As filed with the Securities and Exchange Commission on November 21, 1997
Registration No. 33-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EnviroSource, Inc.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Delaware 6719 34-0617390
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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1155 Business Center Drive
Horsham, Pennsylvania 19044-3454
(215) 956-5500
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
James C. Hull
Vice President and Chief Financial Officer
EnviroSource, Inc.
1155 Business Center Drive
Horsham, Pennsylvania 19044-3454
(215) 956-5500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With Copies to:
Claude A. Baum, Esq. Leon Z. Heller, Esq.
Dechert Price & Rhoads General Counsel and Secretary
30 Rockefeller Plaza EnviroSource, Inc.
New York, New York 10112 1155 Business Center Drive
(212) 698-3500 Horsham, Pennsylvania 19044-3454
(215) 956-5500
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Aggregate Amount of
Securities to be Registered Registered Per Unit(1) Offering Price(1) Registration Fee
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<S> <C> <C> <C> <C>
9 3/4% Senior Notes due 2003, Series B . . $50,000,000 100% $50,000,000 $15,152
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</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for purposes of calculating the
registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 21, 1997
PROSPECTUS
OFFER TO EXCHANGE
9 3/4% Senior Notes due 2003, Series B
for all outstanding
9 3/4% Senior Notes due 2003, Series B
of
ENVIROSOURCE, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON ________________, 199___, UNLESS EXTENDED
Information contained herein is subject to change, completion or amendment,
without notice. A registration statement relating to these securities has been
filed with the Securities and Exchange Commission. These securities may not be
sold nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such state.
EnviroSource, Inc., a Delaware corporation ("EnviroSource" or the
"Company"), hereby offers to exchange an aggregate principal amount of up to
$50,000,000 of its 9 3/4% Senior Notes due 2003, Series B (the "New Notes") for
a like principal amount of its 9 3/4% Senior Notes due 2003, Series B (the
"Existing Notes") outstanding on the date hereof upon the terms and subject to
the conditions set forth in this Prospectus and in the accompanying letter of
transmittal (the "Letter of Transmittal" and, together with this Prospectus, the
"Exchange Offer"). The New Notes and the Existing Notes are hereinafter
collectively referred to as the "Notes." The terms of the New Notes are
identical in all material respects to those of the Existing Notes, except for
certain transfer restrictions and registration rights relating to the Existing
Notes. The New Notes will be issued pursuant to, and be entitled to the benefits
of, the Indenture (as defined herein) governing the Existing Notes.
The New Notes will bear interest from and including the date of
consummation of the Exchange Offer. Interest on the New Notes will be payable
semi-annually on June 15 and December 15 of each year, commencing June 15, 1998.
Additionally, interest on the New Notes will accrue from the last interest
payment date on which interest was paid on the Existing Notes surrendered in
exchange therefor or, if no interest has been paid on the Existing Notes, from
June 15, 1997. The New Notes will be redeemable prior to maturity at the option
of the Company at any time on or after June 15, 1998, at the redemption prices
set forth herein, plus accrued interest. In addition, upon a Change of Control
the Company shall make an offer to purchase outstanding New Notes at 101% of the
principal amount thereof, plus accrued interest.
The New Notes will be unsecured obligations of the Company. The New
Notes will rank pari passu in right of payment with all existing and future
unsubordinated, unsecured indebtedness of the Company. The New Notes will rank
senior in right of payment to all subordinated indebtedness of the Company.
Because the Company is a holding company that conducts substantially all of its
business through its subsidiaries, all liabilities of the Company's subsidiaries
will be effectively senior to the New Notes. The Company currently has
outstanding $220 million aggregate principal amount of 9 3/4% Senior Notes due
2003, the terms of which are substantially the same as the Notes. As of
September 30, 1997, the Company (excluding its subsidiaries) had $270.0 million
of indebtedness outstanding, and the Company's subsidiaries had approximately
$90.8 million of liabilities (including approximately $18.6 million of
indebtedness).
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Registration Rights Agreement dated
September 30, 1997 (the "Registration Rights Agreement") by and among the
Company, Morgan Stanley & Co. Incorporated ("Morgan"), Jefferies & Company, Inc.
("Jefferies") and NationsBanc Capital Markets, Inc. (collectively with Morgan
and Jefferies, the "Placement Agents") with respect to the initial sale of the
Existing Notes.
The Company will not receive any proceeds from the Exchange Offer and
will pay all the expenses incident to the Exchange Offer. Tenders of Existing
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined herein) of the Exchange Offer. In the event the
Company terminates the
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Exchange Offer and does not accept for exchange any Existing Notes with respect
to the Exchange Offer, the Company will promptly return such Existing Notes to
the holders thereof. See "The Exchange Offer."
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Existing Notes where such Existing Notes were acquired by such broker-dealer as
a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 180 days after the Expiration Date, it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution."
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. If a market for the New Notes should develop, such New Notes
could trade at a discount from their principal amount. The Company currently
does not intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system, and no active
public market for the New Notes is currently anticipated. There can be no
assurance that an active public market for the New Notes will develop. See "Risk
Factors."
The Exchange Offer is not conditioned upon any minimum principal amount
of Existing Notes being tendered for exchange pursuant to the Exchange Offer.
---------------------
See "Risk Factors" commencing on page 14 for a discussion of certain
factors that holders of Existing Notes should consider in connection with the
Exchange Offer.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is , 199__.
2
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AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission" or the "SEC") a Registration Statement on Form S-4 (the "Exchange
Offer Registration Statement," which term shall encompass all amendments,
exhibits, annexes and schedules thereto) pursuant to the Securities Act and the
rules and regulations promulgated thereunder, covering the New Notes being
offered hereby. This Prospectus does not contain all the information set forth
in the Exchange Offer Registration Statement. For further information with
respect to the Company and the Exchange Offer, reference is made to the Exchange
Offer Registration Statement. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Exchange Offer Registration Statement,
reference is made to the exhibit for a more complete description of the document
or matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
The Company is subject to the information and reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the Company's business,
principal physical properties, capital structure, material pending legal
proceedings, operating results, financial condition, directors and executive
officers, their remuneration, stock options granted to them, the principal
holders of the Company's securities and any material interest of such persons in
transactions with the Company and other matters is required to be disclosed in
proxy statements and annual reports distributed to the Company's stockholders
and filed with the Commission. Such reports, proxy statements and other
information may be inspected at the Commission's public reference facilities at
450 Fifth Street, N.W., Washington, D.C. 20549, and are available for inspection
at the following regional offices of the Commission: 7 World Trade Center, Suite
1300, New York, New York 10048; and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and copies may be obtained, by mail, at prescribed
rates from the principal office of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission. Such information is also available for inspection at the offices of
NASDAQ Operations, 1735 K Street, N.W., Washington, D.C. 20006. Shares of the
Company's Common Stock are listed for trading on the Pacific Stock Exchange, and
reports, proxy statements and other information concerning the Company can be
inspected at the offices of the Pacific Stock Exchange at 301 Pine Street, San
Francisco, California 94104.
------------------------------------------
The Indenture requires the Company, and the Company intends, to file
with the Trustee (as defined herein) and mail to holders of the Notes copies of
all quarterly and annual financial reports and all other information, documents
and reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) which the Company is required
to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act,
within 15 days of filing with the Commission. See "Description of the Notes --
General."
------------------------------------------
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF U.S. SECURITIES LAWS. ALL STATEMENTS REGARDING THE EXPECTED FINANCIAL
POSITION, BUSINESS AND FINANCING PLANS OF THE COMPANY AND ITS SUBSIDIARIES ARE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY AND ITS SUBSIDIARIES BELIEVE
THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, THEY CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. THESE EXPECTATIONS MAY BE REVISED AND THE COMPANY'S ACTUAL RESULTS
MAY DIFFER MATERIALLY FROM THOSE INDICATED BY ITS CURRENT PLANS AS A RESULT OF A
VARIETY OF FACTORS, INCLUDING: (1) THE AVAILABILITY OF FINANCING AND REGULATORY
APPROVALS; (2) THE ABILITY TO RETAIN KEY CUSTOMERS; (3) TECHNOLOGICAL,
REGULATORY OR OTHER DEVELOPMENTS IN THE COMPANY'S BUSINESS; (4) CHANGES IN THE
COMPETITIVE CLIMATE IN WHICH THE COMPANY OPERATES; (5) CHANGES IN APPLICABLE
ENVIRONMENTAL LAWS AND REGULATIONS; (6) CHANGES IN MARKET DEMAND FOR THE
COMPANY'S SERVICES; AND (7) THE EMERGENCE OF FUTURE OPPORTUNITIES. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM SUCH
EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS UNDER
"RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS MADE
BY OR OTHERWISE ATTRIBUTABLE TO THE COMPANY, ITS SUBSIDIARIES OR PERSONS ACTING
ON THEIR BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY
STATEMENTS.
3
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ANNEXES AND INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission
pursuant to the Exchange Act, are annexed to this Prospectus:
1. Quarterly Report on Form 10-Q of the Company for the quarter ended
September 30, 1997 (the "Third Quarter 10-Q"), attached hereto as
Annex 1;
2. Annual Report on Form 10-K of the Company for the year ended
December 31, 1996 (the "Form 10-K"), attached hereto as Annex 2;
and
3. Proxy Statement of the Company dated April 30, 1997 (the "Proxy
Statement"), attached hereto as Annex 3.
Any statement contained in a document annexed hereto shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained 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 Prospectus.
The annexes attached to this Prospectus (the "Annexes") are an integral
part of this Prospectus and should be read carefully by Holders of Existing
Notes.
------------------------------------------
The Company hereby incorporates in this Prospectus by reference the
following documents heretofore filed with the Commission: (i) the Form 10-K;
(ii) the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997; (iii) the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997; (iv) the Third Quarter 10-Q; (v) the Proxy Statement; and (vi)
the Company's Current Report on Form 8-K dated February 5, 1997.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon such
person's written or oral request, a copy of any and all of the documents and
information which are incorporated by reference herein (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into such documents). Such requests are to be addressed to EnviroSource, Inc.,
1155 Business Center Drive, Horsham, Pennsylvania 19044-3454, Attention: Leon Z.
Heller, Esq., General Counsel and Secretary (Telephone No. (215) 956-5500).
4
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SUMMARY
The following information is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus, which includes the Annexes. Holders of Existing
Notes should carefully consider the factors set forth herein under the caption
"Risk Factors" and are urged to read this Prospectus, including the Annexes, in
its entirety.
THE COMPANY
EnviroSource supplies industrial customers with specialized services,
primarily the recycling, handling, stabilization or landfilling of
environmentally sensitive wastes or by-products. These services are generally
provided pursuant to long-term contracts which enable the Company to more fully
integrate its processes with those of its customers. For the year ended December
31, 1996, the Company had revenues from continuing operations of approximately
$212.8 million and earnings before interest expense, income tax expense,
depreciation and amortization ("EBITDA") of approximately $63.4 million.
The Company believes that it is one of the leading providers of
recycling and waste management solutions to the U.S. steel industry. This
industry and U.S. companies in general have been facing rapidly changing and
increasingly complex environmental regulations, with stiff penalties for
non-compliance. To adapt, these companies are attempting to become more
environmentally responsible while remaining both efficient and cost-competitive.
The Company has strategically positioned itself to satisfy these needs by
providing environmentally sound, cost-effective industrial waste management and
recycling solutions to its customers, with a distinct focus on the needs of the
steel industry. The Company's strategy capitalizes on satisfying requirements
for:
o Outsourcing -- performing on-site services that allow steel
companies to narrow their focus to core manufacturing processes,
thereby reducing operating costs and conserving capital.
o Recycling of by-products -- recovering valuable materials from
steel mill by-product streams while simultaneously reducing or
eliminating waste disposal problems.
o Waste management -- providing environmentally responsible and
cost-effective disposal alternatives for industrial waste and
production residues.
The Company provides its services through its two business units,
International Mill Service, Inc. and EnviroSource Treatment & Disposal Services,
Inc.
International Mill Service, Inc. ("IMS")
IMS is the Company's largest revenue and EBITDA contributor, accounting
for approximately $180.0 million, or 85%, of the Company's total revenues in
1996. IMS has served the steel industry for more than 60 years. The Company
believes IMS increases its customers' productivity by providing cost-effective
and reliable on-site reclamation of steel and iron and a variety of other
specialized services.
U.S. steel mills operate in a highly competitive environment. Services
that help to reduce their total process costs are therefore of significant
value. IMS generally provides these services under long-term contracts with a
diversified customer base of over 55 steel mills in North America, including
integrated mills, mini-mills and specialty mills. Using specially designed
equipment, IMS provides a total recycling solution by processing slag (a
by-product of steel production), recovering valuable metallics and selling the
residual aggregate for road base and other uses. These services are economically
and environmentally attractive. Moreover, the effective removal of slag on a
continuous basis is critical to a steel mill's ability to remain in operation.
The Company believes IMS's metal reclamation business provides
stability and opportunity as a result of the following:
5
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o IMS's metal reclamation activities represent an enduring example
of outsourcing. Since mid-century and increasingly today, steel
mills have chosen to focus their financial and managerial
resources directly on steel production, relying on companies like
IMS to provide slag handling, metal recovery and a variety of
other services on a more cost-effective basis than the mills could
provide themselves. Most of IMS's business with its steel mill
customers is conducted under long-term contracts that contain
price escalation clauses intended to offset cost increases.
o IMS's revenues are related to steel production tonnage rather than
steel pricing and thus are not directly affected by the
cyclicality of steel prices. Domestic steel production is expected
to increase by approximately 20% over the next four-year period.
o In its core steel reclamation business, management believes that
IMS services customers accounting for more than 30% of total
domestic steel production. This strong market position reflects
the numerous long-standing relationships it has established in the
steel industry based on its reputation for reliable, quality
service.
o The industry in which IMS operates is characterized by high
barriers to entry. In addition to long-term contracts and
long-term customer relationships, these barriers to entry include
significant initial investment, engineering and environmental
expertise, slag marketing experience and high customer switching
risks.
IMS has a diversified customer base, with approximately half of its
revenues derived from integrated steel producers and half from mini-mills and
specialty mills. IMS's largest customer is USX Corporation's Gary Works, in
Gary, Indiana, the largest steel mill in the U.S., to which IMS has been
providing services since 1981.
EnviroSource Treatment & Disposal Services, Inc. ("TDS")
TDS accounted for approximately $32.8 million, or 15%, of the Company's
total revenues in 1996. TDS has been dedicated to the safe, economical treatment
and disposal of industrial and hazardous wastes since 1976. The Company has
reoriented its TDS business to focus more on its steel mini-mill customers'
production and less on the volatile waste remediation business. As a result, the
Company believes that it has reduced revenue and earnings volatility and has
increased realizable synergies between the TDS and IMS businesses. In recent
years, TDS has expanded its services to provide for chemical stabilization of
electric arc furnace ("EAF") dust, which is a material produced by steel
mini-mills that has been designated a hazardous waste by the U.S. Environmental
Protection Agency. TDS also owns two of the 19 currently operating commercial
hazardous waste landfills in the U.S.
The Company believes that the U.S. steel industry will generate
approximately 700,000 tons of EAF dust in 1997 and expects that over 900,000
tons of EAF dust will be generated annually by 2001. This increase in generated
EAF dust will occur as the mini-mill industry continues to expand to meet market
needs. EAF dust must be recycled or treated and disposed in an appropriately
secure landfill. Steel companies are sensitive to service, process integrity and
their all-in cost when they select a recycling or stabilization and disposal
option for this material. The Company believes that its proprietary Super
Detox(R) technology for the chemical stabilization and disposal of EAF dust
provides an environmentally safer and more cost-effective solution than the
thermal recycling processes historically utilized by a large portion of the
mini-mill industry.
The Company believes that TDS is well positioned to compete effectively
with all other processes for EAF dust disposal due to its enhanced stabilization
capabilities, its existing permitted landfill capacity and the strategic
locations of its landfills, which help to minimize freight costs. In addition,
expanded use of rail services has further improved TDS's competitive position.
In November 1996, rail service providing for the transport of waste directly to
TDS's Ohio facility became available, making it the only hazardous waste
treatment and disposal facility in the U.S. with such direct rail service.
This direct rail service has broadened the market reach of the Ohio site.
TDS continues to service many other industrial customers in the secure
treatment and disposal of hazardous wastes. However, the majority of the
material expected to be disposed in its landfills is treated EAF dust.
In addition to its operations at its landfills, TDS also provides:
6
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o on-site treatment of EAF dust at one mini-mill,
o on-site waste and landfill management services for a domestic
steel producer,
o engineering support for various projects sponsored by IMS and
steel industry customers, and
o management of a wet scrubber sludge plant for an electric utility.
Business Strategy
EnviroSource's business strategy focuses on servicing the steel
industry and growing its business through service expansions to existing and new
customers and, potentially, through selective acquisitions.
o Service Expansions: The Company plans to pursue selective growth
by offering an expanded range of services. These services
represent a diverse array of cost-effective solutions, including:
-- Specialized Materials Handling -- The Company has pioneered
alternative approaches for material handling and inventory
management which provide cost savings and improved quality.
-- Surface Conditioning -- The Company provides an automated
steel slab surface conditioning process (called scarfing)
that helps its customers increase product yields and improve
product quality, while gaining measurable cost savings.
-- Scrap Preparation and Handling -- The Company's services
include the collection of revert scrap and the handling,
testing, transporting and mixing of purchased scrap for
direct charge into electric arc furnaces.
-- Slab Cutting Services -- The Company is developing a process,
utilizing licensed technology, to cut steel slabs and plates
with increased speed and reduced metal loss, which the
Company believes will result in significant cost savings for
both integrated mills and certain mini-mills.
-- EAF Dust Treatment and Disposal Service -- Using its Super
Detox(R) technology, the Company is continuing to secure
additional EAF dust tonnage to more fully utilize its
permitted annual volume limitations in Ohio and to capture
additional market share at its Idaho facility.
o Selective Acquisitions: The Company may seek to acquire businesses
which will result in increased market penetration and/or provide
complementary services which it can market to its existing and
prospective customer base. As an example, in 1996, IMS acquired
Alexander Mill Services, Inc., which provides slag processing
services at 10 mini-mills. Management believes such acquisitions
should provide the Company with favorable economics coupled with
relatively low risk.
