SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X]Preliminary Proxy Statement
[_]Confidential, for Use of the Commission Only (as Permitted by Rule 14a-
6(e)(2))
[_]Definitive Proxy Statement
[_]Definitive Additional Materials
[_]Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
MTL INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_]No fee required.
[X]Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock (par value $0.01 per share) of MTL Inc.
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(2) Aggregate number of securities to which transaction applies:
4,870,334 shares of Common Stock of MTL Inc.(a)
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange ActRule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$40.00(b)
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(4) Proposed maximum aggregate value of transaction:
$186,561,582(b)
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(5) Total fee paid:
$37,313(b)
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(a) This represents 4,335,546 shares of common stock, par value $0.01
per share, of MTL Inc. (the "MTL Common Stock") (other than 216,672
shares to be retained by certain officers and employees of MTL
Inc.) and options to purchase 534,788 shares of MTL Common Stock,
all of which are estimated to be outstanding as of February 27,
1998.
(b) Pursuant to Rule 0-11, the filing fee was computed as set forth in
the following table:
CONSIDERATION AGGREGATE
NUMBER PER UNIT CONSIDERATION
--------- ------------- -------------
MTL Common Stock................... 4,335,546 $40.00 $173,421,840
Options to purchase MTL Common
Stock............................. 534,788 24.57* 13,139,742
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* Based on the weighted average exercise price of such options.
[_]Fee paid previously with preliminary materials.
[_]Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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PRELIMINARY COPY
[LETTERHEAD OF MTL INC.]
, 1998
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders of MTL
Inc. ("MTL" or the "Company") to be held at a.m. on , 1998 at
.
At this meeting, you will be asked to consider and vote upon a proposal to
approve and adopt the Agreement and Plan of Merger, dated as of February 10,
1998 (the "Merger Agreement"), by and between MTL and Sombrero Acquisition
Corp. ("Merger Sub"). Merger Sub is a Florida corporation formed and wholly
owned by certain affiliates of Apollo Management, L.P. (the "Apollo
Investors").
Upon the terms and subject to the conditions of the Merger Agreement, at the
effective time of the transactions contemplated thereby (the "Effective
Time"), (a) Merger Sub will be merged into MTL (the "Merger"), with MTL
continuing as the surviving corporation (the "Surviving Corporation"); (b) the
current directors of MTL will be replaced by the directors of Merger Sub (and
a majority of the directors of the Surviving Corporation will be designees of
the Apollo Investors); (c) the shares of common stock of Merger Sub held by
the Apollo Investors will be converted into shares of common stock of the
Surviving Corporation, representing approximately 85.4% of the outstanding
shares of common stock of the Surviving Corporation; (d) certain officers and
directors of MTL will retain existing shares of common stock in MTL, (the
"Rollover Shares"), or will purchase shares of common stock of the Surviving
Corporation at the Effective Time, which, together with the Rollover Shares,
will represent approximately 14.6% of the outstanding shares of common stock
of the Surviving Corporation; and (e) each share of common stock of MTL
outstanding immediately prior to the Effective Time, except for the Rollover
Shares and treasury shares held by MTL, will be converted into the right to
receive $40.00 per share in cash (the "Cash Merger Price"). The terms of the
Merger Agreement are described in the accompanying Proxy Statement and
conformed copies of the Merger Agreement is included as Annex A with the Proxy
Statement.
The affirmative vote of a majority of the issued and outstanding shares of
common stock of MTL entitled to vote thereon is required to approve and adopt
the Merger Agreement. Charles J. O'Brien, Richard J. Brandewie, Marvin E.
Sexton, Gordon Babbitt, Gerald C. McCullough (as trustee for certain trusts)
and I, as shareholders of MTL, have entered into a Voting Agreement, dated as
of February 10, 1998, with Merger Sub pursuant to which we appointed certain
persons designated by Merger Sub as proxy to vote our respective shares of
common stock in favor of the Merger Agreement at the Special Meeting. As of
February 27, 1998, the shares of common stock held by us represented
approximately 24.7% of the outstanding shares of common stock of MTL.
Consummation of the Merger is subject to certain conditions including the
completion of financing to provide an aggregate of approximately $258 million
which will be used to fund the Cash Merger Price, the repayment of outstanding
indebtedness, and transaction fees and expenses. The financing transactions
will include a senior subordinated debt offering and bank financing.
A Special Committee of the Board of Directors of the Company unanimously
recommended that the Board approve the Merger Agreement. The Board has
unanimously approved the Merger Agreement and has determined that the Merger
is fair to, and in the best interests of, the holders of the common stock of
MTL (other than the holders of the Rollover Shares) and recommends that
shareholders vote FOR the approval and adoption of the Merger Agreement.
The approval and determination of the Board was based on a number of factors
described in the accompanying Proxy Statement, including the opinion of BT
Alex. Brown Incorporated ("BT Alex. Brown"), the Company's financial advisor,
to the effect that, based upon and subject to various considerations set forth
in such opinion, as of the date of such opinion, the consideration to be
received by the holders of the common stock of MTL in connection with the
Merger was fair to such holders (other than the holders of the Rollover
Shares) from a financial point of view. The opinion of BT Alex. Brown is
included as Annex B to the Proxy Statement and should be read in its entirety.
Your vote is important. Regardless of whether you plan to attend the Special
Meeting, please sign and date the enclosed proxy and return it in the envelope
provided in order that your shares may be represented at the Special Meeting.
If you decide to attend the Special Meeting, you may revoke your proxy and
vote your shares in person.
Sincerely,
Elton E. Babbitt
Chairman of the Board
2
PRELIMINARY COPY
MTL INC.
3108 CENTRAL DRIVE
PLANT CITY, FLORIDA 33567
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
To the Shareholders of MTL Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of MTL Inc.
("MTL") will be held at a.m., local time, on , 1998, at
for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of February 10, 1998 (the "Merger Agreement"), by
and between MTL and Sombrero Acquisition Corp. ("Merger Sub"), a newly formed,
wholly-owned subsidiary of certain affiliates of Apollo Management, L.P. (the
"Apollo Investors"), and the transactions contemplated thereby. Upon the terms
and subject to the conditions of the Merger Agreement, at the effective time
of the transactions contemplated thereby (the "Effective Time"), (a) Merger
Sub will be merged into MTL, with MTL continuing as the surviving corporation
(the "Surviving Corporation"); (b) the current directors of MTL will be
replaced by the directors of Merger Sub (and a majority of the directors of
the Surviving Corporation will be designees of the Apollo Investors); (c) the
shares of common stock of Merger Sub held by the Apollo Investors will be
converted into shares of common stock of the Surviving Corporation,
representing approximately 85.4% of the outstanding shares of common stock of
the Surviving Corporation; (d) certain officers and employees of MTL will
retain existing shares of common stock in MTL (the "Rollover Shares") or will
purchase shares of common stock of the Surviving Corporation at the Effective
Time, which, together with the Rollover Shares, will represent approximately
14.6% of the outstanding shares of common stock of the Surviving Corporation;
and (e) each share of common stock of MTL outstanding immediately prior to the
Effective Time, except for the Rollover Shares and treasury shares held by
MTL, will be converted into the right to receive $40.00 per share in cash.
(2) To transact such other business as may properly come before the meeting
or any continuation, adjournment or postponement thereof.
A copy of the Merger Agreement appears as Annex A to, and is described in, the
accompanying Proxy Statement.
All shareholders are cordially invited to attend the meeting, although only
those shareholders of record at the close of business on , 1998, are
entitled to notice of and to vote at the meeting or any adjournment or
postponement thereof.
By Order of the Board of Directors
Robert Kasak, Secretary
Dated: , 1998
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON, PLEASE MARK, SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ENVELOPE. YOUR PROXY MAY BE REVOKED AT ANY TIME
BEFORE IT IS VOTED AT THE SPECIAL MEETING BY DELIVERING WRITTEN NOTICE OF
REVOCATION TO THE SECRETARY OF THE COMPANY, BY SUBMITTING TO THE SECRETARY OF
THE COMPANY A LATER DATED PROXY OR BY VOTING IN PERSON AT THE SPECIAL MEETING.
PRELIMINARY COPY
MTL INC.
3108 CENTRAL DRIVE
PLANT CITY, FLORIDA 33567
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PROXY STATEMENT
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SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON , 1998
This proxy statement is being furnished to the shareholders of MTL Inc., a
Florida corporation ("MTL" or the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at a
Special Meeting of Shareholders to be held on , 1998, at
, local time, at .
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt the Agreement and Plan of Merger, dated as of
February 10, 1998 (the "Merger Agreement"), by and between MTL and Sombrero
Acquisition Corp. ("Merger Sub"). Merger Sub is a Florida corporation formed
and wholly owned by certain affiliates of Apollo Management, L.P. (the "Apollo
Investors"). Upon the terms and subject to the conditions of the Merger
Agreement, at the Effective Time (as defined below) (i) Merger Sub will be
merged into MTL (the "Merger"), with MTL continuing as the surviving
corporation (the "Surviving Corporation"); (ii) the current directors of MTL
will be replaced by the directors of Merger Sub (and a majority of the
directors of the Surviving Corporation will be designees of the Apollo
Investors); (iii) the shares of Common Stock of Merger Sub held by the Apollo
Investors will be converted into shares of common stock, par value $0.01 per
share, of the Surviving Corporation (the "Surviving Corporation Common
Stock"), representing approximately 85.4% of the outstanding shares of the
Surviving Corporation Common Stock; (iv) certain officers and directors of MTL
will retain existing shares (the "Rollover Shares") of common stock, par value
$0.01 per share, in MTL (the "MTL Common Stock"), or will purchase shares of
Surviving Corporation Common Stock at the Effective Time, which together with
the Rollover Shares, will represent approximately 14.6% of the outstanding
shares of the Surviving Corporation Common Stock; and (v) each share of MTL
Common Stock outstanding immediately prior to the Effective Time (except for
the Rollover Shares and treasury shares held by MTL) will be converted into
the right to receive $40.00 per share in cash (the "Cash Merger Price").
Shares of MTL Common Stock held in the Company's treasury (the "Excluded
Shares") will be cancelled and retired. The effective time of the Merger will
be the date and time of the filing of the Articles of Merger with the Florida
Department of State in accordance with the Florida Business Corporation Act
(the "FBCA") (the "Effective Time"), which is scheduled to occur as soon as
practicable after the satisfaction of certain closing conditions. See "Special
Factors--Interests of Certain Persons in the Merger" and "Certain Provisions
of the Merger Agreement--Treatment of Securities in the Merger".
A copy of the Merger Agreement is included as Annex A hereto. The summaries
of the portions of the Merger Agreement set forth in this Proxy Statement do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, the text of the Merger Agreement.
The affirmative vote of the holders of a majority of the issued and
outstanding shares of MTL Common Stock entitled to vote thereon is required to
adopt the Merger Agreement. Only holders of record of shares of MTL Common
Stock at the close of business on , 1998 (the "Record Date") are
entitled to notice of and to vote at the Special Meeting and any and all
adjournments and postponements thereof. Certain of the Company's shareholders
have entered into a Voting Agreement, dated as of February 10, 1998, with
Merger Sub, pursuant to which each such shareholder appointed certain persons
designated by Merger Sub as his proxy
to, among other things, vote his shares of MTL Common Stock (including shares
issuable upon exercise of Options prior to the Effective Time) in favor of the
Merger Agreement. As of February 27, 1998, the shares of MTL Common Stock held
by such shareholders represented approximately 24.7% of the outstanding shares
of MTL Common Stock. See "Special Factors--Interests of Certain Persons in the
Merger--Voting Agreement".
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT THE
SHAREHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER.
This Proxy Statement is first being mailed to the Company's shareholders on
or about , 1998.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH
TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN
THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE DATE OF THIS PROXY STATEMENT IS , 1998.
2
TABLE OF CONTENTS
PAGE
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SUMMARY.................................................................... 1
The Parties to the Merger................................................ 1
The Special Meeting...................................................... 1
Reasons for the Merger................................................... 2
Terms of the Merger...................................................... 2
Effective Time........................................................... 3
Financing Arrangements................................................... 3
Recommendation of the Board.............................................. 4
Opinion of Financial Advisor............................................. 4
Conditions to Consummation of the Merger................................. 4
Interests of Certain Persons in the Merger............................... 5
Certain Related Agreements............................................... 5
Certain Effects of the Merger............................................ 5
Accounting Treatment of Transaction...................................... 5
Certain Federal Income Tax Consequences of the Merger.................... 5
No Solicitation; Fiduciary Duties........................................ 6
Regulatory Approvals..................................................... 6
Termination; Fees and Expenses........................................... 6
No Appraisal Rights...................................................... 6
Market Prices; Dividends................................................. 7
Selected Historical Consolidated Financial Information................... 8
THE SPECIAL MEETING........................................................ 9
General.................................................................. 9
Record Date, Solicitation and Revocability of Proxies.................... 9
Quorum; Required Vote.................................................... 10
SPECIAL FACTORS............................................................ 11
Background of the Transaction............................................ 11
Reasons for the Merger; Recommendation of the Board of Directors......... 13
Opinion of BT Alex. Brown, Financial Advisor to MTL...................... 14
Interests of Certain Persons in the Merger............................... 19
Certain Effects of the Merger............................................ 21
Accounting Treatment of Transaction...................................... 22
Certain Federal Income Tax Consequences of the Merger.................... 22
No Appraisal Rights...................................................... 23
Regulatory Approvals..................................................... 23
Certain Related Agreements............................................... 23
CERTAIN PROVISIONS OF THE MERGER AGREEMENT................................. 25
General.................................................................. 25
Treatment of Securities in the Merger.................................... 25
Board of Directors and Officers of the Surviving Corporation............. 26
Articles of Incorporation and By-laws of the Surviving Corporation....... 26
Payment for Shares....................................................... 26
Conditions to the Consummation of the Merger............................. 27
Covenants................................................................ 28
No Solicitation; Fiduciary Out........................................... 29
Termination; Effects of Termination...................................... 29
Amendment and Waiver..................................................... 31
Representations and Warranties........................................... 31
i
PAGE
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION..................... 33
MARKET PRICES AND DIVIDENDS................................................ 34
FINANCING OF THE MERGER.................................................... 34
Senior Subordinated Notes................................................ 34
Bridge Loan.............................................................. 35
Term Loan and Revolving Credit Facility.................................. 37
Equity Investment........................................................ 39
Sources and Uses of Funds................................................ 40
Expenses of the Merger................................................... 41
MERGER SUB AND THE APOLLO INVESTORS........................................ 41
General.................................................................. 41
Directors and Executive Officers of Merger Sub........................... 42
Directors and Executive Officers of Apollo Capital and AIM............... 42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............. 43
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION.............. 45
DESCRIPTION OF CAPITAL STOCK............................................... 46
MTL Common Stock......................................................... 46
Preferred Stock.......................................................... 46
AVAILABLE INFORMATION...................................................... 46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................ 47
INDEPENDENT PUBLIC ACCOUNTANTS............................................. 47
STOCKHOLDER PROPOSALS...................................................... 48
OTHER MATTERS.............................................................. 48
ANNEX A: Agreement and Plan of Merger...................................... A-1
ANNEX B: Opinion of BT Alex. Brown Incorporated............................ B-1
ii
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION
NOT CONTAINED IN THIS PROXY STATEMENT OR IN THE DOCUMENTS INCORPORATED HEREIN
BY REFERENCE IN CONNECTION WITH THE SOLICITATION MADE HEREBY AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY MTL, MERGER SUB OR THE APOLLO INVESTORS. THE DELIVERY OF
THIS PROXY STATEMENT SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN OR IN ANY DOCUMENT
INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THE DATE OF SUCH DOCUMENT, AS THE CASE MAY BE, OR THAT THERE
HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE AFFAIRS OF
MTL SINCE THE DATE HEREOF OR THE DATE OF SUCH DOCUMENT, AS THE CASE MAY BE.
THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY FROM ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH PROXY
SOLICITATION.
iii
SUMMARY
The following is a brief summary of certain information contained elsewhere
in this Proxy Statement. This summary is not intended to be a complete
description of the matters covered in this Proxy Statement and is subject to
and qualified in its entirety by reference to the more detailed information
contained elsewhere or incorporated by reference in this Proxy Statement,
including the Annexes hereto. Shareholders are urged to read and consider
carefully this entire Proxy Statement, including the Annexes.
THE PARTIES TO THE MERGER
MTL. MTL is a tank truck carrier engaged in the transportation of bulk liquid
products in both interstate and intrastate commerce, and to a lesser extent,
international commerce. The Company serves a wide variety of manufacturing and
industrial users throughout the continental United States, Canada and Mexico.
The Company conducts a large portion of its business through a network of
affiliates and independent owner-operators. Such affiliates are independent
corporations which enter into renewable one-year contracts with the Company.
MTL's principal executive offices are located at 3108 Central Drive, Plant
City, Florida 33567 (Telephone: (813) 754-4725). For additional information
regarding MTL and its business, see "Selected Historical Consolidated Financial
Information" and "Incorporation of Certain Documents by Reference".
Merger Sub. Merger Sub, Sombrero Acquisition Corp., was recently incorporated
under the laws of the State of Florida for the purpose of consummating the
Merger. Merger Sub has not conducted any business other than the transactions
described herein. Merger Sub was formed by and is wholly-owned by certain
affiliates of Apollo Management, L.P. (the "Apollo Investors"). The Apollo
Investors are Apollo Investment Fund III, L.P., a Delaware limited partnership
("AIF III"), Apollo Overseas Partners III, L.P., a Delaware limited partnership
("Overseas Partners") and Apollo (U.K.) Partners III, L.P. a limited
partnership organized under the laws of the United Kingdom ("U.K. Partners").
Apollo Management, L.P., a Delaware limited partnership which serves as the
manager of the Apollo Investors ("Apollo Management"), may designate other
affiliated funds to comprise the Apollo Investors prior to the Effective Time.
In addition, Merger Sub may issue additional equity interests to certain
institutional investors prior to the Effective Time. Each of the Apollo
Investors is principally engaged in the business of investing in securities.
Merger Sub's principal executive offices are located at c/o Apollo Management,
L.P., 1301 Avenue of the Americas, New York, New York 10019 (Telephone: (212)
261-4000). See "Merger Sub and the Apollo Investors".
THE SPECIAL MEETING
The Special Meeting will be held at a.m., local time, on ,
1998 at . At the Special Meeting, shareholders of
MTL (i) will be asked to consider and vote upon a proposal to approve and adopt
the Merger Agreement and the transactions contemplated thereby and (ii) will
transact such other business as may properly come before the Special Meeting.
The Board of Directors has fixed the close of business on , 1998 as the
record date (the "Record Date") for the determination of shareholders entitled
to notice of and to vote at the Special Meeting and any and all adjournments
and postponements thereof. As of the Record Date, there were shares of
MTL Common Stock issued and outstanding and entitled to vote at the Special
Meeting.
Adoption of the Merger Agreement requires the affirmative vote of the holders
of a majority of the outstanding shares of MTL Common Stock entitled to vote at
the Special Meeting. As of the Record Date, the directors and executive
officers of MTL were the beneficial owners of shares, or
approximately % of the outstanding shares of MTL Common Stock. The directors
and executive officers of MTL have indicated that they intend to vote such
shares in favor of the approval and adoption of the Merger Agreement. In
addition, certain shareholders holding approximately 24.7% of the outstanding
MTL Common Stock (including certain directors and executive officers) as of
February 27, 1998 have entered into a Voting Agreement pursuant to which they
agreed with Merger Sub to vote in favor of the Merger Agreement. See "Special
Factors--Interests of Certain Persons in the Merger--Voting Agreement".
1
REASONS FOR THE MERGER
The Board of Directors of MTL, in attempting to maximize shareholder value,
has unanimously approved the Merger Agreement and has determined that the
Merger Agreement is fair to and in the best interests of MTL's shareholders
(other than the holders of the Rollover Shares). This determination was based
on, among other things, the following factors: a comparison of the risks and
benefits of the Merger against the risks and benefits of the other strategic
alternatives available to MTL, including continuing as an independent entity; a
comparison of the benefits and risks between another bidder's revised offer and
Apollo Management's revised offer; the Cash Merger Price of $40.00 per share of
the MTL Common Stock, which represents a premium over historical price levels;
the written opinion of BT Alex. Brown Incorporated ("BT Alex. Brown") with
respect to the fairness from a financial point of view of the consideration to
be received by MTL's shareholders (other than the holders of Rollover Shares)
in the Merger; and the terms and conditions of the Merger Agreement. See
"Special Factors--Reasons for the Merger; Recommendation of the Board of
Directors".
TERMS OF THE MERGER
General. At the Effective Time, Merger Sub will be merged with and into the
Company, with the Company continuing as the Surviving Corporation. Also at the
Effective Time, the current directors of the Company will be replaced by the
directors of Merger Sub, and a majority of the directors of the Surviving
Corporation will be designees of the Apollo Investors. Elton E. Babbitt (the
Chairman of the Board), Charles J. O'Brien, Jr. (a director, President and
Chief Executive Officer of MTL), Richard J. Brandewie (Senior Vice President,
Treasurer and Chief Financial Officer of MTL) and Marvin Sexton (President of
Montgomery Tank Lines, Inc., a wholly-owned subsidiary of MTL ("Montgomery Tank
Lines")), are directors of Merger Sub and, upon consummation of the Merger,
will become directors of the Surviving Corporation. All members of the
Company's current management will continue as such after the Effective Time.
See "Certain Provisions of the Merger Agreement--Board of Directors and
Officers of the Surviving Corporation" and "Directors and Executive Officers of
the Surviving Corporation".
Cash Merger Price. At the Effective Time, each share of MTL Common Stock held
by the Company's shareholders (other than the Rollover Shares and the Excluded
Shares) will be converted into the right to receive $40.00 in cash (the "Cash
Merger Price"). The Merger Agreement provides that Merger Sub has the right to
elect, prior to the mailing of this Proxy Statement, to substitute, on a pro-
rata basis for each share of MTL Common Stock issued and outstanding
immediately prior to the Effective Time, up to $1.60 of the Cash Merger Price
in the form of Surviving Corporation Common Stock, such Surviving Corporation
Common Stock to be valued at $40.00 per share. However, Merger Sub has
indicated that it will not be making such election.
The Cash Merger Price will be made as soon as practicable after the Effective
Time upon receipt by a paying agent selected by Merger Sub (the "Paying Agent")
of certificates representing the shares of MTL Common Stock held by such
shareholders. No interest will be paid or accrued on the Cash Merger Price.
Rollover Shares. At the Effective Time, each share of MTL Common Stock held
by certain officers and directors of the Company (216,672 shares in the
aggregate) (the "Rollover Shares") will be converted into one share of
Surviving Corporation Common Stock. In addition, Marvin E. Sexton has agreed to
purchase at the Effective Time 31,135 shares of Surviving Corporation Common
Stock at the Cash Merger Price of $40.00 per share. Such shares, together with
the Rollover Shares, will represent approximately 14.6% of the total
outstanding shares of Surviving Corporation Common Stock. The Rollover Shares
are held by Elton E. Babbitt, Charles J. O'Brien, Jr., Richard J. Brandewie and
Marvin E. Sexton. See "Special Factors--Interests of Certain Persons in the
Merger--Retention of Rollover Shares" and "Certain Provisions of the Merger
Agreement--Treatment of Securities in the Merger".
2
Excluded Shares. At the Effective Time, each share of MTL Common Stock held
in the Company's treasury (the "Excluded Shares") will be cancelled and retired
without payment of any consideration therefor.
Issuance of Surviving Corporation Common Stock to Apollo Investors. At the
Effective Time, the issued and outstanding shares of Merger Sub will be
converted into 1,452,193 shares of Surviving Corporation Common Stock,
representing approximately 85.4% of the total outstanding shares of Surviving
Corporation Common Stock.
Payment for Options. Except to the extent Merger Sub and the holder of any
Option (as defined below) otherwise agree, the Company will cause each
outstanding employee or director stock option (the "Options") to purchase
shares of MTL Common Stock granted under the Company's 1994 Incentive and Non-
Statutory Stock Option Plan (the "Company Stock Option Plan"), whether or not
then exercisable or vested, to be cancelled. In consideration of such
cancellation, the Company will pay to such holders of Options an amount in cash
in respect thereof equal to the product of (i) the excess, if any, of the Cash
Merger Price over the exercise price of each such Option and (ii) the number of
shares of MTL Common Stock previously subject to the Option immediately prior
to its cancellation (such payment to be net of withholding taxes).
EFFECTIVE TIME
The Effective Time of the Merger will be the date and time of the filing of
the Articles of Merger with the Florida Department of State in accordance with
FBCA, which is scheduled to occur as soon as practicable after the satisfaction
of certain closing conditions. Either Merger Sub or the Company may terminate
the Merger Agreement should the Merger not be consummated by November 10, 1998.
See "Certain Provisions of the Merger Agreement--Conditions to the Consummation
of the Merger" and "--Termination; Effects of Termination".
FINANCING ARRANGEMENTS
Financing of the Merger will require approximately $258 million to pay the
Cash Merger Price, to pay the value of the Options, to refinance certain
existing indebtedness of MTL and its subsidiaries and to pay the fees and
expenses in connection with the Merger and such financing. These funds are
expected to be provided through (i) the issuance by MTL of $140 million
aggregate principal amount of senior subordinated notes (the "Senior
Subordinated Notes") (or, in the event the Senior Subordinated Notes are not
issued, the incurrence by MTL of a $60 million bridge loan (the "Bridge
Loan")), (ii) the incurrence by MTL of a six-year $60 million term loan (or, in
the event the Senior Subordinated Notes are not issued, a six-year $140 million
term loan) (the "Term Loan") and (iii) equity financing provided by the Apollo
Investors in the amount of approximately $58 million through the purchase of
the common stock of and/or capital contributions to Merger Sub.
Senior Subordinated Notes. MTL intends, under certain circumstances, to issue
Senior Subordinated Notes on or prior to the consummation of the Merger. It is
anticipated that the Senior Subordinated Notes will be issued in a private
placement exempt from registration under the Securities Act of 1933 pursuant to
Rule 144A.
Bridge Loan. In the event that the offering of the Senior Subordinated Notes
is not consummated on or prior to the consummation of the Merger, MTL will
incur the Bridge Loan. A commitment letter (the "Bridge Loan Commitment
Letter") has been obtained by Merger Sub from Bankers Trust New York
Corporation ("BTNY") and Credit Suisse First Boston ("CSFB") pursuant to which
BTNY and CSFB agreed to provide the Bridge Loan to MTL on the terms and
conditions provided therein.
Term Loan and Revolving Credit Facility. A commitment letter (the "Bank
Commitment Letter") has been obtained by Merger Sub from Bankers Trust Company
("BTCo") and CSFB pursuant to which BTCo and CSFB agreed, subject to the terms
and conditions provided therein, to provide to MTL (i) a $60 million Term
3
Loan (or, if the Senior Subordinated Notes are not issued, a $140 million Term
Loan) and (ii) a six-year $100 million revolving credit facility (the
"Revolving Credit Facility" and, together with the Term Loan, the "Senior Bank
Financing") to be used for the working capital and general corporate purposes
of MTL and its subsidiaries (including, without limitation, effecting certain
permitted acquisitions).
Equity Investment. The Apollo Investors' investment in MTL after the
Effective Time will consist of a cash contribution to Merger Sub in a aggregate
amount of approximately $58 million, which Merger Sub intends to contribute to
MTL at the Effective Time, at which time such sum will be available to MTL.
The total investment in MTL after the Effective Time will be approximately
$68 million, consisting of (i) approximately $58 million of MTL Common Stock,
in the form of approximately $58 million contributed by the Apollo Investors
through the Merger Sub, and (ii) the approximately $10 million value of the
Rollover Shares and the shares of Surviving Corporation Common Stock to be
purchased by Marvin E. Sexton at the Effective Time.
For a summary of certain terms of the Senior Subordinated Notes and the
Bridge Loan Commitment Letter and the Bank Commitment Letter (together, the
"Commitment Letters"), and a discussion of the sources of funds for the
financing of the Merger, see "Financing of the Merger".
RECOMMENDATION OF THE BOARD
A Special Committee of the Board of Directors of the Company unanimously
recommended that the Board approve the Merger Agreement. The Board of Directors
of the Company unanimously approved the Merger Agreement and the transactions
contemplated thereby, including the Merger. The Board has determined that the
Merger Agreement is fair to, and in the best interests of, the shareholders of
the Company and recommends that the shareholders vote FOR the approval and
adoption of the Merger Agreement. For a discussion of the factors considered by
the Board in reaching its recommendation and determination, see "Special
Factors--Reasons for the Merger; Recommendation of the Board of Directors".
OPINION OF FINANCIAL ADVISOR
BT Alex. Brown has delivered to the Board of Directors of the Company its
written opinion to the effect that, based upon and subject to various
considerations set forth in such opinion, as of the date of such opinion, the
consideration to be received by the holders of MTL Common Stock (other than the
holders of the Rollover Shares) in connection with the Merger was fair to such
holders from a financial point of view. The full text of BT Alex. Brown's
opinion, including the procedures followed, the matters considered and the
assumptions made by BT Alex. Brown, is included as Annex B to this Proxy
Statement and should be read in its entirety. See "Special Factors--Opinion of
BT Alex. Brown, Financial Advisor to MTL".
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the Merger is subject to various conditions, including among
other matters: (i) approval of the Merger Agreement and the transactions
contemplated thereby by the holders of a majority of the issued and outstanding
shares of MTL Common Stock; (ii) receipt of all governmental and other consents
and approvals necessary to permit consummation of the Merger, including
expiration or termination of the statutory waiting period under the Hart-Scott-
Rodino Antitrust Improvements Acts of 1976, as amended (the "HSR Act"); (iii)
receipt of the funding contemplated by the Commitment Letters and the Senior
Subordinated Notes; and (iv) satisfaction of certain customary conditions. See
"Certain Provisions of the Merger Agreement--Conditions to the Consummation of
the Merger".
4
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company's Board of Directors that
shareholders vote in favor of the Merger Agreement, shareholders should be
aware that certain members of MTL's management and Board of Directors have
certain interests in the Merger that are in addition to, and may be deemed to
be in conflict with, the interests of the shareholders of MTL generally. These
interests include (i) benefits under certain employment agreements between
Montgomery Tank Lines and certain executive officers and a new stock option
plan to be adopted after the Effective Time; (ii) the retention by certain
officers and directors of MTL of the Rollover Shares; (iii) the cash settlement
of Options pursuant to the terms of the Merger Agreement; (iv) indemnification
of officers and directors; and (v) certain other matters. See "Special
Factors--Interests of Certain Persons in the Merger".
CERTAIN RELATED AGREEMENTS
For a summary of certain terms of agreements entered into in connection with
the Merger, see "Special Factors--Certain Related Agreements".
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's shareholders (other than the
holders of the Rollover Shares and the Excluded Shares) will have the right to
receive $40.00 in cash, without interest, for each share of MTL Common Stock
held. As a result of the Merger, such shareholders will cease to have any
ownership interest in MTL and will cease to participate in future earnings and
growth, if any, of MTL. Moreover, if the Merger is consummated, public trading
of the MTL Common Stock will cease, the MTL Common Stock will cease to be
quoted on the Nasdaq National Market, the registration of the MTL Common Stock
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") will
be terminated and the Company will cease filing reports with the Securities and
Exchange Commission (the "Commission").
Immediately after the Merger, approximately 85.4% of the outstanding shares
of Surviving Corporation Common Stock will be owned by the Apollo Investors and
the remaining 14.6% will be owned by certain officers and directors of the
Company. See "Special Factors--Interests of Certain Persons in the Merger" and
"Certain Provisions of the Merger Agreement--Treatment of Securities in the
Merger".
The Merger Agreement provides that the current directors of the Company will
be replaced by the directors of the Merger Sub. All members of the Company's
current management will continue as such after the Effective Time. See
"Directors and Executive Officers of the Surviving Corporation".
Upon consummation of the Merger, the Surviving Corporation expects to
refinance the existing indebtedness of MTL. See "Financing of the Merger".
It is currently anticipated that the Surviving Corporation will be operated
after the Merger in a manner substantially the same as MTL's current
operations.
ACCOUNTING TREATMENT OF TRANSACTION
The Merger will be accounted for as a recapitalization. Accordingly the
historical basis of MTL's assets and liabilities will not be impacted by the
Merger and the transactions contemplated thereby.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The receipt of cash for MTL Common Stock in the Merger will be a taxable
transaction for federal income tax purposes. See "Special Factors--Certain
Federal Income Tax Consequences of the Merger".
5
NO SOLICITATION; FIDUCIARY DUTIES
Under the Merger Agreement, MTL has agreed to immediately cease any existing
activities, discussions or negotiations with any parties (other than the Apollo
Investors and Merger Sub) with respect to any merger, acquisition,
consolidation, share exchange or similar transaction involving, or any purchase
of all or any significant portion of the assets or any securities of, the
Company or any of its subsidiaries (an "Alternative Proposal"). Pursuant to the
Merger Agreement, MTL has agreed that neither it nor its subsidiaries will
initiate, solicit or encourage, directly or indirectly, or take any other
action to facilitate, any inquiries or the making or implementation of any
proposal or offer that constitutes an Alternative Proposal, or negotiate or
discuss with, or provide any confidential information or data to, any person
relating to an Alternative Proposal, or authorize or permit any of its
officers, directors, employees, agents or representatives to take any such
action. MTL is obligated to notify Merger Sub immediately if any such inquiries
or proposals are received by, any such information is requested from the
Company or any such negotiations or discussions are sought to be initiated or
continued with the Company. Nothing contained in the Merger Agreement prohibits
the Board of Directors of the Company from furnishing information to, or
entering into discussions or negotiations with, any person or entity that makes
an unsolicited bona fide written Alternative Proposal if, and only to the
extent that, (i) the furnishing of such information is pursuant to a reasonable
and customary confidentiality agreement, (ii) the Board of Directors of the
Company determines in good faith after consultation with outside counsel that
such action is required for the Board to comply with its fiduciary duties to
stockholders imposed by law, (iii) the Board determines in good faith after
consultation with its financial advisor that such Alternative Proposal, if
accepted, is reasonably likely to be consummated, taking into account all
legal, financial and regulatory aspects of the proposal and the person making
the proposal, and would, if consummated, result in a more favorable transaction
than the transaction contemplated by the Merger Agreement and (iv) the Company
is otherwise in compliance with its obligations regarding Alternative Proposals
as provided in the Merger Agreement. See "Certain Provisions of the Merger
Agreement--No Solicitation; Fiduciary Out".
If the Merger Agreement is terminated under certain circumstances generally
related to the presence of an Alternative Proposal, the Company will be
obligated to pay a fee to the Merger Sub and reimburse it for its expenses. See
"Certain Provisions of the Merger Agreement--Termination; Effects of
Termination".
REGULATORY APPROVALS
The consummation of the Merger is subject to the expiration or termination of
the statutory waiting period under the HSR Act. The Company and the Merger Sub
will be filing notification and report forms under the HSR Act with the Federal
Trade Commission ("FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division"). See "Special Factors--Regulatory
Approvals".
