<PAGE>
EXHIBIT 7.1
Churchill Environmental &
Industrial Equity Partners, L.P.
June 9, 2000
Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
5965 McCasland Ave.
Portage, Indiana 46368
Attention: Mr. Gary L. Goldberg
President and Chief Executive Officer
Re: Proposal for Financing Specialty Transportation Services, Inc.
(the "Company")
Gentlemen:
This letter sets forth the terms under which Churchill Environmental &
Industrial Equity Partners, L.P. ("Churchill") would be willing to provide
financing to the Company. The financing and the other transactions contemplated
hereby are referred to collectively herein as the "Transactions."
Section 1. Investment by Churchill. Subject to the terms and
conditions set forth herein, and as more fully described on the Summary of Terms
and Conditions set forth as Exhibit A hereto (the "Term Sheets"), Churchill will
invest $7,000,000 in the Company, a portion of which would be used by the
Company to make an intercompany loan to its parent corporation, Asche
Transportation Services, Inc. ("ATS"), in the amount of $2,250,000. In
exchange, Churchill would be issued (i) a subordinated convertible promissory
note (the "Note")in the principal amount of $7,000,000, convertible at any time
into at least 70% but no more than 85% of the outstanding Common Stock of the
Company, and (ii) a five-year warrant (the "Warrant") to purchase the number of
shares of ATS Common Stock that, when aggregated with all ATS Common Stock held
by Churchill at the time of issuance of the Warrant (after giving effect to
acceleration of Churchill's equity adjustment feature under the Stock Purchase
Agreement among the Company, ATS and Churchill dated August 17, 1999), would
result in it holding 53% of the outstanding ATS Common Stock on a fully diluted
basis. Churchill's equity positions in the Company and ATS prior to
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Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
June 9, 2000
Page 2
conversion of the Note and/or exercise of the Warrant, respectively, would be
protected by customary anti-dilution provisions.
Section 2. Definitive Agreement; Timing. As promptly as
practicable after the acceptance of this letter by the Company and ATS,
Churchill's counsel will prepare definitive agreements embodying the terms and
conditions of this letter and the Term Sheets and containing such other
provisions as are mutually acceptable. The parties agree to negotiate in good
faith and to use their reasonable efforts to consummate the Transactions as soon
as reasonably practicable, but in no event later than July 7, 2000; provided,
that no later than June 30, 2000, (i) the Company and Mellon Bank, N.A. and (ii)
ATS and American National Bank, N.A. shall have reached substantial agreements
with respect to definitive documents effecting the restructure of their
respective loans and setting forth the approval by such lenders of the
Transactions. In addition, Churchill and ATS each agree to prepare and file
with the appropriate authorities a Notification and Report Form under the Hart-
Scott-Rodino Act promptly following closing notifying such authorities of
Churchill's planned exercise of the Warrant.
Section 3. Access to Information. The Company and ATS shall
afford, and shall cause their subsidiaries, officers, directors, employees,
attorneys, accountants and other agents to afford, to Churchill and its
accounting, legal and other representatives full and complete access at all
reasonable times to the Company's and ATS's directors, officers and personnel
and to business, financial, legal, tax, compensation and other data and
information concerning the Company, ATS and their subsidiaries.
Section 4. Exclusivity.
(i) The Company and ATS agree that, unless negotiations between them
(on one hand) and Churchill (on the other hand) are terminated earlier by mutual
agreement, Churchill shall have, for a period commencing on the date hereof and
ending 30 days after the Company and ATS execute and deliver this letter (the
"Exclusivity Period"), the exclusive right to negotiate and execute definitive
agreements embodying the terms and conditions of this letter and the Term Sheets
and containing such other terms as are mutually acceptable and to consummate the
Transactions with the Company and ATS.