Recent Developments
o The union employees of Wheeling-Pittsburgh Steel Corporation
("Wheeling-Pittsburgh"), IMS's second largest customer, were on
strike from October 1, 1996 to August 13, 1997. The strike was
resolved with the execution of a five-year union contract.
Wheeling-Pittsburgh contributed approximately $13 million in
revenue to the Company in 1995. During the nine months ended
September 30, 1997, the Company's earnings were negatively
impacted by the strike. The Company anticipates that
Wheeling-Pittsburgh will return to historical levels of production
in 1998. See "Risk Factors -- Dependence on Steel Mill Production;
Economic Conditions."
o On January 21, 1997, the Company sold the capital stock of
IMSAMET, Inc. ("IMSAMET"), a wholly-owned subsidiary that
performed recycling and waste management services for the aluminum
industry,
7
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for $58 million in cash. The proceeds from the sale were used to
repay $56 million of revolving credit borrowings under the Bank
Credit Facility (as defined herein) and for expenses related to
the transaction. (In the third quarter of 1997, the Company
received an additional $2 million in cash from the purchaser of
IMSAMET in connection with a purchase price adjustment.) The
divestiture has allowed the Company to focus more on strengthening
its position as a premier steel industry service-provider.
8
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THE EXCHANGE OFFER
Securities Offered Up to $50,000,000 aggregate principal amount of 9
3/4% Senior Notes due 2003, Series B. The terms of
the New Notes and Existing Notes are identical in
all material respects, except for certain transfer
restrictions and registration rights relating to
the Existing Notes.
The Exchange Offer The New Notes are being offered in exchange for a
like principal amount of Existing Notes. Existing
Notes may be exchanged only in integral multiples
of $1,000. The issuance of the New Notes is
intended to satisfy obligations of the Company
contained in the Registration Rights Agreement.
Expiration Date; Withdrawal
of Tender The Exchange Offer will expire at 5:00 p.m., New
York City time, on ____________, 199___, or such
later date and time to which it may be extended by
the Company. The tender of Existing Notes pursuant
to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date. Any Existing Notes
not accepted for exchange for any reason will be
returned without expense to the tendering holder
thereof as promptly as practicable after the
expiration or termination of the Exchange Offer.
Certain Conditions to the
Exchange Offer The Company's obligation to accept for exchange, or
to issue New Notes in exchange for, any Existing
Notes is subject to compliance with any applicable
law and any applicable interpretation by the staff
of the Commission, which may be waived by the
Company in its reasonable discretion. The Company
currently expects that each of the conditions will
be satisfied and that no waivers will be necessary.
See "The Exchange Offer-- Certain Conditions to the
Exchange Offer."
Procedures for Tendering
Existing Notes Each holder of Existing Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Existing Notes and any other required
documentation, to the Exchange Agent (as defined
herein) at one of the addresses set forth herein.
See "The Exchange Offer -- Procedures for Tendering
Existing Notes."
Use of Proceeds The Company will not receive any proceeds from the
Exchange Offer.
Exchange Agent United States Trust Company of New York (the
"Exchange Agent") is serving as the Exchange Agent
in connection with the Exchange Offer.
Federal Income Tax
Consequences The exchange of Notes pursuant to the Exchange
Offer should not be a taxable event for federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
9
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Consequences of Exchanging Existing Notes Pursuant to the Exchange Offer
Based on certain interpretive letters issued by the staff of the
Commission to third parties in unrelated transactions, the Company is of the
view that holders of Existing Notes (other than any holder who is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) who
exchange their Existing Notes for New Notes pursuant to the Exchange Offer
generally may offer such New Notes for resale, resell such New Notes and
otherwise transfer such New Notes without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided such New Notes
are acquired in the ordinary course of the holders' business and such holders
have no arrangement with any person to participate in a distribution of such New
Notes. Each broker-dealer that receives New Notes for its own account in
exchange for Existing Notes must acknowledge that it will deliver a prospectus
in connection with any resale of such New Notes. See "Plan of Distribution." In
addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or in compliance with an
available exemption from registration or qualification. The Company has agreed,
pursuant to the Registration Rights Agreement and subject to certain specified
limitations therein, to register or qualify the New Notes for offer or sale
under the securities or blue sky laws of such jurisdictions as any holder of the
Notes reasonably requests in writing. If a holder of Existing Notes does not
exchange such Existing Notes for New Notes pursuant to the Exchange Offer, such
Existing Notes will continue to be subject to the restrictions on transfer
contained in the legend thereon. In general, the Existing Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. Holders of Existing Notes do not have any
appraisal or dissenters' rights under the Delaware General Corporation Law in
connection with the Exchange Offer. See "The Exchange Offer -- Consequences of
Failure to Exchange; Resales of New Notes."
The Existing Notes are currently eligible for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
Following commencement of the Exchange Offer but prior to its consummation, the
Existing Notes may continue to be traded in the PORTAL market. Following
consummation of the Exchange Offer, the New Notes will not be eligible for
PORTAL trading.
The New Notes
The terms of the New Notes are identical in all material respects to
the Existing Notes, except for certain transfer restrictions and registration
rights relating to the Existing Notes.
Securities Offered $50,000,000 aggregate principal amount of 9
3/4% Senior Notes due 2003, Series B. The Company
currently has outstanding the Existing Notes and
$220 million aggregate principal amount of 9 3/4%
Senior Notes due 2003 (the "1993 Notes"), the terms
of which are substantially the same as the Notes.
Maturity June 15, 2003.
Interest Payment Dates June 15 and December 15, commencing June 15, 1998.
Optional Redemption The New Notes are redeemable prior to maturity, in
whole or in part, at the option of the Company at
any time on or after June 15, 1998, at the
redemption prices set forth herein, plus accrued
interest. See "Description of the Notes -- Optional
Redemption."
Ranking The New Notes will be unsecured obligations of the
Company, will rank pari passu in right of payment
with all existing and future unsecured,
unsubordinated indebtedness of the Company,
including any Existing Notes and the 1993 Notes,
and will rank senior to all subordinated
indebtedness of the Company. In addition, because
the Company is a holding company that conducts
substantially all of its business through its
subsidiaries, all liabilities of the Company's
subsidiaries, including
10
<PAGE>
borrowings under the Bank Credit Facility, which
are guaranteed by the Company and secured by
certain of the Company's assets, will be
effectively senior to the New Notes. As of
September 30, 1997, the Company (excluding its
subsidiaries) had $270.0 million of indebtedness
outstanding, and the Company's subsidiaries had
approximately $90.8 million of liabilities
(including approximately $18.6 million of
indebtedness). See "Risk Factors -- Holding Company
Structure; Security Interests" and "Description of
the Notes -- Ranking."
Covenants The Indenture contains covenants that, among other
things, limit (i) Restricted Payments (as defined
herein) by the Company and its Restricted
Subsidiaries (as defined herein), (ii) the
incurrence of additional indebtedness by the
Company and its Restricted Subsidiaries, (iii)
payment restrictions affecting the Company's
subsidiaries, (iv) the creation or existence of
liens, (v) transactions with affiliates and (vi)
sales of assets. The Indenture also restricts the
Company's ability to consolidate or merge with or
into, or to transfer all or substantially all of
its assets to, another person. However, these
limitations are subject to a number of important
qualifications and exceptions. See "Description of
the Notes-- Covenants" and "--Merger and
Consolidation."
Change of Control Upon a Change of Control (as defined herein), the
Company shall make an offer to purchase the New
Notes then outstanding at a purchase price equal to
101% of principal amount, plus accrued interest.
There can be no assurance that the Company will
have sufficient funds available at the time of any
Change of Control to make any required debt
repayments (including repurchases of the New
Notes). See "Description of the Notes --
Covenants-- Change of Control."
Risk Factors
Holders of Existing Notes should carefully consider all of the
information set forth in this Prospectus and, in particular, should evaluate the
specific factors under "Risk Factors" beginning on page 14 in connection with
the Exchange Offer.
11
<PAGE>
SUMMARY FINANCIAL DATA
The summary consolidated financial data of the Company for each of the
years in the three-year period ended December 31, 1996 and as of September 30,
1997 and for the nine months ended September 30, 1996 and 1997 presented below
have been derived from the consolidated financial statements of the Company,
which are presented in the Third Quarter 10-Q and the Form 10-K. These data
include IMSAMET as a discontinued operation through the date of sale of IMSAMET
in January 1997. The Company's consolidated financial statements included in the
Form 10-K have been audited by Ernst & Young LLP, independent auditors. The
summary consolidated financial data as of September 30, 1997 and for the nine
months ended September 30, 1996 and 1997 were derived from the unaudited
financial statements included in the Third Quarter 10-Q. In the opinion of
management, the unaudited financial statements include all adjustments
(consisting of normal recurring accruals and "unusual items, net" set forth
below) necessary to present fairly the information set forth herein.
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(unaudited)
(in thousands, except ratio data)
Statement of Operations Data:
<S> <C> <C> <C> <C> <C>
Revenues $230,434 $223,722 $212,789 $160,155 $168,977
Cost of revenues 164,879 163,070 166,099 122,997 133,398
Selling, general and administrative
expenses 29,035 26,163 23,165 16,781 18,561
Unusual items, net -- (2,624) 4,650 5,600 500
---------- -------- -------- -------- --------
Operating income 36,520 37,113 18,875 14,777 16,518
Interest income 983 1,133 1,356 1,096 815
Interest expense (21,974) (23,483) (28,187) (20,757) (21,763)
-------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes 15,529 14,763 (7,956) (4,884) (4,430)
Income tax (expense) benefit:
Current (2,576) (1,262) (1,134) (704) (1,042)
Deferred (1,704) (3,946) 4,400 -- 284
-------- -------- -------- --------- --------
Income (loss) from continuing
operations 11,249 9,555 (4,690) (5,588) (5,188)
Income (loss) from discontinued
IMSAMET operations(1) (190) 949 399 711 9,600
-------- -------- -------- -------- --------
Income (loss) before extraordinary loss 11,059 10,504 (4,291) (4,877) 4,412
Extraordinary debt extinguishment loss (806)
Net income (loss) $ 11,059 $ 9,698 $ (4,291) $ (4,877) $ 4,412
======== ======== ======== ======== ========
Ratio of earnings to fixed charges(2) 1.54x 1.49x -- -- --
Deficiency in earnings available
to cover fixed charges(2) $ -- $ -- $ 7,583 $ 4,603 $ 4,175
Selected Operating Data and
Financial Ratios:
Operating margin 15.85% 16.59% 8.87% 9.23% 9.78%
Cash provided by operating activities $ 42,016 $ 41,905 $ 28,163 $ 25,021 $ 26,361
EBITDA(3) 72,834 75,098 63,373 45,292 44,253
Capital expenditures 39,261 32,560 21,883 19,088 21,551
Additions to landfill permits and
closure expenditures 1,199 1,125 3,186 2,442 2,790
Depreciation and amortization(4) 35,008 33,616 35,976 26,650 27,725
EBITDA to interest expense 2.87x 2.74x 2.01x 1.95x 2.03x
EBITDA to cash interest expense 3.02x 2.88x 2.10x 2.04x 2.14x
</TABLE>
12
<PAGE>
September 30, 1997
(unaudited)
(in thousands)
Balance Sheet Data:
Cash and cash equivalents $ 8,868
Total assets 420,485
Working capital 2,118
Long-term debt (including current portion) 288,564
Stockholders' equity 44,280
- -----------------------------
(1) The Company sold its IMSAMET subsidiary in January 1997. See Note D to the
consolidated financial statements in the Form 10-K.
(2) For the purpose of computing the ratio of earnings to fixed charges, "fixed
charges" consist of interest on debt (including interest allocated to
discontinued operations, interest capitalized and amortization of debt
issuance costs) and the interest element in rental payments. "Earnings"
consist of income from continuing operations before fixed charges and
income taxes and amortization of interest capitalized in prior periods. The
Company incurred deficiencies in earnings available to cover fixed charges
of $6,607 in 1992 and $17,839 in 1993.
(3) EBITDA represents earnings before interest expense, income tax expense,
depreciation and amortization. EBITDA amounts and related ratios include
the results of IMSAMET through 1996. In addition, in accordance with the
Indenture, the EBITDA amount for the year ended December 31, 1996 includes
a $4,400 deferred income tax benefit, and the EBITDA amount for the
nine-month period ended September 30, 1997 includes a $284 deferred income
tax benefit. The Company has included EBITDA data (which are not a measure
of financial performance under generally accepted accounting principles)
because such data may be used by certain investors and because such data
will be used in determining the permissibility of incurring additional debt
under the Indenture.
(4) Includes depreciation of property, plant and equipment and amortization of
goodwill, Ohio landfill deferred charges, landfill permits and debt
issuance costs.
13
<PAGE>
RISK FACTORS
Holders of Existing Notes should carefully consider all of the
information set forth herein and in the Annexes, and in particular the specific
factors set forth below. The risk factors set forth below are generally
applicable to the Existing Notes as well as the New Notes.
This Prospectus includes "forward looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Although EnviroSource believes that its plans, intentions and expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such plans, intentions or expectations will be achieved.
Important factors that could cause actual results to differ materially from
EnviroSource's forward-looking statements are set forth below and elsewhere in
this Prospectus. All forward-looking statements attributable to EnviroSource or
persons acting on its behalf are expressly qualified in their entirety by the
cautionary statements set forth below.
High Leverage; Ability to Service Debt
As of September 30, 1997, the Company had outstanding on a consolidated
basis approximately $289 million of indebtedness. On a pro forma basis, after
giving effect to the sale of the Existing Notes, the application of the net
proceeds therefrom and the Company's sale of its IMSAMET subsidiary, the
Company's earnings before fixed charges would have been insufficient to cover
its fixed charges for the year ended December 31, 1996 by $8.7 million, and its
EBITDA less capital expenditures and interest expense (and also excluding
non-cash deferred income tax benefit) would have been approximately $2.2
million. For the nine months ended September 30, 1997, the Company's earnings
before fixed charges were insufficient to cover its fixed charges for such
period by $4.2 million, and its EBITDA less capital expenditures and interest
expense (and also excluding non-cash deferred income tax benefit) for such
period was approximately $0.7 million.
The degree to which the Company is leveraged could negatively impact
(i) the ability of the Company to obtain any necessary financing in the future
for working capital, capital expenditures, debt service requirements or other
purposes, (ii) the Company's flexibility in planning for, or reacting to,
changes in its business, (iii) the Company's position with respect to some of
its competitors, who may be less highly leveraged than the Company and (iv) the
Company's cash available to fund operations, because a substantial portion of
the Company's cash flows must be used to service its indebtedness, including the
Notes and the 1993 Notes.
The ability of the Company to meet debt service obligations and to
reduce total debt will be dependent upon its future performance which, in turn,
will be subject to general economic conditions and to financial, business and
other factors, including factors beyond its control. To a significant degree,
the Company's future performance will be influenced by the general level of
activity in the steel industry, which is subject to a variety of factors
including foreign competition and labor relations.
The Company believes that, based on current levels of operations and
anticipated growth, cash flow from operations, together with funds on hand and
other available sources of funds, including borrowings under IMS's bank credit
facility (the "Bank Credit Facility"), which has a borrowing and letter of
credit capacity of $50 million and matures in 2001, will be adequate to make
required payments of principal and interest on the Company's and its
subsidiaries' respective debt, to permit anticipated capital expenditures, to
make required trust fund payments in connection with landfill activities, to
fund working capital requirements and to enable the Company and its subsidiaries
to comply with the terms of their debt agreements. The Company has amended
certain financial covenants in the Bank Credit Facility twice during 1997 to
relax the covenant requirements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" in the Third Quarter 10-Q and in the Form 10-K. If the Company is
unable to generate sufficient cash flow or otherwise obtain funds necessary to
make required payments, or if the Company otherwise fails to comply with the
various covenants in its indebtedness, it would be in default under the terms
thereof, which would permit the holders of such indebtedness to accelerate the
maturity of such indebtedness and could cause defaults under other indebtedness
of the Company. Such defaults could result in a default on the Notes and could
delay or preclude payment of interest or principal on the Notes.
If the Company and its subsidiaries are unable to comply with the terms
of their debt agreements and fail to generate sufficient cash flow from
operations in the future, they may be required to refinance all or a portion of
their existing debt or to obtain additional financing. There can be no assurance
that any such refinancing would be possible or that any additional financing
could be obtained, particularly in view of the Company's anticipated high levels
of debt, the fact that the Company's
14
<PAGE>
consolidated accounts receivable have been given as collateral to secure bank
borrowings of the Company and its subsidiaries, and the debt incurrence
restrictions under its debt agreements. If no such refinancing or additional
financing were available, the Company could be forced to default on its debt
obligations and, as an ultimate remedy, seek protection under the federal
bankruptcy laws.
Loss History
The Company experienced a net loss of $4.3 million for the year ended
December 31, 1996. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Form 10-K. In addition, in 1996 and
the nine months ended September 30, 1996 and 1997, earnings were insufficient to
cover fixed charges. Although the Company realized a profit for the nine months
ended September 30, 1997, there can be no assurance that the Company will
continue to be profitable. See "Summary -- Summary Financial Data."
Dependence on Key Customers
USX Corporation ("USX") accounted for an aggregate of approximately 20%
of the Company's consolidated revenues from continuing operations in 1996 and
for the nine months ended September 30, 1997, pursuant to a number of contracts
which terminate at various times over the next four years. The loss by the
Company of any of its key customers, particularly in the IMS business unit,
either as a result of early termination or non-renewal, or any significant
disruption or reduction in such customers' businesses would have a material
adverse effect on the Company's revenues and operating income.
Dependence on Steel Mill Production; Economic Conditions
The Company's revenues are largely dependent on levels of steel
production at its customers' mills. Although primarily driven by economic
factors, steel production can, at times, be negatively impacted by random events
such as strikes and mill outages. For example, the Company experienced a
downswing in earnings as a result of a 10 1/2 month strike by the union
employees of Wheeling-Pittsburgh that ended on August 13, 1997, and a 60 day
blast furnace outage during 1996 at USX that resulted from an explosion. In
addition, the Company's business is also affected by general economic
conditions. There can be no assurance that an economic downturn will not result
in a reduction in the volume of waste disposed at the Company's operations, in
the level of steel production in the United States or in the price that the
Company can charge for its services. For example, depressed market conditions
led to lower treatment and disposal tonnage in 1996, contributing to a decline
in the Company's revenues for that year.