TERMINATION; FEES AND EXPENSES
The Merger Agreement may be terminated at any time prior to the Effective
Time upon the occurrence of certain events or if the Merger is not consummated
by November 10, 1998. Under certain circumstances generally related to the
presence of an Alternative Proposal, or withdrawal by the Board of Directors or
modification in a manner materially adverse to Merger Sub of its approval or
recommendation of the Merger Agreement or the Merger, termination of the Merger
Agreement will result in a fee and reimbursement of Merger Sub's expenses in an
amount of up to $7.5 million. See "Certain Provisions of the Merger Agreement--
Termination; Effects of Termination".
NO APPRAISAL RIGHTS
Under Florida law, MTL shareholders who do not vote in favor of the Merger
Agreement are not entitled to appraisal rights with respect to their shares of
MTL Common Stock. "Special Factors--No Appraisal Rights".
6
MARKET PRICES; DIVIDENDS
MTL Common Stock is quoted on the Nasdaq National Market under the symbol
"MTLI". On February 10, 1998, the last trading day prior to the public
announcement that MTL and Merger Sub had executed the Merger Agreement, the
high and low sale prices per share of MTL Common Stock as reported on the
Nasdaq National Market was $29 and $28 3/4, respectively.
The following table sets forth the high and low sale prices per share of MTL
Common Stock on the Nasdaq National Market with respect to each quarterly
period since January 1, 1996.
HIGH LOW
------- -------
FISCAL 1996
First Quarter........................................... $17 1/4 $13 3/8
Second Quarter.......................................... 17 1/2 15 5/8
Third Quarter........................................... 19 1/2 17 1/8
Fourth Quarter.......................................... 21 5/8 18 1/4
FISCAL 1997
First Quarter........................................... 24 1/4 20 5/8
Second Quarter.......................................... 24 1/4 22 7/8
Third Quarter........................................... 28 21 1/4
Fourth Quarter.......................................... 29 3/8 25 1/4
The Company has never paid dividends on the MTL Common Stock. In addition,
the payment of dividends by the Company is subject to certain restrictions
under the Company's existing loan agreements, which will be refinanced in
connection with the Merger. Under the Merger Agreement, the Company has agreed
not to pay any dividends on the MTL Common Stock prior to the Effective Time.
Pursuant to the terms of the loan agreements contemplated by the Commitment
Letters, the Surviving Corporation's ability to pay certain dividends will be
restricted. Furthermore, the Senior Subordinated Notes are expected to be
issued under an indenture (the "Indenture") by and among the Company, certain
subsidiary guarantors and the trustee named therein. The Indenture is expected
to, under certain circumstances and subject to certain exceptions, restrict the
payment of dividends or the making of distributions by the Company on or in
respect of shares of the Company's capital stock. See "Market Prices and
Dividends".
7
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below is qualified
in its entirety by reference to, and should be read in conjunction with, the
consolidated financial statements and notes thereto included in the documents
incorporated by reference herein. The consolidated financial information set
forth below for and as of each of the years in the five-year period ended
December 31, 1997 has been derived from audited consolidated financial
statements of the Company. See "Incorporation of Certain Documents by
Reference".
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
INCOME STATEMENT DATA
Operating revenues............ $286,047 $235,599 $190,054 $168,290 $142,376
Operating expenses:
Purchased transportation..... 178,116 145,895 120,011 112,288 96,392
Compensation................. 31,566 26,201 20,099 13,061 9,186
Fuel, supplies, maintenance.. 20,392 17,957 12,172 8,293 6,209
Depreciation and amortiza-
tion........................ 17,335 13,892 10,156 8,213 7,335
Selling and administrative... 7,421 6,015 5,204 3,629 3,123
Insurance and claims......... 6,455 4,366 3,281 5,687 5,328
Taxes and licenses........... 1,900 1,655 1,630 1,134 1,003
Communications and utilities. 1,805 1,378 1,149 1,052 991
Gain (loss) on sale of P & E. (36) 20 (150) (36) (44)
-------- -------- -------- -------- --------
Total operating expenses...... 264,954 217,379 173,552 153,321 129,523
Operating income.............. 21,093 18,220 16,502 14,969 12,853
Other income (expense):
Interest expense............. (3,175) (3,494) (3,468) (4,172) (5,722)
Other........................ (39) 214 175 (252) (94)
-------- -------- -------- -------- --------
Total other income (expense).. (3,214) (3,280) (3,292) (4,424) (5,816)
Income before taxes........... 17,879 14,940 13,210 10,545 7,037
Provision for income taxes.... 7,396 6,103 5,408 4,306 2,653
-------- -------- -------- -------- --------
Income from continuing opera-
tions........................ 10,483 8,837 7,802 6,239 4,384
-------- -------- -------- -------- --------
Net income.................... $ 10,483 $ 8,837 $ 7,802 $ 6,239 $ 4,384
Cash dividends................ -- -- -- -- --
BALANCE SHEET DATA
Total assets.................. $194,036 $173,604 $145,740 $126,219 $105,787
Long-term obligations,
including current portion.... 55,098 57,329 48,844 40,538 53,613
Convertible preferred stock
and warrants ................ -- -- -- -- 11,008
Working capital............... 22,532 22,409 13,068 8,682 1,286
Stockholders equity........... 79,532 68,913 60,058 52,247 17,245
PER SHARE DATA
Net income
Basic........................ 2.31 1.95 1.73 1.96 2.67
Diluted...................... 2.23 1.92 1.72 1.61 1.44
Book value.................... 16.88 14.98 13.22 12.95 3.94
OTHER DATA
Ratio of earnings to fixed
charges...................... 6.2 5.1 4.7 3.4 2.2
8
THE SPECIAL MEETING
GENERAL
This Proxy Statement is being furnished to the holders of MTL Common Stock
in connection with the solicitation of proxies by the Board of Directors of
MTL from holders of the outstanding shares of MTL Common Stock for use at the
Special Meeting of Shareholders to be held at a.m., local time, on
, 1998 at and any adjournments and
postponements thereof. At the Special Meeting, shareholders of MTL (i) will be
asked to consider and vote upon a proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby and (ii) will transact
such other business as may properly come before the Special Meeting.
RECORD DATE, SOLICITATION AND REVOCABILITY OF PROXIES
The Board of Directors of the Company has fixed the close of business on
, 1998, as the record date for determining the MTL shareholders
entitled to receive notice of and to vote at the Special Meeting (the "Record
Date"). Only holders of record of MTL Common Stock as of the Record Date are
entitled to notice of and to vote at the Special Meeting. As of the Record
Date, there were shares of Common Stock issued and outstanding and held
by holders of record. Holders of MTL Common Stock are entitled to one
vote on each matter considered and voted on at the Special Meeting for each
share of MTL Common Stock held of record at the close of business on the
Record Date.
Proxies in the form enclosed are being solicited by the Board of Directors
of the Company. Shares of MTL Common Stock represented by properly executed
proxies, if such proxies are received in time and are not revoked, will be
voted in accordance with the instructions indicated on the proxies. If no
instructions are indicated, such proxies will be voted FOR approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
Any holder of MTL Common Stock who returns a signed proxy but fails to provide
instructions as to the manner in which such holder's shares are to be voted
will be deemed to have voted FOR approval and adoption of the Merger Agreement
and the transactions contemplated thereby.
It is not anticipated that any matter other than the proposal to approve and
adopt the Merger Agreement will be brought before the Special Meeting. If any
other matter is properly presented at the Special Meeting for consideration,
including, among other things, a motion to adjourn the Special Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed form of
proxy card and acting thereunder will have discretion to vote on such matter
in accordance with their best judgment; provided, however, that no proxy that
directs the shares represented thereby to be voted against the proposal to
approve and adopt the Merger Agreement will be voted in favor of any
adjournment of the Special Meeting for purposes other than the absence of a
quorum.
A shareholder who has given a proxy may revoke it at any time prior to its
exercise at the Special Meeting or prior to the receipt by MTL of proxies
voting in favor of approval of the Merger Agreement and the transactions
contemplated thereby by all shareholders, by (i) giving written notice of
revocation to the Secretary of the Company, (ii) properly submitting to the
Company a duly executed proxy bearing a later date or (iii) voting in person
at the Special Meeting. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed to
the Company as follows: MTL Inc., 3108 Central Drive, Plant City, Florida
33567, Attention: Corporate Secretary. A proxy appointment will not be revoked
by death or supervening incapacity of the shareholder executing the proxy
unless, before the shares are voted, notice of such death or incapacity is
filed with the Company's Secretary or other person responsible for tabulating
votes on behalf of the Company.
The expense of soliciting proxies for the Special Meeting will be paid by
MTL. In addition to solicitation by use of the mails, proxies may be solicited
by directors, officers and employees of MTL in person or by telephone,
telegram or other means of communication. Such directors, officers and
employees will not be
9
additionally compensated, but may be reimbursed for reasonable out-of-pocket
expenses incurred in connection with such solicitation. Arrangements will be
made with custodians, nominees and fiduciaries for forwarding of proxy
solicitation materials to beneficial owners of shares held of record by such
custodians, nominees and fiduciaries, and MTL will reimburse such custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred in
connection therewith.
QUORUM; REQUIRED VOTE
Approval of the Merger Agreement and the transactions contemplated thereby
requires the presence of a quorum and the affirmative vote of the holders of a
majority of the issued and outstanding shares of MTL Common Stock entitled to
vote thereon at the Special Meeting. The presence, in person or by properly
executed proxy, of the holders of a majority of the issued and outstanding
shares of MTL Common Stock at the Special Meeting is necessary to constitute a
quorum of the holders of MTL Common Stock at the Special Meeting. Abstentions
and broker non-votes will be counted as shares present for purposes of
determining the presence of a quorum. Broker non-votes will not be counted as
votes cast for purposes of determining whether a proposal has received
sufficient votes for approval; however, because the proposal to approve and
adopt the Merger Agreement requires the affirmative vote of a majority of the
issued and outstanding shares of MTL Common Stock, broker non-votes will have
the effect of a vote against the Merger Agreement and the transactions
contemplated thereby. For purposes of determining whether a proposal has
received sufficient votes for approval, abstentions will be counted as votes
cast and, as a result, abstentions will have the effect of a vote against the
Merger Agreement and the transactions contemplated thereby. THE EFFECT OF
FAILING TO PROPERLY EXECUTE AND RETURN A PROXY CARD OR TO VOTE AT THE SPECIAL
MEETING WILL BE THE SAME AS VOTING AGAINST THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY.
As of the Record Date, the directors and executive officers of MTL were the
beneficial owners of shares, or approximately % of the outstanding
shares of MTL Common Stock. The directors and executive officers of MTL have
indicated that they intend to vote such shares in favor of the approval and
adoption of the Merger Agreement. In addition, Elton E. Babbitt, Gordon
Babbitt, Charles J. O'Brien, Jr., Richard J. Brandewie, Marvin E. Sexton and
Gerald L. McCullough (as trustee for trusts established for the grandchildren
of Elton E. Babbitt), who beneficially own 1,125,197 shares, or approximately
24.7% of the outstanding shares of MTL Common Stock as of February 27, 1998,
have entered into a Voting Agreement with Merger Sub, pursuant to which each
such shareholder appointed certain persons designated by Merger Sub as his
proxy to, among other things, vote his shares of MTL Common Stock (including
shares issuable upon exercise of Options prior to the Effective Time) in favor
of the Merger Agreement. See "Special Factors--Interests of Certain Persons in
the Merger--Voting Agreement".
10
SPECIAL FACTORS
BACKGROUND OF THE TRANSACTION
At a September 5, 1997 meeting of the Board of Directors of the Company, the
Company authorized BT Alex. Brown to present it with various strategic
alternatives to increase shareholder value. On September 19, 1997, upon
request of the MTL Board, representatives of BT Alex. Brown presented the
Company with various strategic alternatives, including: a secondary offering
of common stock; a repurchase by the Company of a portion of its outstanding
shares of common stock; the acquisition of other tank truck carriers; the sale
of the Company to a strategic or financial buyer; or the maintenance of the
status quo. Based upon BT Alex. Brown's presentation to the Board, the Board
determined that a sale of the Company was the alternative most likely to
maximize shareholder value. On September 30, 1997, MTL engaged BT Alex. Brown
to act as the Company's financial advisor in connection with the possible
merger with, or sale of substantially all of the Company's assets or stock to,
a third party.
BT Alex. Brown identified a broad list of potential buyers based primarily
upon their trucking industry knowledge and their familiarity with potential
financial buyers. On behalf of MTL, BT Alex. Brown contacted these potential
buyers and arranged for the execution of confidentiality agreements by
interested parties. Upon execution of a confidentiality agreement, each
potential buyer was furnished with a package of information concerning the
Company. In mid-December, Apollo Management requested a meeting with the
Company's management ahead of the sale process schedule, a request to which
the Company responded that it would consider only after Apollo Management
submitted a value indication. Three days later, on December 15, 1997, Apollo
Management submitted a written indication of interest valuing the stock of the
Company at $32 to $35 per share. BT Alex. Brown informed Apollo Management
that at $35 per share the Company was unwilling to suspend the sale process
but that it would schedule an accelerated meeting with management, which was
held on January 13, 1998, two days prior to the January 15, 1998 indication of
interest deadline. Following this meeting, Apollo Management again expressed
its interest in proceeding on a "pre-emptive" basis. On January 15, 1998 four
other prospective buyers submitted indications of interest to BT Alex. Brown.
The valuations ranged from $30 to $35 per share, except for one indication of
interest exceeding this range submitted by a financial intermediary which it
was later determined was acting on behalf of a small holding company and which
bid the Company ultimately concluded was not credible. Following a lengthy
telephonic Board meeting on January 20, 1998, the MTL Board authorized BT
Alex. Brown to negotiate with Apollo Management, and Apollo Management agreed
to a non-binding $37 per share price and certain non-binding key contract
terms, all subject to due diligence and documentation, in exchange for an
agreement by MTL not to begin management presentations for other parties until
February 4, 1998. Apollo Management also agreed to a schedule under which it
would complete its due diligence and submit a fully-negotiated and fully-
financed contract to the MTL Board by February 10, 1998. The Apollo Management
proposal included (i) a provision whereby certain officers and employees of
MTL would retain a portion of their personal holdings of MTL Common Stock in
order to effect a recapitalization for accounting purposes; and (ii) an all
cash offer to all shareholders other than those who were to retain their
shares.
From January 24, 1998 through February 4, 1998, representatives of Apollo
Management and their legal, accounting information systems, labor and other
advisors conducted a detailed due diligence review of MTL. During the same
period, a draft of the Merger Agreement was prepared. Apollo Management's
counsel also prepared and circulated a draft Voting Agreement, pursuant to
which certain of the principal shareholders of MTL would agree to vote their
shares of MTL in favor of the Merger. Related and ancillary documents,
including Employment Agreements, a term sheet for a new option plan and Non-
Competition Agreements, were also prepared during this period.
While Apollo Management was performing its due diligence, a second financial
buyer (the "Other Bidder") which had previously submitted a letter of
interest, contacted BT Alex. Brown and indicated that it was interested in
submitting a revised proposal. On February 5, 1998, management of MTL,
together with representatives of BT Alex. Brown, met in Tampa, Florida with
representatives of the Other Bidder. Apollo Management, in the meantime,
requested that management of MTL meet in New York City on February 6, 1998 to
finalize the
11
Merger Agreement. On the morning of February 6, 1998, BT Alex. Brown received
the revised written proposal from the Other Bidder in which it made a cash
offer of $40 per share with a transaction structure similar to that which was
proposed by Apollo Management. However, as a condition to its agreement to
proceed, the Other Bidder required an exclusivity period of two to three weeks
in order to perform its due diligence, during which time MTL would not be
permitted to negotiate with any other party.
The Board of Directors of MTL met telephonically on the morning of February
7, 1998 and was advised of the Other Bidder's proposal. The Board authorized
management to negotiate with both Apollo Management and the Other Bidder but
in view of the Other Bidder's proposal, not to execute a definitive agreement
with Apollo Management until management and the Board were given an
opportunity to obtain further details concerning the Other Bidder's proposal.
Since the conditions of the two offers appeared to be substantially the same,
the Board focused primarily on the difference in valuation, $37 per share by
Apollo Management versus $40 per share by the Other Bidder, and the fact that
the Other Bidder's proposal was subject to a 2 to 3 week exclusivity period.
The Board also instructed management to continue to make as much progress as
possible on the proposed transaction with Apollo Management, but also to
inform Apollo Management of the fact that a competitive proposal had been
received from another party. In addition, because it appeared that certain
board members would be retaining shares in the transaction, the Board of
Directors established a Special Committee consisting of its outside directors,
John B. Bowron, Donald W. Burton and Gerald L. McCullough, to review the
transaction. The Special Committee met separately to discuss the transaction
and determined that the proposed Voting Agreement with management, the
Employment Agreements (including option agreements) to be entered into with
Messrs. Charles J. O'Brien, Jr., Marvin E. Sexton and Richard J. Brandewie and
the Non-Competition Agreements to be entered into by Elton E. Babbitt and
Gordon Babbitt appeared to be customary in form. In addition, each of the
Employment Agreements provided a combination of salary, bonus and option
levels substantially consistent with past levels for these executives. On the
afternoon of February 7, representatives of MTL, Apollo Management, their
respective counsel and BT Alex. Brown met at the offices of Apollo
Management's counsel in New York City in an attempt to resolve the remaining
open issues in the draft Merger Agreement. At that time, Apollo Management was
advised of the existence of the competitive proposal.
On the morning of February 8, 1998 a telephonic meeting took place between
management of MTL, representatives of BT Alex. Brown and representatives of
the Other Bidder, on which the terms of the Other Bidder's proposal were
discussed, particularly the exclusivity requirement. This was followed by a
telephonic Board meeting at which BT Alex. Brown advised the Board of the
status of the negotiations with Apollo Management and the telephone
conversation with the Other Bidder. The Board of Directors of MTL acknowledged
the fact that the Other Bidder's proposal would require an additional two to
three week exclusivity period for conducting due diligence and negotiating a
definitive agreement, whereas due diligence and documentation with respect to
the Apollo Management proposal were nearly completed.
The Board of Directors met again by phone on February 9, 1998 and was
advised that the Merger Agreement with Apollo Management was substantially
complete and due diligence completed. The Board authorized BT Alex. Brown to
contact both Apollo Management and the Other Bidder to advise each of them
that a Board meeting was scheduled for Tuesday, February 10, 1998 at 12:00
noon and to request that they each submit their best and final proposal by
10:00 a.m. that day.
On Tuesday, February 10, 1998, the Board met at the offices of the Company
in Plant City, Florida. After an overview of the situation was provided by BT
Alex. Brown and MTL's counsel, the Special Committee met separately and was
advised by BT Alex. Brown that revised proposals had been received earlier
that day from both Apollo Management and the Other Bidder. The Other Bidder's
offer was increased from $40 to $41.50 per share whereas the Apollo Management
offer was increased from $37 to $40 per share. In addition, it was noted that
the Other Bidder's revised proposal required that MTL not execute a definitive
agreement with any other party prior to the expiration of a three week due
diligence period and that Apollo Management had increased its proposed break-
up fee requirement from 2% of equity value to 3.5% of equity value and had
increased its
12
reimbursable expense limit from $1 million to $1.5 million. At the Special
Committee's request, BT Alex. Brown then made a presentation to the Special
Committee reviewing Apollo Management's proposals and indicated that it was
prepared to render its opinion that the Merger Consideration (as defined
below) to be received by the Company's shareholders (other than the holders of
the Rollover Shares) was fair, from a financial point of view, to such
shareholders (see "Special Factors--Opinion of BT Alex. Brown, Financial
Advisor to MTL"). The Merger Consideration consists of a Cash Merger Price of
$40.00 per share, with the right, under the terms of the Merger Agreement, of
Merger Sub to elect to substitute (prior to the mailing of this Proxy
Statement), on a pro-rata basis for each share of MTL Common Stock, up to
$1.60 of the Cash Merger Price in the form of Surviving Corporation Common
Stock, such Surviving Corporation Common Stock to be valued at $40.00 per
share. Merger Sub has indicated that it will not be making such election with
respect to the Merger Consideration. The Special Committee was also advised
that the terms of the Employment Contracts (including the terms of the new
stock option plan), Voting Agreement and Non-Competition Agreements had been
substantially agreed upon.
A discussion took place by the Special Committee concerning the respective
per share offers and it was unanimously agreed that although the Other
Bidder's revised offer was $1.50 higher than Apollo Management's revised
offer, in view of (i) the risk to the Apollo Management proposal from a delay
in the process to accommodate the Other Bidder; (ii) the significant
uncertainty associated with the Other Bidder's proposal; and (iii) the
Company's ability to terminate the agreement with Apollo Management in order
for the Board to fulfill its fiduciary obligations, it was in the best
interests of the Company and its shareholders for the Board to accept the
Apollo Management offer.
The Special Committee rejoined the Board and unanimously recommended the
execution of the Merger Agreement with Apollo Management subject to a change
in the break-up fee to 3.0% of equity value under certain circumstances rather
than the 3.5% proposed by Apollo Management (which Apollo Management
subsequently agreed to accept). BT Alex. Brown again reviewed with the full
Board the background of the situation and rendered its oral opinion,
subsequently confirmed in writing, that the Merger Consideration to be
received by the Company's shareholders (other than the holders of the Rollover
Shares) was fair, from a financial point of view, to such shareholders.
The Board of Directors of MTL unanimously approved the Merger Agreement in
substantially the form previously submitted to the Board and authorized
management to execute it following final documentation. During the remainder
of the evening the final points in the Merger Agreement and the ancillary
documents were resolved and the Merger Agreement was executed. On the morning
of February 11, 1998, Apollo Management and MTL issued a press release
announcing the transaction.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS
At a meeting held on February 10, 1998, the Board of Directors unanimously
approved the Merger Agreement and determined, among other things, that the
Merger Agreement was fair to and in the best interests of MTL's shareholders
and recommended that MTL's shareholders approve the Merger Agreement. In
reaching these conclusions, the Board of Directors consulted with BT Alex.
Brown and MTL's legal counsel and considered, among other things, the
unanimous recommendation of the Special Committee, consisting of the outside
directors, that the Company execute the Merger Agreement and the following
factors:
(i) A comparison of the risks and benefits of the Merger against the
risks and benefits of the other strategic alternatives available to MTL,
including continuing as an independent entity. Of the alternatives
available to MTL, the Merger was determined by the Board of Directors to be
the alternative which would yield the best results to the shareholders of
MTL from a financial point of view. The Merger was determined to be more
favorable to the shareholders than MTL continuing as an independent entity
because MTL's future growth prospects as an independent entity could be
limited inasmuch as MTL did not have the ability, as an independent entity,
to fully take advantage of consolidation opportunities in the tank truck
carrier marketplace. See "--Background of the Transaction".
13
(ii) A comparison of the benefits and risks between the Other Bidder's
revised offer and Apollo Management's revised offer. The Board of Directors
agreed that although the Other Bidder's revised offer was $1.50 higher than
Apollo Management's revised offer, it was in the best interests of the
Company and its shareholders for the Board to accept the Apollo Management
offer in view of (a) the risk to the Apollo Management proposal from a
delay in the process to accommodate the Other Bidder; (b) significant
uncertainty associated with the Other Bidder's proposal and (c) the
Company's ability to terminate the agreement with Apollo Management in
order for the Board to fulfill its fiduciary obligations.
(iii) The consideration to be paid in the Merger, valued at $40.00 per
share of MTL Common Stock, represented a premium of approximately 38.8%
over the closing price of $28.81 per share of MTL Common Stock on February
9, 1998, the trading day preceding the February 10, 1998 board meeting. The
Board of Directors considered that shares of MTL Common Stock have traded
at a range from a low of $21.25 to a high of $29.38 during the 52 weeks
prior to February 10, 1998, meaning that the Merger offered a substantial
premium to shareholders compared to recent historical price levels of MTL
Common Stock.
(iv) The written opinion, dated as of February 10, 1998, of BT Alex.
Brown (and the analysis presented to the Board of Directors of MTL
underlying such opinion) to the effect that, based on the assumptions made,
matters considered and limits of the review undertaken by BT Alex. Brown,
the Merger Consideration to be received by MTL's shareholders in the Merger
was fair, from a financial point of view, to such shareholders. See "--
Opinion of BT Alex. Brown, Financial Advisor to MTL".
(v) The terms and conditions of the Merger Agreement and related matters,
including closing conditions, termination rights, the requirement that MTL
pay termination fees to Apollo Management under certain circumstances, the
cash-out of MTL Options and MTL's and Apollo Management's representations
and warranties, all of which were the product of arm's length negotiations
in which MTL was assisted by its legal counsel, Schifino & Fleischer P.A.,
and its financial advisor, BT Alex. Brown. See "Certain Provisions of The
Merger Agreement".
(vi) The fees and expenses to be paid to Apollo Management in
consideration for the agreement of Apollo Management to provide financial
advisory and other management services after consummation of the Merger,
including a fee of $2.0 million payable at the Effective Time of the Merger
and an annual fee of $500,000. See "Special Factors--Certain Related
Agreements--Management Agreement between Apollo Management and MTL".
(vii) The terms and conditions of the Voting Agreement, pursuant to
which, among other things, certain of the principal shareholders, owning
approximately 24.7% of the issued and outstanding shares of MTL Common
Stock, have agreed to vote and have granted a related proxy to vote their
shares of MTL Common Stock in favor of the Merger Agreement. In addition,
certain officers and directors have agreed, at Apollo Management's
insistence, to reinvest in the Company, by means of retaining the Rollover
Shares or purchasing shares of the Surviving Corporation Common Stock,
approximately $10 million of the proceeds they would have received or did
receive in the Merger (on substantially the same terms at which Apollo
Management is investing in the Company).
The foregoing discussion of the information and factors considered by the
Board of Directors is not intended to be exhaustive, but includes the material
factors considered by the Board of Directors. In reaching its determination to
approve the Merger Agreement, and in view of the variety of factors considered
by the Board of Directors in connection with its evaluation of the Merger
Agreement, the Board of Directors did not assign any relative or specific
weights to the various factors considered by it.
OPINION OF BT ALEX. BROWN, FINANCIAL ADVISOR TO MTL
MTL retained BT Alex. Brown on September 30, 1997 to act as MTL's financial
advisor in connection with the possible merger with, or sale of substantially
all of the Company's assets or stock to, a third party. In
14
connection with the Merger, the MTL Board requested that BT Alex. Brown render
its opinion as to the fairness, from a financial point of view, of the Merger
Consideration to be received by MTL's shareholders (other than holders of
Rollover Shares).
At the February 10, 1998 meeting of the MTL Board of Directors,
representatives of BT Alex. Brown made a presentation with respect to the
Merger and rendered to the MTL Board its oral opinion, subsequently confirmed
in writing as of the same date, that, as of such date, and based on the
assumptions made, matters considered and limits of the review undertaken by BT
Alex. Brown, the Merger Consideration to be received by MTL's shareholders
(other than holders of Rollover Shares) was fair, from a financial point of
view, to such shareholders.
THE FULL TEXT OF BT ALEX. BROWN'S WRITTEN OPINION DATED FEBRUARY 10, 1998
(THE "BT ALEX. BROWN OPINION"), WHICH SETS FORTH, AMONG OTHER THINGS,
ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS OF THE REVIEW UNDERTAKEN, IS
ATTACHED HERETO AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. MTL
SHAREHOLDERS ARE URGED TO READ THE BT ALEX. BROWN OPINION IN ITS ENTIRETY. THE
BT ALEX. BROWN OPINION IS DIRECTED TO THE MTL BOARD, ADDRESSES ONLY THE
FAIRNESS OF THE MERGER CONSIDERATION TO MTL'S SHAREHOLDERS FROM A FINANCIAL
POINT OF VIEW AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY MTL SHAREHOLDER
AS TO HOW SUCH SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING. THE BT ALEX.
BROWN OPINION WAS RENDERED TO THE MTL BOARD FOR ITS CONSIDERATION IN
DETERMINING WHETHER TO APPROVE THE MERGER AGREEMENT. THE DISCUSSION OF THE BT
ALEX. BROWN OPINION IN THIS PROXY STATEMENT IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THE BT ALEX. BROWN OPINION.
In connection with the BT Alex. Brown Opinion, BT Alex. Brown reviewed
certain publicly available financial information and other information
concerning MTL and certain internal analyses and other information furnished
to it by MTL. BT Alex. Brown also held discussions with the members of the
senior management of MTL regarding this information and the businesses and
prospects of MTL. BT Alex. Brown did not independently verify any of the
information described above and for purposes of its opinion assumed the
accuracy, completeness and fairness of all such information. BT Alex. Brown
did not make and it was not provided with an independent evaluation or
appraisal of the assets of MTL. With respect to the information relating to
the prospects of MTL provided to BT Alex. Brown, BT Alex. Brown assumed that
such information was prepared on the basis of reasonable assumptions and
reflected the best currently available judgments and estimates of the
management of MTL as to the likely future financial performance of the
Company. BT Alex. Brown assumed, with the consent of MTL, that the transaction
will be treated as a recapitalization for accounting purposes. The BT Alex.
Brown Opinion is based on market, economic and other conditions as they
existed and could be evaluated as of the date of such opinion.
In reaching the BT Alex. Brown Opinion, BT Alex. Brown (i) reviewed the
reported prices and trading activity for the MTL Common Stock, (ii) compared
certain financial and stock market information for MTL with similar
information for certain other companies whose securities are publicly traded,
(iii) reviewed the financial terms of certain recent business combinations,
(iv) performed discounted cash flow analyses for MTL, (v) reviewed the terms
of the Merger Agreement and certain related documents as furnished to it in
draft form and (vi) performed such other studies and analyses and considered
such other factors as it deemed appropriate. BT Alex. Brown assumed, with the
consent of MTL, that the final terms of the Merger Agreement and certain
related documents reviewed by it in draft form would not vary materially from
the drafts reviewed by it.
The following is a brief summary of the analyses performed and factors
considered by BT Alex. Brown in connection with the rendering the BT Alex.
Brown Opinion and reviewed with the MTL Board at its February 10, 1998
meeting.
Historical Financial Position. In rendering its opinion, BT Alex. Brown
reviewed and analyzed historical and current financial information of MTL
which included (i) MTL's current balance sheet, (ii) annual income statements
and cash flow statements and (iii) operating margins and growth rates.
15
Historical Stock Price Performance. BT Alex. Brown reviewed and analyzed the
weekly closing per share market prices and trading volume for MTL Common Stock
in the periods between (i) January 31, 1997 to February 6, 1998 ("Period 1")
and (ii) June 17, 1994 and February 6, 1998 ("Period 2"). In addition, BT
Alex. Brown compared the movement of such daily closing prices with the
movement of the Standard & Poor's 500 composite average (the "S&P 500") over
Period 1 and Period 2. BT Alex. Brown noted that, on a relative basis, the MTL
Common Stock outperformed the S&P 500 in Period 1 and underperformed the S&P
500 in Period 2. BT Alex. Brown also compared the movement of the daily
closing per share market prices of MTL Common Stock over Period 1 and Period 2
with the movement of (i) a tank carrier composite average (consisting of Kenan
Transport Company, Matlack Systems, Inc. and Trimac Corporation) and (ii) a
specialized carrier composite average (consisting of Boyd Bros. Transportation
Inc., Frozen Food Express Industries, Inc., Allied Holdings, Inc., KLLM
Transport Services, Inc., Marten Transport, Ltd., Simon Transportation
Services Inc., Smithway Motor Xpress Corp. and TRISM, Inc.). On a relative
basis, the MTL Common Stock outperformed the tank carrier composite average
and underperformed the specialized carrier composite average in Period 1. In
Period 2, the MTL Common Stock outperformed both the tank carrier composite
average and the specialized carrier composite average. This information was
presented to give the MTL Board background information regarding the stock
price performance of MTL over the periods indicated.
Analysis of Certain Other Publicly Traded Companies. BT Alex. Brown compared
certain financial information and commonly used valuation measurements for MTL
to corresponding information for two groups of publicly traded companies, the
first of which consisted of Kenan Transport Company, Matlack Systems, Inc. and
Trimac Corporation (collectively, the "Tank Carriers") and the second of which
consisted of Boyd Bros. Transportation Inc., Frozen Food Express Industries,
Inc., Allied Holdings, Inc., KLLM Transport Services, Inc., Marten Transport,
Ltd., Simon Transportation Services Inc., Smithway Motor Xpress Corp., Trailer
Bridge, Inc., and TRISM, Inc. (collectively, the "Specialized Carriers"). Such
financial information included, among other things, (i) common equity market
valuation; (ii) operating performance; (iii) capitalization ratios; (iv)
ratios of common equity market value ("Equity Value") as adjusted for debt and
cash ("Enterprise Value") to revenues, earnings before interest expense,
income taxes, depreciation and amortization ("EBITDA") and earnings before
interest expense and income taxes ("EBIT"), each for the latest reported 12
month period as derived from publicly available information; and (v) ratios of
common equity market prices per share ("Market Price") to earnings per share
("EPS"). The ratios set forth above were calculated using closing stock prices
as of February 9, 1998. In the case of MTL, BT Alex. Brown also computed such
ratios using the Cash Merger Price, MTL's Equity Value as implied in the
Merger (the "Equity Merger Value") and Enterprise Value as implied in the
Merger (the "Enterprise Merger Value"), where each was appropriate. The
financial information used in connection with the multiples provided below was
based on the latest reported 12 month period as derived from publicly
available information and on estimated EPS for calendar years 1997 and 1998 as
reported by the Institutional Brokers Estimating System ("IBES").
BT Alex. Brown noted that (a) the multiple of Enterprise Value to revenues
was 0.7x for MTL (and the multiple of Enterprise Merger Value to revenues was
0.9x), compared to a range of 0.5x to 1.1x, with a mean of 0.8x, for the Tank
Carriers and a range of 0.4x to 1.1x, with a mean of 0.7x, for the Specialized
Carriers; (b) the multiple of Enterprise Value to EBITDA was 5.3x for MTL (and
the multiple of Enterprise Merger Value to EBITDA was 6.9x), compared to a
range of 4.6x to 6.1x, with a mean of 5.4x, for the Tank Carriers and a range
of 3.9x to 10.4x, with a mean of 6.4x, for the Specialized Carriers; (c) the
multiple of Enterprise Value to EBIT was 9.7x for MTL (and the multiple of
Enterprise Merger Value to EBIT was 12.5x), compared to a range of 9.7x to
17.7x, with a mean of 14.6x, for the Tank Carriers and a range of 8.9x to
37.9x, with a mean of 18.1x, for the Specialized Carriers; (d) the multiple of
Market Price to trailing 12 month EPS was 13.5x for MTL (and the multiple of
the Cash Merger Price to trailing 12 month EPS was 18.8x), compared to a range
of 15.2x to 39.3x, with a mean of 24.3x, for the Tank Carriers and a range of
12.7x to 18.7x, with a mean of 15.6x, for the Specialized Carriers; (e) the
multiple of Market Price to calendar year 1997 EPS was 13.0x for MTL (and the
multiple of the Cash Merger Price to calendar year 1997 EPS was 18.1x),
compared to a range of 15.4x to 23.4x, with a mean of 19.4x, for the Tank
Carriers and a range of 11.4x to 30.9x, with a mean of 17.9x, for the
Specialized Carriers; (f) the multiple of Market Price to calendar year 1998
EPS was 11.5x for MTL (and the
16
multiple of the Cash Merger Price to calendar year 1998 EPS was 15.9x),
compared to a range of 10.5x to 13.0x, with a mean of 11.7x, for the Tank
Carriers and a range of 7.5x to 15.1x, with a mean of 12.0x, for the
Specialized Carriers; and (g) the multiple of Equity Value to common equity
book value was 1.8x for MTL (and the multiple of Equity Merger Value to
calendar year 1998 EPS was 2.5x), compared to a range of 1.3x to 1.5x, with a
mean of 1.4x, for the Tank Carriers and a range of 0.5x to 3.1x, with a mean
of 1.8x, for the Specialized Carriers. The IBES EPS estimates for MTL, as of
February 9, 1998, for calendar years 1997 and 1998 were $2.21 and $2.51,
respectively.