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Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
June 9, 2000
Page 3
(ii) During the Exclusivity Period, neither the Company nor ATS or any
of their subsidiaries shall, directly or indirectly, through any officer,
director, employee, agent or otherwise (including, without limitation, through
any investment banker, attorney or accountant retained by the Company, ATS or
any of their subsidiaries), (a) solicit, initiate or encourage the submission of
any proposal or offer (a "Proposal") from any person or entity (including any of
its officers, directors, employees, agents and other representatives) relating
to any liquidation, dissolution, recapitalization or financing of, merger or
consolidation with or into, or acquisition or purchase of all or substantially
all of the assets of, or any material asset of, or any capital stock, other
equity securities or note, instrument or security convertible or exchangeable
into equity securities of, or additional indebtedness of, the Company, ATS or
any of their subsidiaries or relating to any other similar transaction or
business combination involving the Company, ATS or any of their subsidiaries, or
(b) participate in any discussions or negotiations regarding, or furnish to any
other person or entity any information with respect to, or otherwise cooperate
in any way with, or assist or participate in, facilitate or encourage any effort
or attempt by any other person or entity to do or seek to do, any of the
foregoing.
(iii) The Company and ATS shall immediately cease and cause to be
terminated any and all contacts, discussions and negotiations with third parties
regarding any Proposal. The Company and ATS shall promptly notify Churchill if
any Proposal, or any inquiry or contact with any person or entity with respect
thereto, is made. Neither the Company nor ATS shall provide or release any
information with respect to this letter or the Transactions except as permitted
under Section 8 below. If, at any time after the date hereof, Churchill
determines that it will not proceed with the Transactions, Churchill shall
promptly so notify the Company and ATS in writing, whereupon the Company's and
ATS's obligations pursuant to this Section 4 shall terminate and shall be of no
further force and effect; provided that the Company's and ATS's obligations with
respect to the provisions set forth in Sections 7, 9, 10, 11 and 12 of this
letter shall survive the delivery of any such notice.
Section 5. Conduct of Business. Except as otherwise expressly
contemplated hereby, during the Exclusivity Period, the Company and ATS shall,
and shall cause each of their subsidiaries to, conduct their respective
businesses only in the ordinary course of business and consistent with past
practice and preserve intact their respective business organizations and
goodwill, and use commercially reasonable efforts to keep available the services
of their respective officers
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Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
June 9, 2000
Page 4
and employees and maintain satisfactory relationships with material suppliers
and customers and others having material business relationships with the
Company, ATS or any of their subsidiaries.
Section 6. Closing Conditions. The obligation of Churchill to
consummate the Transactions is subject to the satisfaction of the following
conditions in addition to the other conditions precedent set forth in the Term
Sheets:
(i) Churchill shall be satisfied with the results of the legal, accounting
and business due diligence investigation and evaluation of the Company and
ATS undertaken by it and its representatives;
(ii) a satisfactory Note and Warrant Purchase Agreement (containing
satisfactory closing conditions, covenants, representations and warranties,
etc.) and related agreements shall have been negotiated and executed;
(iii) the Company and ATS shall have received and obtained all material
governmental, regulatory, third party and shareholder consents and
approvals (including without limitation approval(s) by NASD or NASDAQ)
required of the Company and ATS that are necessary for the consummation of
the Transactions, the exercise of the Warrant and the conversion of the
Note (other than approvals under the Hart-Scott-Rodino Act required to be
obtained prior to exercise of the Warrant);
(iv) ATS and its board of directors shall have taken all actions
reasonably necessary to ensure that Churchill shall not, by virtue of
consummating the Transactions, be deemed to be an "interested stockholder"
under, or otherwise be subject to the provisions of, Section 203 of the
Delaware General Corporation Law, or any other applicable anti-takeover or
similar law of any jurisdiction; and
(v) since April 30, 2000, there shall have been no material adverse change
in the financial condition, operating results, assets, operations, business
prospects, employee relations or customer or supplier relations of the
Company, ATS or any of their subsidiaries.
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Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
June 9, 2000
Page 5
The Company's, ATS's and Churchill's respective obligations to
consummate the Transactions are also subject to (i) the receipt by the Company
of an opinion from Houlihan Smith & Company, Inc. reasonably satisfactory in
form and substance to the Company, ATS and Churchill as to the fairness of the
Transactions no later than June 15, 2000 (the "Fairness Opinion Condition"), and
(ii) the approval of this letter and the Transactions by the respective boards
of directors of the Company and ATS no later than June 15, 2000 (the "Board
Approval Condition").