Competition
The IMS and TDS business units face intense competition in the
respective industries in which they operate and both require substantial capital
resources. IMS currently has one large competitor, the Heckett-MultiServ
division of Harsco Corporation, and a number of smaller competitors, including
several new entrants. The TDS business unit faces competition from several
competitors, and although the Company is increasing its market share in the EAF
dust stabilization business, its principal competitor formerly accounted for at
least 60% of the U.S. market. TDS's expansion in the treatment and handling of
EAF dust has resulted in price reductions and severe price competition. There
can be no assurance that the Company will not continue to experience such price
competition in the future or that such activity will not have a material adverse
effect on the Company's business or results of operations. In addition, both of
the Company's business units face some competitors which have significantly
larger operations and greater resources.
Environmental Regulations and Compliance Costs
While certain of the Company's businesses have benefitted from
increased environmental regulation, they are subject to extensive and changing
regulations by federal, state and local authorities because such businesses
treat, store or dispose of regulated substances. The regulatory process requires
these businesses to obtain and retain governmental permits to conduct various
aspects of their operations. The failure to obtain or retain certain of these
permits, or the violation, modification or revocation of such permits, could
have an adverse effect on such businesses and, potentially, the Company,
including the ability of the Company to service its debt obligations, including
payment of interest or principal on the Notes.
15
<PAGE>
In particular, Envirosafe Services of Ohio, Inc. and Envirosafe
Services of Idaho, Inc. (the "Envirosafe Companies"), which operate hazardous
waste landfills, are subject to a complex, evolving array of federal, state and
local environmental laws and regulations. Such requirements not only can affect
the demand for the Envirosafe Companies' services, but can also require the
Company to incur significant costs for such matters as facility upgrading,
remediation or other corrective action, facility closure and post-closure
maintenance and monitoring. Future imposition of additional environmental
compliance requirements could have a material adverse effect on the results of
operations and/or financial condition of the Company and/or its TDS segment
(which includes the Envirosafe Companies), but the Company is unable to predict
any such future requirements. The Company believes that its consolidated
financial statements appropriately reflect all presently-known compliance costs
in accordance with generally accepted accounting principles. Stringent
interpretation of environmental laws and regulations governing hazardous waste
treatment and disposal facilities by state and federal regulators also subjects
the Company to violations and fines from time to time, none of which has been
material to the Company.
Heightened public awareness of environmental issues has placed federal,
state and local governments under continuing pressure to propose and adopt new
laws, regulations or initiatives for the environmental services industry. The
Company cannot predict the extent to which any legislative, regulatory or
enforcement developments may affect the operation of its businesses or its
future financial condition.
Holding Company Structure; Security Interests
The Company currently conducts substantially all of its operations
through subsidiaries. A significant portion of the assets of the Company are
owned by its subsidiaries. As a holding company, the Company is dependent on
dividends or other intercompany transfers of funds from these subsidiaries to
meet its debt service and other obligations, including the payment of interest
and principal on the Notes. The Notes are unsecured and therefore are
effectively subordinated to any secured indebtedness of the Company. The Bank
Credit Facility is collateralized by security interests in assets of the Company
and its subsidiaries, including substantially all of the capital stock and
accounts receivable of its domestic subsidiaries. Consequently, in the event of
a bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to the Company or any of its subsidiaries, the Company's assets
securing borrowings under the Bank Credit Facility and other assets of the
Company's subsidiaries would be available to satisfy obligations under the Bank
Credit Facility and other creditors of the subsidiaries before any payment could
be made on the Notes. In addition, to the extent such assets did not satisfy in
full the secured indebtedness, the holders of such indebtedness would have a
claim against the Company's subsidiaries for any shortfall that would be
effectively senior to the Notes. Accordingly, there may only be a limited amount
of assets available to satisfy any claims of the holders of the Notes upon an
acceleration of the Notes.
The Company's subsidiaries are separate legal entities that have no
obligation to pay any amounts due pursuant to the Notes or to make any funds
available therefor, whether by dividends, loans or other payments. Because the
Company's subsidiaries have not guaranteed the payment of the principal or
interest on the Notes, the Company's rights and the rights of its creditors,
including holders of Notes, to participate in the distribution or realize
proceeds from the assets of any subsidiary of the Company upon such subsidiary's
liquidation or recapitalization are effectively subordinated to the prior claims
of the subsidiary's creditors, including the lenders under the Bank Credit
Facility, and to any security interest in the assets of such subsidiary held by
such lenders and other creditors.
Risks Associated with Acquisitions
As described in the "Summary," the Company may selectively acquire
businesses which will result in increased market penetration and/or provide
complementary services which it can market to its existing and prospective
customer base. To finance such acquisitions, the Company may incur additional
indebtedness, including secured indebtedness. In pursuing such acquisitions, the
Company would face such commonly encountered risks as, for example, failing to
assimilate the operations and personnel of the acquired businesses, disrupting
the Company's ongoing business, dissipating the Company's limited management
resources and impairing relationships with employees and customers of the
acquired business as a result of changes in ownership and management. During the
early part of this integration period, profitability of an acquired business may
decrease from profit levels attained prior to the acquisition. Moreover,
additional indebtedness incurred to make acquisitions could adversely affect the
Company's liquidity and results of operations.
16
<PAGE>
Control of the Company
Freeman Spogli & Co., the general partner of FS Equity Partners II,
L.P., the Company's principal stockholder, controls approximately 48% of the
total outstanding voting power of the Company. As a result, Freeman Spogli & Co.
has the ability to control the Company's management, policy and financing
decisions and, as a practical matter, to elect the entire Board of Directors.
See "Security Ownership of Certain Beneficial Owners and Management" in the
Proxy Statement.
Document Subpoena
In October 1996 IMS received a grand jury subpoena requesting documents
pursuant to an inquiry relating to the processing of iron and steel slag in the
United States and Canada being conducted by the Antitrust Division of the U.S.
Department of Justice. Although the Company has given the government its
complete cooperation and is confident that it conducts its operations in full
compliance with the law, the Company has not been informed by the government
that this inquiry has been concluded.
Risk of Fraudulent Conveyance Liability
If a court were to find that, at the time the Company granted security
interests to or for the benefit of the lenders under the Bank Credit Facility or
any of its subsidiaries granted security interests or delivered guarantees to
such or any other of their lenders, the Company or any such subsidiary, as the
case may be, did not receive fair consideration or reasonably equivalent value
for the grant of such security interests or delivery of such guarantees and the
Company or such subsidiary (i) was insolvent at such time, (ii) was rendered
insolvent by reason of the grant of such security interests or delivery of such
guarantees, (iii) was engaged or was about to engage in a business or
transaction for which its remaining assets were unreasonably small in relation
to the business or transaction or (iv) intended to incur, assume or issue or
believed it would incur, assume or issue debts beyond its ability to pay as they
became due, then a creditor or representative of creditors could seek to avoid
the grant of such security interests and delivery of such guarantees. This could
result in an event of default with respect to the Bank Credit Facility or other
agreement or instrument, as applicable, which, under the terms thereof (subject
to applicable laws), would allow the lenders under the Bank Credit Facility or
other agreement or instrument to accelerate the indebtedness outstanding
thereunder.
Management of the Company believes that, for the purposes of the
Federal Bankruptcy Code and state fraudulent conveyance statutes, the
indebtedness represented by the Notes and its other indebtedness (including
indebtedness incurred under the Bank Credit Facility and the 1993 Notes) has
been incurred and will be incurred, as applicable, without the intent to hinder,
defraud or delay creditors and for proper purposes and in good faith, that the
Company and its subsidiaries received and will receive reasonably equivalent
value or fair consideration for incurring, securing or guaranteeing such
indebtedness and that, based on present forecasts, asset valuations and other
financial information, the Company and its subsidiaries are and will be solvent,
will have sufficient capital for carrying on their business and will be able to
pay their debts as they mature. There can be no assurance, however, that a court
passing on such questions would agree with management's view.
Lack of Public Market for the Notes
Although the 1993 Notes have substantially the same terms as the Notes
and the Existing Notes currently are eligible for trading in the PORTAL Market,
the New Notes are new securities for which there is currently no established
market. The Company does not intend to apply for a listing or quotation of the
New Notes. If the New Notes are traded after their issuance, they may trade at a
discount from their initial offering price, depending upon prevailing interest
rates, the market for similar securities (such as the 1993 Notes), the financial
condition and prospects of the Company and other factors beyond the control of
the Company, including general economic conditions. Although the Placement
Agents have informed the Company that they currently intend to make a market in
the New Notes, they are not obligated to do so, and any such market making may
be discontinued at any time without notice. Accordingly, no assurance can be
given as to the development or liquidity of any trading market for the New
Notes. Holders of the New Notes should be aware that they may be required to
bear the financial risks of their investment for an indefinite period of time.
See "Description of the Notes."
17
<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the Exchange Offer. The
net proceeds to the Company from the sale of the Existing Notes were used as
follows: (i) $47.0 million was applied to repay the Company's borrowings under
the Bank Credit Facility and (ii) approximately $0.5 million was used for
capital expenditures. The amount outstanding under the Bank Credit Facility was
$47.0 million on September 30, 1997, virtually all of which had been incurred to
finance capital expenditures. Interest on borrowings under the Bank Credit
Facility accrues at variable rates, currently at prime plus 1.25% and at LIBOR
plus 2.5%, and the Bank Credit Facility terminates in January 2001. The entire
$50 million current amount of the Bank Credit Facility (which includes letters
of credit) may be reborrowed.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of EnviroSource as of
September 30, 1997. This table should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of the Company, which are set forth in the
Third Quarter 10-Q and the Form 10-K.
September 30, 1997
------------------
(unaudited)
(in thousands)
Short-term debt:
Current portion of long-term debt $ 6,248
============
Long-term debt:
Bank Credit Facility(1) $ --
9 3/4% Senior Notes due 2003 220,000
9 3/4% Senior Notes due 2003, Series B 50,000
Other debt 12,316
------------
Total long-term debt 282,316
Stockholders' equity:
Common stock, par value $.05 per share, 60,000,000
shares authorized, 40,713,765 shares issued and
outstanding 2,036
Capital in excess of par value 174,190
Accumulated deficit (130,219)
Stock purchase loans receivable from officers (690)
Canadian translation adjustment (1,037)
------------
Total stockholders' equity 44,280
------------
Total capitalization $ 326,596
============
- ------------------------------------
(1) The ongoing $50,000 of revolving credit borrowing and letter of credit
capacity declines by 12.5% in each of January 1999 and 2000 and terminates
in January 2001.
19
<PAGE>
THE EXCHANGE OFFER
Terms Of The Exchange Offer; Period For Tendering Existing Notes
Upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (which together
constitute the Exchange Offer), the Company will accept for exchange Existing
Notes which are properly tendered on or prior to the Expiration Date and not
withdrawn as permitted below. As used herein, the term "Expiration Date" means
5:00 p.m., New York City time, on __________, 199__; provided, however, that if
the Company has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $50.0 million aggregate principal
amount of the Existing Notes are outstanding. This Prospectus, together with the
Letter of Transmittal, is first being sent on or about ____________, 199__ to
all holders of Existing Notes known to the Company. The Company's obligation to
accept Existing Notes for exchange pursuant to the Exchange Offer is subject to
certain conditions as set forth under "-- Certain Conditions to the Exchange
Offer" below.
The Company expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Existing Notes, by giving
notice of such extension to the holders thereof. During any such extension, all
Existing Notes previously tendered will remain subject to the Exchange Offer and
may be accepted for exchange by the Company. Any Existing Notes not accepted for
exchange for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Existing Notes not
theretofore accepted for exchange, upon the occurrence of any of the conditions
of the Exchange Offer specified below under "-- Certain Conditions to the
Exchange Offer." The Company will give notice of any extension, amendment,
non-acceptance or termination to the holders of the Existing Notes as promptly
as practicable, such notice in the case of any extension to be issued no later
than 9:00 a.m., New York City time, on the next business day after the
previously scheduled Expiration Date.
Holders of Existing Notes do not have any appraisal or dissenters'
rights under the Delaware General Corporation Law in connection with the
Exchange Offer.
Procedures For Tendering Existing Notes
The tender to the Company of Existing Notes by a holder thereof as set
forth below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Existing Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to United States Trust Company
of New York at one of the addresses set forth below under "-- Exchange Agent" on
or prior to the Expiration Date. In addition, either (i) certificates for such
Existing Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Existing Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
("DTC") pursuant to the procedures for book-entry transfer described below, must
be received by the Exchange Agent prior to the Expiration Date, or the holder
must comply with the guaranteed delivery procedures described below. THE METHOD
OF DELIVERY OF EXISTING NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER REQUIRED
DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY IS BY
MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR EXISTING NOTES SHOULD BE
SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of
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Transmittal or (ii) for the account of an Eligible Institution (as defined
herein). In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantees
must be by a firm which is a participant in a recognized signature guarantee
medallion program (collectively, "Eligible Institutions"). If Existing Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Existing Notes surrendered for exchange must be endorsed by, or
be accompanied by a written instrument or instruments of transfer or exchange,
in satisfactory form as determined by the Company in its sole discretion, duly
executed by, the registered holder with the signature thereon guaranteed by an
Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and all
tenders of any particular Existing Notes not properly tendered or to not accept
any particular Existing Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Existing Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Existing Notes in the Exchange Offer). The interpretation of the terms
and conditions of the Exchange Offer as to any particular Existing Notes either
before or after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes for exchange must be cured within such reasonable period of time
as the Company shall determine. Neither the Company, the Exchange Agent nor any
other person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Existing Notes for exchange, nor
shall any of them incur any liability for failure to give such notification.
If the Letter of Transmittal or any Existing Notes or instruments of
transfer or exchange are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, proper evidence satisfactory to the
Company of their authority to so act must be submitted.
Each broker-dealer holder, by tendering, will represent to the Company
that, among other things, the New Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of such holder and any
beneficial holder thereof, that neither such holder nor any such beneficial
holder has an arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither such holder nor any such other
beneficial holder is an "affiliate," as defined under Rule 405 of the Securities
Act, of the Company. If the holder is not a broker-dealer, such holder must
represent that it is not engaged in nor does it intend to engage in a
distribution of the New Notes.
Acceptance Of Existing Notes For Exchange; Delivery Of New Notes
For each Existing Note accepted for exchange, the holder of such
Existing Note will receive a New Note having a principal amount equal to that of
the surrendered Existing Note. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted properly tendered Existing Notes for exchange
when, as and if the Company has given oral and written notice thereof to the
Exchange Agent.
In all cases, issuance of New Notes for Existing Notes that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Existing Notes or
a timely Book-Entry Confirmation of such Existing Notes into the Exchange
Agent's account at DTC, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Existing Notes are
not accepted for any reason set forth in the terms and conditions of the
Exchange Offer or if Existing Notes are submitted for a greater principal amount
than the holder desires to exchange, such unaccepted or non-exchanged Existing
Notes will be returned without expense to the tendering holder thereof (or, in
the case of Existing Notes tendered by book-entry transfer into the Exchange
Agent's account at DTC pursuant to the book-entry transfer procedures described
below, such non-exchanged Existing Notes will be credited to an account
maintained with DTC) as promptly as practicable after the expiration of the
Exchange Offer.
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Book-Entry Transfer
Any financial institution that is a participant in DTC's systems may
make book-entry delivery of Existing Notes by causing DTC to transfer such
Existing Notes into the Exchange Agent's account at DTC in accordance with DTC's
procedures for transfer. However, although delivery of Existing Notes may be
effected through book-entry transfer at DTC, the Letter of Transmittal or
facsimile thereof with any required signature guarantees and any other required
documents must, in any case, be transmitted to and received by the Exchange
Agent at one of the addresses set forth below under "-- Exchange Agent" on or
prior to the Expiration Date or the guaranteed delivery procedures described
below must be complied with.
Guaranteed Delivery Procedures
If a registered holder of the Existing Notes desires to tender such
Existing Notes and the Existing Notes are not immediately available, or time
will not permit such holder's Existing Notes or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be completed on a timely basis, a tender may be
effected if (i) the tender is made through an Eligible Institution, (ii) prior
to the Expiration Date, the Exchange Agent has received from such Eligible
Institution a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and Notice of Guaranteed Delivery, substantially in the form
provided by the Company (by telegram, telex, facsimile transmission, mail or
hand delivery), setting forth the name and address of the holder of Existing
Notes and the amount of Existing Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock Exchange
("NYSE") trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Existing Notes, in proper
form for transfer, or a Book-Entry Confirmation, as the case may be, and any
other documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Existing Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
Withdrawal Rights
Tenders of Existing Notes may be withdrawn at any time prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal must be received by the Exchange Agent at one of the addresses set
forth below under "-- Exchange Agent." Any such notice of withdrawal must
specify the name of the person having tendered the Existing Notes to be
withdrawn, identify the Existing Notes to be withdrawn (including the principal
amount of such Existing Notes), and (where certificates for Existing Notes have
been transmitted) specify the name in which such Existing Notes are registered,
if different from that of the withdrawing holder. If certificates for Existing
Notes have been delivered or otherwise identified to the Exchange Agent then,
prior to the release of such certificates, the withdrawing holder must also
submit the serial numbers of the particular certificates to be withdrawn and a
signed notice of withdrawal, with signatures guaranteed by an Eligible
Institution unless such holder is an Eligible Institution. If Existing Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at DTC to be credited with the withdrawn Existing Notes and otherwise comply
with the procedures of such facility. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Existing Notes so withdrawn will be deemed not to have been validly tendered for
exchange for purposes of the Exchange Offer. Any Existing Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Existing Notes tendered by book-entry transfer into the Exchange Agent's account
at DTC pursuant to the book-entry transfer procedures described above, such
Existing Notes will be credited to an account maintained with DTC for the
Existing Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Existing Notes may be
retendered by following one of the procedures described under "-- Procedures for
Tendering Existing Notes" above at any time on or prior to the Expiration Date.