Analysis of Selected Precedent Transactions. BT Alex. Brown reviewed the
financial terms, to the extent publicly available, of nine pending or
completed mergers and acquisitions since January 1, 1996 in the bulk carriage
industry (the "Bulk Transactions") and nine pending or completed mergers and
acquisitions since January 1, 1993 in the general trucking industry (the
"Trucking Transactions"). BT Alex. Brown calculated various financial
multiples based on certain publicly available information for each of the Bulk
Transactions and the Trucking Transactions and compared them to corresponding
financial multiples for the Merger, based on the Equity Merger Value and the
Enterprise Merger Value. BT Alex. Brown noted that the multiple of enterprise
value (equity purchase price adjusted for debt, preferred stock and cash) to
trailing 12 month revenues was 0.9x for the Merger versus a range of 0.2x to
0.6x, with a mean of 0.4x, for the Bulk Transactions and a range of 0.3x to
1.0x, with a mean of 0.7x, for the Trucking Transactions; the multiple of
enterprise value to trailing 12 month EBITDA was 6.9x for the Merger versus
4.3x (based on one transaction for which such data was available) for the Bulk
Transactions and a range of 4.1x to 42.7x, with a mean of 7.3x, for the
Trucking Transactions; and the multiple of enterprise value to trailing 12
month EBITDA net of capital expenditures and proceeds from asset dispositions
was 49.1x for the Merger versus a not meaningful value for the Bulk
Transactions (based on one transaction for which such data was available) and
a range of 3.5x to 14.9x, with a mean of 8.8x, for the Trucking Transactions.
BT Alex. Brown further noted that the multiple of equity purchase price to
trailing 12 month net income was 18.8x for the Merger versus a range of 5.7x
to 49.6x, with a mean of 14.0x, for the Trucking Transactions and the multiple
of equity purchase price to common equity book value was 2.5x for the Merger
versus a range of 1.7x to 7.7x, with a mean of 3.4x, for the Trucking
Transactions. No corresponding data were available for the Bulk Transactions.
All multiples for the Bulk Transactions and the Trucking Transactions were
based on information available at the time of announcement of such
transaction, without taking into account differing market and other conditions
during the period during which the transactions occurred. BT Alex. Brown noted
that each of the acquired companies in the Bulk Transactions was privately
held at the time of the announcement of such transaction and that information
relating to these acquired companies was therefore limited.
Discounted Cash Flow Analysis. BT Alex. Brown performed discounted cash flow
analyses for MTL using financial projections for years 1998 through 2002
provided by the management of MTL. Management prepared two sets of financial
projections, each of which was based on different assumptions regarding the
Company's projected level of acquisition expenditures during the projection
period. In the first projection scenario, acquisition expenditures in the
years 1999 through 2002 were projected at $40.0 million ("Scenario 1") and in
the second projection scenario, no acquisition expenditures were assumed over
this period ("Scenario 2"). For each projection scenario, BT Alex. Brown
aggregated the present value of the cash flows from 1998 through 2002 with the
present value of a range of terminal values. The terminal values were computed
using a multiple of projected net income in calendar year 2003 and a range of
terminal multiples of 10.0x to 14.0x for Scenario 1 and 10.0x to 12.0x for
Scenario 2. All cash flows were discounted at rates ranging from 11.0% to
14.0%. BT Alex. Brown arrived at such discount rates based on its judgment of
the weighted average cost of capital of selected publicly traded trucking
companies, and arrived at such terminal values based on its review of the
trading characteristics of the common stock of selected publicly traded
trucking companies. This analysis indicated a range of values for MTL Common
Stock of $24.03 to $45.70 per share, with a midpoint of $34.22 per share, for
Scenario 1 and $31.29 to $41.87 per share, with a midpoint of $36.30 per
share, for Scenario 2.
Leveraged Equity Return Analysis. BT Alex. Brown calculated the projected
internal rates of return that could be realized on the equity invested in a
leveraged acquisition of the Company at various purchase prices per share of
MTL using the projections from Scenario 2. This analysis indicated a range of
internal rates of return of 20.4% to 35.2%.
17
Relevant Market and Economic Factors. In rendering its opinion, BT Alex.
Brown considered, among other factors, the condition of the U.S. stock markets
and the current level of economic activity, particularly in the motor carriage
industry. No company used in the analysis of certain other publicly traded
companies nor any transaction used in the analysis of selected mergers and
acquisitions summarized above is identical to MTL or the Merger. In addition,
BT Alex. Brown believes the both the analysis of certain other publicly traded
companies and the analysis of selected mergers and acquisitions are not simply
mathematical. Rather, such analyses must take into account differences in the
financial and operating characteristics of these companies and other factors,
such as general economic conditions, conditions in the markets in which such
companies compete and strategic and operating plans for such companies, that
could affect the public trading value and acquisition value of these
companies.
While the foregoing summary describes the analyses and factors that BT Alex.
Brown deemed material in its presentation to the MTL Board of Directors, it is
not a comprehensive description of all analyses and factors considered by BT
Alex. Brown. The preparation of a fairness opinion is a complex process
involving various determinations as to the most appropriate and relevant
methods of financial analysis and the applications of these methods to the
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. BT Alex. Brown believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
of the factors considered by it, without considering all analyses and factors,
would create an incomplete view of the evaluation process underlying the BT
Alex. Brown Opinion. In performing its analyses, BT Alex. Brown considered
general economic, market and financial conditions and other matters, many of
which are beyond the control of MTL. The analyses performed by BT Alex. Brown
are not necessarily indicative of actual values or future results, which may
be significantly more or less favorable than those suggested by such analyses.
Accordingly, such analyses and estimates are inherently subject to substantial
uncertainty. Additionally, analyses relating to the value of a business do not
purport to be appraisals or to reflect the prices at which the business
actually may be sold. Furthermore, no opinion is being expressed as to the
prices at which shares of MTL Common Stock may trade at any future time.
The terms of the Merger were determined through negotiations between MTL and
Merger Sub and were approved by the MTL Board. Although BT Alex. Brown
provided advice to MTL during the course of these negotiations, the decision
to enter into the Merger Agreement was solely that of the MTL Board. As
described above, the BT Alex. Brown Opinion and the presentation of BT Alex.
Brown to the MTL Board were only one of a number of factors taken into
consideration by the MTL Board in making its determination to approve the
Merger. The BT Alex. Brown Opinion was provided to the MTL Board to assist it
in connection with its consideration of the Merger and does not constitute a
recommendation to any holder of MTL Common Stock as to how to vote with
respect to the Merger.
Pursuant to a letter agreement dated September 30, 1997 between MTL and BT
Alex. Brown, the fees payable to BT Alex. Brown upon consummation of the
Merger will be approximately $2.3 million. In addition, MTL has agreed to
reimburse BT Alex. Brown for its reasonable out-of-pocket expenses incurred in
connection with rendering financial advisory services, including fees and
disbursements of its legal counsel. MTL has agreed to indemnify BT Alex. Brown
and its directors, officers, agents, employees and controlling persons, for
certain costs, expenses, losses, claims, damages and liabilities related to or
arising out of its rendering of services under its engagement as financial
advisor.
The Board of Directors of MTL retained BT Alex. Brown to act as its advisor
based upon BT Alex. Brown's role as lead manager of MTL's initial public
offering on June 17, 1994 and subsequent advisory services and based upon BT
Alex. Brown's qualifications, reputation, experience and expertise. BT Alex.
Brown is an internationally recognized investment banking firm and, as a
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and
acquisitions, negotiated underwriting transactions, private placements and
valuations for corporate and other purposes. With the consent of MTL, BT Alex.
Brown will act as a placement agent or managing underwriter in the proposed
offering of Senior Subordinated Notes to be issued to finance the Merger, for
which services BT Alex. Brown will receive compensation. With the consent of
MTL, affiliates of BT Alex. Brown also will be participating as
18
documentation agent and a syndicated lender in the Senior Bank Financing for
the financing of the Merger. In addition, BT Alex. Brown has previously
rendered certain investment banking services to certain affiliates of the
Apollo Investors for which it has received compensation. BT Alex. Brown may
actively trade the equity securities of MTL for its own account and for the
account of its customers and accordingly may at any time hold a long or short
position in such securities. BT Alex. Brown maintains a market for MTL Common
Stock and regularly publishes research reports regarding the motor carriage
industry and the businesses and securities of MTL and other publicly traded
companies in the motor carriage industry.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Company's Board of Directors that
shareholders vote in favor of the Merger Agreement, shareholders should be
aware that certain members of MTL's management and Board of Directors have
certain interests in the Merger that are in addition to, and may be deemed to
be in conflict with, the interests of the shareholders of MTL generally.
Directors and Officers of the Surviving Corporation. Elton E. Babbitt,
Chairman of the Board of Directors of the Company, is a director of the Merger
Sub. In addition, Charles J. O'Brien, Jr., a director and President and Chief
Executive Officer of the Company, and Richard J. Brandewie, a Senior Vice
President, the Treasurer and Chief Financial Officer of the Company, are
directors of Merger Sub. Marvin E. Sexton, the President of Montgomery Tank
Lines, is a director of Merger Sub. At the Effective Time, the directors of
Merger Sub will become the directors of the Surviving Corporation until their
successors are duly appointed or elected in accordance with applicable law. In
addition, all members of the Company's current management will continue as
such after the Effective Time until their successors are duly appointed or
elected in accordance with applicable law. See "Directors and Executive
Officers of the Surviving Corporation".
Benefits Under Employment Agreements and New Stock Option Plan. Montgomery
Tank Lines entered into employment agreements with the following executive
officers: Charles J. O'Brien, Jr., Richard J. Brandewie and Marvin Sexton.
Each employment agreement provides for a two-year term of service, with an
automatic one-year extension upon each anniversary of the Effective Time,
unless the company or the executive officer gives notice that the term will
not be so extended. The employment agreements provide to each of the executive
officers an annual base salary of not less than $192,238.80 and permit each
executive to earn an annual bonus of up to 42% of his annual base salary if
certain performance standards are achieved, and an additional bonus of up to
18% of his annual base salary relating to extraordinary performance by the
company and such executive. Such bonus plan will be administered by the
compensation committee of the Board of Directors of the company. The
agreements also provide for certain severance payments to be made if the
employment of any of such executives is terminated without "cause" (as defined
in the employment agreements) or if such executive resigns after the
occurrence of one of a number of specified changes in such employee's
employment, including a material diminution by the company of the employee's
duties and responsibilities, a material breach by the company of its
compensation and benefit obligations or an involuntary relocation by more than
50 miles of such executive's principal place of business as of the Effective
Time (each a termination for "good reason"). Under such circumstances, such
executive would be entitled to receive his base salary for the remainder of
the term of his employment, a pro rated bonus and continued medical and other
benefits.
In addition, each of the employment agreements grants to each such executive
options to purchase 25,500 shares of Surviving Corporation Common Stock under
a new option plan to be adopted after the Effective Time (the "New Stock
Option Plan"). It is expected that options with respect to a total of 188,889
shares of Surviving Corporation Common Stock will be available for grant (the
"New Options") under the New Stock Option Plan. Fifty percent of each option
grant will vest in equal increments over four years. The remaining fifty
percent of each option grant will vest in ten years or sooner as determined by
the Surviving Corporation's Board of Directors, subject to acceleration if
certain per-share equity targets are achieved. Vesting of New Options occurs
only during an employee's term of employment. The New Options will become
fully vested in the event of a termination of employment without "cause" or
for "good reason" within six months following a sale of the Company. The
exercise price for the New Options is $40 per share, and the New Options will
expire ten years from the date of grant.
19
termination of employment without "cause" or for "good reason" within six
months following a sale of the Company. The exercise price for the New Options
is $40 per share, and the New Options will expire ten years from the date of
grant.
Each of the Employment Agreements also contains, among other things, a
covenant not to compete with Montgomery Tank Lines. Pursuant to such covenant,
each such executive officer has agreed, for the restricted period specified
therein, that he will not, within any geographic area in which the company or
any of its subsidiaries, affiliates or owner-operators conducts its business,
engage in the bulk transportation services business or in any related business
in the bulk transportation services industry in which the company or any of
its subsidiaries is engaged on the date of such executive's termination of
employment (the "Restricted Business"). Ownership of securities of public
companies engaged in a Restricted Business would not be a violation of such
covenant not to compete if such holdings are passive investments which do not
involve the executive's holding with respect to any such entity the position
of officer, director, consultant or general partner, or owning two percent or
more of the stock of such entity, and which do not involve the executive being
a secured or unsecured creditor of any such entity. Such executive also has
agreed to refrain from (i) interfering with the employment relationship
between the company, its subsidiaries and its affiliates and their respective
employees, members of the company's affiliate program or other independent
owners/operators by soliciting any of such individuals to participate in
independent business ventures during the restricted period, and (ii)
soliciting business from any client or prospective client of the company or
any of its subsidiaries or affiliates for such executive's benefit or for any
entity in which the executive has an interest or is employed. The company may
extend by a period of up to one year the restricted period by providing the
executive certain of the severance payments and benefits that would be
available in a termination of employment without "cause" or for "good reason"
for the duration of any such extended period.
Retention of Rollover Shares. At the Effective Time, an aggregate of 216,672
shares of MTL Common Stock held by certain officers and directors of the
Company will be converted into shares of the Surviving Corporation Common
Stock on a one-for-one basis. In addition, Marvin E. Sexton has agreed to
purchase at the Effective Time 31,135 shares of Surviving Corporation Common
Stock at the Cash Merger Price of $40.00 per share. Such shares, together with
the Rollover Shares, will represent approximately 14.6% of the total
outstanding shares of the Surviving Corporation Common Stock. The Rollover
Shares are held as follows: Elton J. Babbitt (141,892 shares); Charles J.
O'Brien, Jr. (30,239 shares); Richard J. Brandewie (40,541 shares); and Marvin
Sexton (4,000 shares).
Options. As of February 27, 1998, the directors and executive officers of
the Company held Options to acquire an aggregate of 296,935 shares of MTL
Common Stock. Under the terms of the Merger Agreement, each holder of Options
will receive in cash an amount equal to the number of shares of MTL Common
Stock subject to such Option (regardless of whether or not such Options are
then exercisable or vested) multiplied by the amount, if any, by which the
Cash Merger Price exceeds the exercise price of such Option, less any
applicable withholding taxes. Pursuant to such provision, the executive
officers and directors of MTL will be entitled to receive for their Options an
aggregate of approximately $7,210,143 (before federal and state income taxes)
upon consummation of the Merger.
The executive officers and directors named in the table below held the
number of outstanding Options indicated as of February 27, 1998, and will
receive the indicated aggregate amounts before federal and state income taxes
in respect of such Options pursuant to the Merger Agreement.
OPTIONS EXERCISE AMOUNT OF
NAME OUTSTANDING PRICE PAYMENT
---- ----------- -------- ----------
Richard J. Brandewie.................. 164,365 $14.32(1) $4,220,893
Donald Burton......................... 3,830 15.00 95,750
Charles J. O'Brien, Jr................ 28,740 15.00 718,500
Marvin Sexton......................... 100,000 18.25 2,175,000(2)
- --------
(1) Weighted average exercise price.
(2) It is expected that Marvin E. Sexton will use $1,245,400 of the proceeds
from the payment for the Options to purchase 31,135 shares of Surviving
Corporation Common Stock at the Effective Time.
20
Present Interests in MTL Common Stock. As of February 27, 1998, the
directors and executive officers of MTL owned an aggregate of 759,593 shares
of MTL Common Stock (excluding shares subject to Options). Excluding the
Rollover Shares, 542,921 shares will be converted into the right to receive
the Cash Merger Price per share pursuant to the Merger Agreement. Such Cash
Merger Price will be $21,716,840 in the aggregate and will be allocated as
follows: Elton E. Babbitt ($7,295,120), John B. Bowron ($39,360), Richard J.
Brandewie ($348,280), Donald W. Burton ($312,320) and Gerald L. McCullough
($39,360 in his capacity as a director and $13,682,400 in his capacity as
trustee for trusts established for Elton E. Babbitt's grandchildren).
Indemnification of Officers and Directors. The Merger Agreement provides
that the Company will purchase a run-off policy for the current directors' and
officers' liability insurance policy maintained by the Company, which run-off
policy will remain in effect for a period of five years after the closing of
the Merger, at a premium not to exceed 200% of the annual premium of the
Company's directors' and officers' insurance policy in effect as of the date
of the Merger Agreement. In addition, the Merger Agreement provides that all
rights to indemnification for acts or omissions occurring prior to the
Effective Time in favor of the current or former directors or officers of the
Company as provided in the Articles of Incorporation or By-laws of the Company
will survive the Merger and continue in full force and effect in accordance
with their terms from the Effective Time until the expiration of the
applicable statute of limitations with respect to any claims against the
current or former directors or officers of the Company arising out of such
acts or omissions.
Voting Agreement. Elton E. Babbitt, Charles J. O'Brien, Jr., Richard J.
Brandewie, Marvin Sexton, Gordon Babbitt and Gerald L. McCullough (as trustee
for trusts established for the grandchildren of Elton E. Babbitt) have entered
into a Voting Agreement with Merger Sub pursuant to which they each appointed
certain persons designated by Merger Sub as proxy to vote their respective
shares of MTL Common Stock (including shares issuable upon exercise of Options
prior to the Effective Time) in favor of the Merger Agreement and the
transactions contemplated thereby at the Special Meeting or any adjournment
thereof. In addition, unless the Merger Agreement has been terminated in
accordance with its terms, such shareholders agreed to vote their respective
shares of MTL Common Stock against (i) any merger agreement or merger (other
than the Merger Agreement and Merger), consolidation, sale of substantial
assets, reorganization, dissolution or other similar transaction or any other
Alternative Proposal, and (ii) any amendment of the Company's Articles of
Incorporation or By-Laws or other proposal or transaction involving the
Company or any of its subsidiaries, which amendment or other proposal or
transaction would in any manner impede, frustrate, prevent or nullify the
Merger, the Merger Agreement or any of the other transactions contemplated
thereby. Until the Merger is consummated or the Merger Agreement is terminated
in accordance with its terms, such shareholders agreed they will not transfer
their shares to any person other than Merger Sub or its designee, or enter
into any other voting arrangement with respect to their shares. The Voting
Agreement terminates upon the consummation of the transactions contemplated by
the Merger Agreement or termination of the Merger Agreement in accordance with
its terms.
CERTAIN EFFECTS OF THE MERGER
If the Merger is consummated, the Company's shareholders (other than the
holders of the Rollover Shares and the Excluded Shares) will have the right to
receive $40.00 in cash, without interest, for each share of MTL Common Stock
held. As a result of the Merger, such shareholders will cease to have any
ownership interest in MTL and will cease to participate in future earnings and
growth, if any, of MTL. Moreover, if the Merger is consummated, public trading
of the MTL Common Stock will cease, the MTL Common Stock will cease to be
quoted on the Nasdaq National Market, the registration of the MTL Common Stock
under the Exchange Act will be terminated and the Company will cease filing
reports with the Commission.
Immediately after the Merger, approximately 85.4% of the outstanding shares
of Surviving Corporation Common Stock will be owned by the Apollo Investors
and the remaining 14.6% will be owned by certain officers and directors of the
Company. See "--Interests of Certain Persons in the Merger" and "Certain
Provisions of the Merger--Treatment of Securities in the Merger".
21
The Merger Agreement provides that the current directors of the Company will
be replaced by the directors of the Merger Sub. All members of the Company's
current management will continue as such after the Effective Time. See
"Directors and Executive Officers of the Surviving Corporation".
Upon consummation of the Merger, the Surviving Corporation expects to
refinance the existing indebtedness of MTL. See "Financing of the Merger".
It is currently anticipated that the Surviving Corporation will be operated
after the Merger in a manner substantially the same as MTL's current
operations.
ACCOUNTING TREATMENT OF TRANSACTION
The Merger will be accounted for as a recapitalization. Accordingly the
historical basis of MTL's assets and liabilities will not be impacted by the
Merger and the transactions contemplated thereby.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material federal income tax
consequences of the Merger that are generally applicable to holders of MTL
Common Stock who, pursuant to the Merger, exchange all of their MTL Common
Stock for cash. The discussion is based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), currently applicable
Treasury regulations, and judicial and administrative decisions and rulings.
Future legislative, judicial or administrative changes or interpretations
could alter or modify the statements and conclusions set forth herein, and any
such changes or interpretations could be retroactive and could affect the tax
consequences to the shareholders of the Company.
The discussion below does not purport to deal with all aspects of federal
income taxation that may affect particular shareholders in light of their
individual circumstances, and is not intended for shareholders subject to
special treatment under the federal income tax law (including insurance
companies, tax-exempt organizations, financial institutions, broker-dealers,
foreign persons, shareholders who hold their stock as part of a hedge,
appreciated financial position, straddle or conversion transaction,
shareholders who do not hold their stock as capital assets and shareholders
who have acquired their stock upon the exercise of employee options or
otherwise as compensation). Furthermore, the discussion below does not address
the federal income tax consequences of the Merger to (i) shareholders who hold
Rollover Shares (including, without limitation, the federal income tax
consequences to such shareholders of the receipt of cash pursuant to the
Merger) or (ii) shareholders who may be considered to own shares of stock of
the Surviving Corporation after the Effective Time through application of the
constructive ownership rules of Section 318 of the Code (which, in very
general terms, deem a shareholder to own shares of stock that are owned by
certain members of his or her family (spouse, children, grandchildren and
parents) and other related parties including, for example, certain entities in
which such shareholder has a direct or indirect interest (including
partnerships, estates, trusts and corporations), as well as shares of stock
that such shareholder (or a related party) has the right to acquire upon
exercise of an option or conversion right). In addition, the discussion below
does not consider the effect of any applicable state, local or foreign tax
laws.
EACH HOLDER OF MTL COMMON STOCK IS STRONGLY URGED AND EXPECTED TO CONSULT
WITH SUCH HOLDER'S TAX ADVISOR TO DETERMINE THE PARTICULAR FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO SUCH HOLDER IN LIGHT OF SUCH HOLDER'S SPECIFIC
CIRCUMSTANCES AS WELL AS THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND
FOREIGN TAX LAWS.
The Merger. A shareholder who, pursuant to the Merger, exchanges all of its
MTL Common Stock for cash will recognize gain or loss equal to the difference
between (i) the amount of cash such shareholder receives in the Merger and
(ii) the shareholder's adjusted tax basis in such shares. Such gain or loss
will be capital gain or loss, and generally will be long-term capital gain or
loss if at the Effective Time the shareholder's holding period for the MTL
Common Stock is more than one year. In the case of individuals, "net capital
gain," i.e.,
22
the excess of net long-term capital gain over net short-term capital loss, is
generally subject to a reduced rate of federal income tax. Capital gains and
losses from property held for more than 18 months will be taken into account
in determining "adjusted net capital gain," which is subject to a further
reduction in the rate of tax pursuant to a recent amendment of the Code.
Backup Withholding. Shareholders who own MTL Common Stock should be aware
that the Company will be required in certain cases to withhold and remit to
the United States Treasury 31% of amounts payable in the Merger to any person
(i) who has provided either an incorrect tax identification number or no
number at all, (ii) who is subject to backup withholding by the Internal
Revenue Service for failure to report the receipt of interest or dividend
income properly, or (iii) who has failed to certify to the Company that he is
not subject to backup withholding or that he is an "exempt recipient." Backup
withholding is not an additional tax, but rather may be credited against the
taxpayer's tax liability for the year.
NO APPRAISAL RIGHTS
Under Florida law, MTL shareholders who do not vote in favor of the Merger
Agreement are not entitled to appraisal rights with respect to their shares of
MTL Common Stock. Appraisal rights do not apply with respect to a plan of
merger where the issuer's shares are designated as a National Market System
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc.
REGULATORY APPROVALS
The consummation of the Merger is subject to the expiration or termination
of the statutory waiting period under the HSR Act. Under the HSR Act and the
rules promulgated thereunder, the Merger may not be consummated until
notifications have been given and certain information has been furnished to
the FTC and the Antitrust Division and the applicable statutory waiting period
has expired or been terminated. MTL and Merger Sub will be filing notification
and report forms under the HSR Act with the FTC and the Antitrust Division.
CERTAIN RELATED AGREEMENTS
Certain related agreements were entered into in connection with the
execution of the Merger Agreement. The following is a summary of the material
terms of such agreements.
Shareholders' Agreement. Elton E. Babbitt, Charles J. O'Brien, Jr., Richard
J. Brandewie and Marvin E. Sexton have agreed to enter into a Shareholders'
Agreement with the Apollo Investors (the "Shareholders' Agreement") governing
certain aspects of the relationship among such shareholders and the Surviving
Corporation. The Shareholders' Agreement will contain, among other matters,
(i) certain provisions restricting the rights of such shareholders to transfer
their shares of or options on Surviving Corporation Common Stock for a period
of two and a half years (the "no-sale period") (subject to certain permitted
or required transfers in the event the Apollo Investors transfer a certain
amount of their shares) and certain rights of first refusal in favor of the
Apollo Investors after the no-sale period; (ii) certain registration rights
(other than in an initial public offering) in the event the Surviving
Corporation effects a registration of its securities; (iii) certain preemptive
rights with respect to the sale of Surviving Corporation Common Stock and
equity securities convertible into Surviving Corporation Common Stock; (iv)
certain rights of the Apollo Investors and the Surviving Corporation to
purchase the shares and options of the other shareholders in the event of
certain terminations of employment with the Surviving Corporation; and (v)
certain rights of the shareholders (other than the Apollo Investors) to
require the Surviving Corporation to purchase their shares in the event of
certain terminations of employment with the Surviving Corporation or after a
certain period of employment with the Surviving Corporation.
The Shareholders' Agreement will become effective as of the Effective Time
and will terminate upon the earlier of (a) the tenth anniversary thereof and
(b) at such time as the Company is a public company with equity
23
securities listed on a national securities exchange or publicly traded in the
over-the-counter market; provided, however, that certain transfer restrictions
and registration rights will survive notwithstanding the Company being a
public company.
The foregoing discussion of the Shareholders' Agreement does not purport to
be complete and is qualified in its entirety by reference to the term sheet
for the Shareholders' Agreement, which is attached as an exhibit to each of
the Employment Agreements for Messrs. O'Brien, Brandewie and Sexton and the
Non-Competition Agreement (as described below) for Elton E. Babbitt, which
have been filed as exhibits to the Company's Transaction Statement on Schedule
13E-3.
Non-Competition Agreements. Each of Elton E. Babbitt and Gordon Babbitt, a
shareholder holding an 8.25% interest in the Company, have entered into a Non-
Competition Agreement with the Company that contains, among other things, a
covenant not to compete with MTL. Pursuant to such covenant, Elton E. Babbitt
has agreed that he will not, for a period of five years from the consummation
of the transactions contemplated by the Merger Agreement, engage in the bulk
transportation services business or in any related business (the "BTS
Business") within any geographic area in which any member of the MTL Group (as
defined in the Non-Competition Agreement) conducts its business. Ownership of
up to 2% of a publicly traded enterprise engaged in a BTS Business would not
be a violation of such covenant not to compete. Gordon Babbitt has agreed that
he will not, for a period of three years from the closing of the Merger,
engage in the for-hire, common carrier tank truck transportation business (the
"Business") within the United States and Canada. Ownership of up to 2% of a
publicly traded enterprise engaged in a Business would not be a violation of
such covenant not to compete.
In addition, Elton E. Babbitt and Gordon Babbitt have each agreed (for a
period of five years from the consummation of the transactions contemplated by
the Merger Agreement with respect to Elton E. Babbitt, and for a period of
three years from the closing of the Merger with respect to Gordon Babbitt) not
to request, induce, attempt to influence or have any other business contact
with (i) any distributor or supplier of goods or services to any member of the
MTL Group to curtail or cancel any business they may transact with any member
of the MTL Group, (ii) any customers of any member of the MTL Group that have
done business with or potential customers which have been in contact with any
member of the MTL Group to curtail or cancel any business they may transact
with any member of the MTL Group, (iii) any employee of any member of the MTL
Group to terminate his employment with such member of the MTL Group or (iv)
any governmental entity or regulatory authority to terminate, revoke or
materially and adversely alter or impair any license, authority or permit
held, owned, used or reserved for the MTL Group.
Management Agreement between Apollo Management and MTL. The Company and
Apollo Management have entered into a Management Agreement whereby the Company
appointed Apollo Management following the Effective Time to provide financial
and strategic advice to the Company upon the consummation of the Merger.
Pursuant to the terms of the Management Agreement, Apollo Management has
agreed at such time to provide all financial and strategic services to the
Company as reasonably requested by the Company's Board of Directors. As
consideration for services rendered under the Management Agreement, Apollo
Management will receive an initial fee of $2,000,000 upon the Effective Time
and thereafter an annual fee of $500,000 until termination of the Management
Agreement. The Management Agreement may be terminated upon 30 days' written
notice by Apollo Management or the Company to the other party thereto.
24
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of the material aspects of the Merger
Agreement, which appears as Annex A to this Proxy Statement and is
incorporated herein by reference. This summary is qualified in its entirety by
reference to the Merger Agreement.
GENERAL
The Merger Agreement provides that, following the approval of the Merger and
the adoption of the Merger Agreement by the vote of the holders of a majority
of the issued and outstanding shares of the MTL Common Stock and the
satisfaction or waiver of the other conditions to the Merger, Merger Sub will
be merged with and into MTL, and MTL will continue as the Surviving
Corporation after the Merger.
Upon the terms and subject to the conditions of the Merger Agreement, at the
closing of the Merger the parties will cause the Articles of Merger to be
executed and filed in accordance with the requirements of the FBCA. Unless
otherwise agreed between the Merger Sub and the Company, the Merger will
become effective upon the filing of the Articles of Merger with the Florida
Department of State in accordance with the FBCA.
TREATMENT OF SECURITIES IN THE MERGER
At the Effective Time, the shares of MTL Common Stock and Options in respect
thereof will be treated as follows:
Cash Merger Price. At the Effective Time, each share of MTL Common Stock
held by the Company's shareholders (other than the Rollover Shares and the
Excluded Shares) will be converted into the right to receive $40.00 in cash.
The Merger Agreement provides that Merger Sub has the right to elect, prior to
the mailing of this Proxy Statement, to substitute, on a pro-rata basis for
each share of MTL Common Stock issued and outstanding immediately prior to the
Effective Time, up to $1.60 of the Cash Merger Price in the form of Surviving
Corporation Common Stock, such Surviving Corporation Common Stock to be valued
at $40.00 per share. However, Merger Sub has indicated that it will not be
making such election.
The Cash Merger Price will be made as soon as practicable after the
Effective Time upon receipt by the Paying Agent of certificates representing
the shares of MTL Common Stock held by such shareholders. No interest will be
paid or accrued on the Cash Merger Price.
Rollover Shares. At the Effective Time, each share of MTL Common Stock held
by certain officers and directors of the Company (216,672 shares in the
aggregate) will be converted into one share of Surviving Corporation Common
Stock. In addition, Marvin E. Sexton has agreed to purchase at the Effective
Time 31,135 shares of Surviving Corporation Common Stock at the Cash Merger
Price of $40.00 per share. Such shares, together with the Rollover Shares,
will represent approximately 14.6% of the total outstanding shares of
Surviving Corporation Common Stock.
Excluded Shares. At the Effective Time, each share of MTL Common Stock held
in the Company's treasury will be cancelled and retired without payment of any
consideration therefor.
Issuance of Surviving Corporation Common Stock to Apollo Investors. At the
Effective Time, the issued and outstanding shares of Merger Sub will be
converted into 1,452,193 shares of Surviving Corporation Common Stock,
representing approximately 85.4% of the total outstanding shares of Surviving
Corporation Common Stock.
Payment for Options. Except to the extent Merger Sub and the holder of any
Option otherwise agree, the Company will cause each Option, whether or not
then exercisable or vested, to be cancelled. In consideration of such
cancellation, the Company will pay to such holders of Options an amount in
cash in respect thereof equal
25
to the product of (i) the excess, if any, of the Cash Merger Price over the
exercise price of each such Option and (ii) the number of shares of MTL Common
Stock previously subject to the Option immediately prior to its cancellation
(such payment to be net of withholding taxes).
BOARD OF DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
The directors of Merger Sub immediately prior to the Effective Time shall be
the directors of the Surviving Corporation as of the Effective Time and until
their successors are duly appointed or elected in accordance with applicable
law. The officers of the Company immediately prior to the Effective Time shall
be the officers of the Surviving Corporation as of the Effective Time and
until their successors are duly appointed or elected in accordance with
applicable law. See "Directors and Executive Officers of the Surviving
Corporation."
ARTICLES OF INCORPORATION AND BY-LAWS OF THE SURVIVING CORPORATION
The Articles of Incorporation and by-laws of the Company in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
and by-laws of the Surviving Corporation, until duly changed or amended as
provided therein or in accordance with applicable law.
PAYMENT FOR SHARES
As of or after the Effective Time, Merger Sub will deposit with the Paying
Agent for the benefit of the holders of shares of MTL Common Stock the funds
necessary to pay the Cash Merger Price for each share payable pursuant to the
terms of the Merger Agreement.
As soon as practicable after the Effective Time the Paying Agent will send
to each record holder of MTL Common Stock a notice and a letter of transmittal
advising the holder of the effectiveness of the Merger and the procedure for
surrendering to the Paying Agent certificates for exchange into the Cash
Merger Price and, with respect to the holders of Rollover Shares, the shares
of Surviving Corporation Common Stock into which the Rollover Shares will be
converted (the "Rollover Share Consideration").
SHAREHOLDERS SHOULD NOT FORWARD STOCK CERTIFICATES TO THE PAYING AGENT UNTIL
THEY HAVE RECEIVED TRANSMITTAL FORMS. SHAREHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED PROXY CARD.
As soon as practicable after the Effective Time (i) each holder of an
outstanding share certificate or certificates which prior to the Effective
Time represented shares of MTL Common Stock (other than the Rollover Shares),
upon surrender to the Paying Agent of such certificate or certificates, and
acceptance thereof by the Paying Agent, shall be entitled to receive the Cash
Merger Price in respect of each share of MTL Common Stock theretofore
evidenced by such certificate or certificates so surrendered and (ii) each
holder of an outstanding certificate or certificates representing one share of
the Rollover Shares, upon surrender to the Paying Agent of such certificate or
certificates and acceptance thereof by the Paying Agent, shall be entitled to
receive a certificate or certificates representing one share of Surviving
Corporation Common Stock in respect of each share of MTL Common Stock
theretofore evidenced by such certificate or certificates so surrendered. Upon
such surrender, the Paying Agent will, as promptly as practicable, pay the
Cash Merger Price or the Rollover Share Consideration, as the case may be.
Until surrendered, each such certificate (other than certificates representing
Excluded Shares), will be deemed for all purposes to evidence only the right
to receive the Cash Merger Price for holders of MTL Common Stock (other than
the Rollover Shares), or the Rollover Share Consideration for holders of the
Rollover Shares. In no event will the holder of any surrendered certificate be
entitled to receive interest on the Cash Merger Price.