Section 7. Fees and Expenses. As a condition to Churchill's
willingness to enter into this letter and negotiate with respect to the
definitive agreements, the Company and ATS agree that in the event that (a)
Churchill tenders to the Company and ATS during the Exclusivity Period for
execution definitive agreements embodying the terms of this letter (and
containing such other terms as are reasonably acceptable to the parties) and the
Company or ATS fails to enter into such agreements or the Company or ATS
otherwise materially breaches the binding provisions of this letter, or (b)
Churchill, the Company and ATS enter into definitive agreements embodying the
terms of this letter (and containing such other terms as are reasonably
acceptable to the parties) and the Transactions are not consummated prior to
July 7, 2000, other than as a result of (A) the failure to obtain all required
third party consents (including those of Mellon Bank, N.A. and American National
Bank, N.A. as contemplated in Section 2(i) and (ii) above) despite good faith
efforts of the Company and ATS or (B) Churchill's election not to consummate the
Transactions based substantially upon information known by it or its legal
counsel, accountants or other consultants as of the date of this letter, or (c)
the Company or ATS materially breaches the terms of such definitive agreements
or the Company or ATS makes a material misrepresentation to Churchill regarding
the financial condition, operating results, assets, operations, business
prospects, employee relations or customer or supplier relations of the Company
or ATS and as a result of such misrepresentation Churchill determines not to
proceed with the Transactions, or (d) the Transactions are consummated, then ATS
shall reimburse Churchill and its affiliates for all actual out-of-pocket fees
and expenses incurred before or after the date of this letter by Churchill and
its affiliates that are directly related to the Transactions (including, without
limitation, fees and expenses of legal counsel, accountants, and other
consultants and advisors not affiliated with Churchill).
Section 8. Public Announcements. Any press release or other
public disclosure issued or made by Churchill (on one hand) or the Company or
ATS (on the other hand) relating to this letter or the Transactions shall be
approved first by the other parties or party; provided that the
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Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
June 9, 2000
Page 6
Company or ATS may issue any such press release or other public disclosure
without Churchill's approval if the Company or ATS is advised by independent
counsel that such disclosure is necessary and if the Company or ATS provides
Churchill with the contents of such disclosure as soon as reasonably practicable
prior to making such disclosure.
Section 9. Indemnification. As a condition to Churchill's
willingness to enter into this letter and to negotiate with respect to
definitive agreements documenting the Transactions, the Company and ATS agree to
indemnify, pay on behalf of (on an as-incurred basis) and hold harmless,
Churchill from and against any and all losses, claims, damages, liabilities
(joint and several), costs, expenses, judgments, fines and amounts paid in
settlement in connection with any threatened, pending or completed claim,
action, suit, proceeding or investigation (whether arising before or after the
date hereof), to which Churchill has or may become subject and which relates to
or arises out of this letter or the Transactions, or the breach by the Company
or ATS of any of the representations, warranties and covenants set forth in this
letter, and the Company and ATS shall reimburse Churchill for all of its
reasonable expenses (including counsel fees and expenses) as they are incurred
in connection with the investigation of, preparation for or defense of any
pending or threatened claim or any action or defense arising therefrom, whether
arising before or after the date of this letter; provided that the Company and
ATS shall not be responsible for any losses, claims, damages, liabilities,
costs, expenses, judgments, fines or amounts paid in settlement or that have
arisen primarily from (a) the gross negligence, willful misconduct or bad faith
of a party claiming a right to indemnification hereunder, or (b) Churchill's
breach of the definitive agreements or violation of federal or state securities
laws. Any party entitled to indemnification hereunder will (i) give prompt
written notice to the Company or ATS of any claim with respect to which it seeks
indemnification and (ii) unless a conflict of interest between Churchill and the
Company or ATS may exist with respect to such claim, allow the Company or ATS to
participate in, and, to the extent that it shall wish, to assume the defense of
any such claim with counsel reasonably satisfactory to Churchill, and after
notice from the Company or ATS to Churchill of its election so to assume the
defense thereof (if no conflict of interest exists as described above) the
Company and ATS shall not be liable to Churchill for any legal or legal related
fees and expenses. The Company and ATS will not be subject to any liability for
any settlement made by Churchill without its consent; provided that such consent
will not be unreasonably withheld. If the Company or ATS is not entitled to, or
elects not to, assume the defense of any claim, the Company and ATS will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by the Company and ATS with
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Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
June 9, 2000
Page 7
respect to such claim. The Company and ATS shall not, without the prior written
consent of Churchill (which consent shall not be unreasonably withheld), effect
any settlement of any pending or threatened proceeding in respect of which
Churchill is or could have been a party if such settlement involves any
admission of guilt or wrongdoing on the part of Churchill. To the extent the
Company or ATS is prohibited from providing the full indemnification required
hereby, the Company and ATS will provide contribution to Churchill so that
Churchill will incur no losses in excess of the amount, if any, which it would
otherwise have incurred had the Company or ATS not been prohibited from
providing the full indemnification required hereby.