Certain Conditions To The Exchange Offer
Notwithstanding any other provision of the Exchange Offer, the Company
shall not be required to accept for exchange, or to issue New Notes in exchange
for, any Existing Notes and may terminate or amend the Exchange Offer if,
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at any time before the acceptance of such Existing Notes for exchange or the
exchange of New Notes for such Existing Notes, the Company determines that the
Exchange Offer violates applicable law, any applicable interpretation of the
staff of the Commission or any order of any governmental agency or court of
competent jurisdiction.
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition or may be waived by the Company in whole or in part at any
time and from time to time in its reasonable discretion. The failure by the
Company at any time to exercise any of the foregoing rights shall not be deemed
a waiver of such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Existing
Notes tendered, and no New Notes will be issued in exchange for any such
Existing Notes, if at such time any stop order shall be threatened or in effect
with respect to the Exchange Offer Registration Statement of which this
Prospectus constitutes a part or the qualification of the Indenture under the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). In any such
event the Company is required under the Registration Rights Agreement to use
every reasonable effort to obtain the withdrawal of any stop order at the
earliest possible time.
Exchange Agent
United States Trust Company of New York has been appointed as the
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal
should be directed to the Exchange Agent at one of the addresses set forth
below. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent addressed as
follows:
By Mail:
United States Trust Company of New York
P.O. Box 843 Cooper Station
New York, New York 10276
Attention: Corporate Trust Services
By Hand before 4:30 p.m.:
United States Trust Company of New York
111 Broadway
New York, New York 10006
Attention: Lower Level, Corporate Trust Window
By Overnight Courier and by Hand after 4:30 p.m.:
United States Trust Company of New York
770 Broadway, 13th Floor
New York, New York 10003
By Facsimile:
(212) 780-0592
Attention: Customer Service
Confirm by Telephone:
(800) 548-6565
Delivery other than as set forth above will not constitute a valid
delivery.
Fees and Expenses
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers, employees and agents of the Company.
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The expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs, among others.
Transfer Taxes
Holders who tender their Existing Notes for exchange will not be
obligated to pay any transfer taxes in connection therewith, except that holders
who instruct the Company to register New Notes in the name of, or request that
Existing Notes not tendered or not accepted in the Exchange Offer be returned
to, a person other than the registered tendering holder will be responsible for
the payment of any applicable transfer tax thereon.
Consequences Of Failure To Exchange; Resales Of New Notes
Holders of Existing Notes who do not exchange their Existing Notes for
New Notes pursuant to the Exchange Offer will (i) continue to be subject to the
restrictions on transfer of such Existing Notes as set forth in the legend
thereon as a consequence of the issuance of the Existing Notes pursuant to the
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws, and
(ii) forfeit any rights or privileges granted under the Registration Rights
Agreement. Existing Notes not exchanged pursuant to the Exchange Offer will
continue to accrue interest at 9 3/4% per annum and will otherwise remain
outstanding in accordance with their terms. Holders of Existing Notes do not
have any appraisal or dissenters' rights under the Delaware General Corporation
Law in connection with the Exchange Offer. In general, the Existing Notes may
not be offered or sold unless registered under the Securities Act, except
pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Existing Notes under the
Securities Act. However, (i) if the Company determines that the Exchange Offer
registration is not available or may not be consummated as soon as practicable
after the last Exchange Date (as defined in the Registration Rights Agreement)
because it would violate applicable law or the applicable interpretations of the
staff of the Commission, (ii) the Exchange Offer is not for any other reason
consummated by March 30, 1998 or (iii) the Exchange Offer has been completed and
in the opinion of counsel for the Placement Agents a registration statement (in
addition to the Exchange Offer Registration Statement) must be filed and a
non-Exchange Offer Prospectus (as defined in the Registration Rights Agreement)
must be delivered by the Placement Agents in connection with any offering or
sale of New Notes, the Company is obligated to use its best efforts to file a
registration statement on the appropriate form under the Securities Act
providing for the sale by Holders of Existing Notes held by such persons and to
have such registration statement declared effective by the Commission.
Based on certain interpretive letters issued by the staff of the
Commission to third parties in unrelated transactions, the Company is of the
view that New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold or otherwise transferred by holders thereof (other than (i) any
such holder which is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act or (ii) any broker-dealer that purchases New Notes
from the Company to resell pursuant to Rule 144A or any other available
exemption) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the distribution
of such New Notes. If any holder has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, such holder (i) cannot rely on the applicable interpretations of
the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. A broker-dealer who holds Existing Notes that were
acquired for its own account as a result of market-making or other trading
activities may be deemed to be an "underwriter" within the meaning of the
Securities Act and must, therefore, deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of New Notes.
Each such broker-dealer that receives New Notes for its own account in exchange
for Existing Notes, where such Existing Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
In addition, in order to comply with the securities laws of certain
jurisdictions, if applicable, the New Notes may not be offered or sold unless
they have been registered or qualified for sale in such jurisdictions or an
exemption from registration or qualification is available and is complied with.
The Company has agreed, pursuant to the Registration Rights Agreement and
subject to certain specified limitations therein, to register or qualify the New
Notes for offer or sale under the securities or blue sky laws of such
jurisdictions as any holder of the Notes reasonably requests in writing.
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General
The Existing Notes were issued under the Indenture dated as of
September 30, 1997 (the "Indenture"), between the Company and United States
Trust Company of New York, as trustee (the "Trustee"), in a private transaction
that was not subject to the registration requirements of the Securities Act. The
terms of the Indenture apply to the Existing Notes and to the New Notes to be
issued in exchange therefor pursuant to the Exchange Offer (all such Notes being
referred to herein collectively as the "Notes"). The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the provisions
of the Indenture, including the definitions of certain terms therein and those
terms made a part thereof by the Trust Indenture Act. Copies of the Indenture
and the Registration Rights Agreement are available as set forth under
"Available Information." For definitions of certain capitalized terms used in
the following summary, see "-- Certain Definitions."
The Notes have been and will be issued in fully registered form only,
without coupons, in denominations of $1,000 or integral multiples thereof.
The Notes are transferable and exchangeable at the office of the
Registrar. Principal (and premium, if any) and interest are payable at the
office of the Paying Agent, but at the option of the Company, interest may be
paid by check mailed to the registered holders at their registered addresses.
The Company has appointed the Trustee as the Paying Agent and the Registrar
under the Indenture.
The Company has no sinking fund or mandatory redemption obligations
with respect to the Notes.
The Company is subject to the informational reporting requirements of
Section 13 and 15(d) under the Exchange Act and, in accordance therewith, files
certain reports and other information with the Commission. See "Available
Information." The Indenture requires the Company, and the Company intends, to
distribute to holders of the Notes at their registered addresses copies of all
quarterly and annual financial reports and all other information, documents and
reports (or copies of such portions of any of the foregoing as the Commission
may by rules and regulations prescribe) which the Company is required to file
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, within
15 days of filing with the Commission. In addition, the Company has covenanted
in the Indenture that if Sections 13 and 15(d) cease to apply, the Company will
cause annual and quarterly financial statements, including any notes thereto
(and, with respect to annual reports, an auditors' report by an accounting firm
of established national reputation) and a "Management's Discussion and Analysis
of Financial Condition and Results of Operations," comparable to that which
would be required to appear in annual or quarterly reports under such
provisions, to be filed with the Commission for public availability and with the
Trustee, and to be mailed to Noteholders at their registered addresses within
the time periods specified in the Indenture.
Terms of the Notes
The Notes are unsecured senior obligations of the Company, limited to
$50 million aggregate principal amount, and will mature on June 15, 2003. Each
Note bears interest at 9 3/4% per annum (except as set forth in the following
paragraph) from June 15, 1997 or from the most recent Interest Payment Date to
which interest has been paid or provided for, payable semiannually (to Holders
of record at the close of business on the June 1 or December 1 immediately
preceding the Interest Payment Date) on June 15 and December 15 of each year,
commencing December 15, 1997.
If by six months after the date of initial sale of the Existing Notes
the Company has not consummated the Exchange Offer for the Existing Notes or
caused a shelf registration statement with respect to resales of the Existing
Notes to be declared effective, the interest rate on the Existing Notes will
increase by 0.5% per annum until the consummation of such Exchange Offer or the
effectiveness of such a registration statement.
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Optional Redemption
The Company may not redeem the Notes prior to June 15, 1998. On and
after such date, the Company may redeem the Notes at any time as a whole, or
from time to time in part, at the following redemption prices (expressed in
percentages of principal amount), plus accrued interest to the redemption date,
if redeemed during the 12-month period beginning June 15 of the years indicated
below:
Year Redemption Price
---- ----------------
1998 104.875%
1999 103.250%
2000 101.625%
2001 and thereafter 100.000%
Selection for Redemption
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee on a pro rata basis, by lot or by such
other method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee in its sole discretion shall deem to
be fair and appropriate; provided that no Note of $1,000 in original principal
amount or less shall be redeemed in part. If any Note is to be redeemed in part
only, the notice of redemption relating to such Note shall state the portion of
the principal amount thereof to be redeemed. A Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note.
Ranking
The Indebtedness evidenced by the Notes rank pari passu in right of
payment to all Senior Indebtedness of the Company (including the 1993 Notes) and
senior in right of payment to all Subordinated Obligations of the Company. In
addition, because the Company is a holding company that conducts substantially
all of its business through its Subsidiaries, all liabilities, including Bank
Credit Facility borrowings, of the Company's Subsidiaries are effectively senior
to the Notes. As of September 30, 1997, the Company (excluding its subsidiaries)
had $270.0 million of indebtedness outstanding, and the Company's Subsidiaries
had approximately $90.8 million of liabilities (including approximately $18.6
million of indebtedness) effectively senior to the Notes.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in
the Indenture.
"Additional Assets" means (i) any property or assets related to the
primary businesses of the Company and its Subsidiaries; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the acquisition
of such Capital Stock by the Company or another Restricted Subsidiary or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the covenants entitled "Transactions with Affiliates" and "Sales of
Assets" only, "Affiliate" shall also mean any beneficial owner of shares
representing 5% or more of the total voting power of the Voting Stock (on a
fully diluted basis) of the Company or of rights or warrants to purchase such
stock (whether or not currently exercisable) and any Person who would be an
Affiliate of any such beneficial owner pursuant to the first sentence hereof.
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"Asset Sale" means any sale, transfer or other disposition (including
by way of merger, consolidation or sale leaseback transactions, but excluding
(except as provided for in the provisions described in the last paragraph under
"-- Covenants -- Sales of Assets") those permitted by the provisions described
under "-- Merger and Consolidation") by the Company or any Subsidiary to any
Person other than the Company or any Wholly Owned Subsidiary, of (i) all or any
of the Capital Stock of any Restricted Subsidiary, (ii) all or substantially all
of the assets of any division or line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any Subsidiary
outside of the ordinary course of business of the Company or such Subsidiary;
provided, however, the term "Asset Sale" shall not include any sale, transfer or
disposition of assets in any fiscal year which, when taken individually or
combined with other sales, transfers or dispositions of assets during such
fiscal year, constitutes less than the sum of (x) 5% of the Company's Tangible
Net Assets as determined on the consolidated balance sheet of the Company as of
the end of the most recent fiscal quarter for which financial statements are
available plus (y) $5 million.
"Average Life" means, as of the date of determination, with respect to
any Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the
sum of the products of the numbers of years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness or
scheduled redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Business Day" means each day which is not a Legal Holiday.
"Capital Stock" means any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation or any
and all equivalent ownership interests in a Person (other than a corporation).
"Capitalized Lease Obligation" means an obligation that is required to
be classified and accounted for as a capitalized lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented by
such obligation shall be the capitalized amount of such obligation determined in
accordance with such principles; and the Stated Maturity thereof shall be the
date of the last payment of rent or any other amount due under such lease prior
to the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Change of Control" means any of the following events: (i) the
liquidation or dissolution of the Company, (ii) the acquisition by any "Person"
or related group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of
the Exchange Act, or any successor provision to either of the foregoing,
including any "group" acting for the purpose of acquiring, holding or disposing
of securities within the meaning of Rule 13d-5(b)(1) under the Exchange Act),
other than the Principals, in a single transaction or in a related series of
transactions, by way of merger, consolidation or other business combination or
purchase of beneficial ownership (within the meaning of Rule 13d-3 under the
Exchange Act, or any successor provision) of more than (x) 30% of the total
voting power entitled to vote in the election of the Board of Directors of the
Company or such other Person surviving the transaction and (y) the total voting
power (entitled to vote in the election of the Board of Directors of the Company
or such other Person surviving the transaction) of the Principals; (iii) during
any period of two consecutive years, individuals who at the beginning of such
period constituted the Company's Board of Directors (together with any new
directors whose election or appointment by such board or whose nomination for
election or appointment by the shareholders of the Company was approved by a
vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
two-thirds majority of the Company's Board of Directors then in office; or (iv)
the sale, transfer, conveyance or other disposition of all or substantially all
of the assets of IMS, Conversion Systems and TDS, taken as a whole.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters for which financial statements are available to
(ii) the Consolidated Interest Expense for such four fiscal quarters; provided,
however, (1) that if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding or (2)
if the transaction giving rise to the need to calculate the Consolidated
Coverage Ratio is (x) an Incurrence of Indebtedness or (y) a transaction covered
under the provisions described under "-- Merger and Consolidation," or any
combination of the foregoing, both EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving effect on a pro forma basis to (A)
any new Indebtedness Incurred during such period as if such Indebtedness had
been Incurred on the first
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day of such period and (B) the repayment, redemption, repurchase, defeasance or
discharge of any Indebtedness repaid, redeemed, repurchased, defeased or
discharged during such period with the proceeds of new Indebtedness (including
the Indebtedness giving rise to the need to calculate the Consolidated Coverage
Ratio) or from the sale of any Capital Stock (other than Redeemable Stock or
Exchangeable Stock) as if such repayment, redemption, repurchase, defeasance or
discharge had been made on the first day of such period; provided, further, that
if within the period during which EBITDA or Consolidated Interest Expense is
measured, the Company or any of its Restricted Subsidiaries shall have made any
Asset Sales, (1) the EBITDA for such period shall be reduced by an amount equal
to the EBITDA (if positive) directly attributable to the assets or Capital Stock
which are the subject of such Asset Sales for such period, or increased by an
amount equal to the EBITDA (if negative), directly attributable thereto for such
period and (2) the Consolidated Interest Expense for such period shall be
reduced by an amount equal to the Consolidated Interest Expense directly
attributable to any Indebtedness for which neither Company nor any Restricted
Subsidiary shall continue to be liable as a result of any such Asset Sale or
repaid, redeemed, defeased, discharged or otherwise retired in connection with
or with the proceeds of the assets or Capital Stock which are the subject of
such Asset Sales for such period; and provided, further, that if the Company or
any Restricted Subsidiary shall have made any acquisition of assets or Capital
Stock (occurring by merger or otherwise) since the beginning of such period
(including any acquisition of assets or Capital Stock occurring in connection
with a transaction causing a calculation to be made hereunder) the EBITDA and
Consolidated Interest Expense for such period shall be calculated, after giving
pro forma effect thereto (and without regard to clause (ii) of the proviso to
the definition of "Consolidated Net Income"), as if such acquisition of assets
or Capital Stock took place on the first day of such period. For purposes of
this definition, whenever pro forma effect is to be given to an acquisition of
assets or Capital Stock, the amount of income or earnings relating thereto, and
the amount of Consolidated Interest Expense associated with any Indebtedness
Incurred in connection therewith, shall be determined in good faith by a
responsible financial or accounting officer of the Company.
"Consolidated Interest Expense" means, for any period, the sum of,
without duplication, (a) the total interest expense of the Company and its
consolidated subsidiaries (other than Unrestricted Subsidiaries), determined on
a consolidated basis in accordance with GAAP, including (i) interest expense
attributable to capital leases, (ii) amortization of debt discount and debt
issuance cost, (iii) noncash interest payments, (iv) amortization of
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (v) interest actually paid by the
Company or any such subsidiary under any guarantee of Indebtedness or other
obligation of any other Person and (vi) net costs incurred during such period
under interest rate swaps, caps, collars, options and similar arrangements and
foreign exchange hedges (including amortization of fees); (b) the product of (x)
the aggregate amount for such period of Preferred Stock dividends paid (in cash)
during such period in respect of all Preferred Stock of the Company and its
consolidated subsidiaries (other than Unrestricted Subsidiaries) excluding any
such dividends paid to the Company or any Wholly Owned Subsidiary and (y) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory income tax
rate, expressed as a decimal; and (c) the cash contributions to any employee
stock ownership plan to the extent such contributions are used by such employee
stock ownership plan to pay interest or fees to any person (other than the
Company or a Restricted Subsidiary) in connection with loans incurred by such
employee stock ownership plan to purchase Capital Stock of the Company.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated subsidiaries, determined on a consolidated basis in
accordance with GAAP; provided, however, that there shall not be included in
such Consolidated Net Income: (i) any net income of any Person if such Person is
not a Restricted Subsidiary, except that (A) the Company's equity in the net
income of any such Person for such period shall be included in such Consolidated
Net Income up to the aggregate amount of cash actually distributed by such
Person during such period to the Company or a Subsidiary as a dividend or other
distribution and (B) the Company's equity in a net loss of any such Person for
such period shall be included in determining such Consolidated Net Income (other
than with respect to an Unrestricted Subsidiary in which case the Company's
equity in any such net loss shall not be so included); (ii) any net income (or
loss) of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any gains in excess of losses realized upon the sale or other disposition
of any property, plant or equipment of the Company or its Restricted
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which is
not sold or otherwise disposed of in the ordinary course of business and any
gains in excess of losses realized upon the sale or other disposition by the
Company or any Restricted Subsidiary of any Capital Stock of any Person; (iv)
any reduction applicable to a charge in lieu of income taxes resulting from (x)
the application of the Company's tax loss carryforwards attributable to periods
prior to the confirmation of the Reorganization Plan or (y) the payment of
liabilities recorded in conjunction with the Company's 1988 acquisition of IU
International Corporation; and (v) the cumulative effect of a change in
accounting principles; and (vi) any extraordinary losses resulting from the
Recapitalization.