If the Cash Merger Price or Rollover Share Consideration (or any portion
thereof) is to be delivered to a person other than the person in whose name
the certificates surrendered in exchange therefor are registered, it will be a
condition to the payment of such consideration that the certificates so
surrendered are properly endorsed
26
and otherwise are in proper form for transfer, that such transfer otherwise is
proper and that the person requesting such transfer pay to the Paying Agent
any transfer or other taxes payable by reason of the foregoing or establish to
the satisfaction of the Paying Agent that such taxes have been paid or are not
required to be paid.
From and after the Effective Time, the stock transfer books of the Company
in place prior to the Effective Time will be closed and thereafter there will
be no transfers on such books of the shares of MTL Common Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, certificates are presented to the Surviving Corporation, they will be
canceled and exchanged for the Cash Merger Price or the Rollover Share
Consideration, as the case may be.
Any funds remaining with the Paying Agent one hundred eighty days following
the Effective Time will be delivered to the Surviving Corporation, after which
any holders of MTL Common Stock (other than Rollover Shares) prior to the
Merger shall thereafter look only to the Surviving Corporation and only as
general unsecured creditors thereof for payment of their claims for cash, if
any.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
Conditions to Each Party's Obligation to Effect the Merger. The respective
obligation of each of the Company and Merger Sub to effect the Merger shall be
subject to the satisfaction at or prior to the closing date of the Merger of
the following conditions:
(a) The Merger Agreement and the transactions contemplated thereby shall
have been approved by a majority of the holders of the issued and outstanding
shares of the MTL Common Stock;
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated;
(c) No statute, rule, regulation, executive order, writ, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
Governmental Entity (as defined in the Merger Agreement) which prohibits the
consummation of the Merger. In the event any such order or injunction shall
have been issued, each party agrees to use its reasonable efforts to have any
such order or injunction lifted; and
(d) Except as provided in the Merger Agreement, all consents,
authorizations, orders and approvals of (or filings or registrations with) any
governmental commission, board or other regulatory body required in connection
with the execution, delivery and performance of the Merger Agreement shall
have been obtained or made.
Conditions to the Obligation of the Company to Effect the Merger. Except as
provided in the Merger Agreement, the obligation of the Company to effect the
Merger is subject to the following condition: Merger Sub shall have performed
in all material respects its agreements (other than those agreements which are
qualified by materiality which are required to be performed in all respects)
contained in the Merger Agreement required to be performed on or prior to the
closing date of the Merger, the representations and warranties of Merger Sub
contained in the Merger Agreement and in any document delivered in connection
therewith shall be true and correct in all respects (except for those
representations and warranties which are not qualified by materiality, which
are required to be true and correct in all material respects) as of the date
of the Merger Agreement and as of the closing date of the Merger and the
Company shall have received a certificate of the President of Merger Sub
certifying to such effect.
Conditions to the Obligation of Merger Sub to Effect the Merger. The
obligations of Merger Sub to effect the Merger is subject to the satisfaction
of the following conditions:
(a) Except as provided in the Merger Agreement, the Company shall have
performed in all material respects its agreements (other than those agreements
which are qualified by materiality which are required to be
27
performed in all respects) contained in the Merger Agreement required to be
performed on or prior to the closing date of the Merger, the representations
and warranties of the Company contained in the Merger Agreement and in any
document delivered in connection therewith shall be true and correct in all
respects (except for those representations and warranties which are not
qualified by materiality, which are required to be true and correct in all
material respects) as of the date of the Merger Agreement and as of the
closing date, and Merger Sub shall have received a certificate of the
President of the Company, certifying to such effect;
(b) The funding contemplated by the Commitment Letters and Senior
Subordinated Notes shall have been obtained;
(c) Except as provided in the Merger Agreement, all notices required to be
given prior to the Effective Time with, and all consents, approvals,
authorizations, waivers and amendments required to be obtained prior to the
Effective Time from, any third party in connection with the consummation of
the Merger and the financing thereof, shall have been made or obtained;
(d) Except as provided in the Merger Agreement, Arthur Andersen LLP shall
have completed its audit, in accordance with generally accepted auditing
standards, of the Company's financial statements for the year ended December
31, 1997 and shall have issued an unqualified report with respect thereto and
there shall be no material difference between such audited financial
statements and the Company's unaudited financial statements for the year ended
December 31, 1997. For purposes of this paragraph (d), a material difference
is defined as a negative variance in Revenue and Net Income (as defined in the
Merger Agreement) in excess of 5%;
(e) From the date of the Merger Agreement through the Effective Time, there
shall not have occurred a Company Material Adverse Effect (as defined in the
Merger Agreement); and
(f) Two of the three employment agreements between the Company, on the one
hand, and Charles J. O'Brien, Jr., Marvin E. Sexton, and Richard Brandewie, on
the other hand and the non-competition agreements between the Company, on the
one hand, and each of Elton E. Babbitt and Gordon Babbitt, on the other hand,
shall have been executed and delivered and shall be in full force and effect.
The Company has already entered into the three employment and the two non-
compete agreements. See "Special Factors--Interests of Certain Persons in the
Merger" and "--Certain Related Agreements".
COVENANTS
Interim Operations. In general, the Company has agreed that prior to the
Effective Time, except as otherwise provided in the Merger Agreement and
unless Merger Sub has consented in writing thereto, the Company will, and in
certain cases will cause its subsidiaries to, (i) conduct its business in the
ordinary course consistent with past practice; (ii) use its best efforts to
maintain its business organizations and relationships; (iii) notify Merger Sub
of certain adverse changes, litigation and breaches of the Merger Agreement;
and (iv) deliver to Merger Sub all filings made with the Commission prior to
the Effective Time. Furthermore, the Company has generally agreed that, prior
to the Effective Time, except as otherwise provided in the Merger Agreement
and unless Merger Sub has consented in writing thereto, the Company will not,
and in certain cases will cause its subsidiaries not to, (i) amend its
organizational and governing instruments; (ii) take steps toward the
consummation of any business combination (other than the Merger) or relinquish
any material contract rights or acquire or dispose of assets; (iii) grant,
confer or award any options or other rights not existing on the date of the
Merger Agreement; modify certain employee stock options; or authorize cash
payments in exchange such employee stock options; (iv) amend any Benefit Plans
(as defined in the Merger Agreement) existing on the date of the Merger
Agreement or adopt any new employee benefit plans; (v) increase or agree to
increase the compensation payable to any officer or director or enter into any
collective bargaining agreement; (vi) incur any debt or certain other
liabilities; (vii) change any practice with respect to taxes or a material tax
election or settle or compromise any material tax dispute; (viii) declare, set
aside, or pay any dividend or distribution in respect of its capital stock or
other ownership interests; redeem, purchase or otherwise acquire any shares of
its capital stock or capital stock of any of its subsidiaries; or split,
combine or reclassify any of its capital stock or take steps to
28
issue any other securities in respect of shares of its capital stock; (ix)
issue, deliver, sell, pledge or otherwise encumber any shares of its capital
stock or certain other securities related to its capital stock; (x) make or
agree to make any capital expenditure or expenditures with respect to
property, plant or equipment; (xi) change any accounting principles or
practices; (xii) pay, discharge, settle or satisfy any claims, liabilities or
obligations; (xiii) waive any material benefits of, or agree to modify in any
material respect, any confidentiality, standstill, non-solicitation or similar
agreement; and (xiv) take, agree to take (in writing or otherwise) or resolve
to take, any of the prohibited actions described in this paragraph.
Additional Covenants. In addition to the foregoing, the Company and Merger
Sub have agreed to certain covenants regarding (i) convening of the Special
Meeting; (ii) HSR filings and other governmental or regulatory filings; (iii)
access of Merger Sub to the offices, records, files, correspondence, audits
and properties of the Company; (iv) publicity; (v) preparation and filing of
this Proxy Statement and a Transaction Statement on Schedule 13E-3; (vi) the
performance of additional actions as may be necessary to effect the Merger;
(vii) expenses related to the Merger Agreement; (viii) insurance and
indemnity; (ix) tax matters; (x) actions which would adversely affect either
the truthfulness of the representations and warranties in the Merger Agreement
or the conditions to the Merger; (xi) notice of changes with respect to the
Company and its subsidiaries; and (xii) the Company's supply of financial
information to Merger Sub.
NO SOLICITATION; FIDUCIARY OUT
Under the Merger Agreement, MTL has agreed to immediately cease any existing
activities, discussions or negotiations with any parties (other than the
Apollo Investors and Merger Sub) with respect to an Alternative Proposal.
Pursuant to the Merger Agreement, MTL has agreed that neither it nor its
subsidiaries will initiate, solicit or encourage, directly or indirectly, or
take any other action to facilitate, any inquiries or the making or
implementation of any proposal or offer that constitutes an Alternative
Proposal, or negotiate or discuss with, or provide any confidential
information or data to, any person relating to an Alternative Proposal, or
authorize or permit any of its officers, directors, employees, agents or
representatives to take any such action. MTL is obligated to notify Merger Sub
immediately if any such inquiries or proposals are received by, any such
information is requested from the Company or any such negotiations or
discussions are sought to be initiated or continued with the Company. Nothing
contained in the Merger Agreement prohibits the Board of Directors of the
Company from furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited bona fide
written Alternative Proposal if, and only to the extent that, (i) the
furnishing of such information is pursuant to a reasonable and customary
confidentiality agreement, (ii) the Board of Directors of the Company
determines in good faith after consultation with outside counsel that such
action is required for the Board to comply with its fiduciary duties to
shareholders imposed by law, (iii) the Board determines in good faith after
consultation with its financial advisor that such Alternative Proposal, if
accepted, is reasonably likely to be consummated, taking into account all
legal, financial and regulatory aspects of the proposal and the person making
the proposal, and would, if consummated, result in a more favorable
transaction than the transaction contemplated by the Merger Agreement, and
(iv) the Company is otherwise in compliance with its obligations regarding
Alternative Proposals as provided in the Merger Agreement. Except as provided
in the Merger Agreement, the foregoing provisions do not permit the Company to
(a) terminate the Merger Agreement, (b) enter into any agreement with respect
to an Alternative Proposal during the term of the Merger Agreement, or (c)
affect any other obligation of the Company under the Merger Agreement.
TERMINATION; EFFECTS OF TERMINATION
Termination by Mutual Written Consent. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the Merger by the shareholders of
the Company by mutual written consent of Merger Sub and the Company.
Termination by the Company. Except as otherwise provided therein, the Merger
Agreement may be terminated and the Merger may be abandoned at any time prior
to the Effective Time, prior to the approval by the shareholders of the
Company as provided in the Merger Agreement, by action of the Board of
Directors of
29
the Company, if in the exercise of its good faith judgment as to fiduciary
duties to its shareholders imposed by law, after consultation with outside
counsel, the Board of Directors of the Company determines that such
termination is required in order to execute an agreement providing for the
implementation of the transactions contemplated by an Alternative Proposal. In
the event that the Merger Agreement is terminated by the Company pursuant to
the provision of the Merger Agreement described in this paragraph, then the
Company shall pay Merger Sub a fee of $6.0 million and shall reimburse Merger
Sub for its expenses in an amount not to exceed $1.5 million.
Termination by Merger Sub. The Merger Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of
the Board of Directors of Merger Sub, if the Board of Directors of Company
shall have withdrawn or modified in a manner materially adverse to Merger Sub
its approval or recommendation of the Merger Agreement or the Merger or shall
have recommended an Alternative Proposal or shall have failed to reconfirm its
recommendation of the Merger Agreement and the transactions contemplated
thereby within five business days of Merger Sub's request, made with
reasonable frequency, that it do so. In the event that the Merger Agreement is
terminated by the Company pursuant to the provision of the Merger Agreement
described in this paragraph, then the Company shall pay Merger Sub a fee of
$6.0 million and shall reimburse Merger Sub for its expenses in an amount not
to exceed $1.5 million.
Termination by Either Merger Sub or the Company. The Merger Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the Merger by the shareholders of
the Company by either Merger Sub or the Company if:
(a) the Merger shall not have been consummated by the date which is nine
months following the date of the Merger Agreement; provided, that the
terminating party shall not have breached in any material respect its
obligations under the Merger Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger by such date;
(b) the approval of the Company's shareholders, as required by the Merger
Agreement, shall not have been obtained;
(c) except as provided by the Merger Agreement, a Governmental Entity shall
have issued an order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated
by the Merger Agreement and such order, decree, ruling or other action shall
have become final and non-appealable; or
(d) subject to certain conditions as provided in the Merger Agreement, there
shall have been a breach by the other of any representation, warranty or
agreement contained in the Merger Agreement (without regard to the materiality
qualifiers contained therein) which would result in the conditions described
above in "--Conditions to the Consummation of the Merger--Conditions to the
Obligation of the Company to Effect the Merger" or condition (a) in "--
Conditions to the Consummation of the Merger--Conditions to the Obligation of
Merger Sub to Effect the Merger" not being satisfied.
In the event that the Merger Agreement is terminated by either party
pursuant to the provisions of the Merger Agreement described in clause (b) in
the preceding paragraph then, if (A)(i) there shall not have been a material
breach of the Merger Agreement by Merger Sub and (ii) subsequent to the date
of the Merger Agreement and prior to the date of the meeting of Company
shareholders required to approve the Merger Agreement, there shall have been
made an Alternative Proposal with respect to the Company or any of its
subsidiaries, the Company shall reimburse Merger Sub for its expenses in an
amount not to exceed $3.0 million; or (B) if the conditions set forth in
clause (A)(ii) above are not met, the Company shall reimburse Merger Sub for
its expenses in an amount not to exceed $1.5 million; provided that in the
event within 12 months of such termination the Company enters into a
definitive agreement with respect to a transaction that constitutes an
Alternative Proposal, the Company shall, at the time of entering into such
agreement, pay Merger Sub a fee equal to $7.5 million less the amount
previously reimbursed to Merger Sub pursuant to clause (A) or (B) above.
30
In the event that the Merger Agreement is terminated by either party
pursuant to the provision of the Merger Agreement described in clause (d) in
the second immediately preceding paragraph arising from (A) a willful breach
of any representation or warranty or the material breach of any agreement by
the Company, then the Company shall pay Merger Sub a fee of $6.0 million and
shall reimburse Merger Sub for its expenses in an amount not to exceed $1.5
million, (B) a breach of any representation or warranty by the Company which
breach existed on or before the date of the Merger Agreement and does not
constitute a willful breach, then the Company shall reimburse Merger Sub for
its expenses in an amount not to exceed $3.0 million, or (C) a breach of any
representation or warranty by the Company which arose after the date of the
Merger Agreement and does not constitute a willful breach, then the Company
shall reimburse Merger Sub for its expenses in an amount not to exceed $1.5
million; provided, that in the event the Merger Agreement shall have been
terminated pursuant to clause (B) or (C) above and within 12 months of such
termination the Company enters into a definitive agreement with respect to a
transaction that constitutes an Alternative Proposal, the Company shall, at
the time of entering into such agreement, pay Merger Sub a fee equal to $7.5
million less the amount previously reimbursed to Merger Sub pursuant to clause
(B) or (C) above.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto at any time
before or after approval of matters presented in connection with the Merger by
the shareholders of the Company, but after any such shareholder approval, no
amendment shall be made which by law requires the further approval of
shareholders without obtaining such further approval. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties thereto. At any time prior to the Effective Time, any party to the
Merger Agreement may, to the extent legally allowed, (a) extend the time for
the performance of any of the obligations or other acts of the other parties
thereto, (b) waive any inaccuracies in the representations and warranties made
to such party contained therein or in any document delivered pursuant thereto
and (c) waive compliance with any of the agreements or conditions for the
benefit of such party contained therein. Any agreement on the part of a party
thereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
REPRESENTATIONS AND WARRANTIES
Representations and Warranties of the Company. The Merger Agreement contains
representations and warranties of the Company with respect to the Company and
its subsidiaries relating to, among other things, (i) organization, standing
and similar corporate matters; (ii) the authorization, execution, delivery,
performance and enforceability of the Merger Agreement and related matters;
(iii) capitalization; (iv) subsidiaries; (v) the non-contravention of
organizational documents, benefit plans, certain material contracts and
applicable laws; (vi) SEC documents, financial statements, and other financial
information; (vii) the validity and collectability of accounts receivable;
(viii) insurance matters; (ix) litigation; (x) absence of certain changes or
events; (xi) taxes; (xii) benefit plans and other matters relating to the
Employee Retirement Income Security Act of 1974, as amended and employment
matters; (xiii) labor matters and relationships with suppliers and
distributors; (xiv) the absence of undisclosed liabilities; (xv) real
property, leased property and other property matters; (xvi) Merger Sub's
opportunity to review material contracts of the Company prior to the Merger
and the absence of defaults under material contracts; (xvii) compliance with
applicable laws; (xviii) environmental, health and safety matters; (xix)
assets of the Company; (xx) matters related to brokers, fees and other
expenses; (xxi) intellectual property matters; (xxii) the inapplicability of
Florida takeover statutes; (xxiii) the recommendation of the Board of
Directors of the Company with respect to the Merger Agreement, the Merger and
related transactions; (xxiv) related party transactions; (xxv) the Company's
affiliate program with independent contractors; (xxvi) the receipt of an
opinion of the Company's financial advisor; (xxvii) the accuracy of
information contained in this Proxy Statement and the Transaction Statement on
Schedule 13E-3; and (xxviii) no public announcement of Alternative Proposals.
31
Representations and Warranties of Merger Sub. The Merger Agreement contains
representations and warranties of Merger Sub relating to, among other things,
(i) organization, standing and similar corporate matters; (ii) the
authorization, execution, delivery, performance and enforceability of the
Merger Agreement and related matters; (iii) Merger Sub's capital structure;
(iv) the non-contravention of organizational documents, benefit plans, certain
material contracts and applicable laws; (v) the operations of Merger Sub prior
to the Merger; and (vi) the financing of the Merger.
32
SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial information set forth below is qualified
in its entirety by reference to, and should be read in conjunction with, the
consolidated financial statements and notes thereto included in the documents
incorporated by reference herein. The consolidated financial information set
forth below for and as of each of the years in the five-year period ended
December 31, 1997 has been derived from audited consolidated financial
statements of the Company. See "Incorporation of Certain Documents by
Reference".
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
INCOME STATEMENT DATA
Operating revenues........... $286,047 $235,599 $190,054 $168,290 $142,376
Operating expenses:
Purchased transportation.... 178,116 145,895 120,011 112,288 96,392
Compensation................ 31,566 26,201 20,099 13,061 9,186
Fuel, supplies, maintenance. 20,392 17,957 12,172 8,293 6,209
Depreciation and
amortization............... 17,335 13,892 10,156 8,213 7,335
Selling and administrative.. 7,421 6,015 5,204 3,629 3,123
Insurance and claims........ 6,455 4,366 3,281 5,687 5,328
Taxes and licenses.......... 1,900 1,655 1,630 1,134 1,003
Communications and
utilities.................. 1,805 1,378 1,149 1,052 991
Gain (loss) on sale of P&E.. (36) 20 (150) (36) (44)
-------- -------- -------- -------- --------
Total operating expenses..... 264,954 217,379 173,552 153,321 129,523
Operating income............. 21,093 18,220 16,502 14,969 12,853
Other income (expense):
Interest expense............ (3,175) (3,494) (3,468) (4,172) (5,722)
Other....................... (39) 214 175 (252) (94)
-------- -------- -------- -------- --------
Total other income (expense). (3,214) (3,280) (3,292) (4,424) (5,816)
Income before taxes.......... 17,879 14,940 13,210 10,545 7,037
Provision for income taxes... 7,396 6,103 5,408 4,306 2,653
-------- -------- -------- -------- --------
Income from continuing
operations.................. 10,483 8,837 7,802 6,239 4,384
-------- -------- -------- -------- --------
Net income................... $ 10,483 $ 8,837 $ 7,802 $ 6,239 $ 4,384
Cash dividends............... -- -- -- -- --
BALANCE SHEET DATA
Total assets................. $194,036 $173,604 $145,740 $126,219 $105,787
Long-term obligations,
including current portion... 55,098 57,329 48,844 40,538 53,613
Convertible preferred stock
and warrants................ -- -- -- -- 11,008
Working capital.............. 22,532 22,409 13,068 8,682 1,286
Stockholders equity.......... 79,532 68,913 60,058 52,247 17,245
PER SHARE DATA
Net income
Basic....................... 2.31 1.95 1.73 1.96 2.67
Diluted..................... 2.23 1.92 1.72 1.61 1.44
Book value................... 16.88 14.98 13.22 12.95 3.94
OTHER DATA
Ratio of earnings to fixed
charges..................... 6.2 5.1 4.7 3.4 2.2
33
MARKET PRICES AND DIVIDENDS
MTL Common Stock is traded on the Nasdaq National Market under the symbol
"MTLI". On February 10, 1998, the last trading day prior to the public
announcement that MTL and Merger Sub had executed the Merger Agreement, the
high and low sale prices per share of MTL Common Stock as reported on the
Nasdaq National Market was $29 and $28 3/4, respectively.
The following table sets forth the high and low sale prices per share of MTL
Common Stock on the Nasdaq National Market with respect to each quarterly
period since January 1, 1996.
HIGH LOW
---- ----
FISCAL 1996
First Quarter............................................ $17 1/4 $13 3/8
Second Quarter........................................... 17 1/2 15 5/8
Third Quarter............................................ 19 1/2 17 1/8
Fourth Quarter........................................... 21 5/8 18 1/4
FISCAL 1997
First Quarter............................................ 24 1/4 20 5/8
Second Quarter........................................... 24 1/8 22 7/8
Third Quarter............................................ 28 21 1/4
Fourth Quarter........................................... 29 3/8 25 1/4
The Company has never paid dividends on the MTL Common Stock. In addition,
the payment of dividends by the Company is subject to certain restrictions
under the Company's existing loan agreements, which will be refinanced in
connection with the Merger. Under the Merger Agreement, the Company has agreed
not to pay any dividends on the MTL Common Stock prior to the Effective Time.
Pursuant to the terms of the loan agreements contemplated by the Commitment
Letters, the Surviving Corporation's ability to pay certain dividends will be
restricted. Furthermore, the Senior Subordinated Notes are expected to be
issued under an Indenture. The Indenture is expected to, under certain
circumstances and subject to certain exceptions, restrict the payment of
dividends or the making of distributions by the Company on or in respect of
shares of the Company's capital stock.
FINANCING OF THE MERGER
Financing of the Merger will require approximately $258 million to pay the
Cash Merger Price, to pay the value of the Options, to refinance certain
existing indebtedness of MTL and its subsidiaries and to pay the fees and
expenses in connection with the Merger and such financing. These funds are
expected to be provided through (i) the issuance by MTL of Senior Subordinated
Notes in an aggregate principal amount of $140 million (or, in the event the
Senior Subordinated Notes are not issued, the incurrence by MTL of a Bridge
Loan in an aggregate principal amount of $60 million), (ii) the incurrence by
MTL of a six-year $60 million Term Loan (or, in the event the Senior
Subordinated Notes are not issued, a six-year $140 million Term Loan) and
(iii) equity financing provided by the Apollo Investors in the amount of $58
million through the purchase of the common stock of and/or capital
contributions to Merger Sub.
SENIOR SUBORDINATED NOTES
MTL intends to issue the Senior Subordinated Notes on or prior to the
consummation of the Merger. It is anticipated that the Senior Subordinated
Notes will be issued in a private placement exempt from registration under the
Securities Act of 1933 pursuant to Rule 144A. The Senior Subordinated Notes
are expected to be issued under an Indenture by and among MTL Inc., the
Guarantors (as defined below) and the trustee named therein.
34
Principal and Maturity. The Senior Subordinated Notes will be limited in
aggregate principal amount to $140.0 million and are expected to mature ten
years from the date of issuance.
Ranking. The Senior Subordinated Notes are expected to be general unsecured
obligations of the Company. The Senior Subordinated Notes are expected to rank
pari passu in right of payment with any future senior subordinated obligations
of the Company and are expected to rank senior in right of payment to all
other subordinated obligations of the Company.
Guarantees. The Senior Subordinated Notes are expected to be unconditionally
guaranteed (the "Guarantees") on a senior subordinated basis by the Company's
existing and future direct and indirect wholly-owned domestic subsidiaries
(the "Guarantors"). The Guarantees are expected to be general unsecured
obligations of the Guarantors and are expected to be subordinated in right of
payment to all Guarantor Senior Debt (as defined in the Indenture) of the
Guarantors.
Redemption. The Senior Subordinated Notes are expected to be redeemable, at
the Company's option, in whole at any time or in part from time to time at the
dates and redemption prices set forth in the Indenture. In addition, at any
time, or from time to time, as described in the Indenture, the Company may, at
its option, redeem Senior Subordinated Notes with the net cash proceeds of one
or more Equity Offerings (as defined in the Indenture).
Change of Control. The Indenture is expected to provide that upon the
occurrence of a Change of Control (as defined in the Indenture), each Holder
(as defined in the Indenture) will have the right to require that the Company
purchase all or a portion of such Holder's Senior Subordinated Notes at a
purchase price equal to 101% of the principal amount thereof plus accrued
interest to the date of purchase.
Certain Covenants. The Indenture is expected to contain certain covenants
that, among other things and subject to certain exceptions, limit the ability
of the Company and its subsidiaries to (i) incur additional indebtedness, (ii)
make certain restricted payments, (iii) consummate certain asset sales, (iv)
enter into certain transactions with affiliates, (v) impose restrictions on
the ability of a subsidiary to make certain payments to the Company and its
subsidiaries, and (vi) merge or consolidate with any other person or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of the assets of the Company.
Events of Default. The Indenture is expected to provide that the events of
default will include customary events of default, including, without
limitation, payment defaults, covenant defaults, bankruptcy and insolvency,
judgments, and cross acceleration of and failure to pay at final maturity
certain other indebtedness, subject to, in certain circumstances, notice and
grace provisions.
Governing Law. The Indenture is expected to provide that it, the Senior
Subordinated Notes and the Guarantees will be governed by, and construed in
accordance with, the laws of the State of New York but without giving effect
to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
BRIDGE LOAN
In the event that the offering of the Senior Subordinated Notes is not
consummated on or prior to the consummation of the Merger, MTL will incur the
Bridge Loan. The Bridge Loan Commitment Letter has been obtained by Merger Sub
from BTNY and CSFB. Pursuant to the Bridge Loan Commitment Letter, BTNY and
CSFB (together with any other lender participating in the Bridge Loan, the
"Lenders") may syndicate all or a portion of the Bridge Loan or the Converted
Term Loan (as defined below) to one or more financial institutions. The making
of the Bridge Loan will be governed by definitive loan and related agreements
to be entered into between the Company and the Lenders. In addition, Merger
Sub has entered into a Bridge Loan Indemnity Letter with BTNY and CSFB
pursuant to which Merger Sub has agreed to indemnify BTNY and CSFB and certain
35
related parties against certain liabilities relating to or arising out of the
proposed transactions giving rise to or contemplated by the Bridge Loan
Commitment Letter.
Use of Proceeds. The Bridge Loan is expected to be made available to the
Company to finance in part the Merger and certain related costs and expenses,
and to refinance certain existing indebtedness of the Company.
Maturity; Conversion to Term Loan. The Bridge Loan is required to be repaid
on the earlier of (i) the date occurring one year following the closing of the
consummation of the Merger and the transactions contemplated thereby (the
"Closing Date") and (ii) the closing date of any permanent financing. If MTL
fails to raise permanent financing before the first anniversary of the Closing
Date, the Bridge Loan, subject to certain exceptions, will be automatically
converted into an unsecured senior subordinated term loan facility (the
"Converted Term Loan") with a maturity on the tenth anniversary of the Closing
Date.
Take-Out Securities. As a condition to the closing for the Bridge Loan,
Merger Sub or the Company will be required to engage BT Alex. Brown and Credit
Suisse First Boston Corporation (together, the "Take-Out Banks") to publicly
sell or privately place debt securities of MTL (the "Take-Out Securities") to
finance the Merger and the refinancing of existing indebtedness or to
refinance the Bridge Loan. Upon a request from the Take-Out Banks from the
funding date of any Bridge Loan and prior to the conversion of such Bridge
Loan to a Converted Term Loan, the Company will be required to issue Take-Out
Securities on terms specified by the Take-Out Banks, subject to certain
conditions.
Interest. The Bridge Loan and the Converted Term Loan will bear interest at
an annual rate equal to the three-month Treasury rate, reset monthly, plus
5.375%. Such spread over the Treasury rate will automatically increase by 0.5%
at the end of each three-month period after the Closing Date. Subject to the
provisions in the succeeding paragraph, the interest rate will be capped at
14.0%. At any time on or after the date the Bridge Loan is converted into the
Converted Term Loan, the interest rate on the Converted Term Loan will, at the
election of the Lenders, be converted to a fixed rate equal to 14.0%.
Interest on the Bridge Loan and the Converted Term Loan will be payable in
cash on a quarterly basis; provided, however, that interest on a Converted
Term Loan bearing interest at a fixed rate will be payable on a semi-annual
basis. Interest will be paid in cash to the extent that the combined sum of
interest on the Bridge Loan and the Converted Term Loan is less than or equal
to 14% per annum. To the extent that such combined sum is not paid in cash, it
will be paid in debt securities having similar terms; provided that such
combined sum of interest will not exceed 16% per annum.
The Company will be required to pay a commitment fee equal to a percentage
of the total commitment under the Bridge Loan (i.e., $60 million), and a
funding fee equal to a percentage of the total amount of the Bridge Loan
funded. Upon conversion of the Bridge Loan into a Converted Term Loan, the
Company will be required to pay a conversion fee equal to a percentage of the
principal amount of the Bridge Loan so converted.
Warrants. The Company has agreed to a fee payable in warrants to purchase up
to 5% of the fully diluted common equity of MTL in the event the Take-Out
Banks, at any time prior to the first anniversary of the Closing Date,
determine, based on prevailing market conditions, that it is necessary to sell
Take-Out Securities with an equity component. Such warrants will be
exercisable at no or a nominal price and will be used by the Take-Out Banks to
facilitate the syndication and/or refinancing of the Bridge Loan (including by
means of the sale of Take-Out Securities). Any unused warrants for such
purpose (the "Unused Warrants") will be returned to MTL for cancellation. If
the Bridge Loan is still outstanding twelve months after the Closing Date,
BTNY and CSFB will be entitled to a fee, payable in common equity of MTL (or
warrants), in an amount equal to 25% of the Unused Warrants. BTNY and CSFB
will receive 25% of any remaining Unused Warrants (payable in an equivalent
amount of common equity of MTL (or warrants)) in each three month period
thereafter until the period which is 21 months following the Closing Date.
36
Prepayments. The Company will be required to prepay the Bridge Loan plus
accrued interest with the net proceeds from the sale any Take-Out Securities,
senior subordinated or subordinated debt securities, and, to the extent
permitted by the Senior Bank Financing, equity securities and certain asset
sales. Subject to the prior repayment of the loans under the Senior Bank
Financing, the Company will be required to make an offer to purchase all notes
outstanding under the Bridge Loan or the Converted Term Loan upon a change of
control of the Company.
The Company may prepay the Bridge Loan or the Converted Term Loan, in whole
or in part, at any time; however, Converted Term Loans with a fixed interest
rate will be subject to redemption restrictions and premiums customary for
high-yield debt securities.
Debt Security Exchange. The Lenders will have the right to require the
Company to exchange the Converted Term Loan for an equal principal amount of
long-term notes (the "Exchange Notes") bearing interest at 14% with terms and
conditions similar to those for high-yield debt securities. The Lenders will
have certain registration rights with respect to the Exchange Notes, including
a registered exchange offer of registered securities for the Exchange
Securities or a registration statement provided by the Company on demand to
cover resales of the Exchange Notes.
Guarantees. The Bridge Loan will be guaranteed by each of the Company's
domestic subsidiaries on the Closing Date and each other entity that
guarantees the Senior Bank Financing (the "Bridge Guarantors").
Ranking. The Bridge Loan and the guarantee thereof will be a senior
subordinated obligation of the Company and each Bridge Guarantor,
respectively, and will rank (i) except as set forth in clause (iii), pari
passu with all other unsubordinated indebtedness of the Company or such
Guarantor, as the case may be, (ii) senior to any subordinated indebtedness of
the Company or such Guarantor, as the case may be, and (iii) subordinated in
right of payment to all senior indebtedness of the Company or such Guarantor,
as the case may be, including the Senior Bank Financing.
Representations and Warranties and Covenants. The Bridge Loan Commitment
Letter provides that the documentation for the Bridge Loan will contain
customary representations and warranties by the Company. In addition, such
documentation is expected to contain customary affirmative and negative
covenants, including, without limitation, restrictions on the ability of the
Company and its subsidiaries to (i) incur additional indebtedness, (ii) pay
certain dividends and make certain other restricted payments and investments,
(iii) impose restrictions on the ability of the Company's subsidiaries to pay
dividends or make certain payments to the Company, (iv) create liens, (v)
enter into transactions with affiliates, and (vi) merge, consolidate or
transfer substantially all of their respective assets. It is expected that
during the term of the Bridge Loan, the covenants applicable to the Bridge
Loan may be more restrictive than the covenants applicable to the Term Loan,
and it is expected that such covenants will include additional prohibitions
relating to asset sales, certain acquisitions, certain debt incurrences and
certain other corporate transactions.
Events of Default. The Bridge Loan Commitment Letter provides that the
events of default under the loan documentation will include customary events
of default, including, without limitation, payment defaults, covenant
defaults, bankruptcy and insolvency, judgments, and cross acceleration of and
failure to pay at final maturity certain other indebtedness, subject to, in
certain cases, notice and grace provisions.
TERM LOAN AND REVOLVING CREDIT FACILITY
The Bank Commitment Letter has been obtained by Merger Sub from BTCo and
CSFB (together, the "Arrangers") pursuant to which the Arrangers have agreed
to provide, subject to the terms and conditions provided therein, to MTL (i) a
$60 million Term Loan (or, if the Senior Subordinated Notes are not issued, a
$140 million Term Loan) and (ii) a six-year $100 million Revolving Credit
Facility (which may include letters of credit) to be used for the working
capital and general corporate purposes of MTL and its subsidiaries (including,
without limitation, effecting certain permitted acquisitions.)
37
Pursuant to the Bank Commitment Letter, the Arrangers reserve the right to
syndicate all or a portion of the Senior Bank Financing to one or more
financial institutions (including the Arrangers, each, a "Bank Lender"), such
institutions being subject to the Company's approval. In addition, the
Arrangers agree to serve as sole agents in connection with the Senior Bank
Financing.
Use of Proceeds; Maturity. The Term Loan is expected to be made available to
the Company to finance, in part, the Merger and certain related costs and
expenses, and to refinance certain existing indebtedness of the Company. The
full amount of the Term Loan will be borrowed pursuant to a single drawing on
the date of the consummation of the Merger (the "Initial Borrowing Date"). The
Revolving Credit Facility is expected to be available after the Initial
Borrowing Date to be used for working capital requirements, certain permitted
acquisitions and the general corporate purposes of the Company and its
subsidiaries. The Term Loan and the Revolving Loan Facility mature on the
sixth anniversary of the Initial Borrowing Date. The Term Loan will require
the Company to make annual amortization payments (payable in quarterly
installments) equal to one percent of the initial aggregate principal amount
of the Term Loan in the first five years and the remaining 95% in the sixth
year.