Section 10. Representations of the Company and ATS. The Company
and ATS represent and warrant that (i) the Special Committee of the board of
directors of ATS has approved the execution and delivery of this letter on
behalf of ATS and (ii) the Special Committee shall promptly recommend to the
respective boards of directors of the Company and ATS that this letter be
adopted and approved and the Transactions be consummated . The Company and ATS
represent and warrant that neither the Company nor ATS is a party to or bound by
any agreement or understanding which is in conflict with or would violate or be
violated by the terms of this letter.
Section 11. Governing Law. The provisions of this letter and all
duties, obligations and rights arising herefrom shall be governed by and
construed in accordance with the domestic laws of the State of Delaware, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of Delaware or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of Delaware.
Section 12. Binding Effect; Termination; Miscellaneous. This letter
is not intended to be a binding agreement between the parties hereto, except for
the terms of Sections 4 and 7 through 12, which the parties hereto hereby agree
shall be binding upon them and their successors and assigns and (except for
Sections 4 and 8) survive any termination hereof. This letter may be signed in
two or more counterparts, any one of which need not contain the signature of
more than one party, but all such counterparts taken together will constitute
one and the same agreement.
If the Company and ATS are in agreement with the terms of this letter
and desire to proceed with respect to the Transactions on the basis described
herein, please have the President and
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Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
June 9, 2000
Page 8
Chief Executive Officer of ATS and the Company execute the duplicate copy of
this letter in the space provided below and return such executed copy to the
attention of the undersigned not later than 5:00 p.m., Chicago time, on Friday
June 9, 2000. If, after such date, the Company and ATS have not confirmed their
respective acceptances of this letter in the manner set forth above, Churchill's
proposal with respect to the Transactions may be terminated without further
notice to the Company or ATS.
* * * * *
<PAGE>
Asche Transportation Services, Inc.
Specialty Transportation Services, Inc.
June 9, 2000
Page 9
We look forward to working with you.
Very truly yours,
CHURCHILL ENVIRONMENTAL & INDUSTRIAL
EQUITY PARTNERS, L.P., a Delaware
limited partnership
By Churchill Capital Environmental, L.L.C.,
a Delaware limited liability company,
Its General Partner
By Churchill Capital, Inc.,
Its Managing Agent
By:
-----------------------------------
Name: Melissa M. White
Title: Principal
Agreed and Accepted as of
June ___, 2000:
ASCHE TRANSPORTATION SERVICES, INC.
By ________________________
Its _______________________
SPECIALTY TRANSPORTATION SERVICES, INC.
By ________________________
Its _______________________
<PAGE>
EXHIBIT A
---------
Churchill Environmental & Industrial Equity Partners, L.P.
Specialty Transportation Services, Inc.
$7.0 million Senior Subordinated Facility
______________________________________________
Asche Transportation Services, Inc.
$2.25 million Inter-company Loan
__________________________________________________________________________
Summary of Terms and Conditions
Senior Subordinated Facility
----------------------------
Borrower: Specialty Transportation Services, Inc. ("STS")
---
Purpose: The investment will provide much-needed liquidity via a better-
suited capital structure to be utilized by the board and
management in execution of current turn-around efforts and
pursuit of future growth opportunities.
Facility: $7.0 million Senior Subordinated Facility, non-callable and
convertible at any time subsequent to funding
Investor: Churchill Environmental & Industrial Equity Partners, L.P.