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"Consolidated Net Worth" of the Company means the total of the amounts
shown on the consolidated balance sheet of the Company and its consolidated
subsidiaries (other than Unrestricted Subsidiaries), determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company for which financial statements are available prior
to the taking of any action for the purpose of which the determination is being
made, as (i) the par or stated value of all outstanding Capital Stock of such
person plus (ii) paid-in capital or capital surplus relating to such Capital
Stock plus (iii) any retained earnings or earned surplus less (A) any
accumulated deficit to the extent, if any, not reflected in retained earnings or
earned surplus, (B) any amounts attributable to Redeemable Stock issued by the
Company (to the extent otherwise included) and (C) any amounts attributable to
Exchangeable Stock issued by the Company (to the extent otherwise included).
"Conversion Systems" means Conversion Systems, Inc., a Delaware
corporation.
"Credit Agreement" means that certain Credit Agreement, dated as of
June 24, 1993, by and among the Company, IMS and the several lenders from time
to time parties thereto, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, in each
case as amended or modified, and further including any agreement or agreements
(including that certain Credit Agreement, dated as of December 19, 1995, by and
among the Company, IMS and the several lenders from time to time parties
thereto, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, as amended or
modified) that renew, refund, replace or refinance the same.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"EBITDA" for any period means the sum of Consolidated Net Income (but
without giving effect to adjustments, accruals, deductions or entries resulting
from purchase accounting for transactions which occur after the date of the 1993
Indenture, extraordinary losses or gains and any gains or losses from any
transaction of the type described in clause (iii) of the definition of
"Consolidated Net Income"), plus the following to the extent includable in
calculating Consolidated Net Income: (a) all tax expense relating to taxes based
on income or profit, (b) Consolidated Interest Expense, (c) depreciation
expense, and (d) amortization expense (including any permit and closure costs
amortization and accruals relating to landfills) in each case for such period.
"Exchangeable Stock" means any Capital Stock which by its terms is
exchangeable or convertible at the option of any Person other than the Company
into another security (other than Capital Stock of the Company which is neither
Exchangeable Stock nor Redeemable Stock).
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which were in effect on the date of the 1993 Indenture.
"Guarantee" is defined to mean any obligation, contingent or otherwise,
of any Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person and, without limiting the generality of the
foregoing, any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Indebtedness or other obligation of such other Person (whether
arising by virtue of partnership arrangements, or by agreement to keep-well, to
purchase assets, goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Holder" or "Noteholder" means the Person in whose name a Note is
registered on the Registrar's books.
"Incur" means, as applied to any obligation, to create, incur, issue,
assume, guarantee or in any other manner become liable with respect to,
contingently or otherwise, such obligation, and "Incurred," "Incurrence" and
"Incurring" shall each have a correlative meaning; provided, however, that any
Indebtedness or Capital Stock of a Person existing at the time
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such Person becomes (after the date of the Indenture) a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be Incurred
by such Subsidiary at the time it becomes a Subsidiary; and provided further,
that any amendment, modification or waiver of any provision of any document
pursuant to which Indebtedness was previously Incurred shall not be deemed to be
an Incurrence of Indebtedness as long as (i) such amendment, modification or
waiver does not (A) if such Indebtedness is contractually subordinated in right
of payment to the Notes, change to an earlier date the Stated Maturity thereof
or the date of any scheduled or required principal payment thereon or the time
or circumstances under which such Indebtedness may or shall be redeemed, (B) if
such Indebtedness is contractually subordinated in right of payment to the
Notes, modify or affect, in any manner adverse to the Holders, such
subordination, (C) if the Company is the obligor thereon, provide that a
Restricted Subsidiary shall be an obligor or (D) violate, or cause the
Indebtedness to violate, the provisions described under "-- Covenants --
Limitation on Payment Restrictions Affecting Subsidiaries" and "-- Limitation on
Liens" and (ii) such Indebtedness would, after giving effect to such amendment,
modification or waiver as if it were an Incurrence, comply with the provisions
of clause (i) of the first proviso to the definition of "Refinancing
Indebtedness."
"Indebtedness" of any Person means, without duplication, (i) the
principal of and premium (if any such premium is then due and owing) in respect
of (A) indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable; (ii) all Capitalized
Lease Obligations of such Person; (iii) all obligations of such Person Incurred
as the deferred purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement; (iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit securing
obligations (other than obligations described in (i) through (iii) above)
entered into in the ordinary course of business of such Person to the extent
such letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed no later than the tenth Business Day following
receipt by such Person of a demand for reimbursement following payment on the
letter of credit); (v) the amount of all obligations of such Person with respect
to the scheduled redemption, repayment or other repurchase prior to the Stated
Maturity of the Notes of any Redeemable Stock and, with respect to any
Subsidiary (other than a Wholly Owned Subsidiary), any other Preferred Stock
(but excluding in each case any accrued dividends, provided that for purposes of
the definition of "Refinancing Indebtedness", such accrued dividends shall not
be excluded); (vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the payment
of which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee, the amount of any such obligation to be the maximum amount of such
Person's responsibility or liability for the guaranteed obligation; and (vii)
all obligations of the type referred to in clauses (i) through (vi) of other
Persons secured by any Lien on any property or asset of such Person (whether or
not such obligation is assumed by such Person), the amount of such obligation
being deemed to be the lesser of the value of such property or assets or the
amount of the obligation so secured; provided, however, that Indebtedness shall
not include trade accounts payable arising in the ordinary course of business.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Notes.
"Investment" in any Person means any loan or advance to, any
acquisition of Capital Stock, equity interest, obligation or other security of,
or capital contribution or other investment in, or any Guarantee with respect
to, such Person. For purposes of the definition of "Unrestricted Subsidiary" and
the covenant described under "-- Covenants -- Limitation on Restricted Payments"
only, (i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary at the time that such Subsidiary is designated an Unrestricted
Subsidiary and shall exclude the portion (proportionate to the Company's equity
interest in such Subsidiary) of the fair market value of the net assets of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company; and (ii) any property
transferred to or from an Unrestricted Subsidiary shall be valued at its fair
market value at the time of such transfer, in each case as determined by the
Board of Directors in good faith.
"Lien" means any mortgage, lien, pledge, charge, or other security
interest or encumbrance of any kind.
"Net Available Cash" means the cash payments received by the Company or
a Subsidiary in connection with an Asset Sale (including any cash received by
way of deferred payment of principal pursuant to a note or installment
receivable or otherwise, but only as and when received) net of (i) all legal,
title and recording tax expenses, commissions and other fees and expenses
Incurred, and all federal, state, local and foreign taxes required to be paid,
or accrued as a liability under
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GAAP, as a consequence of such Asset Sale, (ii) all payments made on any
Indebtedness which is secured by any assets subject to such Asset Sale, in
accordance with the terms of any Lien upon or other security agreement of any
kind with respect to such assets, or which must by its terms, or in order to
obtain a necessary consent to such Asset Sale, or by applicable law be repaid
out of the proceeds from such Asset Sale, (iii) all distributions and other
payments required to be made to minority interest holders in Subsidiaries as a
result of such Asset Sale, and (iv) any liabilities associated with the assets
sold pursuant to such Asset Sale and retained by the Company or any Subsidiary
after such Asset Sale, and any reasonable amount reserved for indemnification
obligations relating to such Asset Sale, in each case as determined in
accordance with GAAP.
"Net Cash Proceeds" means, with respect to any issuance or sale of
Capital Stock, the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultancy and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"1993 Indenture" means that certain Indenture, dated as of July 1,
1993, between the Company and United States Trust Company of New York, as
trustee, as amended or modified.
"1993 Notes" means the $220 million aggregate principal amount of 9
3/4% Senior Notes due 2003 issued under the 1993 Indenture, as amended or
modified.
"Non-Convertible Capital Stock" means, with respect to any corporation,
any Capital Stock of such corporation which is not convertible into another
security (other than non-convertible common stock of such corporation);
provided, however, that Non-Convertible Capital Stock shall not include any
Redeemable Stock or Exchangeable Stock.
"Permitted Liens" means, with respect to any Person, (a) pledges or
deposits by such Person under workmen's compensation laws, unemployment
insurance laws or similar legislation, or good faith deposits in connection with
bids, tenders, contracts (other than for the payment of Indebtedness) or leases
to which such Person is a party, or deposits to secure public or statutory
obligations of such Person or deposits of cash or United States Government bonds
to secure surety or appeal bonds to which such Person is a party, or deposits as
security for contested taxes or import duties or for the payment of rent, in
each case Incurred in the ordinary course of business; (b) Liens imposed by law,
such as carriers', warehousemen's and mechanics' Liens in each case for sums not
yet due or being contested in good faith by appropriate proceedings or other
Liens arising out of judgments or awards against such Person with respect to
which such Person shall then be prosecuting appeal or other proceedings for
review; (c) Liens for taxes not yet subject to penalties for nonpayment or which
are being contested in good faith and by appropriate proceedings; (d) Liens in
favor of issuers of surety bonds or letters of credit issued pursuant to the
request of and for the account of such Person in the ordinary course of its
business; provided, however that such letters of credit may not constitute
Indebtedness; (e) minor survey exceptions, minor encumbrances, easements or
reservations of, or rights of others for, rights of way, sewers, electric lines,
telegraph and telephone lines and other similar purposes, or zoning or other
restrictions as to the use of real properties or Liens incidental to the conduct
of the business of such Person or to the ownership of its properties which were
not Incurred in connection with Indebtedness or other extensions of credit and
which do not in the aggregate materially adversely affect the value of said
properties or materially impair their use in the operation of the business of
such Person; (f) Liens securing Indebtedness Incurred to finance the
construction or purchase of, or repairs, improvements or additions to, property;
provided, however, that such property can be pledged to secure only such
Indebtedness which is permitted under the covenant described under "-- Covenants
- -- Limitation on Incurrence of Indebtedness" reduced dollar-for-dollar by the
outstanding principal amount of Indebtedness in excess of $60 million secured in
reliance on clause (g) of this definition; provided further, however, that the
Lien may not extend to any property (other than the property purchased,
constructed, repaired or improved or contracts relating to the use of such
property and/or revenues generated by such property) owned by the Company or any
Restricted Subsidiary at the time the Lien is Incurred, and the Indebtedness
secured by the Lien may not be Incurred more than 365 days after the later of
the acquisition, completion of construction, repair, improvement, addition or
commencement of full operation of the property subject to the Lien; and
provided, further, however, that subject to clause (o) below, any such Lien
securing such Indebtedness Incurred after October 13, 1995 may extend only to
property purchased, constructed, repaired or improved after October 13, 1995 and
contracts relating to the use of such property and revenues generated by such
property after such date; (g) Liens to secure Indebtedness under the Credit
Agreement of up to $100 million in aggregate principal amount outstanding at any
one time and all Guarantees thereof; (h) Liens existing on the date of the 1993
Indenture; (i) Liens on property or shares of stock of a Person at the time such
Person becomes a Subsidiary; provided, however, that
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any such Lien may not extend to any other property owned by the Company or any
Restricted Subsidiary; (j) Liens on property at the time the Company or a
Subsidiary acquires the property, including any acquisition by means of a merger
or consolidation with or into the Company or a Subsidiary; provided, however,
that (x) the Lien may not extend to any other property owned by the Company or
any Restricted Subsidiary and (y) in the case of a merger or consolidation, the
Lien was in existence prior to the contemplation of such merger or
consolidation; (k) Liens securing Indebtedness or other obligations of a
Subsidiary owing to the Company or a Wholly Owned Subsidiary; (l) Liens Incurred
by a Person other than the Company or any Subsidiary on assets that are the
subject of a Capitalized Lease Obligation to which the Company or a Subsidiary
is a party; provided, however, that any such Lien may not secure Indebtedness of
the Company or any Subsidiary (except by virtue of clause (vii) of the
definition of "Indebtedness") and may not extend to any other property owned by
the Company or any Restricted Subsidiary; (m) Liens to secure Indebtedness
permitted under clause (vii) in the second paragraph under "-- Covenants --
Limitation on Incurrence of Indebtedness," provided that such Liens may not
extend to any property other than (i) property owned by Envirosafe Services of
Idaho, Inc. and (ii) property used to secure the Indebtedness permitted under
clause (vii) in the second paragraph under "-- Covenants -- Limitation on
Incurrence of Indebtedness;" (n) Liens by which the Notes are secured equally
and ratably with other Indebtedness of the Company pursuant to the provisions
described under "-- Covenants -- Limitation on Liens;" and (o) Liens to secure
any refinancing, refunding, extension, renewal or replacement (or successive
refinancings, refundings, extensions, renewals or replacements) as a whole, or
in part, of any Indebtedness secured by any Lien referred to in the foregoing
clauses (f), (g), (h), (i) and (j); provided, however, that (x) such new Lien
shall be limited to all or part of the same property that secured the original
Lien (plus improvements on such property), except that in the case of
Indebtedness secured by Liens otherwise permitted under clause (f), such Liens
may extend to the property contemplated by clause (f) so long as such Liens
would otherwise be permitted thereunder, and (y) the Indebtedness secured by
such Lien at such time is not increased (other than by an amount necessary to
pay fees and expenses, including premiums, related to the refinancing,
refunding, extension, renewal or replacement of such Indebtedness).
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock", as applied to the Capital Stock of any corporation,
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"Principal" means (i) Freeman Spogli & Co., a California general
partnership, and any of its affiliates and (ii) any member of the executive
management of the Company prior to the occurrence of the circumstance
constituting a potential Change of Control.
"Recapitalization" means the following transactions effected by the
Company: (i) an investment in equity securities of the Company by certain
affiliates of Freeman Spogli & Co. and certain other Persons in May 1993, (ii)
the public offering and sale of the 1993 Notes, and (iii) the repayment,
repurchase or defeasance of certain Indebtedness of the Company substantially
contemporaneously with the sale of the 1993 Notes.
"Redeemable Stock" means any Capital Stock that by its terms or
otherwise is required to be redeemed (other than upon a Change of Control or
Asset Sale) on or prior to the first anniversary of the Stated Maturity of the
Notes or is redeemable at the option of the holder thereof (other than upon a
Change of Control or Asset Sale) at any time on or prior to the first
anniversary of the Stated Maturity of the Notes.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances,
replaces, renews, repays or extends (including pursuant to any defeasance or
discharge mechanism) (collectively, "refinances," with "refinanced" having a
correlative meaning) any Indebtedness existing on the date of the 1993 Indenture
or Incurred in compliance with the Indenture (or, if Incurred prior to the date
of the Indenture, with the 1993 Indenture) (including Indebtedness of the
Company that refinances Indebtedness of any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary that refinances Indebtedness of
another Restricted Subsidiary) including Indebtedness that refinances
Refinancing Indebtedness; provided, however, that (i) the Refinancing
Indebtedness is contractually subordinated in right of payment to the Notes and
the 1993 Notes to at least the same extent (if any) as the Indebtedness being
refinanced or such refinancing is permitted under the covenants described under
"-- Covenants -- Limitation on Restricted Payments," (ii) where the Indebtedness
being refinanced
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is not Senior Indebtedness, the Refinancing Indebtedness is scheduled to mature
either (a) no earlier than the Indebtedness being refinanced or (b) after the
Stated Maturity of the Notes, (iii) the Refinancing Indebtedness has an Average
Life at the time such Refinancing Indebtedness is Incurred that is equal to or
greater than the Average Life of the Indebtedness being refinanced and (iv) such
Refinancing Indebtedness is in an aggregate principal amount (or if issued with
original issue discount, an aggregate issue price) that is equal to or less than
the aggregate principal amount (or if issued with original issue discount, the
aggregate accreted value) then outstanding (plus fees and expenses, including
any premium and defeasance costs) under the Indebtedness being refinanced;
provided, that Refinancing Indebtedness shall not include Indebtedness of a
Subsidiary that refinances Indebtedness of the Company.
"Reorganization Plan" means the reorganization plan of White Motor
Corporation, the Company's predecessor corporation, pursuant to which it emerged
from its reorganizational proceedings in 1983.
"Restricted Payment" with respect to any Person means (i) the
declaration or payment of any dividends or any other distributions of any sort
in respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving the Company) or similar payment to the direct
or indirect holders of its Capital Stock (other than dividends or distributions
payable solely in Capital Stock or rights to acquire Non-Convertible Capital
Stock and dividends or distributions payable solely to the Company or a
Restricted Subsidiary, and other than pro rata dividends or other distributions
made by a Subsidiary that is not a Wholly Owned Subsidiary, if such Subsidiary
was not a Wholly Owned Subsidiary on the date of the 1993 Indenture, to minority
stockholders (or owners of an equivalent interest in the case of a Subsidiary
that is an entity other than a corporation)), (ii) the purchase, redemption or
other acquisition or retirement for value of any Capital Stock of the Company or
any Subsidiary or other Affiliate of the Company (other than any Capital Stock
owned by the Company or any Wholly Owned Subsidiary), or the exercise by the
Company of any option to exchange any Capital Stock that by its terms is
exchangeable solely at the option of the Company (other than into Capital Stock
of the Company which is neither Exchangeable Stock nor Redeemable Stock),
provided that the issuance by the Company of Capital Stock (other than
Redeemable Stock or Exchangeable Stock) upon the conversion by its terms of any
convertible Capital Stock or other security or the exercise of any option or
warrant to purchase Capital Stock shall not constitute a Restricted Payment,
(iii) the purchase, repurchase, redemption, defeasance or other acquisition or
retirement for value, prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Subordinated Obligations (other than the
purchase, repurchase or other acquisition of Subordinated Obligations purchased
in anticipation of satisfying a sinking fund obligation, principal installment
or final maturity, in each case due within one year of the date of acquisition)
or (iv) the making of any Investment in any Unrestricted Subsidiary or any
Affiliate of the Company other than a Restricted Subsidiary or a Person which
will become a Restricted Subsidiary as a result of any such Investment.
"Restricted Subsidiary" shall mean IMS, Conversion Systems and the
Envirosafe Companies, any intermediate holding company between such Restricted
Subsidiary and the Company and any other Subsidiary that is not an Unrestricted
Subsidiary.
