nothing in this Agreement shall be deemed to constitute a relationship of
agency, joint venture, partnership, or any relationship other than that
specified.
21. INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES. In no event shall a
party be liable for any indirect, special or consequential damages as a result
of a breach of any provision of this Agreement.
29
<PAGE> 33
22. ENTIRETY OF AGREEMENT; AMENDMENTS. This Agreement constitutes
the entire agreement of the parties with respect to the subject matter hereof.
No change, modification, or alteration of this Agreement shall be effective
unless reduced to writing and signed by the parties. Waiver of any breach of the
Agreement by a party shall not be construed as a waiver of any other breach.
23. MUTUAL RELEASE. The parties fully release and discharge each
other from all claims, known and unknown, arising under the 1988 Agreement which
either party may have against any other party to this Agreement. This provision
is not intended to apply to personal injury or property damage claims that
either party may have against the other.
24. FORCE MAJEURE. The parties understand that performance by a
party may be interrupted or delayed by an occurrence outside of its control,
including but not limited to the following: an act of God, war, riot, sovereign
conduct, equipment failure, strikes, lockouts, conduct of third parties or other
similar causes beyond the reasonable control of the parties. If that should
occur, such party shall be excused from performance for as long as it is
reasonably necessary to
30
<PAGE> 34
cure the Force Majeure condition. In case of any dispute as to the
reasonableness of a resulting delay in performance, the parties shall submit the
matter to dispute resolution in accordance with the procedures set forth in
Sections 15 and 16.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
U. S. STEEL MINING CO., LLC
By /s/ George T. Weber, Jr.
---------------------------------
Title: President
TRANSTAR, INC.
By /s/ Robert S. Rosati
---------------------------------
Title: President
31
<PAGE> 1
EXHIBIT 10.16.3
SIXTH AMENDMENT
TO THE
TRANSTAR, INC.
SALARIED RETIREMENT PLAN
(As Amended and Restated Effective January 1, 1989)
Effective January 1, 1999, the following revision is adopted by the
Transtar, Inc. Salaried Retirement Plan.
APPENDIX A, Subsection (a) shall be amended as follows:
(a) Normal wages and salaries for services performed, including
incentive, shift differential, out-of-line differential, and Sunday,
holiday and overtime premium payments applicable to such services,
but excluding any cost-of-living payment and the amount resulting
from a Cost-of-Living Adjustment included in the base hourly or
salary rates on or after May 1, 1974 other than the first
thirty-nine cents ($.39) per hour for hourly paid employees and the
first sixty-eight dollars ($68) per month for salaried employees.
Effective January 1, 1997, Participants whose rolled into base
Cost-of-Living Adjustment excluded from Pensionable Earnings prior
to January 1, 1997 exceeds six hundred dollars ($600.00) per month
shall have such exclusion reduced prospectively to six hundred
dollars ($600.00) per month. Effective January 1, 1998, Participants
whose rolled into base Cost-of-Living Adjustment excluded from
Pensionable Earnings prior to January 1, 1998 exceeds four hundred
fifty dollars ($450.00) per month shall have such exclusion reduced
prospectively to four hundred fifty dollars ($450.00) per month.
EFFECTIVE JANUARY 1, 1999, PARTICIPANTS WHOSE ROLLED INTO BASE
COST-OF-LIVING ADJUSTMENT EXCLUDED FROM PENSIONABLE EARNINGS PRIOR
TO JANUARY 1, 1999 EXCEEDS THREE HUNDRED DOLLARS ($300.00) PER MONTH
SHALL HAVE SUCH EXCLUSION REDUCED PROSPECTIVELY TO THREE HUNDRED
DOLLARS ($300.00) PER MONTH. The preceding shall be modified for
Participants covered by a collective bargaining agreement that
provides for a deviation in the method of determining normal wages
and salaries. Effective August 11, 1986, the amount of any temporary
reduction in any Participant's salary will be included in
Pensionable Earnings for pension purposes; provided, however, that
the temporary reduction included in Pensionable Earnings shall be
reduced by any subsequent salary increase.
IN WITNESS WHEREOF, Transtar, Inc. has caused this Amendment to be
executed by its duly authorized officers this 11th day of January , 1999.
ATTEST: TRANSTAR, INC.
By /s/ R. N. Gentile By /s/ J. W. Schulte
- ----------------------------- ----------------------------
<PAGE> 1
EXHIBIT 12.1
TRANSTAR, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before income taxes,
extraordinary item and change in
accounting principle....................... $ 95,757 $110,579 $103,714 $93,915 $86,102
Fixed charges:
Interest expense and amortization of
debt issuance costs........................ $ 12,942 $ 17,358 $ 21,314 $24,144 $25,253
Interest expense on rentals ................ 7,904 7,976 7,854 6,057 6,225
-------- -------- -------- ------- -------
Total fixed charges ................. $ 20,846 $ 25,334 $ 29,168 $30,201 $31,478
======== ======== ======== ======= =======
Earnings before income taxes,
extraordinary item, change in
accounting principle and fixed
charges.................................... $116,603 $135,913 $132,882 $124,116 $117,580
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 5.59 5.36 4.56 4.11 3.74
==== ==== ==== ==== ====
</TABLE>
- ----------------
Income for the years 1994, 1996, 1997 and 1998 includes non-recurring charges
(credits) of $(1.7) million, $(1.0) million, $7.0 million and $3.5 million,
respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 286
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 294
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,509
<CURRENT-LIABILITIES> 205
<BONDS> 192,736
0
0
<COMMON> 0
<OTHER-SE> (87,432)
<TOTAL-LIABILITY-AND-EQUITY> 105,509
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 198
<TOTAL-COSTS> 198
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,143
<INCOME-PRETAX> 9,612
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,612
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,612
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