Prepayments. The Term Loan is required to be prepaid with (a) 100% (or 75%,
if certain financial ratios are less than a certain level to be agreed upon)
of the net cash proceeds of all non-ordinary-course asset sales and
dispositions by the Company and its subsidiaries, subject to limited
exceptions, (b) 100% (or 75%, if certain financial ratios are less than a
certain level to be agreed upon) of the net cash proceeds of issuances of debt
obligations and certain preferred stock by the Company and its subsidiaries,
subject to limited exceptions, (c) 50% (or 0%, if certain financial ratios are
less than a certain level to be agreed upon) of the net proceeds from common
equity and certain preferred stock issuances by the Company and its
subsidiaries, subject to limited exceptions, (d) 75% (or 50%, if certain
financial ratios are less than a certain level to be agreed upon) of annual
excess cash flow and (e) 100% of certain insurance proceeds, subject to
limited exceptions. Such mandatory prepayments will be allocated, first, to
the Term Loan and, second, to the Revolving Credit Facility.
Voluntary prepayments and commitment reductions will be permitted in whole
or in part, subject to minimum prepayment or reduction requirements, without
premium or penalty; provided that voluntary prepayments of Reserve Adjusted
Eurodollar Loans (as defined in the Bank Commitment Letter) on a date other
than the last day of the relevant interest period will be subject to payment
of customary breakage costs, if any.
Interest. The interest rates under the Senior Bank Financing will be as
follows:
(a) Term Loan: At the option of the Company, (i) 0.75% in excess of the
higher of (A) 1/2 of 1% in excess of the federal funds rate and (B) the rate
that the administrative agent (to be selected) announces from time to time as
its prime lending rate, as in effect from time to time, and (ii) 1.75% in
excess of the Eurodollar rate for Reserve Adjusted Eurodollar Loans, in each
case, subject to adjustments based upon the achievement of certain financial
ratios. In the event the Senior Subordinated Notes are not issued, the
applicable margins will be adjusted upward in amounts to be agreed upon.
(b) Revolving Credit Facility: At the option of the Company, (i) 0.50% in
excess of the higher of (A) 1/2 of 1% in excess of the federal funds rate and
(B) the rate that the administrative agent announces from time to time as its
prime lending rate, as in effect from time to time, and (ii) 1.50% in excess
of the Eurodollar rate for Reserve Adjusted Eurodollar Loans, in each case,
subject to adjustments based upon the achievement of certain financial ratios.
In the event the Senior Subordinated Notes are not issued, the applicable
margins will be adjusted upward in amounts to be agreed upon.
The Company may elect interest periods of 1, 2, 3 or 6 months or, to the
extent available to each Bank Lender with loans and/or commitments under the
Term Loan or the Revolving Credit Facility, 9 or 12 months in the case of
Reserve Adjusted Eurodollar Loans. With respect to Reserve Adjusted Eurodollar
Loans, interest will be payable at the end of each interest period and, in any
event, at least every 3 months. With respect to Base
38
Rate Loans (as defined in the Bank Commitment Letter), interest will be
payable quarterly on the last business day of each fiscal quarter. In each
case, calculations of interest will be based on a 360-day year and actual days
elapsed.
The Bank Commitment Letter provides for payment by the Company in respect of
outstanding letters of credit of (i) an annual fee equal to the spread over
the Eurodollar rate for Reserve Adjusted Eurodollar Loans for the Revolving
Credit Facility from time to time in effect on the aggregate outstanding
stated amounts of such letters of credit, (ii) a fronting fee equal to a
percentage on the aggregate outstanding stated amounts of such letters of
credit, plus (iii) customary administrative charges.
The Company will pay a commitment fee equal to a percentage per annum on the
undrawn portion of the available commitment under the Senior Bank Financing,
subject to decreases based on the achievement of certain financial ratios to
be agreed upon.
Collateral and Guarantees. The loans will be guaranteed by all of the
Company's existing and future direct and indirect wholly-owned domestic
subsidiaries. The obligations of the Company and the guarantors will be
secured by a first priority perfected lien on substantially all of the
properties and assets of the Company and its direct and indirect wholly-owned
domestic subsidiaries, including a pledge of all capital stock and notes owned
by the Company and its subsidiaries, subject to certain exceptions; provided
that, in certain cases, no more than 65% of the stock of foreign subsidiaries
of the Company will be required to be pledged.
Representations and Warranties and Covenants. The Bank Commitment Letter
provides that the credit agreement documentation to be entered into will
contain certain customary representations and warranties by the Company. In
addition, the credit agreement is expected to contain customary covenants
restricting the ability of the Company to, among other things, (i) declare
dividends; (ii) prepay debt; (iii) incur liens and engage in sale-leaseback
transactions and make lease payments; (iv) make investments; (v) incur
additional indebtedness; (vi) amend organizational, corporate and other
documents; (vii) make capital expenditures; (viii) engage in mergers,
acquisitions and asset sales; (ix) transact with affiliates and form
subsidiaries and (x) issue redeemable common stock and preferred stock,
subject to certain exceptions. It is expected that the Company will be
obligated to obtain interest rate protection in amounts and for periods to be
determined. In addition, it is expected that the Company will be required to
comply with specified financial covenants and customary affirmative covenants.
Events of Default. Events of default under the credit agreement are expected
to include, without limitation, (i) the Company's failure to pay principal or
interest when due; (ii) the Company's material breach of any representation or
warranty contained in the credit agreement; (iii) covenant defaults; (iv)
events of bankruptcy; and (v) a change of control of the Company.
EQUITY INVESTMENT
The Apollo Investors' investment in MTL after the Effective Time will
consist of a cash contribution to Merger Sub in a aggregate amount of
approximately $58 million, which Merger Sub intends to contribute to MTL at
the Effective Time, at which time such sum will be available to MTL.
The total investment in MTL after the Effective Time will be approximately
$68 million, consisting of (i) approximately $58 million of MTL Common Stock,
in the form of approximately $58 million contributed by the Apollo Investors
through the Merger Sub, and (ii) the approximately $10 million value of the
Rollover Shares and the shares of Surviving Corporation Common Stock to be
purchased by Marvin E. Sexton at the Effective Time.
39
SOURCES AND USES OF FUNDS
The estimated cash sources and uses of the financing for the consummation of
the Merger are as follows (assuming the issuance of the Senior Subordinated
Notes):
(IN
MILLIONS)
---------
SOURCES OF FUNDS:
Senior Subordinated Notes.................................... $140.0
Term Loan.................................................... 60.0
Equity financing by Apollo Investors(1)...................... 58.0
------
Total...................................................... $258.0
======
USES OF FUNDS:
Cash Merger Price............................................ $173.4
Payment to holders of Options................................ 11.9(2)
Repayment of certain indebtedness............................ 54.5
Estimated fees and expenses.................................. 18.2
------
Total...................................................... $258.0
======
- --------
(1) Does not include the approximately $10.0 million value of the Rollover
Shares retained by certain officers and directors of the Company or the
shares of Surviving Corporation Common Stock to be purchased by Marvin E.
Sexton at the Effective Time.
(2) Does not include $1,245,400 of the aggregate payment to holders of
Options, which amount will be used by Marvin E. Sexton to purchase 31,135
shares of Surviving Corporation Common Stock at the Effective Time. The
$1,245,400 value of the 31,135 shares is included in the approximately
$10.0 million value of the shares that will be held by certain officers
and directors of the Company as described in Note (1) above.
It is a condition to the obligations of Merger Sub to affect the Merger that
sufficient funds have been received to finance the Merger and to consummate
the transactions contemplated by the Merger Agreement.
Other than scheduled repayments of the Senior Bank Financing and the Senior
Subordinated Notes (or the Bridge Loan, in the event the Senior Subordinated
Notes are not issued), MTL currently has no specific plans or arrangements for
the repayment of the funds borrowed under the Senior Bank Financing and the
Senior Subordinated Notes, but expects to be able to repay such borrowings out
of internally generated funds of the Company.
40
EXPENSES OF THE MERGER
The Merger Agreement provides that the Company and Merger Sub will bear
their respective expenses incurred in connection with the Merger Agreement and
the transactions contemplated thereby, whether or not the Merger is
consummated, except in certain circumstances specified in the Merger Agreement
relating to the termination thereof. See "Certain Provisions of the Merger
Agreement--Termination; Effects of Termination". The estimated fees and
expenses incurred and to be incurred by the Company and Merger Sub in
connection with the Merger and the related transactions (assuming the
consummation thereof) are as follows:
Financing and commitment fees(/1/)............................ $ 8,700,000
Financial advisory fees....................................... 6,800,000
Legal fees.................................................... 1,100,000
Accounting fees............................................... 750,000
SEC filing fees............................................... 37,300
Printing and mailing.......................................... 87,750
Miscellaneous................................................. 724,950
-----------
Total....................................................... $18,200,000
===========
- --------
(/1/Assuming)the Senior Subordinated Notes are issued and the Bridge Loan is
not incurred. Includes prepayment fees that will be incurred in connection
with the refinancing of existing indebtedness of the Company.
MERGER SUB AND THE APOLLO INVESTORS
GENERAL
Merger Sub was recently incorporated under the laws of the State of Florida
for the purpose of consummating the Merger. Merger Sub has not conducted any
business other than the transactions described herein. Merger Sub will not
have any assets or liabilities other than those arising under the Merger
Agreement or in connection with the Merger, or engage in any activities other
than those incident to its formation and capitalization and the Merger.
Accordingly, meaningful financial information regarding Merger Sub is not
available. The principal executive offices of Merger Sub are located at c/o
Apollo Management, L.P., 1301 Avenue of the Americas, New York, New York 10019
(Telephone: (212) 261-4000).
Merger Sub is wholly owned by the Apollo Investors. The Apollo Investors are
AIF III, Overseas Partners and U.K. Partners. Apollo Management, a Delaware
limited partnership which serves as the manager of the Apollo Investors, may
designate other affiliated funds to comprise the Apollo Investors prior to the
Effective Time. In addition, Merger Sub may issue additional equity interests
to certain institutional investors prior to the Effective Time. Each of the
Apollo Investors is principally engaged in the business of investing in
securities. The principal office of each of the Apollo Investors is c/o Apollo
Management, L.P., 1301 Avenue of the Americas, New York, New York 10019.
Apollo Advisors II, L.P. ("Apollo Advisors") is the managing general partner
of each of the Apollo Investors. Apollo Advisors is principally engaged in the
business of serving as managing general partner of the Apollo Investors.
Apollo Capital Management II, Inc., a Delaware corporation ("Apollo
Capital"), is the general partner of Apollo Advisors. Apollo Capital is
principally engaged in the business of servicing as general partner to Apollo
Advisors.
Apollo Management, a Delaware limited partnership, serves as manager of the
Apollo Investors and manages their day-to-day operations.
41
AIF III Management, Inc., a Delaware corporation ("AIM"), is the general
partner of Apollo Management. AIM is principally engaged in the business of
serving as general partner to Apollo Management.
The respective addresses of the principal office of Apollo Advisors, Apollo
Capital, Apollo Management and AIM are c/o Apollo Management, L.P., 1301
Avenue of the Americas, New York, New York 10019.
DIRECTORS AND EXECUTIVE OFFICERS OF MERGER SUB
The name and position of each director and executive officer of Merger Sub
are set forth below. It is expected that additional directors that are
designees of the Apollo Investors will be appointed prior to the Effective
Time.
NAME POSITION
---- --------
Joshua Harris....................... Director and President
Michael D. Weiner................... Director, Vice President and Secretary
Elton E. Babbitt.................... Director
Richard J. Brandewie................ Director
Charles J. O'Brien, Jr. ............ Director
Marvin E. Sexton.................... Director
The business address of Joshua Harris and Michael D. Weiner is c/o Apollo
Management, L.P., 1301 Avenue of the Americas, New York, New York 10019.
Messrs. Harris and Weiner are citizens of the United States.
The business address of Elton E. Babbitt, Richard J. Brandewie, Charles J.
O'Brien, Jr. and Marvin E. Sexton is c/o MTL Inc., 3108 Central Drive, Plant
City, Florida 33567. Each of Messrs. Babbitt, Brandewie, O'Brien and Sexton is
a citizen of the United States.
For additional information regarding the directors and officers of Merger
Sub, see "Directors and Executive Officers of the Surviving Corporation".
DIRECTORS AND EXECUTIVE OFFICERS OF APOLLO CAPITAL AND AIM
The directors of Apollo Capital and AIM are Leon D. Black and John J.
Hannan. The principal occupation of each of Messrs. Black and Hannan is to act
as an executive officer and director of Apollo Capital and AIM. Messrs. Black
and Hannan are also limited partners of Apollo Advisors and Apollo Management.
Messrs. Black and Hannan are founding principals of Apollo Advisors, L.P.,
Lion Advisors, L.P. and Apollo Real Estate Advisors, L.P. The principal
business of Apollo Advisors, L.P. and Lion Advisors, L.P. is to provide advice
regarding investments in securities, and the principal business of Apollo Real
Estate Advisors, L.P. is to provide advice regarding investments in real
estate and real estate-related investments. The business address of each of
Messrs. Black and Hannan is c/o Apollo Management, L.P., 1301 Avenue of the
Americas, New York, New York 10019. Each of Messrs. Black and Hannan are
citizens of the United States.
42
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of MTL Common Stock as of February 27, 1998 by (i) each
director of the Company, (ii) each executive officer of the Company, (iii) all
of the directors and executive officers as a group and (iv) each other person
known by the Company to be a beneficial owner of more than 5% of the
outstanding MTL Common Stock. Unless otherwise indicated, each of the
shareholders has sole voting and investment power with respect to the shares
beneficially owned.
AMOUNT AND NATURE PERCENT
OF BENEFICIAL OF SHARES
OWNERSHIP OUTSTANDING
----------------- -----------
DIRECTORS AND EXECUTIVE OFFICERS
Elton E. Babbitt........................... 324,270 7.13
John B. Bowron............................. 984 0.03
Richard J. Brandewie....................... 127,867(/1/) 2.77
Donald W. Burton........................... 11,638(/2/) 0.26
Gerald L. McCullough....................... 343,044(/3/) 7.54
Charles J. O'Brien, Jr..................... 47,483(/4/) 1.04
Marvin E. Sexton........................... 24,000(/5/)(/6/) 0.53
All executive officers and directors as a
group (7 persons)......................... 879,286(/6/) 18.82
FIVE-PERCENT OWNERS
Sombrero Acquisition Corp.................. 1,125,197(/7/) 24.7
c/o Apollo Management, L.P.
1301 Avenue of the Americas
New York, New York 10019
Gordon Babbitt(/8/)........................ 375,380(/9/) 8.25
3108 Central Avenue
Plant City, Florida 33567
Dalton, Greiner, Hartman, Maher & Co. ..... 245,200(/1//0/) 5.39
1100 Fifth Avenue South, Suite 301
Naples, Florida 34102
FMR Corp. ................................. 453,400(/1//1/) 9.96
82 Devonshire Street
Boston, MA 02109
Warburg Pincus Asset Management, Inc. ..... 335,094(/1//2/) 7.37
466 Lexington Avenue
New York, New York 10017
Wellington Management Company, LLP......... 337,500(/1//3/) 7.42
75 State Street
Boston, Massachusetts 02109
- --------
(1) Includes 78,619 shares underlying Options which are exercisable within 60
days.
(2) Includes 3,830 shares underlying Options which are exercisable within 60
days.
(3) Includes 342,060 shares owned by trusts established for the grandchildren
of Elton E. Babbitt for which Gerald L. McCullough acts as trustee, as to
which Mr. McCullough has sole voting and investment power.
(4) Includes 17,244 shares underlying Options which are exercisable within 60
days.
(5) Includes 20,000 shares underlying Options which are exercisable within 60
days.
(6) Although Marvin E. Sexton is not an executive officer or director of MTL,
he has been included in the table in his capacity as President of
Montgomery Tank Lines, the Company's operating subsidiary.
(7) Merger Sub has entered into a Voting Agreement with Elton E. Babbitt,
Gordon Babbitt, Charles J. O'Brien, Jr., Richard J. Brandewie, Marvin
Sexton and Gerald L. McCullough (in his capacity as trustee
43
for trusts established for the grandchildren of Elton E. Babbitt),
pursuant to which Merger Sub may be deemed to beneficially own all of the
shares held by such shareholders and to have shared voting power with such
shareholders with respect to such shares. See "Special Factors--Interests
of Certain Persons in the Merger--Voting Agreement". Merger Sub is owned
by the Apollo Investors. Merger Sub, the Apollo Investors and Apollo
Advisors II, L.P. (the general partner of each of the Apollo Investors)
have filed a Schedule 13D with the Commission in respect of their deemed
beneficial ownership of such shares of MTL Common Stock. The 1,125,197
shares do not include the 115,863 shares underlying Options which are
exercisable within 60 days by Charles J. O'Brien, Jr., Richard J.
Brandewie and Marvin Sexton as indicated in Notes 1, 4 and 5 above.
(8) Gordon Babbitt is the son of Elton E. Babbitt.
(9) Includes 7,500 shares owned by a company of which Gordon Babbitt is part
owner, as to which shares Gordon Babbitt has shared voting and investment
power.
(10) Reported on Schedule 13G, a copy of which was furnished to the Company.
Dalton, Greiner, Hartman, Maher & Co has sole voting power with respect
to 233,600 shares of the MTL Common Stock.
(11) Reported on Schedule 13G, a copy of which was furnished to the Company.
FMR Corp. has neither sole nor shared power to vote or direct the vote of
MTL Common Stock beneficially owned. Such power to vote or direct the
voting of the shares resides with the Boards of Trustees of the Fidelity
Funds.
(12) Reported on Schedule 13G, a copy of which was furnished to the Company.
Warburg Pincus Asset Management, Inc. has sole power to vote 156,850
shares and shared power to vote 178,244 shares of MTL Common Stock.
(13) Reported on Schedule 13G, a copy of which was furnished to the Company.
Wellington Management Company, LLP has shared voting power with respect
to 299,500 shares and shared dispositive power with respect to 337,500
shares of MTL Common Stock.
The Montgomery Tank Lines, Inc. Incentive Savings Plan and Trust (the
"Plan"), owns 104,456 shares of MTL Common Stock, which represented
approximately 2.3% of the outstanding shares of MTL Common Stock as of
February 27, 1998. These shares are held of record by Ernest Nellis, James
Tara and Franklin Johnson, as trustees of the Plan. Such trustees have sole
voting and investment power with respect to such shares except for 3,918
shares, which are held in the applicable employee's 401(k) account.
44
DIRECTORS AND EXECUTIVE OFFICERS OF THE SURVIVING CORPORATION
The Merger Agreement provides that the current directors of the Company will
be replaced by the current directors of Merger Sub. See "Merger Sub and the
Apollo Investors--Directors and Executive Officers of Merger Sub". It is
expected that additional directors of Merger Sub will be designated prior to
the Effective Time so that upon consummation of the Merger, a majority of the
directors of the Surviving Corporation will be designees of the Apollo
Investors. Except for Elton E. Babbitt and Charles J. O'Brien, Jr., none of
the directors of Merger Sub are current members of the Board of Directors of
the Company. The Merger Agreement further provides that the current officers
of the Company immediately prior to the Effective Time will be the officers of
the Surviving Corporation after the Merger. The directors and executive
officers of the Surviving Corporation following the Merger will include:
NAME AGE POSITION
---- --- --------
Elton E. Babbitt........................ 66 Director
Director, President and Chief Executive
Charles E. O'Brien, Jr. ................ 60 Officer
Richard J. Brandewie.................... 43 Director, Senior Vice President,
Treasurer and Chief Financial Officer
Marvin E. Sexton........................ 54 Director
Joshua Harris........................... 33 Director
Michael D. Weiner....................... 45 Director
Elton E. Babbitt has served as Chairman of the Board of Directors of MTL
since June 1987. From 1967 until 1987, he served as a director and as
President and Chief Executive Officer of MTL. Prior to his association with
MTL, he served as General Manager of MILK Transport, a Minnesota-based tank
truck carrier.
Charles J. O'Brien, Jr. joined MTL in 1989 in connection with the
acquisition of Quality Carriers, Inc. at which time he was appointed as the
Chief Operating Officer and elected to the Board of Directors. Since 1991 he
has served as MTL's Chief Executive Officer, and was controlling shareholder
of Quality Carriers, Inc. from January 1977 to February 1989. Prior to his
association with Quality Carriers, Inc., he held various positions with
Matlack, Inc. from April 1962 through December 1976. He served as Matlack's
Chief Executive Officer from 1969 to 1976 and served as a director of Rollins
International, Inc., Matlack's parent company.
Richard J. Brandewie has been employed by MTL since June 1992 as Senior Vice
President of Finance. He served as a director of MTL from 1988 to 1992. Prior
to joining MTL, he served as a General Partner of South Atlantic Venture Fund
I & II, Limited Partnerships where he was employed from November 1985 through
June 1992. From June 1980 through November 1985, he served concurrently as
Vide President of Doan Resources Venture Fund and as General Partner of
Michigan Investment Fund and MBW Venture Partners. Prior to his venture
capital experience, he served as an accountant and financial analyst for the
Ford Motor Company from 1977 to 1979.
Marvin E. Sexton joined the Company in September 1996 as President of
Montgomery Tank Lines, the Company's operating subsidiary. Mr. Sexton joined
MTL from BET plc., the former parent company of United Transport America,
where he served as the Sector Director/Distribution North America. BET was
acquired in a hostile takeover by Rentokil Corporation in 1996. Mr. Sexton was
formerly President of United Transport America. The United Transport group of
companies includes: DSI Transport, Redwing Carriers and Ward Transport. He
joined DSI Transport in 1974 and subsequently became its President and Chief
Executive Officer in 1985. He currently serves on the Board of Directors of
the National Tank Truck Carriers, Inc. ("NITC") and is a member of the
Association of the Chemical Industry of Texas and the National Council of
Physical Distribution.
Joshua Harris is a director and President of Merger Sub. Mr. Harris is a
principal and an officer of certain affiliates of the Apollo Investors, having
been associated with them since 1990. Mr. Harris is a director of Converse
Inc., Florsheim Group Inc., NRT, Inc., Breuners Home Furnishings Corporation
and Alliance Imaging Inc.
45
Michael D. Weiner is a director and Vice President and Secretary of Merger
Sub. Mr. Weiner has been an officer of certain affiliates of the Apollo
Investors since 1992. Prior to 1992, Mr. Weiner was a partner in the law firm
of Morgan, Lewis & Bockius LLP. Mr. Weiner is a director of Converse Inc.,
Alliance Imaging, Inc., NRT, Inc., Continental Graphics Holdings, Inc. and
Florsheim Group Inc.
DESCRIPTION OF CAPITAL STOCK
MTL COMMON STOCK
The Company's Articles of Incorporation authorize the Company to issue up to
15 million shares of MTL Common Stock, par value $0.01 per share. As of
February 27, 1998, there were outstanding 4,552,218 shares of MTL Common
Stock. Subject to the rights of the holders of any outstanding shares of
preferred stock and any restrictions that may be imposed by any lender to the
Company, holders of MTL Common Stock are entitled to receive such dividends,
if any, as may be declared by the Board of Directors out of legally available
funds. For certain restrictions on the Company's ability to pay dividends, see
"Market Prices and Dividends." In the event of liquidation, dissolution or
winding up of the Company, holders of MTL Common Stock are entitled to share
ratably in the assets, if any, remaining after payment of all of the Company's
debts and liabilities and the liquidation preference of any outstanding stock.
Holders of MTL Common Stock are entitled to one vote per share on any matter
submitted to them. Because holders of MTL Common Stock do not have cumulative
voting rights in the election of directors, the holders of a majority of the
shares of MTL Common Stock represented at a meeting can elect all of the
directors. Holders of MTL Common Stock do not have preemptive rights to
subscribe for or purchase any additional shares of capital stock issued by the
Company. All outstanding shares of the MTL Common Stock are duly authorized,
validly issued, fully paid and nonassessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of up to 5
million shares of Preferred Stock, par value $0.01 (the "Preferred Stock"). No
shares of Preferred Stock are outstanding, but the Board of Directors is
authorized to issue Preferred Stock at any time without approval of the
holders of the MTL Common Stock. The Board of Directors, without approval of
the holders of the MTL Common Stock, can issue Preferred Stock with voting
rights which could adversely affect the voting power of holders of the MTL
Common Stock. The issuance of Preferred Stock could have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no present intention to issue any shares of Preferred Stock.
Under the Company's Articles of Incorporation, the Board of Directors is
authorized to divide the Preferred Stock into one or more series with such
designations, assigned values, preferences and relative, participating,
optional or other rights, qualifications, limitations or restrictions thereof
as stated and expressed in the resolution or resolutions providing for the
issue of such series as adopted by the Board of Directors.
AVAILABLE INFORMATION
MTL has filed with the Commission a Rule 13e-3 Transaction Statement
(including any amendments thereto, the "Schedule 13E-3") under the Exchange
Act with respect to the Merger. This Proxy Statement does not contain all the
information set forth in the Schedule 13E-3 and the exhibits thereto, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission.
MTL is subject to the informational requirements of the Exchange Act and in
accordance therewith files periodic reports, proxy statements and other
information with the Commission. The Schedule 13E-3, proxy statements and
other information filed by MTL can be inspected and copied at the public
reference facilities
46
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at
Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies
of such materials can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at the prescribed
rates. The Commission maintains a Website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Such reports, proxy and information
statements and other information may be found on the Commission's site
address, http://www.sec.gov. MTL Common Stock is quoted on the Nasdaq National
Market, and certain reports, proxy statements and other information can also
be inspected and copied at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, Washington, D.C. 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by MTL are incorporated
herein by reference:
(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1997;
(3) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1997;
(4) The Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 1997;
(5) The Company's Current Report on Form 8-K dated February 25, 1998; and
(6) Exhibit (g) of the Company's Schedule 13E-3 dated March 3, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Proxy Statement and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed documents that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement. The
Company will provide, without charge, to each person to whom a copy of this
Proxy Statement has been delivered, on the written or oral request of such
person and by first class mail or other equally prompt means within one
business day of receipt of such request, a copy of any or all of the documents
referred to above that have been or may be incorporated by reference herein
other than exhibits to such documents (unless such exhibits are specifically
incorporated by reference herein). Requests for such copies should be made at
least five business days prior to the Special Meeting and should be directed
to: MTL, Inc., 3108 Central Drive, Plant City, Florida 33567; (813) 754-4725.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements included in the Company's Schedule
13E-3 for the year ended December 31, 1997 and its Annual Report on Form 10-K
for the year ended December 31, 1996, incorporated by reference in this Proxy
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their reports with respect thereto. Such financial
statements have been incorporated by reference in this Proxy Statement in
reliance upon such reports. Representatives of Arthur Andersen LLP are
expected to be present at the Special Meeting and will have an opportunity to
make a statement should they desire to do so. Such representatives are also
expected to be available to respond to questions.
47
STOCKHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Exchange Act, shareholders may present
proper proposals for inclusion in MTL's proxy statement and for consideration
at the Annual Meeting of Shareholders by submitting such proposals to MTL in a
timely manner. The 1998 annual meeting will be held only if the Merger is not
consummated. In order to be so included for the 1998 annual meeting,
shareholder proposals must be received by MTL no later than June 1, 1998, and
must otherwise have complied with the requirements of Rule 14a-8.
OTHER MATTERS
As of the date of this Proxy Statement, the Board of Directors of the
Company knows of no other matters that will be presented for consideration at
the Special Meeting other than as described in this Proxy Statement. However,
if any other matter shall come before the Special Meeting or any adjournments
or postponements thereof and shall be voted upon, it is intended that the
shares represented by proxy will be voted with respect thereto in accordance
with the judgment of the persons voting them.
By Order of the Board of Directors,
Robert Kasak, Secretary
, 1998
48
ANNEX A
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
SOMBRERO ACQUISITION CORP.
AND
MTL INC.
DATED AS OF FEBRUARY 10, 1998
A-1
TABLE OF CONTENTS
ARTICLE 1
THE MERGER
1.1. The Merger......................................................... A-5
1.2. The Closing........................................................ A-5
1.3. Effective Time..................................................... A-5
ARTICLE 2
ARTICLES OF INCORPORATION AND
BYLAWS OF THE SURVIVING CORPORATION
2.1. Articles of Incorporation.......................................... A-6
2.2. By-laws............................................................ A-6
ARTICLE 3
DIRECTORS AND OFFICERS OF THE
SURVIVING CORPORATION
3.1. Directors.......................................................... A-6
3.2. Officers........................................................... A-6
ARTICLE 4
EFFECT OF THE MERGER ON SECURITIES OF
SUB AND THE COMPANY
4.1. Sub Common Stock................................................... A-6
4.2. The Company Common Stock........................................... A-6
4.3. Options............................................................ A-7
4.4. Exchange Of Certificates........................................... A-7
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
5.1. Existence; Good Standing; Corporate Authority...................... A-9
5.2. Authorization, Validity and Effect of Agreements................... A-9
5.3. Capitalization..................................................... A-9
5.4. Subsidiaries....................................................... A-10
5.5. No Violation....................................................... A-10
5.6. SEC Documents; Financial Statements................................ A-11
5.7. Accounts Receivable................................................ A-11
5.8. Insurance.......................................................... A-11
5.9. Litigation......................................................... A-12
5.10. Absence of Certain Changes......................................... A-12
5.11. Tax Matters........................................................ A-12
5.12. Employee Benefit Plans............................................. A-14
A-2
5.13. Labor Matters; Suppliers; Distributors and Customers............... A-16
5.14. Absence of Undisclosed Liabilities................................. A-17
5.15. Title to Properties and Related Matters............................ A-17
5.16. Material Contracts................................................. A-17
5.17. Compliance With Laws............................................... A-18
5.18. Environmental, Health and Safety Matters........................... A-18
5.19. Assets............................................................. A-21
5.20. No Brokers......................................................... A-21
5.21. Intellectual Properties............................................ A-21
5.22. State Takeover Statutes............................................ A-22
5.23. Board Recommendation............................................... A-22
5.24. Related Party Transactions......................................... A-22
5.25. Affiliate Programs, Etc............................................ A-22
5.26. Opinion of Financial Advisor....................................... A-23
5.27. Proxy Statement; Schedule 13E-3; Form S-4.......................... A-23
5.28. Alternative Proposal............................................... A-23
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF SUB
6.1. Existence; Good Standing; Corporate Authority...................... A-23
6.2. Authorization, Validity and Effect of Agreements................... A-23
6.3. Capitalization..................................................... A-24
6.4. No Violation....................................................... A-24
6.5. Interim Operations of Sub.......................................... A-24
6.6. Financing.......................................................... A-24
ARTICLE 7
COVENANTS
7.1. Alternative Proposals.............................................. A-24
7.2. Interim Operations................................................. A-25
7.3. Meetings of Stockholders........................................... A-27
7.4. Filings and Other Action........................................... A-27
7.5. Access to Information.............................................. A-27
7.6. Publicity.......................................................... A-27
7.7. Proxy Statement; Form S-4.......................................... A-28
7.8. Further Action..................................................... A-28
7.9. Schedule 13E-3..................................................... A-28
7.10. Expenses........................................................... A-29
7.11. Insurance; Indemnity............................................... A-29
7.12. Certain Tax Matters................................................ A-29
7.13. Other Actions...................................................... A-29
7.14. Advice of Changes; Filings......................................... A-29
7.15. Financial Information.............................................. A-29
ARTICLE 8
CONDITIONS
8.1. Conditions to Each Party's Obligation to Effect the Merger......... A-30
8.2. Conditions to Obligation of the Company to Effect the Merger....... A-30
8.3. Conditions to Obligation of Sub to Effect the Merger............... A-30
A-3
ARTICLE 9
TERMINATION
9.1. Termination by Mutual Written Consent.............................. A-31
9.2. Termination by Either Sub or the Company........................... A-31
9.3. Termination by the Company......................................... A-32
9.4. Termination by Sub................................................. A-32
9.5. Effect of Termination and Abandonment.............................. A-32
9.6. Extension; Waiver.................................................. A-33
ARTICLE 10
GENERAL PROVISIONS
10.1. Non-survival of Representations, Warranties....................... A-33
10.2. Notices........................................................... A-33
10.3. Assignment; Binding Effect........................................ A-34
10.4. Entire Agreement.................................................. A-34
10.5. Amendment......................................................... A-34
10.6. Governing Law..................................................... A-34
10.7. Counterparts...................................................... A-34
10.8. Headings.......................................................... A-34
10.9. Interpretation.................................................... A-34
10.10. Waivers........................................................... A-34
10.11. Severability...................................................... A-35
10.12. Enforcement of Agreement.......................................... A-35
10.13. Interpretation.................................................... A-35
SCHEDULE A.......................................................................... A-36
A-4
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of February 10, 1998 by and between
Sombrero Acquisition Corp., a Florida corporation ("Sub"), and MTL Inc., a
Florida corporation (the "Company").
WHEREAS, the respective Boards of Directors of Sub and the Company have
approved, and deemed it advisable and in the best interests of their
respective companies and stockholders to consummate, the merger of Sub with
and into the Company (the "Merger"), upon the terms and subject to the
conditions set forth herein;
WHEREAS, simultaneously with the execution of this Agreement and as an
inducement to Sub to enter into this Agreement, Sub and certain stockholders
of the Company are entering into a Voting Agreement (the "Voting Agreement")
pursuant to which such stockholders have, among other things, agreed, upon the
terms and subject to the conditions set forth in the Voting Agreement to vote
their shares of Company Common Stock (as defined below) in favor of the
Merger;
WHEREAS, simultaneously with the execution of this Agreement, certain
employees of a Subsidiary (as defined in Section 10.13 below) of the Company
are entering into employment agreements with such Subsidiary, providing for
the terms of their employment following the Merger and certain stockholders of
the Company are entering into agreements restricting their ability to compete
with the Company and its Subsidiaries following the Merger;
WHEREAS, the parties desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to prescribe
various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1
The Merger
1.1. The Merger. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Sub shall be
merged with and into the Company and the separate corporate existence of Sub
shall cease. The Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "Surviving Corporation"). The Merger
shall have the effects specified in the Florida Business Corporation Act (the
"FBCA").
1.2. The Closing. Upon the terms and subject to the conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place (a) at
the offices of Dewey Ballantine LLP, 1301 Avenue of the Americas, New York,
New York, at 10:00 a.m., local time, on the first business day immediately
following the day on which the last to be satisfied or waived of the
conditions set forth in Article 8 (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the satisfaction or
waiver of those conditions) shall be satisfied or waived in accordance
herewith or (b) at such other time, date or place as Sub and the Company may
agree. The date on which the Closing occurs is hereinafter referred to as the
"Closing Date."
1.3. Effective Time. Upon the terms and subject to the conditions of this
Agreement, at the Closing the parties shall cause Articles of Merger to be
executed and filed in accordance with the requirements of the FBCA. The Merger
shall become effective upon the filing of the Articles of Merger with the
Florida Department of State in accordance with the FBCA or at such later time
which the parties hereto shall have agreed upon and designated in such filing
as the effective time of the Merger (the "Effective Time").
A-5
ARTICLE 2
Articles Of Incorporation And Bylaws Of The Surviving Corporation
2.1. Articles of Incorporation. The Articles of Incorporation of the Company
in effect immediately prior to the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation, until duly changed or amended as
provided therein or in accordance with applicable law.