"Senior Indebtedness" means other senior Indebtedness of the Company,
including Indebtedness under the Credit Agreement and 1993 Notes, ranking pari
passu with the Notes.
"Significant Subsidiary" means any Subsidiary (other than an
Unrestricted Subsidiary) that would be a "Significant Subsidiary" of the Company
within the meaning of Rule 1-02 under Regulation S-X promulgated by the
Commission.
"Stated Maturity" means, with respect to any security, the date
specified in such security as the fixed date on which the principal of such
security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such
security at the option of the holder thereof upon the happening of any
contingency).
"Subordinated Obligation" means any Indebtedness of the Company
(whether outstanding on the date of the Indenture or hereafter Incurred) which
is contractually subordinate or junior in right of payment to the Notes and the
1993 Notes.
"Subsidiary" means (i) a corporation at least a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect a
majority of the Board of Directors of such corporation is at the time, directly
or indirectly, owned or controlled by the Company, by a Subsidiary or
Subsidiaries of the Company, or by the Company and a Subsidiary or
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Subsidiaries of the Company or (ii) any other Person (other than a corporation)
in which the Company, a Subsidiary or Subsidiaries of the Company, directly or
indirectly, at the date of determination, has at least a majority ownership
interest.
"Tangible Net Assets" with respect to any Person means the consolidated
assets of such Person determined in accordance with GAAP, except that there
shall be deducted therefrom all intangible assets (including goodwill and any
other intangibles determined in accordance with GAAP but which shall not include
landfill permits, closure trust funds and deferred charges and unamortized debt
issuance costs).
"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors in the manner provided below and (ii) any subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, the Company or any other Subsidiary that is not a
subsidiary of the Subsidiary to be so designated; provided, however, that either
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
if such Subsidiary has assets greater than $1,000, that such designation would
be permitted under the covenant entitled "Limitation on Restricted Payments."
The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary of the Company; provided, however, that immediately after
giving effect to such designation (x) to the extent that the Unrestricted
Subsidiary has any Indebtedness (other than Indebtedness that could be Incurred
under clauses (ii)-(vi) under "-- Covenants -- Limitation on Incurrence of
Indebtedness"), the Company could Incur $1.00 of additional Indebtedness
pursuant to the provisions described in the first paragraph under "-- Covenants
- -- Limitation on Incurrence of Indebtedness" after giving pro forma effect to
such Unrestricted Subsidiary's Indebtedness as if it had been Incurred at the
beginning of the applicable four-quarter period and (y) no Default shall have
occurred and be continuing. Any such designation by the Board of Directors shall
be evidenced to the Trustee by promptly filing with the Trustee a copy of the
board resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions;
provided, however, that the failure to so file such resolution and/or Officers'
Certificate with the Trustee shall not impair or affect the validity of such
designation.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) are not callable or redeemable before the maturity thereof.
"Voting Stock" with respect to any Person means the Capital Stock
normally entitled to vote in elections of the Board of Directors.
"Wholly Owned Subsidiary" means a Subsidiary (other than an
Unrestricted Subsidiary) all the Capital Stock of which (other than directors'
qualifying shares) is owned by the Company or another Wholly Owned Subsidiary.
Covenants
The Indenture contains covenants including, among others, the
following:
Limitation on Restricted Payments
Under the terms of the Indenture, so long as any of the Notes are
outstanding, the Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, make any Restricted Payment, unless (i)
no Default under the Indenture shall have occurred and be continuing (or would
result therefrom); (ii) upon giving effect, as if paid, to the proposed
Restricted Payment, the Company would be permitted to Incur an additional $1.00
of Indebtedness pursuant to the provisions described in the first paragraph
under "-- Limitation on Incurrence of Indebtedness;" and (iii) upon giving
effect, as if paid, to the proposed Restricted Payment, the aggregate amount of
all such Restricted Payments subsequent to the date of the 1993 Indenture shall
not exceed the sum of (A) 50% of aggregate Consolidated Net Income accrued
during the period (treated as one accounting period) from the beginning of the
fiscal quarter beginning after the date of the 1993 Indenture to the end of the
most recent fiscal quarter for which financial statements are available, (or if
such Consolidated Net Income is a deficit, minus 100% of such deficit), and
minus 100% of the amount of any write-downs, write-offs and other negative
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revaluations not otherwise reflected in Consolidated Net Income during such
period; (B) the aggregate Net Cash Proceeds received by the Company after the
date of the 1993 Indenture from the issue or sale (other than to a Subsidiary or
an employee stock ownership plan) of Capital Stock (other than Redeemable Stock
or Exchangeable Stock) of the Company and warrants, options or other rights to
acquire such Capital Stock; (C) the amount by which the principal amount of and
any accrued interest on Indebtedness of the Company or its Restricted
Subsidiaries is reduced on the Company's consolidated balance sheet upon the
conversion or exchange (other than by a Subsidiary) subsequent to the date of
the 1993 Indenture of any Indebtedness of the Company or any Restricted
Subsidiary convertible or exchangeable for Capital Stock (other than Redeemable
Stock or Exchangeable Stock) of the Company (less the amount of any cash, or the
value of any other property, distributed by the Company or any Restricted
Subsidiary upon such conversion or exchange); and (D) an amount equal to the net
reduction in Investments in Unrestricted Subsidiaries resulting from payments of
interest on Indebtedness, dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or any Restricted Subsidiary
from Unrestricted Subsidiaries, or from redesignations of Unrestricted
Subsidiaries as Restricted Subsidiaries (valued in each case as provided in the
definition of "Investments"), or resulting from the receipt of proceeds from the
sale or other disposition of an Unrestricted Subsidiary, not to exceed in the
case of any Unrestricted Subsidiary the amount of Investments previously made by
the Company or any Restricted Subsidiary in such Unrestricted Subsidiary and
which was treated as a Restricted Payment under the Indenture or the 1993
Indenture (excluding the amount of any such Investment made pursuant to the
provisions described in clause (iv) of the next paragraph under the 1993
Indenture).
Notwithstanding the limitations set forth under clauses (ii) and (iii)
of the preceding paragraph (and in addition to the amount (if any) of Restricted
Payments permitted to be made under such clause (iii)) and as long as no Default
shall have occurred and be continuing (or would result therefrom), the Company
and the Restricted Subsidiaries may make Restricted Payments which in the
aggregate while any of the Notes remain outstanding do not exceed $3 million. In
addition, the failure to satisfy the conditions set forth in clauses (ii) and
(iii) of the preceding paragraph will not prohibit any of the following as long
as the condition set forth in clause (i) of the preceding paragraph (except as
set forth below) is satisfied (and payments made in accordance with the
following will not (except as set forth in clause (iii) below) be included in
the calculation of Restricted Payments described in clause (iii) of the
preceding paragraph and will not be taken into account for purposes of the
preceding sentence): (i) any purchase or redemption of Capital Stock or
Subordinated Obligations of the Company made by exchange for, conversion of, or
in an amount not in excess of the proceeds of the substantially concurrent sale
of, Capital Stock of the Company (other than (x) Redeemable Stock or
Exchangeable Stock and (y) Capital Stock issued or sold to a Subsidiary or an
employee stock ownership plan); provided, however, that notwithstanding clause
(i) of the preceding paragraph, the occurrence or existence of a Default shall
not prohibit the making of such purchase or redemption; and provided, further,
the Net Cash Proceeds from such sale shall be excluded from subclause (B) of
clause (iii) of the preceding paragraph; (ii) any purchase or redemption of
Subordinated Obligations of the Company made by exchange for, or in an amount
not in excess of the proceeds of the substantially concurrent Incurrence of,
Indebtedness of the Company; provided, however, that such Indebtedness (A) shall
be contractually subordinated in right of payment to the Notes and the 1993
Notes to at least the same extent as the Subordinated Obligations so exchanged,
purchased or redeemed, (B) shall be scheduled to mature either (x) no earlier
than such Subordinated Obligations or (y) after the Stated Maturity of the Notes
and (C) shall have an Average Life equal to or greater than the Average Life of
such Subordinated Obligations; (iii) dividends paid within 60 days after the
date of declaration thereof if at such date of declaration such dividend would
have complied with the provisions of the Indenture; provided, however, that
notwithstanding clause (i) of the preceding paragraph, the occurrence or
existence of a Default at such time of payment shall not prohibit the payment of
such dividends; and provided, further that such dividends shall be included in
the calculation of the amount of Restricted Payments described in clause (iii)
of the preceding paragraph; (iv) Investments in Unrestricted Subsidiaries in an
aggregate amount not to exceed $5 million in any fiscal year since the date of
the 1993 Indenture; provided, however, any portion thereof not utilized under
the Indenture or the 1993 Indenture since the date of the 1993 Indenture may be
utilized in any subsequent year; (v) any repurchase of the Company's Common
Stock required to be repurchased by the Company's Reorganization Plan as in
effect on the date of the 1993 Indenture; (vi) loans to employees of the Company
or its Subsidiaries extended in connection with purchases of Capital Stock of
the Company not to exceed $3 million in the aggregate at any time outstanding;
or (vii) the redemption from time to time of all or any part of the Company's
Subordinated Notes due 1998 or the other retirement of such Subordinated Notes
called for redemption in 1993.
Limitation on Incurrence of Indebtedness
Under the terms of the Indenture, the Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, Incur any
Indebtedness (other than the Notes and any other Indebtedness outstanding as of
the date of the
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Indenture) unless, in the case of Indebtedness Incurred by the Company, after
giving effect thereto, the Consolidated Coverage Ratio determined at the time of
such Incurrence is greater than or equal to 2.25 to 1.
The foregoing provision will not limit the ability of the Company or
any Restricted Subsidiary to Incur the following Indebtedness: (i) Refinancing
Indebtedness; provided, however, that the characterization of Indebtedness as
Refinancing Indebtedness may not cause or permit Indebtedness Incurred under
clauses (ii), (iii), (v) or (vii) below to exceed the maximum amounts allowed by
the terms of each such clause, and, to that end (x) if Refinancing Indebtedness
is Incurred to refinance any Indebtedness originally Incurred under either of
clauses (ii) or (iii) then the amount of Indebtedness permitted under such
clause in question shall be reduced by the amount of such Refinancing
Indebtedness (and any Refinancing Indebtedness that directly or indirectly
refinances such Refinancing Indebtedness) outstanding at the time of
determination, and (y) if Refinancing Indebtedness is Incurred to refinance any
Indebtedness originally Incurred under either of clauses (v) or (vii) then the
amount of Indebtedness permitted under such clause in question shall be reduced
permanently by the amount of such Refinancing Indebtedness; (ii) in addition to
any Indebtedness otherwise permitted to be Incurred under the Indenture, up to
$30 million in aggregate principal amount of Indebtedness of the Company and its
Restricted Subsidiaries at any one time outstanding; provided that the amount of
such Indebtedness Incurred by Restricted Subsidiaries shall not exceed $15
million in aggregate principal amount at any one time outstanding; (iii) in
addition to any Indebtedness otherwise permitted to be Incurred under the
Indenture, Indebtedness under the Credit Agreement of up to $60 million in
aggregate principal amount outstanding at any one time and all Guarantees
thereof; (iv) Indebtedness of the Company which is owed to and held by a Wholly
Owned Subsidiary and Indebtedness of a Wholly Owned Subsidiary which is owed to
and held by the Company or a Wholly Owned Subsidiary; provided, however, that
any subsequent issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
transfer of such Indebtedness (other than to the Company or a Wholly Owned
Subsidiary) shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness by the Company or by a Wholly Owned Subsidiary, as the case may be;
(v) Indebtedness solely to finance capital expenditures of the Company or any
Restricted Subsidiary in an aggregate principal amount not to exceed in any
fiscal year $30 million; provided, however, that if in any fiscal year ended
after the date of the 1993 Indenture the amount of Indebtedness Incurred solely
to finance capital expenditures of the Company or any Restricted Subsidiary was
or is less than $30 million, such unused portion may be utilized in any
subsequent year; and provided further that in calculating the amount of
Indebtedness permitted to be Incurred under this clause (v) in any fiscal year,
there shall also be included any Indebtedness Incurred under clause (vii) below
in such fiscal year; (vi) Guarantees by the Company, or by any Restricted
Subsidiary, of Indebtedness of any Restricted Subsidiary or the Company;
provided that such Indebtedness is permitted to be Incurred by the Company or
such Restricted Subsidiary pursuant to the provisions of this covenant; and
(vii) Indebtedness not to exceed $12 million in aggregate principal amount
Incurred since the date of the 1993 Indenture as industrial development
financing by Envirosafe Services of Idaho, Inc.; provided that no Indebtedness
may be Incurred under this clause (vii) unless at the time of Incurrence, and
after giving effect thereto, the Company and its Restricted Subsidiaries could
Incur $1.00 of Indebtedness under clause (v) above.
Notwithstanding the provisions of this covenant described above, the
Indenture provides that the Company or any Restricted Subsidiary shall not Incur
any Indebtedness if the proceeds thereof are used, directly or indirectly, to
repay, prepay, redeem, defease, retire, refund or refinance any Subordinated
Obligations unless such repayment, prepayment, redemption, defeasance,
retirement, refunding or refinancing is not prohibited under "-- Limitation on
Restricted Payments" or unless such Indebtedness shall be subordinated to the
Notes and the 1993 Notes to at least the same extent as such Subordinated
Obligations.
The $50,000,000 of indebtedness represented by the Notes was incurred
to refinance Bank Credit Facility debt used to finance capital expenditures as
well as to finance future capital expenditures. As a result, the amounts
available for capital expenditure financing in the above-mentioned clause (v)
have been reduced by $50,000,000. See "Use of Proceeds."
Limitation on Payment Restrictions Affecting Subsidiaries
Under the terms of the Indenture, the Company shall not, and shall not
permit any Subsidiary, to, create or otherwise cause or permit to exist or
become effective any consensual encumbrance or restriction on the ability of any
Restricted Subsidiary to (i) pay dividends to or make any other distributions on
its Capital Stock to, or pay any Indebtedness or other obligations owed to, the
Company or any Restricted Subsidiary, (ii) make any loans or advances to the
Company or (iii) transfer any of its property or assets to the Company;
provided, however, that the foregoing shall not apply to (a) any encumbrance or
restriction pursuant to the Indenture, the 1993 Indenture or any other agreement
or instrument in effect at
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or entered into on the date of the 1993 Indenture; (b) any encumbrance or
restriction with respect to a Subsidiary pursuant to an agreement relating to
any Indebtedness Incurred by such Subsidiary on or prior to the date on which
such Subsidiary becomes a Subsidiary and outstanding on such date; (c) any
encumbrance or restriction pursuant to an agreement effecting (1) a refinancing
of Indebtedness referred to in clause (a) or (b) above or contained in any
amendment or modification with respect to such Indebtedness or (2) any other
Indebtedness Incurred pursuant to the provisions described in clause (iii) of
the second paragraph under "-- Limitation on Incurrence of Indebtedness;"
provided, however, that the encumbrances and restrictions contained in any such
agreement, amendment or modification are no more restrictive in any material
respect with respect to the matters referred to in clauses (i), (ii) and (iii)
above than the encumbrances and restrictions with respect to (x) the
Indebtedness being refinanced, amended or modified in the case of clause (1), or
(y) the Credit Agreement, in the case of clause (2); (d) in the case of clause
(iii) above, customary non-assignment provisions of any leases governing a
leasehold interest or of any supply, license or other agreement entered into in
the ordinary course of business of the Company or any Subsidiary; (e) any
restrictions with respect to a Subsidiary imposed pursuant to an agreement
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary pending the closing of such sale or
disposition; (f) in the case of clause (iii) above, restrictions contained in
security agreements securing Indebtedness of a Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements; or (g) any encumbrance or restriction existing by reason of
applicable law.
Limitation on Liens
Under the terms of the Indenture, the Company shall not, and shall not
permit any Restricted Subsidiary to, directly or indirectly, Incur or permit to
exist any Lien of any nature whatsoever on any of its properties (including,
without limitation, Capital Stock of a Restricted Subsidiary), whether owned at
the date of the Indenture or thereafter acquired, other than Permitted Liens,
without effectively providing that the Notes shall be secured equally and
ratably with (or prior to) the obligations so secured for so long as such
obligations are so secured.
Limitations on Issuance of Capital Stock by Subsidiaries
Under the terms of the Indenture, the Company will not permit any
Restricted Subsidiary to issue any Capital Stock to any Person (other than to
the Company or a Wholly Owned Subsidiary) or declare or pay dividends or
distributions on or repurchase or redeem any Capital Stock of any Subsidiary
(other than to the Company or a Wholly Owned Subsidiary).
Change of Control
Under the terms of the Indenture, in the event of a Change of Control,
the Company shall make an offer to purchase all or any part (equal to $1,000 or
an integral multiple thereof) of each Holder's Notes (the "Change of Control
Offer") at a purchase price equal to 101% of the principal amount thereof plus
accrued interest to the Change of Control Payment Date (as defined herein) on
the terms set forth in the provision. The date on which the Company shall
purchase the Notes pursuant to this provision (the "Change of Control Payment
Date") shall be no earlier than 30 days, nor later than 60 days, after the
notice referred to below is mailed, unless a longer period shall be required by
law. The Company shall notify the Trustee in writing promptly after the
occurrence of any Change of Control of the Company's obligation to purchase the
Notes.
Notice of a Change of Control Offer shall be mailed by the Company to
the Holders of the Notes at their last registered address (with a copy to the
Trustee and the Paying Agent) within thirty (30) days after a Change in Control
has occurred. The Change of Control Offer shall remain open from the time of
mailing until five (5) Business Days before the Change of Control Payment Date.
The notice shall contain all instructions and materials necessary to enable such
Holders to tender (in whole or in part) the Notes pursuant to the Change of
Control Offer. The notice, which shall govern the terms of the Change of Control
Offer, shall state: (a) that the Change of Control Offer is being made pursuant
to this provision; (b) the purchase price and the Change of Control Payment
Date; (c) that any Note not surrendered or accepted for payment will continue to
accrue interest; (d) that any Note accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Payment Date; (e) that any Holder electing to have a Note purchased (in whole or
in part) pursuant to a Change of Control Offer will be required to surrender the
Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse
of the Note completed, to the Paying Agent at the address specified in the
notice (or otherwise make effective delivery of the Note pursuant to book-entry
procedures and the related rules of the applicable depositories) at least five
Business Days before the Change of Control Payment Date; and (f) that any Holder
will be entitled
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to withdraw his or her election if the Paying Agent receives, not later than
three Business Days prior to the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the Holder,
the principal amount of the Note the Holder delivered for purchase and a
statement that such Holder is withdrawing his or her election to have the Note
purchased.