("Churchill")
Drawdown: $7.0 million to be invested at closing and used to pay down the
Mellon Bank revolver. Mellon will permit drawdowns on the
revolver up to $7.0 million without restriction, and the funds
will be used to meet the cash requirements of STS, as established
in a 90-day projected cash flow budget prepared by STS which is
satisfactory to Churchill.
Closing: As soon as practical
Maturity: Five-Year Note
Interest
Rate: Floating at Mellon Prime Rate; Borrower will have PIK option
(subject to the limitation on equity ownership by Churchill
described below); customary default rate
Conversion
Ratio: $7.0 million principal amount is convertible into 70% of STS
common stock on a fully diluted basis. Churchill's equity stake
in STS following conversion of the note would be protected by
customary anti-dilution provisions. Unpaid PIK interest is
convertible into additional common stock at the same ratio as the
<PAGE>
Churchill Enviromental & Industrial Equity Partners, L.P.
principal conversion. The total ownership of STS common stock on
a fully diluted basis, from the conversion of the principal
amount and unpaid PIK interest, is not to exceed 80%, except as
provided below.
If STS does not achieve 2000 EBITDA of at least $7.3 million,
Churchill's maximum equity participation will be increased
according to the following formula: the $7.0 million principal
amount will be convertible into an additional 1% of the total
ownership of STS common stock on a fully diluted basis for every
$260,000 by which 2000 EBITDA is less than $7,300,000, to a
maximum 5% additional total ownership. For example, if 2000
EBITDA is $7,040,000, the $7.0 million principal amount will be
convertible into 71% of the total ownership of STS common stock
on a fully diluted basis; if 2000 EBITDA is $6,520,000, the
principal amount will be convertible into 73% of the total
ownership of STS common stock on a fully diluted basis; and if
2000 EBITDA is $6,390,000, the principal amount will be
convertible into 73.5% of the total ownership of STS common stock
on a fully diluted basis. The 80% limit on Churchill's total
direct ownership of STS common stock described in the immediately
preceding paragraph will be revised upward, to a maximum of 85%,
to accommodate the application of the formula contained in this
paragraph in the event 2000 EBITDA of STS is less than $7.3
million.
Inter-company
Loan: $2.25 million inter-company loan to be allowed to be made by STS
to its parent, Asche Transportation Services, Inc. ("ATS"), to be
used in part to pay all transaction expenses. Up to an
additional $600,000 will be used to repay the inter-company
amount due from STS to another ATS subsidiary. (See terms and
conditions below)
Security: Second priority security interest behind existing bank creditors
in all personal property collateral; state and local filings will
be made to perfect security interests in all personal property
other than motor vehicles and trailers
Fees: ATS shall pay a 3% closing fee (the "Closing Fee") in addition to
Churchill's legal and other professional fees incurred in
connection with the financing, all of which shall be paid at the
closing except for the Closing Fee and fees and expenses of Zolfo
Cooper, LLC (both of which shall be paid on payment terms to be
negotiated prior to closing).
Covenants and
Default
Provisions: Affirmative and Negative Covenants similar to existing bank group
loan documents and cross defaulted with existing STS bank group
loan document default provisions, customary default and remedy
provisions
Conditions: Subject to:
. Execution of satisfactory Inter-creditor agreement
. Satisfactory fairness opinion
. Satisfactory opinion of counsel
<PAGE>
Churchill Enviromental & Industrial Equity Partners, L.P.