2.2. By-laws. The by-laws of the Company in effect immediately prior to the
Effective Time shall be the by-laws of the Surviving Corporation, until duly
changed or amended as provided therein or in accordance with applicable law.
ARTICLE 3
Directors And Officers Of The Surviving Corporation
3.1. Directors. The directors of Sub immediately prior to the Effective Time
shall be the directors of the Surviving Corporation as of the Effective Time
and until their successors are duly appointed or elected in accordance with
applicable law.
3.2. Officers. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time and until their successors are duly appointed or elected in
accordance with applicable law.
ARTICLE 4
Effect Of The Merger On Securities Of Sub And The Company
4.1. Sub Common Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, the shares of common
stock, par value $.01 per share, of Sub ("Sub Common Stock") outstanding
immediately prior to the Effective Time shall be converted into 1,452,193
validly issued, fully paid and non-assessable shares of common stock, par
value $.01 per share, of the Surviving Corporation (the "Surviving Corporation
Common Stock"), which number shall be decreased by the number of shares of
Surviving Corporation Common Stock issued pursuant to the Stock Election, as
set forth in Section 4.2(a) hereof.
4.2. The Company Common Stock.
(a) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each share of common stock, par value $.01 per
share, of the Company (the "Company Common Stock"), issued and outstanding
immediately prior to the Effective Time, other than Roll-Over Shares (as
defined in Section 4.2(b) below) and Excluded Shares (as defined in Section
4.2(c) below), shall be converted into the right to receive $40.00 in cash
(the "Cash Merger Price"); provided, that, at Sub's election (the "Stock
Election") made prior to the mailing of the Proxy Statement (as defined
below), Sub shall have the right to substitute, on a pro-rata basis for each
share of Company Common Stock issued and outstanding immediately prior to the
Effective Time (the "Stock Election Shares"), up to $1.60 (the "Stock Election
Consideration") of the Cash Merger Price in the form of Surviving Corporation
Common Stock, such Surviving Corporation Common Stock to be valued at $40.00
per share.
(b) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each share of Company Common Stock held by
certain officers and key employees of the Company as set forth on Schedule A
hereto (each, a "Roll-Over Share") shall be converted into one share of
Surviving Corporation Common Stock (the "Roll-Over Share Consideration").
A-6
(c) At the Effective Time, by virtue of the Merger and without any action on
the part of the holder thereof, each share of Company Common Stock held in the
Company's treasury (the "Excluded Shares") shall be cancelled and retired
without payment of any consideration therefor.
(d) Immediately prior to the Effective Time, at Sub's election, the Company
shall effect a recapitalization, to be effective as of the Effective Time, of
the securities of the Surviving Corporation, and the number of outstanding
shares and options of the Surviving Corporation shall be appropriately
adjusted.
4.3. Options.
(a) Except as set forth in 4.3(b) below and except to the extent that Sub
and the holder of any option otherwise agree, the Company shall cause each
outstanding employee or director stock option (the "Options") to purchase
shares of Company Common Stock granted under the Company's 1994 Incentive and
Non-Statutory Stock Option Plan (the "Company Stock Option Plan" whether or
not then exercisable or vested, to be cancelled and in consideration of such
cancellation, cause the Company to pay to such holders of Options an amount in
respect thereof equal to the product of (x) the excess, if any, of the Cash
Merger Price over the exercise price of each such Option and (y) the number of
shares of Company Common Stock previously subject to the Option immediately
prior to its cancellation (such payment to be net of withholding taxes).
(b) Prior to the Effective Time, the Company shall use its best efforts to
obtain any consents from holders of the Options and make any amendments to the
terms of the Company Stock Option Plan or arrangements that are necessary to
give effect to the transactions contemplated by this Section 4.3.
Notwithstanding the foregoing provisions of this Section 4.3, payment may be
withheld in respect of any Option until necessary consents are obtained. The
cancellation of an Option in exchange for the payment provided by Section
4.3(a) shall be deemed a release of any and all rights the holder of any such
Option had or may have had in respect of such Option.
4.4. Exchange Of Certificates.
(a) As of or after the Effective Time of the Merger, Sub shall deposit with
the Paying Agent as necessary, for the benefit of the holders of shares of
Company Common Stock, for payment in accordance with this Article 4, the funds
necessary to pay the Cash Merger Price (less the Stock Election Consideration
if the Stock Election is exercised) for each share.
(b) As soon as practicable after the Effective Time of the Merger, (i) each
holder of an outstanding certificate or certificates which pursuant to Section
4.2 represent the right to receive shares of the Surviving Corporation, upon
surrender to the Paying Agent of such certificate or certificates and
acceptance thereof by the paying agent selected by Sub (the "Paying Agent"),
shall be entitled to a certificate or certificates representing the Roll-Over
Share Consideration into which the number of Roll-Over Shares previously
represented by such certificate or certificates surrendered shall have been
converted pursuant to this Agreement and (ii) each other holder of an
outstanding certificate or certificates which prior hereto represented shares
of Company Common Stock (other than Roll-Over Shares), upon surrender to a
paying agent selected by Sub (the "Paying Agent") of such certificate or
certificates and acceptance thereof by the Paying Agent, shall be entitled to
receive in exchange therefor either (A) the Cash Merger Price multiplied by
the number of shares of Company Common Stock formerly represented by such
certificate or (B) if the Stock Election is exercised, (x) the Cash Merger
Price (less the Stock Election Consideration) multiplied by the number of
Stock Election Shares formerly represented by such certificate and (y) a
certificate or certificates representing the Stock Election Consideration
multiplied by the number of Stock Election Shares formerly represented by such
certificate divided by the Cash Merger Price, and the certificate shall
forthwith be cancelled. No interest will be paid on or accrue on the Cash
Merger Price. The Paying Agent shall accept such certificates upon compliance
with such reasonable terms and conditions as the Paying Agent may impose to
effect an orderly exchange thereof in accordance with normal exchange
practices. After the Effective Time of the Merger, there shall be no further
transfer on the records of the Company or its transfer agent of certificates
representing shares of Company Common Stock which have been converted, in
whole or in part, pursuant to this Agreement, into the right to receive cash,
and if such certificates are presented to the Company for transfer, they shall
be canceled against delivery of such cash.
A-7
If any certificate or certificates for Roll-Over Share Consideration or
Stock Election Consideration, if applicable, is to be issued in, or if cash is
to be remitted to, a name other than that in which the certificate for shares
of Company Common Stock surrendered for exchange is registered, it shall be a
condition of such exchange that the certificate so surrendered shall be
properly endorsed, with signature guaranteed or otherwise in proper form for
transfer and that the person requesting such exchange shall pay to the Company
or its transfer agent any transfer or other taxes required by reason of the
issuance of certificates for such Roll-Over Share Consideration or Stock
Election Consideration, if applicable, in a name other than that of the
registered holder of the certificate surrendered, or establish to the
satisfaction of the Company or its transfer agent that such tax has been paid
or is not applicable. Until surrendered as contemplated by this Section
4.4(b), (i) each certificate for Roll-Over Shares shall be deemed at any time
after the Effective Time of the Merger to represent only the right to receive
upon such surrender a new certificate or certificates for each Roll-Over
Share, as contemplated by Section 4.2(b) and (ii) each certificate for shares
of Company Common Stock (other than the Roll-Over Shares) shall be deemed at
any time after the Effective Time of the Merger to represent (A) only the
right to receive upon such surrender the Cash Merger Price for each share of
Company Common Stock or (B) if the Stock Election is exercised, the right to
receive upon such surrender (x) the Cash Merger Price (less the Stock Election
Consideration) for each Stock Election Share and (y) a new certificate or
certificates for each Stock Election Share, as contemplated by Section 4.2(a).
(c) No dividends or other distributions with respect to Roll-Over Shares or
Stock Election Shares, if applicable, with a record date after the Effective
Time of the Merger shall be paid to the holder of any certificate for shares
of Company Common Stock not surrendered with respect to the Roll-Over Shares
or the Stock Election Shares, if applicable, represented thereby and no cash
payment in lieu of fractional shares of Company Common Stock shall be paid to
any such holder pursuant to Section 4.4(e) until the surrender of such
certificate in accordance with this Article 4. Subject to applicable law,
following surrender of any such certificate, there shall be paid to the holder
of the certificate or certificates representing whole shares issued for the
Roll-Over Share Consideration or Stock Election Consideration, if applicable,
without interest (i) at the time of such surrender, the amount of any cash
payable in lieu of a fractional share representing the Roll-Over Share
Consideration or the Stock Election Consideration, if applicable, to which
such holder is entitled pursuant to Section 4.4(e) and the proportionate
amount of dividends or other distributions with a record date after the
Effective Time of the Merger therefor paid with respect to such shares
representing the Roll-Over Share Consideration or the Stock Election
Consideration, if applicable, and (ii) at the appropriate payment date, the
proportionate amount of dividends or other distributions with a record date
after the Effective Time of the Merger but prior to such surrender and a
payment date subsequent to such surrender payable with respect to such whole
shares representing the Roll-Over Share Consideration and the Stock Election
Consideration, if applicable.
(d) All cash paid upon the surrender for exchange of certificates
representing shares of Company Common Stock in accordance with the terms of
this Article 4 (including any cash paid pursuant to Section 4.4(e)) shall be
deemed to have been paid in full satisfaction of all rights pertaining to the
shares exchanged for cash theretofore represented by such certificates.
(e) Notwithstanding any other provision of this Agreement, each holder of
Roll-Over Shares or Stock Election Shares who would otherwise have been
entitled to retain a fraction of a share representing the Roll-Over Share
Consideration or the Stock Election Consideration (after taking into account
all Roll-Over Shares and Stock Election Shares, as the case may be, delivered
by such holder) shall receive, in lieu thereof, a cash payment (without
interest) equal to such fraction multiplied by the Cash Merger Price.
(f) Any cash deposited with the Paying Agent pursuant to this Section 4.4
(the "Exchange Fund") which remains undistributed to the holders of the
certificates representing shares of Company Common Stock 180 days after the
Effective Time of the Merger shall be delivered to the Surviving Corporation
at such time and any holders of shares of Company Common Stock (other than
Roll-Over Shares) prior to the Merger who have not theretofore complied with
this Article 4 shall thereafter look only to the Surviving Corporation and
only as general unsecured creditors thereof for payment of their claim for
cash, if any.
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(g) None of Sub, the Company or the Paying Agent shall be liable to any
person in respect of any cash from the Exchange Fund delivered to a public
office pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing shares of Company Common Stock shall not have
been surrendered prior to one year after the Effective Time of the Merger (or
immediately prior to such earlier date on which any cash in respect of such
certificate would otherwise escheat to or become the property of any federal,
state, local, or municipal, foreign or other government or subdivision,
branch, department or agency thereof and any governmental or quasi-
governmental authority of any nature, including any court or other tribunal
(each a "Governmental Entity")), any such cash in respect of such certificate
shall, to the extent permitted by applicable law, become the property of the
Surviving Corporation, free and clear of all claims or interest of any person
previously entitled thereto.
(h) In the event any certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
certificate to be lost, stolen or destroyed and, if required by Surviving
Corporation, the posting by such person of a bond in such reasonable amount as
Surviving Corporation may direct as indemnity against any claim that may be
made against it with respect to such certificate, the Paying Agent will issue
in exchange for such lost, stolen or destroyed certificate the shares
representing the Roll-Over Share Consideration or the Stock Election
Consideration, as the case may be (and cash in lieu of fractional shares), and
unpaid dividends and distributions on shares representing the Roll-Over Share
Consideration and the Stock Election Consideration, if applicable, deliverable
in respect thereof pursuant to this Agreement, or cash, as the case may be.
ARTICLE 5
Representations And Warranties Of The Company
The Company represents and warrants to Sub as follows:
5.1. Existence; Good Standing; Corporate Authority. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation. The Company is duly licensed or
qualified to do business as a foreign corporation and is in good standing
under the laws of any other state of the United States in which the character
of the properties owned or leased by it or in which the transaction of its
business makes such qualification necessary. The Company has all requisite
corporate power and authority to own, operate and lease its properties and
carry on its business as now conducted. Each of the Company's Subsidiaries is
a corporation or partnership duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization,
has the corporate or partnership power and authority to own its properties and
to carry on its business as it is now being conducted, and is duly qualified
to do business and is in good standing in each jurisdiction in which the
ownership of its property or the conduct of its business requires such
qualification, except where the failure to be so qualified or in good
standing, when taken with all other such failures, would not have a Company
Material Adverse Effect (as defined below). The copies of the Company's
Articles of Incorporation (the "Articles of Incorporation") and by-laws
previously delivered to Sub are complete and correct and in full force and
effect.
5.2. Authorization, Validity and Effect of Agreements. The Company has the
requisite corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. Subject only to the
approval of this Agreement and the transactions contemplated hereby by the
majority of all the votes entitled to be cast on the Merger by the holders of
Company Common Stock, the consummation by the Company of the transactions
contemplated hereby has been duly authorized by all requisite corporate
action. This Agreement constitutes a valid and legally binding obligation of
the Company, enforceable against the Company in accordance with its terms.
5.3. Capitalization. The authorized capital stock of the Company consists of
(x) 15,000,000 shares of Company Common Stock and (y) 5,000,000 shares of
preferred stock, par value $.01 per share (the "Company Preferred Stock"). As
of January 31, 1998, there were 4,550,650 shares of Company Common Stock and
no
A-9
shares of Company Preferred Stock issued and outstanding. Since such date, no
additional shares of capital stock of the Company have been issued, except
shares of Company Common Stock issued upon the exercise of options outstanding
under any Company Stock Option Plan. As of January 31, 1998, options to
acquire 536,352 shares of Company Common Stock pursuant to the Company Stock
Option Plan were outstanding. The company disclosure letter (which identifies
the Section or subsection of this Agreement to which each item on such company
disclosure letter relates) delivered by the Company to Sub on the date hereof
(the "Company Disclosure Letter"), includes a complete and correct list of
outstanding Options under such plan (including the number of Options and
exercise price of each such Option) held by each employee, participant in the
Affiliate Program (as defined in Section 5.25 below) or director. The Company
has no outstanding bonds, debentures, notes or other obligations the holders
of which have the right to vote (or which are convertible into or exercisable
for securities having the right to vote) with the stockholders of the Company
on any matter. All issued and outstanding shares of Company Common Stock are
duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. Other than as set forth above, there are no outstanding
shares of capital stock of the Company or existing options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements or
commitments which obligate the Company or any of its Subsidiaries to issue,
transfer or sell any shares of capital stock of the Company or any of its
Subsidiaries. After the Effective Time, other than those Options for which the
consents contemplated by Section 4.3(b) shall not have been obtained, the
Surviving Corporation will have no obligation to issue, transfer or sell any
shares of capital stock or other securities of the Company or the Surviving
Corporation. The Company Disclosure Letter sets forth the total amount of
indebtedness for borrowed money and the total amount of cash on hand of the
Company and its Subsidiaries on a consolidated basis as of January 31, 1998.
Except as provided in the Company Disclosure Letter, all such indebtedness is
prepayable without more than two business days notice and without the payment
of any penalty.
5.4. Subsidiaries. The Company owns directly or indirectly each of the
outstanding shares of capital stock (or other ownership interests) of each of
the Company's Subsidiaries. Each of the outstanding shares of capital stock
(or other ownership interests) of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by the Company free and clear of all Encumbrances (as
defined in Section 5.15), other than Encumbrances set forth in the Company
Disclosure Letter. The following information for each Subsidiary of the
Company is set forth in the Company Disclosure Letter: (i) its name and
jurisdiction of incorporation or organization; (ii) its authorized capital
stock (or other ownership interests); and (iii) the number of issued and
outstanding shares of capital stock (or other ownership interests). Except for
interests in the Company's Subsidiaries or as provided in the Company
Disclosure Letter, neither the Company nor any of the Company's Subsidiaries
owns directly or indirectly any interest or investment (whether equity or
debt) in any corporation, partnership, joint venture, business, trust or
entity.
5.5. No Violation. Neither the execution and delivery by the Company of this
Agreement nor the consummation by the Company of the transactions contemplated
hereby in accordance with the terms hereof, will: (i) conflict with or result
in a breach of any provision of the Articles of Incorporation or by- laws of
the Company or similar organizational document of any Subsidiary of the
Company; (ii) result in a breach or violation of, a default under or the
complete withdrawal from, or the triggering of any payment or other
obligations pursuant to, or, except as provided in the Company Disclosure
Letter, accelerate vesting under or require the consent of any participant
under, any Company Benefit Plan, including the Company Stock Option Plan, or
any grant or award made under the foregoing or in any benefit plan contained
in any collective bargaining agreement to which the Company or any of its
Subsidiaries is a party; (iii) violate, conflict with, result in a breach of
any provision of, constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, result in the
termination or in a right of termination or cancellation of, accelerate the
performance required by, result in the triggering of any payment or other
obligations pursuant to, result in the creation of any Encumbrance upon any of
the properties of the Company or its Subsidiaries under, or result in being
declared void, voidable or without further binding effect, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust
or any license, franchise, permit, lease, contract, agreement or other
instrument, commitment or obligation to which the Company or any of its
Subsidiaries is a
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party, or by which the Company or any of its Subsidiaries or any of their
respective properties is bound or affected, except for any of the foregoing
matters which would not, individually or in the aggregate, have a Company
Material Adverse Effect (as defined below); or (iv) other than the filing of
the Articles of Merger, filings required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"), the Securities Exchange Act of 1934
(the "Exchange Act"), the Securities Act of 1933 (the "Securities Act") or
applicable state securities and "Blue Sky" laws (collectively, the "Regulatory
Filings"), require any consent, approval or authorization of, or declaration,
filing or registration with, any governmental or regulatory authority or other
person or entity, the failure to obtain or make which would, individually or
in the aggregate, have a Company Material Adverse Effect. As used herein, a
"Company Material Adverse Effect" shall mean events, changes, facts or effects
which, individually or in the aggregate, have had or are reasonably likely to
have a material adverse effect on the business, prospects, results of
operations, assets or financial condition of the Company and its Subsidiaries
taken as a whole, or prevent the consummation of the transactions contemplated
hereby.
5.6. SEC Documents; Financial Statements. The Company has filed all forms,
reports and documents required to be filed by it with the Securities and
Exchange Commission ("SEC") since June 17, 1994 through the date of this
Agreement (collectively, the "Company Reports"). As of their respective dates,
the Company Reports (i) complied in all material respects with the applicable
requirements of the Securities Act, the Exchange Act, and the rules and
regulations thereunder and (ii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading. The Company
Disclosure Letter includes the unaudited financial statements of the Company
and its Subsidiaries on a consolidated basis for the year ended December 31,
1997, including a balance sheet as of such date and statements of income and
cash flows for such period (the "Company 1997 Financial Statements"). Each of
the consolidated balance sheets of the Company included in or incorporated by
reference into the Company Reports (including the related notes and schedules
therein) and the Company 1997 Financial Statements fairly presents the
consolidated financial position of the Company and its Subsidiaries as of its
date, and each of the consolidated statements of income and cash flows of the
Company included in or incorporated by reference into the Company Reports
(including the related notes and schedules therein) and the Company 1997
Financial Statements fairly presents the results of operations or cash flows,
as the case may be, of the Company and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-
end audit adjustments which would not be material in amount or effect), in
each case in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied during the periods involved, except
as may be noted therein.
5.7. Accounts Receivable. Except as provided in the Company Disclosure
Letter, all accounts receivable, notes receivable and other amounts due and
owing from any third or related party or other receivables of the Company and
its Subsidiaries (the "Accounts Receivable") represent sales actually made or
services actually delivered or loans or advances of cash in the ordinary
course of business consistent with past practice, and are reflected on the
books and records of the Company net of reserves, which are adequate and are
calculated in accordance with GAAP and consistent with past practices of
Company. Except as provided in the Company Disclosure Letter, all Accounts
Receivable are fully collectible through the use of ordinary collection
procedures in the full aggregate face amount thereof less any allowance for
bad debt loss set forth in the Company Reports, the Company 1997 Financial
Statements or thereafter accrued on the books of the Company and its
Subsidiaries calculated in accordance with GAAP and consistent with past
practices of the Company. Except as provided in the Company Disclosure Letter,
there are no refunds, discounts or other adjustments payable in respect of any
of the Receivables or any defenses, rights of set-off, assignments,
restrictions or Encumbrances enforceable by third parties on or affecting the
Receivables.
5.8. Insurance. The Company Disclosure Letter contains a complete and
correct list of all effective insurance policies which cover the business,
properties and assets of the Company and its Subsidiaries and all premiums due
thereon have been paid. The insurance coverage provided by insurance policies
listed in the Company Disclosure Letter and, to the best Knowledge of the
Company, the insurance coverage maintained by each participant in the
Affiliate Program, is adequate and suitable for the business and operations of
the Company
A-11
and its Subsidiaries or the participant in the Affiliate Program, as the case
may be, and, to the best knowledge of the Company, is on such terms, covers
such risks (including, to the best Knowledge of the Company, those arising out
of the activities of the participants in the Affiliate Program), contains such
deductibles and retentions, and is in such amounts, as the insurance
customarily carried by comparable companies of established reputation
similarly situated and carrying on the same or similar business operations.
Complete and correct copies of all such policies have been provided to Sub
prior to the date hereof. No notice of cancellation or non-renewal has been
received by the Company or its Subsidiaries and neither the Company nor any of
its Subsidiaries is in default under any such policy. The financial statements
included in the Company Reports and the Company 1997 Financial Statements
reflect adequate reserves for any insurance programs which require (or have
required) the Company or its Subsidiaries to retain a portion of each loss,
including, but not limited to, deductible and self-insurance programs, except
to the extent the amount of any failures to reflect adequate reserves for any
insurance programs would not, individually or in the aggregate, have a Company
Material Adverse Effect.
5.9. Litigation. Except as provided in the Company Disclosure Letter, there
are no actions, suits, arbitrations, charges or proceedings pending or, to the
best knowledge of the Company, threatened, at law or in equity, or before or
by any court, agency or other governmental or regulatory authority or entity,
that would, if adversely determined, have, individually or in the aggregate, a
Company Material Adverse Effect.
5.10. Absence of Certain Changes. Except as set forth in the Company
Disclosure Letter, since December 31, 1996, the Company and its Subsidiaries
have conducted their respective businesses only in the usual, regular and
ordinary course, consistent with past practice, and there has not been any
Company Material Adverse Effect or any non-recurring event in the absence of
which there would have been a Company Material Adverse Effect; and since
September 30 ,1997, there has not been (i) any delivery of a notice of non-
renewal or any other failure to renew contracts or agreements which are
material to the Company and its Subsidiaries taken as a whole, (ii) through
the date hereof any loss of any employee who earned more than $100,000 in the
most recent fiscal year (in salary, bonus and other cash compensation), (iii)
any acquisition or disposition of assets in a transaction or series of related
transactions in excess of $250,000, other than in the ordinary course, (iv)
any action taken by the Company or any of its Subsidiaries of the type
contemplated by Section 7.2(iii) and (vi)-(xvi) hereof or (vi) any failure to
take any action by the Company or any of its Subsidiaries of the type
contemplated by Section 7.2(i) and (ii) hereof.
5.11. Tax Matters. Except for such matter that (i) would not, individually
or in the aggregate, have a Company Material Adverse Effect; (ii) is disclosed
in the Company Disclosure Letter or (iii) is contained in the Company Reports:
(a) Definitions:
"Code" means the Internal Revenue Code of 1986, as amended. All citations
to provisions of the Code, or to the Treasury Regulations promulgated
thereunder, shall include any amendments thereto and any substitute or
successor provisions thereto.
"Taxes" means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities, including, without limitation, taxes based upon or measured by
gross receipts, income, profits, sales, use and occupation, and value
added, ad valorem, transfer, gains, franchise, withholding, payroll,
recapture, employment, excise, unemployment, insurance, social security,
business license, occupation, business organization, stamp, environmental
and property taxes, together with all interest, penalties and additions
imposed with respect to such amounts. For purposes of this Agreement,
"Taxes" also includes any obligations under any agreements or arrangements
with any person with respect to the liability for or sharing of Taxes
(including pursuant to Treas. Reg. (S) 1.1502-6 or comparable provisions
of state, local or foreign tax law) and including liability for Taxes as a
transferee or successor, by contract or otherwise.
"Taxable Period" means any taxable year or any other period that is
treated as a taxable year (or other period, or portion thereof, in the case
of a Tax imposed with respect to such period or portion thereof, e.g., a
quarter) with respect to which any Tax may be imposed under any applicable
statute, rule, or regulation.
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"Tax Reserve" shall have the meaning set forth in Section 5.11.
"Tax Return" shall mean any report, return, election, notice, estimate,
declaration, information statement and other forms and documents (including
all schedules, exhibits and other attachments thereto) relating to and
filed or required to be filed with a taxing authority in connection with
any Taxes (including, without limitation, estimated Taxes).
(b) All Tax Returns required to be filed by or with respect to the Company
and/or any of its Subsidiaries have been timely filed. All such Tax Returns
(i) were prepared in the manner required by applicable law, (ii) are true,
correct and complete in all respects, and (iii) reflect the liability for
Taxes of the Company and each of its Subsidiaries. All Taxes shown to be
payable on such Tax Returns, and all assessments of Tax made against the
Company and/or any of its Subsidiaries with respect to such Tax Returns, have
been paid when due. No adjustment relating to any such Tax Return has been
proposed or threatened formally or informally by any Taxing authority and no
basis exists for any such adjustment.
(c) The Company and each of its Subsidiaries have made (or there has been
made on their behalf) all required current estimated Tax payments sufficient
to avoid any underpayment penalties.
(d) The Company and each of its Subsidiaries have (i) timely paid or caused
to be paid all Taxes that are or were due, whether or not shown (or required
to be shown) on a Tax Return and (ii) provided a sufficient reserve for the
payment of all Taxes not yet due and payable (the "Tax Reserve") on the
financial statements of the Company included in the Company Reports. There are
no Taxes that would be due if asserted by a Taxing authority, except with
respect to which the Company and each of its Subsidiaries are maintaining
adequate reserves on the financial statements of the Company included in the
Company Reports.
(e) The Company and each of its Subsidiaries have complied (and until the
Closing Date will comply) in all material respects with the provisions of the
Code relating to the withholding and payment of Taxes, including, without
limitation, the withholding and reporting requirements under Code sections
1441 through 1464, 3401 through 3406, and 6041 through 6049, as well as
similar provisions under any other laws, and have within the time and in the
manner prescribed by law, withheld from employee wages and paid over to the
proper governmental authorities all amounts required.
(f) None of the Tax Returns have been or is currently being examined by the
Internal Revenue Service (the "IRS") or relevant state, local or foreign
Taxing authorities.
(g) No material claim has ever been made in writing by any Taxing authority
with respect to the Company or any of its Subsidiaries in a jurisdiction where
the Company and/or any of its Subsidiaries do not file Tax Returns that the
Company or any such Subsidiary is or may be subject to Taxation by that
jurisdiction. Except for liens for real and personal property Taxes that are
not yet due and payable, there are no liens for any Tax upon any asset of the
Company or any of its Subsidiaries.
(h) The Company and each of its Subsidiaries have made available (or, in the
case of Tax Returns filed after the date hereof, will make available at such
time and place as Sub may request) to Sub complete and accurate copies of such
Tax Returns, and amendments thereto, filed by the Company and/or its
Subsidiaries as Sub may request.
(i) Neither the Company nor any of its Subsidiaries is a party to any
agreement relating to allocating or sharing the payment of, or liability for,
Taxes for any Taxable Period.
(j) Neither the Company nor any of its Subsidiaries has distributed the
stock of any corporation in a transaction satisfying the requirements of
Section 355 of the Code since April 16, 1997.
(k) There is no contract, agreement, plan or arrangement covering any person
that, individually or collectively, could give rise to, nor will the
consummation of the transactions contemplated hereby obligate the
A-13
Company or Sub to make, the payment of any amount that would not be deductible
by the Company or any or its Subsidiaries by reason of Section 280G of the
Code.
(l) Neither the Company nor any of its Subsidiaries has executed any
outstanding waivers or comparable consents regarding the application of the
statute of limitations with respect to any Taxes or Tax Returns.
(m) All Company Stock Options granted under any Stock Option Plan qualify
under Section 162(m)(4) of the Code as an exception from "applicable employer
remuneration," and as such, no deduction of the Company or any of its
Subsidiaries relating to the Company Stock Options would be disallowed by
reason of Section 162(m) of the Code.
(n) The Company is the common parent of an affiliated group (within the
meaning of Code section 1504(a)) that files a consolidated U.S. federal income
tax return and includes the corporations listed on the Company Disclosure
Letter.
(o) Neither the Company nor any of its Subsidiaries owns an interest in a
partnership or could be treated as a partner in a partnership for U.S. federal
income tax purposes.
5.12. Employee Benefit Plans.
(a) The Company Disclosure Letter sets forth all pension, retirement,
savings, profit sharing, medical, dental, health, disability, life, death
benefit, group insurance, deferred compensation, stock option, stock purchase,
restricted stock, bonus or incentive, severance pay, employment or termination
agreement, and any other employee benefit or compensation plan, trust,
arrangement, contract, agreement, policy or commitment, including, without
limitation, any "employee benefit plan" as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), whether
formal or informal, written or oral, under which current or former employees,
directors or independent contractors of the Company or any of its Subsidiaries
are entitled to participate or have participated by reason of their
relationship with the Company or any of its Subsidiaries, and (i) to which the
Company or any of its Subsidiaries is a party or a sponsor or a fiduciary
thereof or by which the Company or any of its Subsidiaries (or any of their
rights, properties or assets) is currently bound or (ii) with respect to which
the Company or any of its Subsidiaries has any obligation to make payments or
contributions, or may otherwise have any current or future liability (but
excluding any such Plan covering solely employees of an independent contractor
of the Company or any "multiemployer plan" within the meaning of Section 3(37)
of ERISA) (collectively, the "Benefit Plans").
(b) Each Benefit Plan has at all times been operated and administered in
compliance in all material respects with its terms, the applicable
requirements of ERISA and the Code and all other applicable laws (including
regulations and rulings thereunder) of the United States or any foreign
jurisdiction, including their respective political subdivisions. Each Benefit
Plan that is intended to be tax qualified under Section 401(a) of the Code has
received a favorable determination letter from the Internal Revenue Service
stating that it is so qualified and that any trust associated with the Plan is
tax exempt under Section 501(a) of the Code, and there is no reason why the
qualified status of any such Plan or trust would be denied or revoked, whether
retroactively or prospectively. All amendments to the Benefit Plans that were
required to be made through the date hereof and the Effective Time to maintain
the continued qualified status of such Benefit Plans under Section 401(a) of
the Code have been or will be made by the Effective Time.
(c) No actual or threatened disputes, lawsuits, claims (other than routine
claims for benefits), investigations, audits or complaints to, or by, any
person or Governmental Entity have been filed or are pending with respect to
the Benefit Plans or the Company or any of its Subsidiaries in connection with
any Benefit Plan or the fiduciaries or administrators thereof, and no state of
facts or conditions exist which, to the best knowledge of the Company, could
be reasonably expected to subject the Company or any of its Subsidiaries to
any liability (other than routine claims for benefits) under the terms of the
Benefit Plan or applicable law. With respect to each Benefit Plan, there has
not occurred, and no person or entity is contractually bound to enter into,
any nonexempt "prohibited
A-14
transaction" within the meaning of Section 4975 of the Code or Section 406 of
ERISA, nor any transaction that would result in a civil penalty being imposed
under Section 409 or 502(i) of ERISA.
(d) No liability under Title IV of ERISA has been or is expected to be
incurred by the Company or any Subsidiary with respect to any ongoing, frozen
or terminated Benefit Plan which is a "single-employer plan" within the
meaning of Section 4001(a)(15) of ERISA (a "Pension Plan"), or any single-
employer plan of any entity (an "ERISA Affiliate") that is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the
Code (an "ERISA Affiliate Plan"). With respect to each Pension Plan and each
ERISA Affiliate Plan, as of the last day of the most recent plan year ended
prior to the date hereof, the actuarially determined present value of all
"benefit liabilities" within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in the Plans'
most recent actuarial valuation) did not exceed the then current value of the
assets of such Plans, and there has not been an adverse change in the
financial condition of such Plans which would have caused a material change in
the funded status of such Plans. No notice of a "reportable event", within the
meaning of Section 4043 of ERISA for which the 30-day reporting requirement
has not been waived has been required to be filed for any Pension Plan or by
any ERISA Affiliate Plan within the three-year period ending on the date
hereof. The Pension Benefit Guaranty Corporation has not instituted
proceedings to terminate any Pension Plan or ERISA Affiliate Plan and no
condition exists that presents a material risk that such proceedings will be
instituted. Neither the Company, its Subsidiaries nor any ERISA Affiliate has
incurred, nor does the Company expect that any such entity will incur, any
withdrawal liability with respect to a "multiemployer plan" (within the
meaning of Section 3(37) of ERISA) under Title IV of ERISA or any material
liability in connection with the reorganization or termination of any
multiemployer plan.
(e) All contributions or payments made or deemed to have been made with
respect to each Benefit Plan that is a deferred compensation plan, including
any Pension Plan, are presently, and have been during the years to which they
relate, fully deductible pursuant to Section 404 of the Code and are not
presently, and have never been during the years to which they relate, subject
to any excise tax under Section 4972 of the Code. The Company has not
requested, nor has pending as of the date hereof or the Effective Time, a
minimum funding variance or waiver within the meaning of Section 412(d) of the
Code. As of the Effective Time, all payments of outstanding contributions, due
on or prior to that date, including minimum contributions, premiums, and
funding obligations imposed by the terms of an Benefit Plan or by any law or
government agency (including under Part 3 of ERISA and Section 412 of the
Code) shall have been made with respect to each Benefit Plan. All
contributions to and payments with respect to or under the Benefit Plans that
are required to be made with respect to periods ending on or before the
Effective Time have been made or accrued before the Effective Time by the
Company in accordance with the appropriate plan documents, financial
statement, actuarial report, collective bargaining agreements or insurance
contracts or arrangements. With respect to each Benefit Plan that is an
"employee welfare benefit plan" under Section 3(1) of ERISA (a "Welfare Plan")
that is partially or fully funded through a trust, all tax deductions claimed
by the Company or any of its Subsidiaries relating to any such trust are
allowable, and all tax returns and other governmental filings required to be
filed with respect to any such trust, whether by the Company or any of its
Subsidiaries or the trust, have been made in a timely manner.
(f) Except as specifically set forth in the Company Disclosure Letter, no
Plan providing medical or death benefits (whether or not insured) with respect
to current or former employees of the Company continues such coverage or
provides such benefits beyond their date of retirement or other termination of
service (other than coverage mandated by section 601 of ERISA, the cost of
which is fully paid by the former employee or his or her dependents).
(g) Each trust fund associated with a Welfare Plan that is established under
Section 501(c)(9) of the Code and is intended to be tax-exempt under Section
501(a) of the Code (a "VEBA") has received a favorable determination letter
from the IRS stating that the trust fund is so exempt, and there is no reason
why the tax-exempt status under Section 501(a) of the Code of any such VEBA
would be denied or revoked, whether retroactively or prospectively, by any
governmental agency, including, without limitation, the IRS and the United
States Department of Labor. Each VEBA has satisfied all applicable
requirements of Section 419, 419A and 505 of the Code, and neither the Company
nor any Subsidiary has become subject to any excise tax under Section 4976 of
the Code.