On the Change of Control Payment Date, the Company shall (i) accept for
payment the Notes or portions thereof, surrendered and properly tendered and not
withdrawn, pursuant to the Change of Control Offer, (ii) deposit with the Paying
Agent money sufficient to pay the purchase price of all the Notes, or portions
thereof, so accepted and (iii) deliver to the Trustee the Notes so accepted
together with an Officers' Certificate stating that such Notes have been
accepted for payment by the Company. The Paying Agent shall promptly mail or
deliver to Holders of Notes so accepted payment in an amount equal to the
purchase price. Holders whose Notes are purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered.
Transactions with Affiliates
Under the terms of the Indenture, the Company shall not, and shall not
permit any of its Restricted Subsidiaries to, directly or indirectly, enter into
or permit to exist any transaction (including, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
the Company (an "Affiliate Transaction") on terms that are less favorable to the
Company or such Restricted Subsidiary, as the case may be, than those which
might be obtained at the time of such transaction in arms-length dealings with a
Person who is not such an Affiliate; provided that with respect to any Affiliate
Transaction involving aggregate payments in excess of $5 million, the Company
shall deliver to the Trustee a resolution of the Board of Directors set forth in
an Officers' Certificate certifying that such Affiliate Transaction complies
with the foregoing requirements and such Affiliate Transaction is approved by a
majority of the disinterested members of Board of Directors. The foregoing
restriction shall not apply to the payment of any Restricted Payment which is
permitted to be paid pursuant to the covenant described under "-- Limitation on
Restricted Payments" and transactions between the Company or any Restricted
Subsidiary, on the one hand, and any other Subsidiary, on the other hand, in the
ordinary course of business.
Sales of Assets
Under the terms of the Indenture, neither the Company nor any
Restricted Subsidiary shall consummate any Asset Sale unless (i) the Company or
such Restricted Subsidiary receives consideration at the time of such Asset Sale
at least equal to the fair market value, as determined in good faith by the
Board of Directors, of the shares or assets subject to such Asset Sale
(including the value of any noncash consideration), (ii) at least 80% of the
consideration thereof received by the Company or such Restricted Subsidiary is
in the form of cash and (iii) an amount equal to 100% of the Net Available Cash
is applied by the Company (or such Subsidiary, as the case may be) as set forth
herein. For purposes of this provision, the following are deemed to be cash: (x)
any Indebtedness (as reflected on the Company's consolidated balance sheet) of
the Company or any Restricted Subsidiary for which neither the Company nor any
Restricted Subsidiary will continue to be liable, directly or indirectly, as a
result of such Asset Sale; and (y) securities received by the Company or any
Restricted Subsidiary from such transferee that are promptly converted by the
Company or such Restricted Subsidiary into cash. Nothing in this covenant shall
prohibit the Company or any Subsidiary from transferring assets, properties or
Capital Stock of any Subsidiary to any Wholly Owned Subsidiary or to the
Company, nor shall the provisions of this covenant be applicable to any such
transfer. Under the terms of the Indenture, the Company shall not permit any
Unrestricted Subsidiary to make any Asset Sale unless such Unrestricted
Subsidiary receives consideration at the time of such Asset Sale at least equal
to the fair market value of the shares or assets so disposed of as determined in
good faith by the Board of Directors.
Under the terms of the Indenture, within 365 days (such period being
the "Application Period") following the consummation of an Asset Sale (or in the
case of Net Available Cash from the conversion of securities, within such number
of days after the receipt of such cash), the Company or such Restricted
Subsidiary shall apply the Net Available Cash from such Asset Sale as follows:
(i) first, to the extent the Company or such Restricted Subsidiary elects, to
reinvest in Additional Assets (including by means of an investment in Additional
Assets by a Restricted Subsidiary with Net Available Cash received by the
Company or another Restricted Subsidiary); (ii) second, to the extent of the
balance of such Net Available Cash after application in accordance with clause
(i), and to the extent the Company or such Restricted Subsidiary elects, to
prepay, repay or purchase Senior Indebtedness (other than any Preferred Stock)
of the Company or its Restricted Subsidiaries (in each case other than
Indebtedness owed to the Company or an Affiliate of the Company), (iii) third,
to the extent of the
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balance of such Net Available Cash after application in accordance with clauses
(i) and (ii), to make an offer to purchase the Notes at a purchase price of 100%
of principal amount plus accrued interest to the Purchase Date pursuant to and
subject to the conditions set forth in the Indenture. To the extent that any Net
Available Cash of Asset Sales remains after the application of such Net
Available Cash in accordance with this paragraph, the Company or such Restricted
Subsidiary may utilize such remaining Net Available Cash in any manner not
otherwise prohibited by the Indenture.
If Indebtedness of the Company issued on or after the date of the 1993
Indenture and ranking pari passu in right of payment with the Notes (which
includes the 1993 Notes) is at the time outstanding, and the terms of such
Indebtedness provide that a similar offer is to be made with respect thereto
(the 1993 Indenture has such terms), then the offer to purchase the Notes shall
be made concurrently with such other offer, and the Notes and such other
Indebtedness shall be accepted pro rata in proportion to the aggregate principal
amounts which the holders of Notes and such Indebtedness, respectively, elect to
have redeemed.
Under the terms of the Indenture, the Company shall not be required to
make an offer to purchase the Notes if the Net Available Cash available from an
Asset Sale (after application of the proceeds as provided in clauses (i) and
(ii) of the second paragraph above) is less than $10 million for any particular
Asset Sale (which lesser amounts shall be carried forward for purposes of
determining whether an offer is required with respect to the Net Available Cash
from any subsequent Asset Sale).
Notwithstanding the foregoing, this provision shall not apply to, or
prevent an Asset Sale that also constitutes a Change of Control provided the
Company has complied with its obligations under the covenant described under "--
Change of Control," and in such case no violation of this provision shall be
deemed to have occurred as a consequence thereof.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company as an entirety to a Person in a transaction
permitted under the covenant described under "-- Merger and Consolidation," the
Successor Corporation shall be deemed to have sold the properties and assets of
the Company not so transferred for purposes of this covenant, and shall comply
with the provisions of this covenant with respect to such deemed sale as if it
were an Asset Sale.
Merger and Consolidation
Under the terms of the Indenture, the Company shall not consolidate
with or merge with or into any other corporation or transfer all or
substantially all of its properties and assets as an entirety to any Person
unless: (a) either the Company shall be the continuing Person, or the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or to which the properties and assets of the Company as an entirety
are transferred (the "Successor Corporation"), shall be a corporation organized
and existing under the laws of the United States or any state thereof or the
District of Columbia and shall expressly assume, by an indenture supplemental to
the Indenture, executed and delivered to the Trustee, in form and substance
reasonably satisfactory to the Trustee, all the obligations of the Company under
the Indenture and the Notes; (b) immediately before and immediately after giving
effect to such transaction (and treating any Indebtedness which becomes an
obligation of the Successor Corporation or any Restricted Subsidiary as a result
of such transaction as having been Incurred by such Successor Corporation or
such Restricted Subsidiary at the time of such transaction), no Default shall
have occurred and be continuing; (c) the Company shall have delivered, or caused
to be delivered, to the Trustee an Officers' Certificate and, as to legal
issues, an Opinion of Counsel, each in form and substance reasonably
satisfactory to the Trustee stating that such consolidation, merger or transfer
and such supplemental indenture comply with this provision and that all
conditions precedent herein provided for relating to such transaction have been
complied with; (d) immediately after giving effect to such transaction, the
Successor Corporation shall have Consolidated Net Worth in an amount which is
not less than the Consolidated Net Worth immediately prior to such transaction;
and (e) immediately after giving effect to such transaction on a pro forma
basis, the Consolidated Coverage Ratio of the Successor Corporation is at least
2.0:1, or, if less, at least equal to the Consolidated Coverage Ratio of the
Company immediately prior to such transaction; provided that, if the
Consolidated Coverage Ratio of the Company immediately prior to such transaction
is within the range set forth in Column (A) below, then the pro forma
Consolidated Coverage Ratio of the Successor Corporation shall be at least equal
to the lesser of (1) the ratio determined by multiplying the percentage set
forth in column (B) below by the Consolidated Coverage Ratio of the Company
immediately prior to such transaction and (2) the ratio set forth in column (C)
below:
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(A) (B) (C)
2.22:1 to 2.99:1 90% 2.4:1
3.00:1 to 3.99:1 80% 2.8:1
4.00:1 or more 70% 2.9:1
and provided, further, that if, immediately after giving effect to such
transaction on a pro forma basis, the Consolidated Coverage Ratio of the
Successor Corporation is 3.0:1 or more, the calculation in the preceding proviso
shall be inapplicable and such transaction shall be deemed to have complied with
the requirements of such provision.
Notwithstanding the foregoing clauses (b), (d) and (e), any Restricted
Subsidiary may consolidate with, merge into or transfer all or part of its
properties and assets to the Company or any Wholly Owned Subsidiary or Wholly
Owned Subsidiaries so long as the requirements of clauses (a) and (c) are
satisfied in connection therewith.
Upon any such assumption by the Successor Corporation, the Successor
Corporation shall succeed to and be substituted for the Company, under the
Indenture and the Notes, and the Company shall thereupon be released from all
obligations under the Indenture and under the Notes and the Company as the
predecessor corporation may thereupon or at any time thereafter be dissolved,
wound up or liquidated. The Successor Corporation thereupon may cause to be
signed, and may issue either in its own name or in the name of the Company, all
or any of the Notes issuable under the Indenture which theretofore shall not
have been signed by the Company and delivered to the Trustee; and upon the order
of the Successor Corporation instead of the Company and subject to all the
terms, conditions and limitations prescribed in the Indenture, the Trustee shall
authenticate and shall deliver any new Notes which the Successor Corporation
thereafter shall cause to be signed and delivered to the Trustee for that
purpose. All the Notes so issued shall in all respects have the same legal rank
and benefit under the Indenture as the Notes theretofore or thereafter issued in
accordance with the terms of the Indenture as though all such Notes had been
issued at the date of the execution of the Indenture.
In the case of any such consolidation, merger or transfer, such changes
in form (but not in substance) may be made in the Notes thereafter to be issued
as may be appropriate.
Events of Default
"Events of Default" are defined in the Indenture as (i) default for 30
days in payment of any interest installment due and payable on the Notes, (ii)
default in payment of the principal when due of the Notes, or failure to redeem
or purchase the Notes when required pursuant to the Indenture, (iii) default in
performance of any other covenants or agreements in the Indenture for 30 days
after written notice to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% in principal amount of the outstanding
Notes, (iv) the occurrence of a default under any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness (other than Indebtedness evidenced by the Notes) for
money borrowed by the Company or any Subsidiary, whether or not it exists on the
date of the Indenture, the outstanding aggregate principal amount of which is
not less than $10 million (or its foreign currency equivalent), and as a result
of such default either such Indebtedness shall be due or the acceleration of
such Indebtedness shall be declared, or Indebtedness of the Company or any
Subsidiary in an aggregate principal amount of not less than $10 million (or its
foreign currency equivalent), is not paid within any applicable grace period
after final maturity, unless such Indebtedness or declaration, as the case may
be, is discharged or rescinded or annulled within 30 days following the giving
of notice to the Company by the Trustee or to the Company and the Trustee by
Holders of not less than 25% in principal amount of the Notes; (v) any final
judgment or order (not covered by insurance) for the payment of money shall be
rendered against the Company or any Significant Subsidiary in an amount in
excess of $5 million individually or $5 million in the aggregate for all such
final judgments or orders against all such Persons (treating any deductibles,
self-insurance or retention as not so covered) and shall not be discharged, and
there shall be any period of 30 consecutive days following entry of the final
judgment or order in excess of $5 million individually or in the aggregate
during which a stay of enforcement of such final judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; and (vi) certain events
of bankruptcy, insolvency and reorganization of the Company.
If any Event of Default (other than an Event of Default described in
clause (vi) with respect to the Company) has occurred and is continuing, the
Indenture provides that the Trustee may by notice to the Company, or the Holders
of not less than 25% in principal amount of the Notes may by notice to the
Company and the Trustee, declare the principal amount
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of the Notes, premium, if any, and any accrued and unpaid interest to be due and
payable immediately. If an Event of Default described in clause (vi) with
respect to the Company occurs, the principal of and interest on all the Notes
shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders of such
Notes. The Holders of a majority in principal amount of the Notes by notice to
the Trustee may rescind any such declaration and its consequences (if the
rescission would not conflict with any judgment or decree) if all existing
Events of Default (other than the nonpayment of principal of or interest on the
Notes which shall have become due by such declaration) shall have been cured or
waived.
The Company must file annually with the Trustee a certificate
describing any Default by the Company in the performance of any conditions or
covenants that has occurred under the Indenture and its status. The Company must
give the Trustee written notice within 30 days of any Default under the
Indenture that could mature into an Event of Default described in clause (iii),
(iv), (v) or (vi) of the second preceding paragraph.
The Trustee under the Indenture is entitled, subject to the duty of the
Trustee during a Default to act with the required standard of care, to
indemnification satisfactory to the Trustee against any loss, liability or
expense before proceeding to exercise any right or power under the Indenture at
the direction of the Holders of the Notes or which requires the Trustee to
expend or risk its own funds or otherwise incur any financial liability. The
Indenture also provides that the Holders of a majority in principal amount of
the Notes may direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee or exercising any trust or power conferred
on the Trustee; however, the Trustee may refuse to follow any such direction
that conflicts with law or the Indenture, is unduly prejudicial to the right of
other Holders of the Notes or would involve the Trustee in personal liability.
The Indenture provides that while the Trustee generally must mail
notice of a Default or Event of Default to the Holders of the Notes within 90
days of occurrence, the Trustee may withhold notice to the Holders of the Notes
of any Default or Event of Default (except in payment on the Notes) if the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders of the Notes.
Modification of the Indenture
Under the terms of the Indenture, the Company and the Trustee may, with
the consent of the Holders of a majority in principal amount of the outstanding
Notes, amend or supplement the Indenture or the Notes, except that no amendment
or supplement may, without the consent of each affected Noteholder, (i) reduce
the principal amount of Notes whose Holders must consent to an amendment or
supplement; (ii) reduce the principal of or change the Stated Maturity of any
Note or reduce the premium payable upon the redemption of any Note, or change
the time at which any Note may or shall be redeemed; (iii) reduce the rate of or
change the time for payment of interest on any Note; (iv) waive a Default or
Event of Default in the payment of principal of, premium, if any, or interest on
the Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the then outstanding Notes and
a waiver of the payment default that resulted from such acceleration); (v) make
any Note payable in money other than that stated in the Notes; (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of Holders of Notes to receive payments of principal of or
interest on the Notes; (vii) waive a redemption payment with respect to any
Note; or (viii) make any change in the provisions of the Indenture relating to
amendments of the Indenture that require the consent of Holders of each affected
Note.
Actions by Noteholders
Under the terms of the Indenture, a Noteholder may not pursue any
remedy with respect to the Indenture or the Notes (except actions for payment of
overdue principal, premium, if any, or interest) unless (i) the Holder has given
notice to the Trustee of a continuing Event of Default, (ii) Holders of at least
25% in principal amount of the Notes have made a written request to the Trustee
to pursue such remedy, (iii) such Holder or Holders have offered the Trustee
security or indemnity reasonably satisfactory to it against any loss, liability
or expense, (iv) the Trustee has not complied with such request within 60 days
of such request and offer and (v) the Holders of a majority in principal amount
of the Notes have not given the Trustee an inconsistent direction during such
60-day period.
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Defeasance, Discharge and Termination
Defeasance and Discharge
The Indenture provides that the Company will be discharged from any and
all obligations in respect of the Notes and the provisions of such Indenture
will no longer be in effect with respect to the Notes (except for, among other
matters, certain obligations to register the transfer or exchange of the Notes,
to replace stolen, lost or mutilated Notes, to maintain paying agencies and to
hold monies for payment in trust, and the rights of Holders to receive payments
of principal and interest thereon), on the 123rd day after the date of the
deposit with the Trustee, in trust, of money or U.S. Government Obligations
that, through the payment of interest and principal in respect thereof in
accordance with their terms, will provide money in an amount sufficient to pay
the principal of, premium, if any, and accrued interest on the Notes, when due
in accordance with the terms of the Indenture and the Notes. Such a trust may
only be established if, among other things, (i) the Company has delivered to the
Trustee an Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax on
the same amount and in the same manner and at the same times as would have been
the case if such deposit, defeasance and discharge had not occurred, which
Opinion of Counsel must refer to and be based upon a ruling of the Internal
Revenue Service or a change in applicable federal income tax law occurring after
the date of the Indenture and (ii) no Default under the Indenture shall have
occurred and be continuing on the date of such deposit or during the period
ending on the 123rd day after such date of deposit and such deposit shall not
result in or constitute a Default or result in a breach or violation of, or
constitute a default under, any other material agreement or instrument to which
the Company is a party or by which the Company is bound.
Defeasance of Certain Covenants and Certain Events of Default
The Indenture further provides that (i) the provisions of the Indenture
will no longer be in effect with respect to the provisions described in clauses
(d) and (e) under "Merger and Consolidation" and all the covenants described
herein under "-- Covenants," (ii) clause (iii) under "-- Events of Default" with
respect to such covenants and clauses (d) and (e) under "-- Merger and
Consolidation" shall not apply and (iii) clauses (iv) and (v) under "-- Events
of Default" shall be deemed not to be Events of Default under the Indenture, in
each case, upon the deposit with the Trustee or the Paying Agent, in trust, of
money or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes when due in accordance with the terms of the Indenture.