. No material adverse change
. Obtain all material consents
. Satisfactory documentation of inter-company loan
. Negotiate satisfactory forbearance, standstill and
waivers with STS and ATS bank group
. Acceleration of the adjustment to Churchill's common
stock position in ATS under the 1999 investment
documents
. STS trade creditors exposure of $750,000 to be termed
out over 9-12 months, or settled for some discount
. Preparation of a three-year business plan for STS
(including financial projections) which is acceptable
to Churchill
. (i) STS and Mellon Bank, N.A., (ii) ATS and American
National Bank, N.A. and (iii) ATS and Dick Baugh
shall have reached agreements with respect to the
restructure of their respective debts, including the
approval by such lenders of the transactions
contemplated hereby
STS Banks to agree to restructure existing exposure of $34.7
million (consisting of $18.0 million revolver, $14.1 million term
loan and $2.6 million over-advance) as follows:
New revolver $18.0 million
New term loan $16.7 million
Amortization schedule for new term loan:
<TABLE>
<CAPTION>
<S> <C> <C>
Year 1 $1.5 million (quarterly payments of $375,000 commencing 9/30/00)
----------------------------------------------------------------------------
Year 2 $2.0 million (quarterly payments of $500,000)
----------------------------------------------------------------------------
Year 3 $2.0 million (quarterly payments of $500,000)
----------------------------------------------------------------------------
Year 4 $2.0 million (quarterly payments of $500,000)
----------------------------------------------------------------------------
Year 5 $2.0 million (quarterly payments of $500,000)
----------------------------------------------------------------------------
Year 6 $2.0 million (quarterly payments of $500,000)
----------------------------------------------------------------------------
Year 7 $5.2 million balloon
----------------------------------------------------------------------------
</TABLE>
No change to interest rate
Priority:
Senior Subordinated Facility shall be contractually
subordinated to STS bank group, provided that Churchill will
have priority to extent full $7.0 million is not drawn on
revolver
ATS Warrants: Churchill to receive 5-year warrants to acquire common stock
of ATS for an exercise price of $0.01 per share whereby
Churchill increases its ownership, on a fully diluted basis,
to 53% of ATS (including the acceleration of the equity
<PAGE>
Churchill Enviromental & Industrial Equity Partners, L.P.
adjustment feature). Conversion feature assumes 53% interest
meets the criteria contained in Parent's articles/bylaws
concerning controlling interest. Churchill's equity stake in
ATS following issuance of the warrants would be protected by
customary anti-dilution provisions, including automatic
adjustments for new grants of options to ATS management to
purchase an aggregate of more than 1% of the outstanding ATS
common stock.
<PAGE>
Churchill Environmental & Industrial Equity Partners, L.P.
Inter-company Loan
------------------
Beneficiary: Asche Transportation Services, Inc. ("ATS" or "Parent")
Purpose: The inter-company loan will ease the immediate cash crisis of
the Parent and its subsidiaries and provide the platform
whereby management, at the direction of the board, may work
toward completion of the pending audit, initiate combining
the business units of Asche Transfer, Inc. ("ATI") and AG
Carriers, Inc. ("AGC") in pursuit of turn-around efforts and
evaluation of future strategies.
Form: Inter-company loan
Source of Funds: Churchill via loan to Specialty Transportation Services, Inc.
(STS)
Drawdown: $ 2.25 million to be deposited with the American National
Bank on behalf of ATS, with up to an additional $600,000
being paid to ATI on account of inter-company amounts due to
ATI by STS. The total value of the loan is $2.25 million.
Draw down to be based on the cash requirements of ATI, ATS
and AGC, as established in 90 day projected cash flow budget
prepared by ATS, ATI and AGC, which is satisfactory to
Churchill.
Maturity: Three Year Note, with the proviso of the earlier of three
years or expiration of the ATI loan facility
Interest Rate: Equal to the Applicable Federal Rate in effect from time to
time
Closing: As soon as practical
Security: Second priority security interest in ATI and AGC assets
behind existing bank creditors in all personal property
collateral; state and local filings will be made to perfect
security interests in all personal property other than motor
vehicles and trailers
Fees: ATS shall pay Churchill's legal and other professional fees
in connection with the financing.
Default Provisions: Cross defaulted with existing bank loan document default
provisions
Conditions: Subject to:
. Execution of satisfactory Inter-creditor agreement
. Satisfactory fairness opinion
. Satisfactory opinion of counsel
. ATS, ATI and AGC trade credit exposure of $750,000 to
be termed out over 9-12 months, or settled for
some discount
<PAGE>
Churchill Enviromental & Industrial Equity Partners, L.P.
. Preparation of a three-year business plan for ATS,
ATI and AGC (including financial projections) which
is acceptable to Churchill
Priority: Inter-company loan shall be contractually subordinate to the
ATI bank creditor.