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(h) With respect to each Benefit Plan, the Company has made available to Sub
complete and correct copies of the following documents, to the extent in each
case that such documents exist or are required by law: (1) current plan
documents, subsequent plan amendments, or any and all other documents that
establish or describe the existence of the plan, trust, arrangement, contract,
policy or commitment; (2) current summary plan descriptions and summaries of
material modifications; (3) the most recent tax qualified determination
letters, if any, received from or applications pending with the IRS; (4) the
three most recent Form 5500 Annual Reports, including related schedules and
audited financial statements and opinions of independent certified public
accountants; (5) with respect to each defined contribution plan, the most
recent annual and quarterly or monthly valuations; (6) with respect to each
Pension Plan, a copy of the most recent actuarial valuation report; and (7)
the most recent nondiscrimination testing results under Sections 401(a)(4),
401(k) and 410(b) of the Code.
(i) The execution of, and performance of the transactions contemplated in,
this Agreement will not (either alone or upon the occurrence of any additional
or subsequent events) constitute an event under any plan, policy, arrangement
or agreement or any trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to
fund benefits with respect to any current or former employee, director or
consultant of the Company.
(j) Except as set forth in the Company Disclosure Letter, to the best
Knowledge of the Company, neither the Company nor any of its Subsidiaries has
any liability, contingent or otherwise, with respect to any employee benefit
or compensation plan, program, arrangement or agreement that is sponsored,
maintained or contributed to by any participant in the Affiliate Program or
any other independent owner/operator with whom the Company or any of its
Subsidiaries has a contractual relationship including, without limitation,
with respect to any such "multiemployer plan" (within the meaning of Section
3(37) of ERISA) or other such "employee benefit plan" (within the meaning of
Section 3(3) of ERISA).
5.13. Labor Matters; Suppliers; Distributors and Customers.
(a) The Company Disclosure Letter lists all collective bargaining or other
labor union contracts to which the Company or any of its Subsidiaries is a
party and which is applicable to persons employed by the Company or any of its
Subsidiaries. There is no pending or, to the best knowledge of the Company,
threatened union organizational effort, material labor dispute, strike or work
stoppage against the Company or any of its Subsidiaries. Neither the Company
nor any of its Subsidiaries, nor their respective representatives or
employees, has committed any material unfair labor practices in connection
with the operation of the respective businesses of the Company or any of its
Subsidiaries, and there is no pending or, to the best knowledge of the
Company, threatened charge or complaint against the Company or any of its
Subsidiaries by the National Labor Relations Board or any similar governmental
agency. The Company and all of its Subsidiaries, and to the best knowledge of
the Company, Jefferies Transportation and Lloyd Transportation and, to the
best Knowledge of the Company, each participant in the Affiliate Program, have
in the past been and are in compliance in all respects with all applicable
collective bargaining agreements and laws respecting employment, employment
practices, labor relations, safety and health, wages, hours and terms and
conditions of employment, except for such failures to be in compliance as have
not had, individually or in the aggregate, a Company Material Adverse Effect
that has not been cured and would not have, individually or in the aggregate,
a Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries has experienced within the past 12 months a "plant closing" or
"mass layoff" within the meaning of the Worker Adjustment and Retraining
Notification Act, 29 U.S.C. (S)(S)2101 et seq. The Company Disclosure Letter
also sets forth the aggregate number of drivers that work for any of the
Company, its Subsidiaries, any participant in the Affiliate Program and any
other independent owner/operator with whom the Company has a contractual
relationship, specifying, in the case of the Company and its Subsidiaries, the
number of such drivers who belong to a union or are otherwise covered by an
employment agreement or a collective bargaining agreement.
(b) The relationships with the suppliers and distributors for and customers
of, including, without limitation, all contractors under the Affiliate
Program, the Company and its Subsidiaries are satisfactory working
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commercial relationships and, during the twelve-month period ended on the date
of Closing, no such supplier, distributor or customer has cancelled or
otherwise terminated its relationship with or decreased its services, supplies
or materials to or its usage or purchase of the services or products of the
Company or any of its Subsidiaries in a manner which has had or would have a
Company Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is aware of any intention of any such supplier, distributor or
customer to take any such action.
5.14. Absence of Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, whether due or to become due, except (a)
liabilities or obligations reflected or reserved against in the financial
statements of the Company included in the Company Reports or the Company 1997
Financial Statements and (b) liabilities or obligations which would not,
individually or in the aggregate, have a Company Material Adverse Effect.
5.15. Title to Properties and Related Matters. Each of the Company and its
Subsidiaries has good and marketable title (and with respect to all owned real
property (the "Owned Real Property"), fee simple title) to all of the
properties and assets which it purports to own, real, personal, tangible and
intangible (including those reflected in the financial statements included in
the Company Reports and in the Company 1997 Financial Statements, except as
since sold or otherwise disposed of in the ordinary course), free of any
mortgage, claim, lien, pledge, option, charge, security, security interest or
other similar interest, encumbrance, easement, judgment or imperfection of
title of any nature whatsoever (each, an "Encumbrance") except (i) those
reflected or reserved against in the latest financial statements of the
Company included in the Company Reports or the Company 1997 Financial
Statements, (ii) Taxes and general and special assessments not in default and
payable without penalty and interest, and (iii) Encumbrances which would (x)
not materially detract from the value, or interfere with the present use, of
the properties of the Company and its Subsidiaries, and (y) would not
otherwise materially impair the business operations of the Company and its
Subsidiaries (collectively, "Permitted Encumbrances").
(b) Set forth in the Company Disclosure Letter is a list of all leases,
subleases and other agreements (the "Real Property Leases") under which the
Company or any of its Subsidiaries uses or occupies or has the right to use or
occupy, now or in the future, any real property or facility (the "Leased Real
Property") (including all modifications, amendments and supplements thereto)
and a summary of the material terms and amounts of payments due under such
Real Property Leases. The Company has heretofore provided to Sub complete and
correct copies (or accurate summaries or abstracts) of all Real Property
Leases. Each Real Property Lease and each other lease with respect to any
personal property leased by the Company or any of its Subsidiaries is valid
and binding on the Company or its Subsidiary, as the case may be, and in full
force and effect, and no termination event or condition or uncured default on
the part of the Company or any such Subsidiary or, to the best knowledge of
the Company, the landlord or lessor, as the case may be, exists under any Real
Property Lease or any such other lease. Each of the Company and its
Subsidiaries has a good and valid leasehold interest in each parcel of Leased
Real Property and possesses and quietly enjoys the Leased Real Property under
the Real Property Leases free and clear of all Encumbrances, except for
Permitted Encumbrances.
5.16. Material Contracts. There have been made available to Sub or its
designees complete and correct copies of all of the following contracts to
which the Company or any of its Subsidiaries is a party or by which any of
them is bound (collectively, the "Material Contracts"): (i) contracts with any
current officer, director, "affiliate" or "associate" (as such terms are
defined in Rule 12b-2 under the Exchange Act) of the Company or any of its
Subsidiaries; (ii) contracts for the sale of any of the assets of the Company
or any of its Subsidiaries other than in the ordinary course of business or
for the grant to any person of any preferential rights to purchase any of its
assets; (iii) contracts containing covenants of the Company or any of its
Subsidiaries not to compete in any line of business or with any person in any
geographical area or, other than forms of contracts with independent
contractors in connection with the Affiliate Program, covenants of any other
person not to compete with the Company or any of its Subsidiaries in any line
of business or in any geographical area; (iv) indentures, credit agreements,
mortgages, promissory notes, and other contracts relating to the borrowing of
money which are in excess of $1,000,000 in the aggregate, (v) contracts or
obligations with all employees, consultants and
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agents providing for annual payments in excess of $150,000, (vi) contracts
which contain change of control provisions or whose severance provisions will
be accelerated upon consummation of the transactions contemplated hereby;
(vii) forms of contracts with independent contractors in connection with the
Affiliate Program which are substantially the same as all such contracts; and
(viii) all other agreements contracts or instruments which are material to the
Company. All of the Material Contracts are in full force and effect and are
the legal, valid and binding obligation of the Company or its Subsidiaries,
enforceable against them in accordance with their respective terms. Neither
the Company nor any Subsidiary is in default under any Material Contract nor,
to the best knowledge of the Company, is any other party to any Material
Contract in default thereunder.
5.17. Compliance With Laws. The Company and each of its Subsidiaries, and to
the best Knowledge of the Company, each participant in the Affiliate Program
have been in the past and are in compliance with all applicable statutes,
laws, codes, ordinances, regulations, rules, Permits (as defined below),
judgments, decrees and orders of any Governmental Entity, except for such
failures to be in compliance as have not had, individually or in the
aggregate, a Company Material Adverse Effect that has not been cured and would
not have, individually or in the aggregate, a Company Material Adverse Effect.
The Company and each of its Subsidiaries and, to the best Knowledge of the
Company, each participant in the Affiliate Program has in effect (and the
Company and/or each Subsidiary and, to the best Knowledge of the Company, each
participant in the Affiliate Program has timely made appropriate filings for
issuance or renewal thereof) all Federal, state, local and foreign
governmental approvals, authorizations, certificates, filings, franchises,
licenses, notices, permits and rights, including all authorizations under
Environmental Laws (as defined below) and exemptions from any of the foregoing
(collectively, "Permits") necessary for it to own, lease or operate its
properties and assets and to carry on its business as now conducted, except
for the failure to have such Permits that, individually or in the aggregate,
has not had and would not have a Company Material Adverse Effect. The Company
Disclosure Letter contains a list of all of the type of Permits which are
material to the Company and its Subsidiaries and the Company or a Subsidiary
of the Company has all such Permits and all such Permits are in full force and
effect, except as set forth in the Company Disclosure Letter. Copies of such
Permits have been provided to Sub or its counsel or will be so provided upon
request. No default under any Permit has occurred, except for defaults under
Permits that, individually or in the aggregate, would have a Company Material
Adverse Effect. Except as set forth in the Company Disclosure Letter, neither
the Company nor any of its Subsidiaries, nor to the best Knowledge of the
Company, any participant in the Affiliate Program has received notice of any
pending investigation or review by any Governmental Entity with respect to the
Company or any of its Subsidiaries or any participant in the Affiliate
Program. To the best knowledge of the Company, no such investigation or review
is threatened.
5.18. Environmental, Health and Safety Matters. Except for such matter that
(i) would not, individually or in the aggregate, have a Company Material
Adverse Effect; (ii) is disclosed in the Company Disclosure Letter or (iii) is
contained in the Company Reports:
(a) The Company and each of its Subsidiaries comply, and the Company and
each of its Subsidiaries at all times have complied, with all EHS
Requirements of Law (as defined below) applicable to their operations or
the Properties (as defined below), including, without limitation, the use,
maintenance and operation of the Properties, and all activities and conduct
of business by them related thereto, including, without limitation, the
treatment, remediation, removal, transport, storage and/or disposal of any
Contaminant (as defined below);
(b) The Company and each of its Subsidiaries have obtained or have taken
appropriate steps, as required by EHS Requirements of Law, to obtain all
EHS Permits necessary for their operations and the ownership and operation
of the Properties, all such EHS Permits (as defined below) are in good
standing, and the Company and each of its Subsidiaries are currently in
compliance with all terms and conditions of such EHS Permits. No material
change in the facts or circumstances reported or assumed in the
applications for or the granting of such EHS Permits exists. There are not
any proceedings threatened which would jeopardize the validity of any such
EHS Permits;
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(c) All of the third parties with which the Company or any of its
Subsidiaries have arranged, engaged or contracted to accept, treat,
transport, store, dispose or remove any Contaminant generated or present at
any of the Properties, or which otherwise participate or have participated
in activities or conduct related to the operations of the Company or any of
its Subsidiaries or the Properties, were, to the knowledge of the Company,
properly permitted at the relevant time to perform the foregoing activities
or conduct;
(d) Neither the Company nor any of its Subsidiaries is subject to any
investigation, or any judicial or administrative proceeding, notice, order,
judgment, decree or settlement, alleging or addressing in connection with
the operations or the Properties (i) any violation of any EHS Requirements
of Law, or (ii) any Remedial Action (as defined below), or (iii) any claims
or liabilities and costs arising from the Release (as defined below) or
threatened Release of any Contaminant;
(e) No Environmental Lien (as defined below) has attached to any of the
Properties;
(f) Neither the Company nor any of its Subsidiaries has received or is
otherwise aware of any notice, claim or other communication concerning (i)
any alleged violation of any EHS Requirements of Law at any of the
Properties, whether or not corrected to the satisfaction of the appropriate
authority, (ii) alleged liability of the Company or any Subsidiary for EHS
Damages (as defined below) arising out of or related to the operations or
any of the Properties, or (iii) any alleged liability of the Company or any
of its Subsidiaries arising out of or related to the operations or the
Properties for the Release or threatened Release of a Contaminant at any
location, and there exists no writ, injunction, decree, order or judgment
outstanding, nor any lawsuit, claim, proceeding, citation, directive,
summons or investigation, pending or threatened, relating to the condition,
ownership, use, maintenance or operation of any of the Properties, or the
suspected presence of Contaminants thereon or therefrom, nor does there
exist any basis for such lawsuit, claim, proceeding, citation, directive,
summons or investigation being instituted or filed;
(g) There has been no Release of any Contaminants in reportable
quantities at, to or from any of the Properties;
(h) None of the Properties is listed or proposed for listing on the
National Priorities List ("NPL") pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act, as amended
("CERCLA"), or listed on the Comprehensive Environmental Response
Compensation Liability Information System List ("CERCLIS") or any similar
state list of sites, and neither the Company nor any of its Subsidiaries is
aware of any conditions at any of such Properties which, if known to a
Governmental Entity, would qualify such Properties for inclusion on any
such list;
(i) Neither the Company nor any of its Subsidiaries has any contingent
liability in connection with its operations or the ownership or operation
of any of the Properties for the Release or threatened Release of any
Contaminant at any location;
(j) Neither the Company nor any of its Subsidiaries has disposed (as such
term is defined in the Federal Resource Conservation and Recovery Act) of
any Contaminant at any of the Properties;
(k) Neither the Company nor any of its Subsidiaries has transported or
arranged for the transport of any Contaminant to any facility or site for
the purpose of treatment or disposal which (i) is included on the NPL or
CERCLIS, (ii) is or was, at the time of disposal, subject to a Remedial
Action requirement (other than routine, anticipated, closure-related
corrective action obligations affecting closed solid waste management units
at such facility) issued under the federal Resource Conservation and
Recovery Act or any state, local or foreign solid or hazardous waste
regulatory law, or (iii) at the time of the disposal had received a notice
of violation or was otherwise subject to a governmental enforcement action
with respect to alleged violations of any EHS Requirements of Law;
(l) No Contaminant has migrated from any of the Properties onto or
underneath other properties, nor has any Contaminant migrated or threatened
to migrate from other properties upon, about or beneath any of the
Properties;
A-19
(m) No underground improvements, including but not limited to treatment
or storage tanks, sumps, or water, gas or oil wells, or associated piping,
are or have ever been located on any of the Properties;
(n) There is not constructed, placed, deposited, released, stored,
disposed, leaching nor located on any of the Properties any polychlorinated
biphenyls ("PCBs") or transformers, capacitors, ballasts, or other
equipment which contain dielectric fluid containing PCBs; and
(o) Neither the Company nor any of its Subsidiaries has any liability, or
has received or is otherwise aware of any notice, claim or other
communication alleging liability on the part of the Company or any of its
Subsidiaries, for the violation of any EHS Requirements of Law, for EHS
Damages, or for the Release or threatened Release of any Contaminant in
connection with any businesses or properties previously owned or operated
by the Company or any of its Subsidiaries or any former subsidiary.
For purposes hereof, the following terms shall have the following meanings:
"Contaminant" means any pollutant, chemical substances, hazardous
substance, radioactive substance, toxic substance, hazardous waste, medical
waste, radioactive waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos, PCBs, or any hazardous or toxic constituent
thereof and includes, but is not limited to, any substance regulated,
restricted or addressed by or under EHS Requirements of Law.
"EHS Damages" means all claims, judgments, damages (including punitive
damages), losses, penalties, fines, interest, fees, liabilities (including
strict liability), encumbrances, liens, costs, and expenses of
investigation and defense of any claim, whether or not such claim is
ultimately defeated, and of any good faith settlement of judgment, of
whatever kind or nature, contingent or otherwise, matured or unmatured,
foreseeable or unforeseeable, including, without limitation, reasonable
attorneys' fees and disbursements and consultants' fees, any of which are
incurred at any time as a result of the existence of Contaminants at any
location or noncompliance with EHS Requirements of Law, including without
limitation:
(i) Damages for personal injury or threatened personal injury
(including sickness, disease or death), or injury or threatened injury
to property or natural resources, foreseeable or unforeseeable,
including, without limitation, the cost of demolition and rebuilding of
any improvements on real property;
(ii) Reasonable fees incurred for the services of attorneys,
consultants, contractors, doctors, experts, laboratories and all other
reasonable costs incurred in connection with any damages as described
in subparagraph (i) of this definition, and the investigation or
remediation of Contaminants or the suspected presence of Contaminants
or the violation or threatened violation of EHS Requirements of Law
including, but not limited to, the preparation of any feasibility
studies or reports or the performance of any investigations, cleanup,
treatment, remediation, removal, response, abatement, containment,
closure, storage, disposal, transport, restoration or monitoring work
required by any federal, state, local or foreign governmental agency or
political subdivision, or otherwise expended in connection with such
conditions, and including, without limitation, any reasonable
attorneys' fees, costs and expenses incurred in enforcing this
Agreement or collecting any sums due hereunder; and
(iii) Liability to any third person or Governmental Entity to
indemnify such person or Governmental Entity for costs expended in
connection with the items referenced in subparagraphs (i) and (ii) of
this definition.
"EHS Permits" means all permits, consents, licenses, and other approvals
or authorizations required under EHS Requirements of Law.
"EHS Requirements of Law" means all federal, state, local and foreign
laws, statutes, codes, ordinances, rules, regulations, directives, binding
policies, EHS Permits, or orders relating to or addressing the environment,
health or safety, including, but not limited to, any law, statute, code,
ordinance, rule, regulation, directive, binding policy, EHS Permit or order
relating to (x) the use, handling or disposal of any Contaminant or (y)
workplace or worker safety and health, as such requirements are promulgated
by the specifically authorized Governmental Entity responsible for
administering such requirements.
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"Environmental Lien" means a lien in favor of any Governmental Entity for
any (a) liability under any EHS Requirement of Law, or (b) damages arising
from, or costs incurred by, such Governmental Entity in response to a
Release or threatened Release of a Contaminant into the environment.
"Properties" means all real or personal property of any kind or
description presently owned, leased, operated, or otherwise under the
control of the Company or any Subsidiary.
"Release" means the presence, release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migrating
into the indoor or outdoor environment of any Contaminant through or in the
air, soil, subsurface, surface water, groundwater or Properties.
"Remedial Action" means actions required to (i) clean up, remove, treat
or in any other way address Contaminants in the indoor or outdoor
environment; (ii) prevent the Release or threat of Release or minimize the
further Release of Contaminants; or (iii) investigate and determine if a
remedial response is needed, to design such a response and post-remedial
investigation, monitoring, operation, maintenance and care.
5.19. Assets. The Company Disclosure Letter sets forth a complete and
correct list of all fixed assets, including the net book value of such assets,
of the Company and its Subsidiaries. At the Effective Time, the assets of the
Company, its Subsidiaries and, to the best Knowledge of the Company, the
participants in the Affiliate Program will constitute all the equipment and
other assets presently used in the conduct of (except as sold or retired in
the ordinary course of business) or necessary to operate the businesses of the
Company and its Subsidiaries in accordance with past practice. All assets of
the Company, its Subsidiaries and, to the best Knowledge of the Company, the
participants in the Affiliate Program, including those assets set forth on the
Company Disclosure Letter, including those reflected in the financial
statements included in the Company Reports, the Company 1997 Financial
Statements or otherwise, are, in the aggregate, well maintained and in good
operating condition, and, with respect to the tank trailers, facilities and
tractors, are free from all structural flaws and design and engineering
deficiencies which would materially reduce the useful life of such assets,
except for reasonable wear and tear and except for items which have been
written down in the financial statements included in the Company Reports or
the Company 1997 Financial Statements to a realizable market value or for
which adequate reserves have been provided in the financial statements
included in the Company Reports or the Company 1997 Financial Statements. The
present quantity of all such equipment of the Company, its Subsidiaries and
the participants in the Affiliate Program is reasonably necessary, in the
aggregate, in the present course of the business conducted by the Company and
its Subsidiaries. All of such equipment (except for leased equipment for which
the lessors have valid security interest) is free and clear of any Encumbrance
other than Permitted Encumbrances.
5.20. No Brokers. Neither the Company nor any of its Subsidiaries has
entered into any contract, arrangement or understanding with any person or
firm which may result in the obligation of the Company or any of its
Subsidiaries or the Surviving Corporation to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby, except that the Company has retained BT Alex. Brown
Incorporated as its financial advisor, the arrangements with which have been
disclosed in writing to Sub prior to the date hereof. Other than the foregoing
arrangements, the Company is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
5.21. Intellectual Property. The Company and each Subsidiary owns, or is
validly licensed or otherwise has the right to use, without any obligation to
make any fixed or contingent payments, including any royalty payments, as
applicable, all patents, patent rights, trademarks, trademark rights, trade
names, trade name rights, service marks, service mark rights, copyrights and
other proprietary intellectual property rights and computer programs that are
used in the conduct of the business of the Company as now operated
(collectively, "Intellectual Property Rights"). The Company Disclosure Letter
sets forth a description of all patents, trademarks and copyrights and
applications therefor owned by or licensed to the Company and its Subsidiaries
that are used in
A-21
the conduct of the business of the Company and its Subsidiaries as now
operated (excluding customary commercial software licenses). No claims are
pending or, to the best knowledge of the Company, threatened that the Company
is, and to the best knowledge of the Company, neither the Company nor any
Subsidiary is, infringing or otherwise adversely affecting the rights of any
person with regard to any Intellectual Property Right. To the best knowledge
of the Company, no person is infringing the rights of the Company or any
Subsidiary with respect to any Intellectual Property Right. Neither the
Company nor any Subsidiary has licensed, or otherwise granted, to any third
party, any rights in or to any Intellectual Property.
5.22. State Takeover Statutes. The Board of Directors of the Company has
approved this Agreement and the Voting Agreement and the transactions
contemplated hereby and thereby (including the Merger) and such approval is
sufficient to render inapplicable to such agreements and transactions the
provisions of any "fair price," "moratorium," "control share," "interested
shareholder," "affiliated transaction" or other anti-takeover statute or
regulation (including Sections 607.0901 and 607.0902 of the FBCA) and any
applicable anti-takeover or other restrictive provision of the Articles of
Incorporation, by-laws or other governing instruments. The Company does not
have a "shareholder rights plan" or other arrangement of similar effect.
5.23. Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has (a) determined that this Agreement and the
transactions contemplated hereby are advisable and in the best interests of
the Company and its stockholders and (b) resolved to recommend that the
holders of Company Common Stock approve this Agreement and the transactions
contemplated hereby, including the Merger.
5.24. Related Party Transactions. Except as set forth in the Company Reports
or in the Company Disclosure Letter, no director, officer, partner,
"affiliate" or "associate" (as such terms are defined in Rule 12b-2 under the
Exchange Act) of the Company or any of its Subsidiaries owns any direct or
indirect interest of any kind in, or is a director, officer, employee,
partner, affiliate or associate of, or consultant or lender to, or borrower
from, or has the right to participate in the management, operations or profits
of, any person or entity which is (a) a competitor, supplier, customer,
distributor, lessor, tenant, creditor or debtor of the Company or any of its
Subsidiaries, (b) engaged in a business related to the business of the Company
or any of its Subsidiaries or (c) is otherwise participating in any
transaction to which the Company or any of its Subsidiaries is a party.
5.25. Affiliate Programs, Etc.
(a) The Company Disclosure Letter contains an accurate summary of the
arrangements of the Company and its Subsidiaries with the affiliate partners,
more commonly known as the "Affiliate Program." The Company and its
Subsidiaries have furnished to Sub copies of the standard form of the
contracts used by the Company and its Subsidiaries in connection with the
Affiliate Program (also known as the MTL Contractor Agreement), and the actual
terms and provisions of the arrangements (contractual or otherwise) between
the Company and/or any of its Subsidiaries, on the one hand, and the
participants in the Affiliate Program, on the other hand, (a) are not in any
material respect (individually and/or taken as a whole) different from those
set forth in such standard contracts, (b) are on arms' length terms and (c) do
not contain any unusual or burdensome provision which, individually or in the
aggregate, has had, or would have, a Company Material Adverse Effect. Neither
the Company nor any of its Subsidiaries (x) owns or is obligated to make any
investment in any participant in the Affiliate Program or (y) has consummated
during the 12-month period ended on the date of the Closing or is obligated to
consummate at any time in the future, any transaction with any participant in
the Affiliate Program other than in the ordinary course of business consistent
with past practice or as otherwise provided in the Company Disclosure Letter.
Neither the Company nor any of its Subsidiaries has outstanding any obligation
or indebtedness owing to any participant in the Affiliate Program other than
in the ordinary course of business consistent with past practice. All of the
material agreements between the Company and/or any of its Subsidiaries, on the
one hand, and participants in the Affiliate Program, on the other hand, are
legal, valid and binding obligations of the Company or its Subsidiaries and,
to the best knowledge of the Company, of each of the other parties thereto,
enforceable against such parties in accordance with their respective terms.
Neither the Company nor any of its Subsidiaries nor, to the best knowledge of
the Company, any participant in the Affiliate Program is in default under any
term of any such agreement, which default, individually or in the aggregate,
would have a Company Material Adverse Effect.
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(b) The Company and its Subsidiaries have furnished to Sub copies of the
standard form of the Master Trailer Lease Agreement, Agreement for
Transportation Services and Independent Contractor Agreement. The actual terms
and provisions of the arrangements (contractual or otherwise) between the
Company and/or any of its Subsidiaries, on the one hand, and the
owner/operators, drivers, independent contractors, trailer lessees, shippers
and customers, on the other hand, (a) are not in any material respect
(individually and/or taken as a whole) different in form from those set forth
in such standard contracts, (b) are on arms' length terms and (c) do not
contain any unusual or burdensome provision which, individually or in the
aggregate, has had, or would have, a Company Material Adverse Effect. All of
such agreements between the Company and/or any of its Subsidiaries, on the one
hand, and the owner/operators, drivers, independent contractors, trailer
lessees, shippers and customers, on the other hand, are legal, valid and
binding obligations of the Company or its Subsidiaries and, to the best
knowledge of the Company, of each of the other parties thereto, enforceable
against such parties in accordance with their respective terms. Neither the
Company nor any of its Subsidiaries nor, to the best knowledge of the Company,
the owner/operators, drivers, independent contractors, trailers lessees,
shippers or customers who are parties to such agreements is in default under
any term of any such agreement, which default, individually or in the
aggregate, would have a Company Material Adverse Effect.
5.26. Opinion of Financial Advisor. The Company has received, and has
furnished to Sub a copy of, the opinion of BT Alex. Brown Incorporated to the
effect that, as of the date hereof, the Merger Consideration is fair to the
holders of Company Common Stock from a financial point of view.
5.27. Proxy Statement; Schedule 13E-3; Form S-4. The Proxy Statement (as
defined below) to be mailed to the stockholders of the Company in connection
with the special meeting of the stockholders of the Company (the "Special
Meeting") and the Schedule 13E-3 (as defined below) and the Form S-4 (as
defined below), if filed, and any amendment thereof or supplement thereto
(excluding any information supplied in writing by Sub specifically for
inclusion therein), when, in the case of the Proxy Statement, mailed and at
the time of the Special Meeting, and, in the case of the Schedule 13E-3 and
the Form S-4 when and if filed and, in the case of the Form S-4 and any
amendment or supplement thereto, when it becomes effective, shall not contain
any untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not false or
misleading, and shall comply with all requirements of the Securities Act and
the Exchange Act.
5.28. Alternative Proposal. On or prior to the date hereof, there has not
been any bona fide publicly announced Alternative Proposal (as defined in
Section 7.1 hereof) with respect to the Company or any of its Subsidiaries nor
has there been made public an intention (whether or not conditional) to make
such an Alternative Proposal with respect to the Company or any of its
Subsidiaries.
ARTICLE 6
Representations And Warranties Of Sub
Sub represents and warrants to the Company as follows:
6.1. Existence; Good Standing; Corporate Authority. Sub is a corporation
duly incorporated, validly existing and in good standing under the laws of its
jurisdiction of incorporation. Sub is duly licensed or qualified to do
business as a foreign corporation and is in good standing under the laws of
any other state of the United States in which the character of the properties
owned or leased by it or in which the transaction of its business makes such
qualification necessary. Sub has all requisite corporate power and authority
to own, operate and lease its properties and carry on its business as now
conducted. The copies of Sub's Articles of Incorporation and by-laws
previously delivered to the Company are complete and correct and in full force
and effect. Sub has no subsidiaries.
6.2. Authorization, Validity and Effect of Agreements. Sub has the requisite
corporate power and authority to execute and deliver this Agreement and all
agreements and documents contemplated hereby. The
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consummation by Sub of the transactions contemplated hereby has been duly
authorized by all requisite corporate action. This Agreement constitutes a
valid and legally binding obligation of Sub, enforceable against Sub in
accordance with its terms.
6.3. Capitalization. The authorized capital stock of Sub consists of
1,000,000 shares of Sub Common Stock and 250,000 shares of preferred stock,
par value $.01 per share, of Sub of which 100 shares are issued and
outstanding. Notwithstanding any provisions to the contrary, Sub may, in its
sole discretion, increase the number of shares of authorized Sub Common Stock
and the number of shares of Sub Common Stock issued and outstanding.
6.4. No Violation. Neither the execution and delivery by Sub of this
Agreement, nor the consummation by Sub of the transactions contemplated hereby
in accordance with the terms hereof, will: (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or by-laws of Sub;
(ii) violate, conflict with, result in a breach of any provision of,
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, result in the termination or in a right of
termination or cancellation of, accelerate the performance required by, result
in the triggering of any payment or other material obligations pursuant to,
result in the creation of any Encumbrance upon any of the material properties
of Sub under, or result in being declared void, voidable or without further
binding effect, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any material license, franchise, permit,
lease, contract, agreement or other instrument, commitment or obligation to
which Sub is a party, or by which Sub or any of its properties is bound or
affected, except for any of the foregoing matters which would not,
individually or in the aggregate, prevent or delay the consummation of the
transactions contemplated hereby; or (iii) other than the Regulatory Filings,
require any consent, approval or authorization of, or declaration, filing or
registration with, any governmental or regulatory authority, the failure to
obtain or make which would, individually or in the aggregate, prevent or delay
the consummation of the transactions contemplated hereby.
6.5. Interim Operations of Sub. Sub was formed solely for the purpose of
engaging in the transactions contemplated hereby, has engaged in no other
business activities and has conducted its operations only as contemplated
hereby.
6.6. Financing. Sub has sufficient sources of liquid capital funds, and at
the Effective Time will fund, in cash, to the Company sufficient equity
capital to pay all amounts required by Section 4.2 hereof and to pay all other
amounts required to be paid hereunder by Sub at the Effective Time. Sub has
delivered to the Company complete and correct executed copies of letters with
respect to the financing (the "Financing Letters") required for the
consummation of the transactions contemplated hereby. Assuming satisfaction of
all applicable conditions set forth in the Financing Letters and full funding
thereunder, such financing, together with the other funds available to Sub as
provided above, will provide sufficient funds to consummate the transactions
contemplated hereby.
ARTICLE 7
Covenants
7.1. Alternative Proposals.
(a) The Company agrees (x) that neither it nor any of its Subsidiaries
shall, and the Company shall cause its officers, directors, employees, agents
and representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) not to,
initiate, solicit or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer (including, without
limitation, any proposal or offer to its stockholders) with respect to a
merger, acquisition, consolidation, share exchange or similar transaction
involving, or any purchase of all or any significant portion of the assets or
any securities of, the Company or any of its Subsidiaries (any such proposal
or offer being hereinafter referred to as an "Alternative Proposal") or engage
in any negotiations concerning, or provide any confidential information or
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data to, or have any discussions with, any person relating to an Alternative
Proposal, or otherwise facilitate (including by waiving the terms of any
confidentiality or standstill agreement) any effort or attempt to make or
implement an Alternative Proposal and (y) that it will immediately cease and
cause to be terminated any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any of the foregoing,
and it will take the necessary steps to inform the individuals or entities
referred to above of the obligations undertaken in this Section 7.1.
(b) Notwithstanding the foregoing, nothing contained in this Section 7.1
shall prohibit the Board of Directors of the Company or its designees from
furnishing information to or entering into discussions or negotiations with
any person or entity that makes an unsolicited bona fide written Alternative
Proposal, if, and only to the extent that, (w) the furnishing of such
information is pursuant to a reasonable and customary confidentiality
agreement, (which confidentiality agreement shall be on terms no more
favorable in the aggregate to such person or entity than those set forth in
the confidentiality agreement between the Company and Apollo Management,
L.P.), (x) the Board of Directors of the Company determines in good faith
after consultation with outside counsel that such action is required for the
Board of Directors to comply with its fiduciary duties to stockholders imposed
by law, (y) the Board of Directors of the Company determines in good faith
after consultation with its financial advisor that such Alternative Proposal,
if accepted, is reasonably likely to be consummated, taking into account all
legal, financial and regulatory aspects of the proposal and the person or
entity making the proposal and would, if consummated, result in a more
favorable transaction than the transaction contemplated by this Agreement and
(z) the Company is otherwise in compliance with this Section 7.1. Nothing in
this Section 7.1 shall prevent the Company from complying with Rule 14e-2
under the Exchange Act, to the extent applicable.
(c) The Company agrees that it will notify Sub immediately if any such
inquiries or proposals are received by (including the identity of the party
making the inquiry or proposal and the terms of the proposal), any such
information is requested from the Company, or any such negotiations or
discussions are sought to be initiated or continued with the Company. The
Company agrees that it will keep Sub informed, on an immediate basis, of the
status and the terms of any such discussions or negotiations, including any
amendments or modifications to the proposal.
(d) Nothing in this Section 7.1 shall (x) permit the Company to terminate
this Agreement (except as specifically provided in Article 9 hereof), (y)
permit the Company to enter into any agreement (other than the confidentiality
agreement contemplated by Section 7.1(b)(w)) with respect to an Alternative
Proposal during the term of this Agreement, it being agreed that during the
term of this Agreement, the Company shall not enter into any agreement with
any person that provides for, or in any way facilitates, an Alternative
Proposal, or (z) affect any other obligation of the Company under this
Agreement.
7.2. Interim Operations. Prior to the Effective Time, except as set forth in
the Company Disclosure Letter or as contemplated by any other provision of
this Agreement, unless Sub has consented in writing thereto, the Company:
(i) shall, and shall cause each of its Subsidiaries to, conduct its
operations and business according to their usual, regular and ordinary
course consistent with past practice;
(ii) shall use its best efforts, and shall cause each of its Subsidiaries
to use its best efforts, to preserve intact their business organizations
and goodwill, keep available the services of their respective officers and
employees and maintain satisfactory relationships with those persons having
business relationships with them;
(iii) shall not, and shall cause its Subsidiaries not to, amend their
respective Articles of Incorporation or by-laws or comparable governing
instruments;
(iv) shall promptly notify Sub of (x) any material change in its
condition (financial or otherwise), business, prospects, properties,
assets, liabilities or the normal course of its business or of its
properties, (y) any material litigation or material governmental
complaints, investigations or hearings (or communications
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indicating that the same may be contemplated), or (z) the breach of any
representation or warranty contained herein;
(v) shall promptly deliver to Sub correct and complete copies of any
report, statement or schedule filed with the SEC subsequent to the date of
this Agreement;
(vi) shall not, and shall not permit any of its Subsidiaries to,
authorize, propose or announce an intention to authorize or propose, or
enter into an agreement with respect to, any merger, consolidation or
business combination (other than the Merger), release or relinquishment of
any material contract rights, or any acquisition or disposition of assets
or securities in excess of $100,000 in the aggregate other than in the
ordinary course of business consistent with past practice;
(vii) shall not, and shall not permit any of its Subsidiaries to, (x)
grant, confer or award any options, warrants, conversion rights or other
rights, not existing on the date hereof, to acquire any shares of its
capital stock or other securities of the Company or its Subsidiaries or (y)
accelerate, amend or change the period of exercisability of options or
restricted stock granted under any employee stock plan or, except as
contemplated by Section 4.3(a)(i), authorize cash payments in exchange for
any options granted under any of such plans;
(viii) shall not, and shall not permit any of its Subsidiaries to, amend
in any material respect the terms of the Benefit Plans, including, without
limitation, any employment, severance or similar agreements or arrangements
in existence on the date hereof, or adopt any new employee benefit plans,
programs or arrangements or any employment, severance or similar agreements
or arrangements;
(ix) shall not, and shall not permit any of its Subsidiaries to (x)
increase or agree to increase the compensation payable or to become payable
to its officers or, other than increases in accordance with past practice
which are not material, to its employees or (y) enter into any collective
bargaining agreement;
(x) shall not, and shall not permit any of its Subsidiaries to, (x)
incur, create, assume or otherwise become liable for borrowed money or
assume, guarantee, endorse or otherwise become responsible or liable for
the obligations of any other individual, corporation or other entity or (y)
make any loans or advances to any other person, except in the case of
clause (x) for borrowings under existing credit facilities in the ordinary
course of business and, except in the case of clause (y) for advances
consistent with past practice which are not material;
(xi) shall not, and shall not permit any of its Subsidiaries to, (x)
materially change any practice with respect to Taxes, (y) make, change or
revoke any material Tax election, or (z) settle or compromise any material
dispute involving a Tax liability;
(xii) shall not, and shall not permit any of its Subsidiaries to, (x)
declare, set aside or pay any dividend or make any other distribution or
payment with respect to any shares of its capital stock or other ownership
interests or (y) directly or indirectly redeem, purchase or otherwise
acquire any shares of its capital stock or capital stock of any of its
Subsidiaries, or make any commitment for any such action or (z) split,
combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock;
(xiii) shall not, and shall not permit any of its Subsidiaries to, issue,
deliver, sell, pledge or otherwise encumber any shares of its capital
stock, any other securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, securities or
convertible securities (other than the issuance of shares of Company Common
Stock upon the exercise of Company Stock Options outstanding on the date
hereof in accordance with their present terms);
(xiv) shall not, and shall not permit any of its Subsidiaries to, make or
agree to make any capital expenditure or expenditures with respect to
property, plant or equipment which, individually or in a series of related
transactions, is in excess of $100,000 or, in the aggregate, are in excess
of $500,000 except as otherwise in the ordinary course of business
consistent with past practice in order to satisfy actual or expected
contractual commitments to customers;
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(xv) shall not, and shall not permit any of its Subsidiaries to, change
any accounting principles or practices;
(xvi) shall not, and shall not permit any of its Subsidiaries to, pay,
discharge, settle or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice or in accordance with their terms,
of liabilities reflected or reserved against in the most recent
consolidated financial statements (or the notes thereto) of the Company
included in the Company Reports or incurred thereafter in the ordinary
course of business consistent with past practice, or waive any material
benefits of, or agree to modify in any material respect, any
confidentiality, standstill, non-solicitation or similar agreement to which
the Company or any Subsidiary is a party; and
(xvii) shall not, and shall not permit any of its Subsidiaries to take,
or agree (in writing or otherwise) or resolve to take, any of the foregoing
actions.
7.3. Meetings of Stockholders. The Company will take all action necessary in
accordance with applicable law and its Articles of Incorporation and by-laws,
including the timely mailing of the Proxy Statement, to convene the Special
Meeting of its stockholders as promptly as practicable to consider and vote
upon the approval of this Agreement and the transactions contemplated hereby.
Subject to fiduciary obligations under applicable law, the Board of Directors
of the Company shall recommend such approval, shall not withdraw or modify
such recommendation and shall take all lawful action to solicit such approval.
Without limiting the generality of the foregoing, in the event that the Board
of Directors of the Company withdraws or modifies its recommendation, the
Company nonetheless shall cause the meeting of the stockholders to be convened
and a vote taken with respect to the Merger and the Board of Directors of the
Company shall communicate to the Company's stockholders its basis for such
withdrawal or modification as contemplated by Section 607.1103(2)(a) of the
FBCA.
7.4. Filings and Other Action. Subject to the terms and conditions herein
provided, the Company and Sub shall: (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR Act
with respect to the Merger; (b) use all reasonable efforts to cooperate with
one another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time from,
governmental or regulatory authorities of the United States, the several
states and foreign jurisdictions in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
and (ii) promptly making all such filings and promptly seeking all such
consents, approvals, permits or authorizations; and (c) use all reasonable
efforts to take, or cause to be taken, all other action and do, or cause to be
done, all other things necessary, proper or appropriate, including in
connection with obtaining the funding contemplated by the Financing Letters,
to consummate and make effective the transactions contemplated by this
Agreement as promptly as practicable.
7.5. Access to Information. From the date hereof to the Effective Time, the
Company shall (i) allow all designated officers, attorneys, accountants and
other representatives of Sub reasonable access at all reasonable times to the
offices, records and files, correspondence, audits and properties, including
for the purpose of conducting such environmental examinations and audits as
Sub shall request, as well as to all information relating to commitments,
contracts, titles and financial position, or otherwise pertaining to the
business and affairs, of the Company and its Subsidiaries (ii) furnish to Sub,
Sub's counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as
such persons may reasonably request and (iii) instruct the employees, counsel
and financial advisors of the Company to cooperate with Sub in Sub's
investigation of the business of the Company and its Subsidiaries.
7.6. Publicity. The initial press release relating to this Agreement shall
be a joint press release and thereafter the Company and Sub shall, subject to
their respective legal obligations (including requirements of stock exchanges
and other similar regulatory bodies), consult with each other, and use
reasonable efforts to agree upon the text of any press release, before issuing
any such press release or otherwise making public statements
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with respect to the transactions contemplated hereby and in making any filings
with any federal or state governmental or regulatory agency or with any
national securities exchange with respect thereto.
7.7. Proxy Statement; Form S-4.
(a) Sub and the Company shall cooperate and prepare, and the Company shall
file with the SEC as soon as practicable, a proxy statement with respect to
the Special Meeting of the stockholders of the Company in connection with the
Merger (the "Proxy Statement"), respond to comments of the staff of the SEC,
clear the Proxy Statement with the staff of the SEC and promptly thereafter
mail the Proxy Statement to all holders of record of Company Common Stock. If
the Stock Election is exercised, Sub and the Company shall cooperate and
prepare, and the Company shall file a Registration Statement on Form S-4 (the
"Form S-4") under the Securities Act with the SEC promptly following receipt
of final comments from the staff of the SEC on the Proxy Statement (or advice
that the staff will not review such filing) or such other time as Sub may
determine. The Company will comply in all respects with the requirements of
the Exchange Act and the Securities Act and the rules and regulations of the
SEC thereunder applicable to the Proxy Statement, the Form S-4 and the
solicitation of proxies for the Special Meeting (including any requirement to
amend or supplement the Proxy Statement) and each party shall furnish to the
other such information relating to it and its affiliates and the transactions
contemplated by this Agreement and such further and supplemental information
as may be reasonably requested by the other party. The Proxy Statement shall
include the recommendation of the Company's Board of Directors in favor of the
Merger, unless otherwise required by the fiduciary duties of the directors
under applicable law as contemplated hereby. The Company shall use all
reasonable efforts, and Sub will cooperate with the Company, to have the Form
S-4 declared effective by the SEC as promptly as practicable. The Company
shall use its best efforts to obtain prior to the effective date of the Form
S-4, all necessary state securities law or "Blue Sky" permits or approvals
required to carry out the transactions contemplated by this Agreement and will
pay all expenses incident thereto.
(b) The Company agrees that the Proxy Statement, and if applicable the Form
S-4, and each amendment or supplement thereto at the time of mailing thereof
and at the time of the meeting of stockholders of the Company, or, in the case
of the Form S-4 and each amendment or supplement thereto, at the time it is
filed or becomes effective, will not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not false or misleading; provided, however, that the
foregoing shall not apply to the extent that any such untrue statement of a
material fact or omission to state a material fact was made by the Company in
reliance upon and in conformity with written information concerning Sub
furnished to the Company by Sub specifically for use in the Proxy Statement or
the Form S-4. Sub agrees that the written information concerning Sub provided
by it for inclusion in the Proxy Statement and each amendment or supplement
thereto, at the time of mailing thereof and at the time of the meeting of
stockholders of the Company, or, in the case of the Form S-4 or any amendment
or supplement thereto, at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not false
or misleading.
(c) No amendment or supplement to the Proxy Statement or the Form S-4 will
be made by Sub or the Company without the approval of the other party. The
Company will advise Sub of any request by the SEC for amendment of the Proxy
Statement or the Form S-4 or comments thereon and responses thereto or
requests by the SEC for additional information.
7.8. Further Action. Each party hereto shall, subject to the fulfillment at
or before the Effective Time of each of the conditions of performance set
forth herein or the waiver thereof, perform such further acts and execute such
documents as may be reasonably required to effect the Merger.
7.9. Schedule 13E-3.
(a) If, in the opinion of the Company's counsel after consultation with
counsel to Sub, the filing with the SEC of a Transaction Statement on Schedule
13E-3 (the "Schedule 13E-3") in connection with the Merger is
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required by Rule 13e-3 under the Exchange Act, the Company will file the
Schedule 13E-3 with the SEC at the time of filing of the Proxy Statement. If
the Schedule 13E-3 is filed, at the time of any amendment to the Proxy
Statement, the parties will cause to be filed with the SEC an appropriate
amendment to the Schedule 13E-3.
7.10. Expenses. Except as set forth in Section 9.5, whether or not the
Merger is consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expenses except as expressly provided herein.
7.11. Insurance; Indemnity. (a) Sub agrees that all rights to
indemnification for acts or omissions occurring prior to the Effective Time in
favor of the current or former directors or officers of the Company as
provided in the Articles of Incorporation or by-laws of the Company shall
survive the Merger and shall continue in full force and effect in accordance
with their terms from the Effective Time of the Merger until the expiration of
the applicable statute of limitations with respect to any claims against the
current or former directors or officers of the Company arising out of such
acts or omissions. With respect to the officers and directors of the Company
immediately prior to the Closing, the Company shall purchase (and Sub shall
not object to such purchase) a run-off policy for current directors' and
officers' liability insurance maintained by the Company, such policy to become
effective at the Closing and remain in effect for a period of five years after
the Closing, at a premium not to exceed 200% of the annual premium of the
Company's director's and officer's insurance policy in effect on the date
hereof.
(b) The Company agrees to use its best efforts to amend its existing
insurance policies or purchase a supplemental insurance policy which provides
pollution coverage at a level reasonably acceptable to Sub for wrongful or
negligent misdelivery of product transported by the Company, its Subsidiaries
and each participant in the Affiliate Program.
7.12. Certain Tax Matters. From the date hereof until the Effective Time,
(i) the Company and each Subsidiary will prepare and file, in the manner
required by applicable law, all Tax Returns and reports ("Post-Signing
Returns") required to be filed; (ii) the Company and each Subsidiary will
timely pay all Taxes shown as due and payable on such Post-Signing Returns
that are so filed; (iii) the Company and each Subsidiary will make provision
for all Taxes payable by the Company and/or any such Subsidiary for which no
Post-Signing Return is due prior to the Effective Time; and (iv) the Company
will promptly notify Sub in writing of any action, suit, proceeding, claim or
audit pending against or with respect to the Company or any Subsidiary in
respect of any Tax.
7.13. Other Actions. The Company shall not, and shall cause each of its
Subsidiaries not to, take or omit to take any action, the taking or omission
of which would reasonably be expected to result in (a) any of the
representations and warranties of the Company set forth in this Agreement
becoming untrue or inaccurate or (b) any of the conditions set forth in
Article 8 not being satisfied.
7.14. Advice of Changes; Filings. The Company shall confer with Sub on a
regular and frequent basis as reasonably requested by Sub, report on
operational matters and promptly advise Sub orally and, if requested by Sub,
in writing, of any material change with respect to the Company or any of its
Subsidiaries. The Company shall promptly provide to Sub (or its counsel)
copies of all filings made by the Company or any of its Subsidiaries with any
Governmental Entity in connection with this Agreement and the transactions
contemplated hereby.
7.15. Financial Information. The Company shall furnish to Sub as soon as
available but in any event within 25 days of each calendar month, the
unaudited consolidated balance sheets and income statements of the Company (to
be prepared in accordance with GAAP consistently applied), showing its
financial condition as of the close of such month and the results of
operations during such month and for the then elapsed portion of the Company's
fiscal year, in each case, setting forth the comparative figures for the
corresponding month in the prior fiscal year and the corresponding elapsed
portion of the prior fiscal year.
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ARTICLE 8
Conditions
8.1. Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to
the satisfaction at or prior to the Closing Date of the following conditions:
(a) This Agreement and the transactions contemplated hereby shall have
been approved by a majority of the holders of the issued and outstanding
shares of the Company Common Stock in accordance with applicable law.
(b) The waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) No statute, rule, regulation, executive order, writ, decree, ruling
or injunction shall have been enacted, entered, promulgated or enforced by
any Governmental Entity which prohibits the consummation of the Merger. In
the event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such order or injunction
lifted.
(d) If filed, the Form S-4 shall have become effective and shall be
effective at the Effective Time, and no stop order suspending effectiveness
of the Form S-4 shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be continuing, and all necessary approvals under state
securities laws relating to the issuance or trading of the Surviving
Corporation Common Stock to be issued to holders of Company Common Stock in
connection with the Merger shall have been received.
(e) All consents, authorizations, orders and approvals of (or filings or
registrations with) any governmental commission, board or other regulatory
body required in connection with the execution, delivery and performance of
this Agreement shall have been obtained or made, except for filings in
connection with the Merger and any other documents required to be filed
after the Effective Time and except where the failure to have obtained or
made any such consent, authorization, order, approval, filing or
registration would not have a material adverse effect on the business of
the Company and its Subsidiaries, taken as a whole, following the Effective
Time.
8.2. Conditions to Obligation of the Company to Effect the Merger. The
obligation of the Company to effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of the following condition: Sub
shall have performed in all material respects its agreements contained in this
Agreement required to be performed on or prior to the Closing Date (other than
those agreements which are qualified by materiality which shall have been
performed in all respects), the representations and warranties of Sub
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct in all respects (except for those
representations and warranties which are not qualified by materiality, which
shall be true and correct in all material respects) as of the date hereof and
as of the Closing Date (except for those representations and warranties which
address matters only as of a particular date, other than the date hereof,
which shall be true and correct as of such date), and the Company shall have
received a certificate of the President of Sub, dated the Closing Date,
certifying to such effect.
8.3. Conditions to Obligation of Sub to Effect the Merger. The obligations
of Sub to effect the Merger shall be subject to the satisfaction at or prior
to the Closing Date of the following conditions:
(a) The Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date (other than those agreements which are qualified by
materiality which shall have been performed in all respects), the
representations and warranties of the Company contained in this Agreement
and in any document delivered in connection herewith shall be true and
correct in all respects (except for those representations and warranties
which are not qualified by materiality, which shall be true and correct in
all material respects) as of the date hereof and as of the
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Closing Date (except for those representations and warranties which address
matters only as of a particular date, other than the date hereof, which
shall be true and correct as of such date), and Sub shall have received a
certificate of the President of the Company, dated the Closing Date,
certifying to such effect.
(b) The funding contemplated by the Financing Letters shall have been
obtained.
(c) All notices required to be given prior to the Effective Time with,
and all consents, approvals, authorizations, waivers and amendments
required to be obtained prior to the Effective Time from, any third party
in connection with the consummation of the Merger and the finances thereof,
have been made or obtained other than those the failure of which to be made
or obtained would not have a Company Material Adverse Effect.
(d) Arthur Andersen LLP shall have completed its audit, in accordance
with generally accepted auditing standards, of the Company 1997 Financial
Statements and shall have issued an unqualified report with respect thereto
(including that such audited financial statements are in accordance with
GAAP) and there shall be no material difference between such audited
financial statements and the Company 1997 Financial Statements (except
reclassifications (other than extraordinary and non-recurring items) and
normal year-end adjustments). For purposes hereof, a material difference
shall mean a negative variance in Revenue and Net Income in excess of 5%.
(e) From the date of this Agreement through the Effective Time, there
shall not have occurred a Company Material Adverse Effect.
(f) Two of the three employment agreements between the Company, on the
one hand, and Charles J. O'Brien, Jr., Marvin E. Sexton, and Richard
Brandewie, on the other hand, which are attached hereto as Exhibits A, B
and C, respectively, and the non-competition agreements between the
Company, on the one hand, and each of Elton E. Babbitt and Gordon Babbitt,
on the other hand, which are attached hereto as Exhibits D and E,
respectively, shall have been executed and delivered and shall be in full
force and effect.
ARTICLE 9
Termination
9.1. Termination by Mutual Written Consent. This Agreement may be terminated
and the Merger may be abandoned at any time prior to the Effective Time,
before or after the approval of this Agreement by the stockholders of the
Company, by the mutual written consent of Sub and the Company.
9.2. Termination by Either Sub or the Company. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either Sub or the Company if:
(a) the Merger shall not have been consummated by the date which is nine
months from the date hereof; provided, that the terminating party shall not
have breached in any material respect its obligations under this Agreement
in any manner that shall have proximately contributed to the failure to
consummate the Merger by such date;
(b) the approval of the Company's stockholders required by Section 8.1(a)
shall not have been obtained at a meeting duly convened therefor or at any
adjournment thereof;
(c) a Governmental Entity shall have issued an order, decree or ruling or
taken any other action permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable;
provided, that, the party seeking to terminate this Agreement pursuant to
this clause (c) shall have used all reasonable efforts to remove such
injunction, order or decree; or
(d) there has been a breach by the other of any representation, warranty
or agreement contained in this Agreement (without regard to the materiality
qualifiers contained therein) which would result in a condition set forth
in Section 8.2 or 8.3(a) of this Agreement, as the case may be, not being
satisfied, which breach
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is not curable or, if curable, is not cured within 20 days after written
notice of such breach is given by the other party.
9.3. Termination by the Company. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, prior to the
approval by the stockholders of the Company referred to in Section 8.1(a), by
action of the Board of Directors of the Company, if in the exercise of its
good faith judgment as to fiduciary duties to its stockholders imposed by law,
after consultation with outside counsel, the Board of Directors of the Company
determines that such termination is required in order to execute an agreement
providing for the implementation of the transactions contemplated by an
Alternative Proposal, provided, however, the Company shall have complied with
the provisions of Section 7.1 hereof, including providing notice of the terms
of the Alternative Proposal. No termination of this Agreement by the Company
shall be effective unless and until the Company has paid Sub any amounts owed
by it pursuant to Section 9.5(a).
9.4. Termination by Sub. This Agreement may be terminated and the Merger may
be abandoned at any time prior to the Effective Time by action of the Board of
Directors of Sub, if the Board of Directors of Company shall have withdrawn or
modified in a manner materially adverse to Sub its approval or recommendation
of this Agreement or the Merger or shall have recommended an Alternative
Proposal or shall have failed to reconfirm its recommendation of this
Agreement and the transactions contemplated hereby within five business days
of Sub's request, made with reasonable frequency, that it do so.
9.5. Effect of Termination and Abandonment. In the event that this Agreement
is terminated by either party pursuant to:
(i) Section 9.2(b); then, if (A) (1) there shall not have been a material
breach of this Agreement by Sub and (2) subsequent to the date hereof and
prior to or at the time of the meeting referred to in Section 7.3 hereof a
person or entity shall have made a bona fide publicly announced Alternative
Proposal with respect to the Company or any of its Subsidiaries or shall
have made public an intention (whether or not conditional) to make such an
Alternative Proposal with respect to the Company or any of its
Subsidiaries, the Company shall reimburse Sub for its expenses in an amount
not to exceed $3.0 million; or (B) if the conditions set forth in clause
(A)(2) above are not met, the Company shall reimburse Sub for its expenses
in an amount not to exceed $1.5 million; provided that in the event within
12 months of such termination the Company enters into a definitive
agreement with respect to a transaction that constitutes an Alternative
Proposal, the Company shall, at the time of entering into such agreement,
pay Sub a fee equal to $7.5 million less the amount previously reimbursed
to Sub pursuant to clause (A) or (B) above; or
(ii) Section 9.2(d) arising from (A) a willful breach of any
representation or warranty or the material breach of any agreement by the
Company, then the Company shall pay Sub a fee of $6.0 million and shall
reimburse Sub for its expenses in an amount not to exceed $1.5 million, (B)
a breach of any representation or warranty by the Company which breach
existed on or before the date hereof and does not constitute a willful
breach, then the Company shall reimburse Sub for its expenses in an amount
not to exceed $3.0 million, or (C) a breach of any representation or
warranty by the Company which arose after the date hereof and does not
constitute a willful breach, then the Company shall reimburse Sub for its
expenses in an amount not to exceed $1.5 million; provided, that in the
event this Agreement shall have been terminated pursuant to clause (B) or
(C) above and within 12 months of such termination the Company enters into
a definitive agreement with respect to a transaction that constitutes an
Alternative Proposal, the Company shall, at the time of entering into such
agreement, pay Sub a fee equal to $7.5 million less the amount previously
reimbursed to Sub pursuant to clause (B) or (C) above; or
(iii) Section 9.3 or Section 9.4, then the Company shall pay Sub a fee of
$6.0 million and shall reimburse Sub for its expenses in an amount not to
exceed $1.5 million.
Any monies owed by the Company to Sub in accordance with the foregoing shall
be payable by wire transfer of same day funds either on the date specifically
contemplated thereby or, otherwise, within two business days after such amount
becomes due. The Company acknowledges that the agreements contained in this
Section 9.5(a) are an integral part of the transactions contemplated in this
Agreement, and that, without these agreements,
A-32
Sub would not enter into this Agreement; accordingly, if the Company fails to
promptly pay the amount due pursuant to this Section 9.5(a), and, in order to
obtain such payment, Sub commences a suit which results in a judgment against
the Company for the fee set forth in this Section 9.5(a), the Company shall
pay to Sub its costs and expenses (including attorneys' fees) in connection
with such suit, together with interest on the amount of the fee at the rate of
12% per annum from the date such fee was required to be paid.
(b) In the event of termination of this Agreement and the abandonment of the
Merger pursuant to this Article 9, all obligations of the parties hereto shall
terminate, except the obligations of the parties set forth in this Section
9.5. Nothing in this Section 9.5(b) shall relieve any party from liability for
willful breach of this Agreement.
9.6. Extension; Waiver. At any time prior to the Effective Time, any party
hereto may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (b) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto
and (c) waive compliance with any of the agreements or conditions for the
benefit of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE 10
General Provisions
10.1. Non-survival of Representations, Warranties. The representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall terminate at the Effective Time.
10.2. Notices. Any notice required to be given hereunder shall be given in
writing, addressed as follows:
If to Sub:
Joshua Harris
c/o Apollo Management, L.P.
1301 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 261-4102
With copies to:
Morton A. Pierce, Esq.
Douglas L. Getter, Esq.
Dewey Ballantine LLP
1301 Avenue of the Americas
New York, New York 10019
Facsimile: (212) 259-6333
If to the Company:
Richard J. Brandewie
MTL Inc.
3108 Central Drive
Plant City, Florida 33567
Facsimile: (813) 754-3288
A-33
With copies to:
William J. Schifino, Esq.
Schifino & Fleischer, P.A.
Suite 2700
One Tampa City Center
Tampa, Florida 33602
Facsimile: (813) 223-3070
or to such other address as any party shall specify by written notice so
given, and such notice shall be deemed to have been given upon receipt of such
notice.
10.3. Assignment; Binding Effect. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective heirs, successors, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
10.4. Entire Agreement. This Agreement, the Exhibits and the Company
Disclosure Letter and any documents delivered by the parties in connection
herewith constitute the entire agreement among the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings
among the parties with respect thereto. No addition to or modification of any
provision of this Agreement shall be binding upon any party hereto unless made
in writing and signed by all parties hereto.
10.5. Amendment. This Agreement may be amended by the parties hereto at any
time before or after approval of matters presented in connection with the
Merger by the stockholders of the Company, but after any such stockholder
approval, no amendment shall be made which by law requires the further
approval of stockholders without obtaining such further approval. This
Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
10.6. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida without regard to its rules
of conflict of laws.
10.7. Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies hereof
each signed by less than all, but together signed by all of the parties
hereto.
10.8. Headings. Headings of the Articles and Sections of this Agreement are
for the convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
10.9. Interpretation. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and
vice versa, and words denoting any gender shall include all genders and words
denoting natural persons shall include corporations and partnerships and vice
versa.
10.10. Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation
by or on behalf of any party, shall be deemed to constitute a waiver by the
party taking such action of compliance with any representations, warranties,
covenants or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be
construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
A-34
10.11. Severability. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction,
be ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
10.12. Enforcement of Agreement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
was not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof, this being in addition to any
other remedy to which they are entitled at law or in equity.
10.13. Interpretation. As used in this Agreement, the word "Subsidiary" or
"Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, of which the Company directly or indirectly
owns or controls at least a majority of the securities or other interests
having by their terms ordinary voting power to elect a majority of the board
of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which the Company is
a general partner. As used in this Agreement, "includes," "including" or
similar words shall be deemed to be followed by "without limitation." As used
in this Agreement, the word "Knowledge" (when so capitalized) means the
knowledge of the officers and directors of the Company without independent
investigation.
IN WITNESS WHEREOF, the parties have executed this Agreement and caused the
same to be duly delivered on their behalf on the day and year first written
above.
MTL INC.
/s/ Charles J. O'Brien, Jr.
By: _________________________________
Charles J. O'Brien, Jr.
President
SOMBRERO ACQUISITION CORP.
/s/ Joshua Harris
By:__________________________________
Joshua Harris
President
A-35
SCHEDULE A
Number of Shares of Company Common Stock To Be Converted to Surviving
Corporation Common Stock in the Merger pursuant to Section 4.2 of the Merger
Agreement of the following individuals:
Elton Babbitt.................................................... 141,892
Charles J. O'Brien, Jr........................................... 30,239
Marvin Sexton.................................................... 4,000*
Richard Brandewie................................................ 40,541
- --------
* Does not include 31,135 shares of Surviving Corporation Common Stock, which
Mr. Sexton has agreed to purchase at the Effective Time of the Merger for
the Cash Merger Price per share.
A-36
ANNEX B
BT Alex. Brown Incorporated
One South Street
Baltimore, Maryland 21202
[LOGO] BT Alex. Brown Incorporated
February 10, 1998
The Board of Directors of MTL Inc.
3108 Central Drive
Plant City, FL 33567
Dear Sirs:
MTL Inc. ("MTL" or the "Company") and Sombrero Acquisition Corp. ("Sub"), a
Florida corporation formed by Apollo Management, L.P. and its affiliates
(collectively, "Apollo"), have proposed to enter into an Agreement and Plan of
Merger dated as of February 10, 1998 (the "Agreement"). Pursuant to the
Agreement, the implementation of which is contingent on approval by MTL
shareholders, Sub shall be merged with and into the Company (the "Merger"),
and each share of common stock, par value $0.01 per share, of the Company (the
"MTL Common Stock") issued and outstanding immediately prior to the effective
time of the Merger, other than a portion of such shares held by Elton Babbitt
and certain employees of the Company (the "Rollover Shareholders"), shall be
converted into the right to receive $40.00 in cash (the "Cash Merger Price");
provided that, at Sub's election made prior to the mailing of the proxy
statement provided for in the Agreement, Sub shall have the right to
substitute, on a pro rata basis, for each share of MTL Common Stock issued and
outstanding immediately prior to the effective time of the Merger, up to $1.60
of the Cash Merger Price in the form of common stock of the corporation
surviving the Merger (the "Stock Election Consideration"), with such common
stock of the surviving corporation to be valued at $40.00 per share (such cash
and, if the foregoing election is made by Sub, Stock Election Consideration,
being referred to herein as the "Merger Consideration"). We have assumed, with
your consent, that the transaction will be treated as a recapitalization for
accounting purposes. You have requested our opinion as to whether the Merger
Consideration to be received by the Company's shareholders (other than
Rollover Shareholders) is fair, from a financial point of view, to such
shareholders.
BT Alex. Brown Incorporated ("BT Alex. Brown"), as a customary part of its
investment banking business, is engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, private placements and valuations for estate, corporate and
other purposes. We have acted as financial advisor to the Board of Directors
of MTL in connection with the transaction described above and will receive a
fee for our services which is contingent upon the consummation of the Merger.
We previously have acted as a lead-managing underwriter in connection with the
initial public offering of Company Common Stock and have provided other
advisory services to the Company. With your consent, we will be acting as a
placement agent or managing underwriter in the proposed offering of senior
subordinated notes to be issued to finance the transaction described above,
for which services we will receive compensation. Affiliates of BT Alex. Brown
also will be participating, with your consent, as documentation agent and a
syndicated lender in the senior secured credit facility for the financing of
the above transaction, for which services such affiliates will receive
compensation. BT Alex. Brown maintains a market for the MTL Common Stock and
regularly publishes research reports regarding the motor carriage industry and
the businesses and securities of MTL and other publicly owned companies in the
motor carriage industry. In the ordinary course of business, BT Alex. Brown
may actively trade the securities of the Company for our own account and the
account of our customers and, accordingly, may at any time hold a long or
short position in securities of the Company.
B-1
In connection with our engagement, we have reviewed certain publicly
available financial information and other information concerning the Company
and certain internal analyses and other information furnished to us by the
Company. We have also held discussions with the members of the senior
management of the Company regarding this information and the businesses and
prospects of the Company. We have not independently verified the information
described above and for purposes of this opinion have assumed the accuracy,
completeness and fairness thereof. In addition, we have not made or been
provided with an independent evaluation or appraisal of the assets of the
Company. With respect to the information relating to the prospects of the
Company, we have assumed that such information has been prepared on the basis
of reasonable assumptions and reflects the best currently available judgments
and estimates of the management of the Company as to the likely future
financial performance of the Company. Our opinion is based on market, economic
and other conditions as they exist and can be evaluated as of the date of this
letter. Furthermore, we express no opinion as to the price or range of prices
at which the Stock Election Consideration (if any) may trade subsequent to the
consummation of the Merger.
In reaching the opinion expressed below, we have (i) reviewed the reported
prices and trading activity for the MTL Common Stock, (ii) compared certain
financial and stock market information for the Company with similar
information for certain other companies whose securities are publicly traded,
(iii) reviewed the financial terms of certain recent business combinations,
(iv) performed discounted cash flow analyses for MTL, (v) reviewed the terms
of the Agreement and certain related documents as furnished to us in draft
form, and (vi) performed such other studies and analyses and considered such
other factors as we deemed appropriate. We have assumed, with your consent,
that the final terms of the Agreement and certain related documents reviewed
by us in draft form will not vary materially from the drafts reviewed by us.
Our advisory services and the opinion expressed below are solely for the use
of the Board of Directors of the Company in considering the transaction to
which they relate and may not be used for any other purpose or reproduced,
quoted or disseminated without the prior written consent of BT Alex. Brown. We
hereby consent, however, to the inclusion of this opinion as an exhibit to any
proxy or registration statement distributed in connection with the Merger.
This opinion does not constitute a recommendation to the Company's
shareholders as to how they should vote at the shareholders' meeting in
connection with the Merger. We undertake no obligation to update this opinion
to reflect any developments occurring after the date hereof.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Merger Consideration to be received by the Company's
shareholders (other than Rollover Shareholders) is fair, from a financial
point of view, to such shareholders.
Very truly yours,
BT Alex. Brown Incorporated
/s/ BT Alex. Brown Incorporated
.........................
B-2
MTL INC.
PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
FOR SPECIAL MEETING OF SHAREHOLDERS
, 1998
------------
The undersigned hereby appoints each of and , as proxies with full
-------- --------
power of substitution, with the powers (each having full power to act without
the other) the undersigned would possess if personally present, to vote, as
designated below, all shares of the common stock, par value $0.01 per share,
held by the undersigned in MTL Inc. (the "Company") at the Special Meeting of
Shareholders to be held at a.m. on , 1998 at (the "Special
----- ---------- -------
Meeting"), and any adjournment or postponement thereof.
THIS PROXY, IF PROPERLY EXECUTED, WILL BE VOTED IN ACCORDANCE WITH THE
UNDERSIGNED'S DIRECTION AS SET FORTH HEREIN. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR PROPOSAL 1. THIS PROXY MAY BE REVOKED IN WRITING PRIOR
TO ITS EXERCISE.
PLEASE SIGN AND DATE THIS PROXY ON THE REVERSE SIDE
AND RETURN IT IN THE ACCOMPANYING ENVELOPE.
[X] Please mark your
votes as in this DO NOT PRINT IN
example using THIS AREA [
dark ink only
- ------------------------------------------------------------------------------
This Proxy is solicited on behalf of the Board of Directors of the Company and
will be voted for proposal 1 below unless otherwise indicated.
1. The approval and adoption of the Agreement FOR AGAINST ABSTAIN
and Plan of Merger, dated as of February 10, 1998, [ ] [ ] [ ]
between the Company and Sombrero Acquisition Corp.
and the transactions contemplated thereby.
FOR AGAINST ABSTAIN
2. In their discretion, the proxies are authorized [ ] [ ] [ ]
to vote upon any other matter that may come
before the Special Meeting or any continuation,
adjournment or postponement thereof.
[ ]
DO NOT PRINT
IN THIS AREA
[ ]
Please sign your name exactly as it appears below. If shares are held jointly,
all joint owners should sign. If shares are held by a corporation, please sign
the full corporate name by an authorized corporate officer. If shares are held
by a partnership, please sign the full partnership name by an authorized person.
If you are signing as an attorney, executor, administrator, trustee or guardian,
please set forth your full title as such.
The undersigned hereby revokes any proxies heretofore given to vote upon or act
with respect to such shares and hereby ratifies and confirms all that said
attorneys, agents, proxies, the substitutes or any of them, may lawfully do by
virtue hereof.
Dated: , 1998
- ------------------------------------------------------------------------------
SIGNATURE(S) OF SHAREHOLDER(S)