Such a trust may only be established if, among other things, the provisions
described in clause (ii) of the immediately preceding paragraph have been
satisfied and the Company has delivered to the Trustee an Opinion of Counsel to
the effect that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such deposit and defeasance of certain
covenants and Events of Default and will be subject to federal income tax on the
same amount and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default
In the event the Company exercises its option to omit compliance with
certain covenants and provisions of the Indenture with respect to the Notes as
described in the immediately preceding paragraph and the Notes are declared due
and payable because of the occurrence of an Event of Default that remains
applicable, the amount of money or U.S. Government Obligations on deposit with
the Trustee will be sufficient to pay principal of and interest on the Notes on
the respective dates on which the amounts are due but may not be sufficient to
pay amounts due on such Notes at the time of the acceleration resulting from
such Event of Default. However, the Company shall remain liable for such
payments.
Termination of Company's Obligations in Certain Circumstances
The Indenture further provides that the Company will be discharged from
any and all obligations in respect of the Notes and the provisions of the
Indenture will no longer be in effect with respect to the Notes (except to the
extent provided under "-- Defeasance and Discharge") if the Notes mature within
one year or all of them are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of the notice of
redemption, and the Company deposits with the Trustee or the Paying Agent, in
trust, money or U.S. Government Obligations that, through the payment of
interest and principal in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay
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the principal of, premium, if any, and accrued interest on the Notes when due in
accordance with the terms of the Indenture and the Notes. Such a trust may only
be established if, among other things, (i) no Default under the Indenture shall
have occurred and be continuing on the date of such deposit, (ii) such deposit
will not result in or constitute a Default or result in a breach or violation
of, or constitute a Default under, any other material agreement or instrument to
which the Company is a party or by which it is bound and (iii) the Company has
delivered to the Trustee an Opinion of Counsel stating that such conditions have
been complied with. Pursuant to this provision, the Company is not required to
deliver an Opinion of Counsel to the effect that Holders will not recognize
income, gain or loss for U.S. federal income tax purposes as a result of such
deposit and termination, and there is no assurance that Holders would not
recognize income, gain or loss for U.S. federal income tax purposes as a result
thereof or that Holders would be subject to U.S. federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit and termination had not occurred.
No Personal Liability of Incorporators, Stockholders, Officers, Directors or
Employees
The Indenture provides that no incorporator, stockholder, officer,
director or employee of the Company shall be liable for any obligations of the
Company under the Notes or the Indenture or for any claim based thereon or in
respect thereof. Each Holder, by accepting the Notes, waives and releases all
such liability.
Concerning the Trustee
United States Trust Company of New York is the Trustee under the
Indenture and is Paying Agent and Registrar for the Notes. Notices to the
Trustee, Paying Agent and Registrar under the Indenture should be directed to
United States Trust Company of New York, 144 West 47th Street, New York, New
York 10036, Attention: Corporate Trust Division.
Governing Law
Under the terms of the Indenture, the laws of the State of New York
govern the Indenture and the Notes.
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BOOK-ENTRY; DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in
the form of one registered note in global form without coupons (the "Global
Note"). Upon issuance, the Global Note will be deposited with, or on behalf of,
DTC and registered in the name of Cede & Co., as nominee of DTC.
If a holder tendering Existing Notes so requests, such holder's New
Notes will be issued as described below under "-- Certificated Securities" in
registered form without coupons (the "Certificated Securities").
DTC has advised the Company that it is (i) a limited purpose trust
company organized under the laws of the State of New York, (ii) a member of the
Federal Reserve System, (iii) a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and (iv) a "Clearing Agency" registered
pursuant to Section 17A of the Exchange Act. DTC was created to hold securities
for its participants (collectively, the "Participants") and facilitates the
clearance and settlement of securities transactions between Participants through
electronic book-entry changes to the accounts of its Participants, thereby
eliminating the need for physical transfer and delivery of certificates. DTC's
Participants include securities brokers and dealers (including the Placement
Agents), banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other entities such
as banks, brokers, dealers and trust companies (collectively, the "Indirect
Participants") that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly.
The Company expects that pursuant to procedures established by DTC (i)
upon deposit of the Global Note, DTC will credit the accounts of Participants
who elect to exchange Existing Notes with an interest in the Global Note and
(ii) ownership of the New Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC (with respect
to the interest of Participants), the Participants and the Indirect
Participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own and that security
interests in negotiable instruments can only be perfected by delivery of
certificates representing the instruments.
So long as DTC or its nominee is the registered owner of the Global
Note, DTC or such nominee, as the case may be, will be considered the sole owner
or holder of the New Notes represented by the Global Note for all purposes under
the Indenture. Except as provided below, owners of beneficial interests in the
Global Note will not be entitled to have New Notes represented by such Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of Certificated Securities, and will not be considered the
owners or holders thereof under the Indenture for any purpose, including with
respect to the giving of any directions, instruction or approval to the Trustee
thereunder. As a result, the ability of a person having a beneficial interest in
New Notes represented by the Global Note to pledge such interest to persons or
entities that do not participate in DTC's system, or to otherwise take action
with respect to such interest, may be affected by the lack of a physical
certificate evidencing such interest.
The Company understands that under existing industry practice, in the
event the Company requests any action of holders or an owner of a beneficial
interest in the Global Note desires to take any action that DTC, as the holder
of such Global Note, is entitled to take, DTC would authorize the Participants
to take such action and the Participant would authorize persons owning through
such Participants to take such action or would otherwise act upon the
instruction of such persons. Neither the Company nor the Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of New Notes by DTC, or for maintaining, supervising or
reviewing any records of DTC relating to such New Notes.
Payments with respect to the principal of, premium, if any, and
interest on any New Notes represented by the Global Note registered in the name
of DTC or its nominee on the applicable record date will be payable by the
Trustee to or at the direction of DTC or its nominee in its capacity as the
registered holder of the Global Note representing such New Notes under the
Indenture. Under the terms of the Indenture, the Company and the Trustee may
treat the persons in whose names the New Notes, including the Global Note, are
registered as the owners thereof for the purpose of receiving such payment and
for any and all other purposes whatsoever. Consequently, neither the Company nor
the Trustee has or will have any responsibility or liability for the payment of
such amounts to beneficial owners of New Notes (including principal, premium, if
any, and interest), or to immediately credit the accounts of the relevant
Participants with such payment, in amounts proportionate to their respective
holdings in principal amount of beneficial interest in the Global Note as shown
on the records of DTC. Payments by the Participants and the Indirect
Participants to the beneficial owners of New Notes will be
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governed by standing instructions and customary practice and will be the
responsibility of the Participants or the Indirect Participants (as the case may
be).
Certificated Securities
If: (i) the Company notifies the Trustee in writing that DTC is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by DTC of its Global
Note, Certificated Securities will be issued to each person that DTC identifies
as the beneficial owner of the New Notes represented by the Global Note. In
addition, any person having a beneficial interest in the Global Note or any
holder of Existing Notes whose Existing Notes have been accepted for exchange
may, upon request to the Trustee or the Exchange Agent, as the case may be,
exchange such beneficial interest or Existing Notes for Certificated Securities.
Upon any such issuance, the Trustee is required to register such Certificated
Securities in the name of such person or persons (or the nominee of any
thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by
DTC or any Participant or Indirect Participant in identifying the beneficial
owners of the related New Notes and each such person may conclusively rely on,
and shall be protected in relying on, instructions from DTC for all purposes
(including with respect to the registration and delivery, and the respective
principal amounts, of the New Notes to be issued).
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States federal income
tax consequences of the Exchange Offer. Except where noted, it deals only with
Existing Notes, and the New Notes received therefor, held as capital assets and
does not deal with special situations, such as those of dealers in securities or
currencies, tax exempt organizations, individual retirement accounts and other
tax deferred accounts, financial institutions, life insurance companies, persons
holding Existing Notes as a part of a hedging or conversion transaction or a
straddle, persons subject to the alternative minimum tax or holders of Existing
Notes whose "functional currency" is not the U.S. dollar, nor does it discuss
tax consequences to subsequent purchasers (persons who did not purchase the
Existing Notes pursuant to their original issue). Furthermore, the discussion
below is based upon the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), and regulations, rulings and judicial decisions thereunder
as of the date hereof, and such authorities may be repealed, revoked or modified
so as to result in federal income tax consequences different from those
discussed below. No rulings will be sought from the Internal Revenue Service
(the "IRS") with respect to the federal income tax consequences of the Exchange
Offer. In addition, except as otherwise indicated, the following does not
consider the effect of any applicable foreign, state, local or other tax laws or
estate or gift tax considerations. Persons considering the exchange of Existing
Notes should consult their own tax advisors concerning the federal income tax
consequences in light of their particular situations, as well as any
consequences arising under the laws of any other taxing jurisdiction.
The Exchange Offer
The exchange of Existing Notes pursuant to the Exchange Offer should be
treated as a continuation of the corresponding Existing Notes because the terms
of the New Notes are not materially different from the terms of the Existing
Notes. Accordingly, such exchange should not constitute a taxable event to
United States Holders and, therefore, (i) no gain or loss should be realized by
United States Holders upon receipt of a New Note, (ii) the holding period of the
New Note should include the holding period of the Existing Note exchanged
therefor and (iii) the adjusted tax basis of the New Note should be the same as
the adjusted tax basis of the Existing Note exchanged therefor immediately
before the exchange. As used herein, a "United States Holder" of a Note means an
initial holder that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, an estate the
income of which is subject to United States federal income taxation regardless
of its source, or a trust if (i) a U.S. court is able to exercise primary
supervision over the administration of the trust and (ii) one or more U.S.
trustees or fiduciaries have the authority to control all substantial decisions
of the trust. A "Non-United States Holder" is a holder that is not a United
States Holder.
Stated Interest on Notes
Except as set forth below, interest on a Note will generally be taxable
to a United States Holder as ordinary income from domestic sources at the time
it is paid or accrued in accordance with the United States Holder's method of
accounting for tax purposes.
Failure of the Company to consummate the Exchange Offer or to file or
cause to be declared effective a registration statement as described under
"Description of the Notes -- Terms of the Notes," will cause additional interest
to accrue on the Existing Notes in the manner described therein. According to
U.S. Treasury regulations, the possibility of a change in the interest rate will
not affect the amount of interest income recognized by a United States Holder
(or the timing of such recognition) if the likelihood of the change, as of the
date the Notes were issued, was remote. The Company believes that the likelihood
of a change in the interest rate on the Existing Notes is remote and does not
intend to treat the possibility of a change in the interest rate as affecting
the yield to maturity of any Existing Note. In the unlikely event that the
interest rate on the Notes is increased, then such increased interest may be
treated as original issue discount, includable by a United States Holder in
income as such interest accrues, in advance of receipt of any cash payment
thereof. The Notes are considered not to have been issued with original issue
discount.
Market Discount
If a United States Holder purchases a Note for an amount that is less
than its principal amount, the amount of the difference will be treated as
"market discount" for U.S. federal income tax purposes, unless such difference
is less than a specified de minimis amount. Under the market discount rules, a
United States Holder will be required to treat any partial
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principal payment on, or any gain on the sale, exchange, retirement or other
disposition of, a Note as ordinary income to the extent of the market discount
which has not previously been included in income and is treated as having
accrued on such Note at the time of such payment or disposition. In addition,
the United States Holder may be required to defer, until the maturity of the
Note or its earlier disposition in a taxable transaction, the deduction of all
or a portion of the interest expense on any indebtedness incurred or continued
to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
United States Holder elects to accrue on a constant interest method. A United
States Holder may elect to include market discount in income currently as it
accrues (on either a ratable or constant interest method), in which case the
rule described above regarding deferral of interest deductions will not apply.
This election to include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies and may not be revoked without the consent of the
IRS.
Amortizable Bond Premium
A United States Holder that purchases a Note for an amount in excess of
the principal amount will be considered to have purchased the Note at a
"premium." A United States Holder generally may elect to amortize the premium
over the remaining term of the Note on a constant yield method. However, if the
Note was purchased at a time when the Note may have been optionally redeemed for
an amount that was in excess of its principal amount, special rules would apply
that could result in a deferral of the amortization of bond premium until later
in the term of the Note. The amount amortized in any year will be treated as a
reduction of the United States Holder's interest income from the Note. Bond
premium on a Note held by a United States Holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the Note. The election to amortize premium on a constant yield
method, once made, applies to all debt obligations held or subsequently acquired
by the electing United States Holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the IRS.
Sale, Exchange and Retirement of Notes
Upon the sale, exchange, redemption, retirement or other disposition of
a Note, a United States Holder generally will recognize gain or loss equal to
the difference between the amount realized upon the sale, exchange, redemption,
retirement or other disposition and such holder's adjusted tax basis of the
Note. A United States Holder's adjusted tax basis in a Note will, in general, be
the United States Holder's cost therefor, increased by market discount
previously included in income by the United States Holder and reduced by any
amortized premium previously deducted from income by the United States Holder.
Except as described above with respect to market discount or except to the
extent the gain or loss is attributable to accrued but unpaid stated interest,
such gain or loss will be capital gain or loss. Under recently enacted
legislation, an individual United States Holder generally will be subject to tax
on the net amount of his or her capital gain realized on the sale or exchange of
a Note at a maximum rate of (i) 28% for a Note held for more than one year but
not more than eighteen months, (ii) 20% for a Note held for more than eighteen
months and (iii) provided that the holding period for such Note is deemed to
begin after December 31, 2000, pursuant to a special election, 18% for a Note
held for more than five years. Special rules (and generally lower maximum rates)
apply for individuals whose taxable income is below certain levels. The
deductibility of capital losses is subject to limitations.
The exchange of an Existing Note by a United States Holder for a New
Note should not constitute a taxable exchange. A United States Holder will have
the same tax basis and holding period in the New Note as it did in the Existing
Note. See "-- The Exchange Offer."
Non-United States Holders
Under present United States federal income and estate tax law, and
subject to the discussion below concerning backup withholding:
(a) no United States federal withholding tax will be imposed with
respect to the payment by the Company or its paying agent of principal,
premium, if any, or interest on a Note owned by a Non-United States
Holder (the "Portfolio Interest Exception"), provided (i) that such
Non-United States Holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote within
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the meaning of section 871(h)(3) of the Code and the regulations
thereunder, (ii) such Non-United States Holder is not a controlled
foreign corporation that is related, directly or indirectly, to the
Company through stock ownership, (iii) such Non-United States Holder is
not a bank whose receipt of interest on a Note is described in section
881(c)(3)(A) of the Code and (iv) such Non-United States Holder
satisfies the statement requirement (described generally below) set
forth in section 871(h) and section 881(c) of the Code and the
regulations thereunder;
(b) no United States federal withholding tax will be imposed
generally with respect to any gain or income realized by a Non-United
States Holder upon the sale, exchange, redemption, retirement or other
disposition of a Note; and
(c) a Note beneficially owned by an individual who at the time of
death is a Non-United States Holder will not be subject to United
States federal estate tax as a result of such individual's death,
provided that such individual does not actually or constructively own
10% or more of the total combined voting power of all classes of stock
of the Company entitled to vote within the meaning of section 871(h)(3)
of the Code and provided that the interest payments with respect to
such Note would not have been, if received at the time of such
individuals death, effectively connected with the conduct of a United
States trade or business by such individual.
To satisfy the requirement referred to in (a)(iv) above, the beneficial
owner of such Note, or a financial institution holding the Note on behalf of
such owner, must provide, in accordance with specified procedures, a paying
agent of the Company with a statement to the effect that the beneficial owner is
not a United States Holder. Pursuant to current temporary U.S. Treasury
regulations, these requirements will be met if (1) the beneficial owner provides
his name and address, and certifies, under penalties of perjury, that he is not
a United States Holder (which certification may be made on an IRS Form W-8 (or
substitute form)) or (2) a financial institution holding the Note on behalf of
the beneficial owner certifies, under penalties of perjury, that such statement
has been received by it and furnishes a paying agent with a copy thereof. The
IRS has proposed regulations that, if finalized, would modify certain of the
certification requirements described above.
If a Non-United States Holder cannot satisfy the requirements of the
Portfolio Interest Exception described in (a) above, payments on a Note made to
such Non-United States Holder will be subject to a 30% withholding tax unless
the beneficial owner of the Note provides the Company or its paying agent, as
the case may be, with a properly executed (1) IRS Form 1001 (or substitute form)
claiming an exemption from or reduction of withholding under the benefit of a
tax treaty or (2) IRS Form 4224 (or substitute form) stating that interest paid
on the Note is not subject to withholding tax because it is effectively
connected with the beneficial owner's conduct of a trade or business in the
United States.
If a Non-United States Holder is engaged in a trade or business in the
United States and payment on a Note is effectively connected with the conduct of
such trade or business, the Non-United States Holder, although exempt from
United States federal withholding tax as discussed above, will be subject to
United States federal income tax on such payment on a net income basis in the
same manner as if it were a United States Holder. In addition, if such Holder is
a foreign corporation, it may be subject to a branch profits tax equal to 30% of
its effectively connected earnings and profits for the taxable year, subject to
adjustments. For this purpose, such payment on a Note will be included in such
foreign corporation's earnings and profits.
Any gain or income realized upon the sale, exchange, retirement or
other disposition of a Note generally will not be subject to United States
federal income tax unless (i) such gain or income is effectively connected with
a trade or business in the United States of the Non-United States Holder or (ii)
in the case of a Non-United States Holder who is an individual, such individual
is present in the United States for 183 days or more in the taxable year of such
sale, exchange, retirement or other disposition, and certain other conditions
are met.
Information Reporting and Backup Withholding
In general, information reporting requirements will apply to payments
on a Note and to the proceeds of the sale of a Note made to United States
Holders other than certain exempt recipients (such as corporations). A 31%
backup withholding tax will apply to such payments if the United States Holder
fails to provide a taxpayer identification number or certification of foreign or
other exempt status or fails to report in full dividend and interest income.
48
<PAGE>
No information reporting or backup withholding will be required with
respect to payments made by the Company or any paying agent to Non-United States
Holders if a statement described in (a)(iv) under "-- Non-United States Holders"
has been received and the payor does not have actual knowledge that the
beneficial owner is a United States person.
In addition, backup withholding and information reporting will not
apply if payments on a Note are paid or collected by a foreign office of a
custodian, nominee or other foreign agent on behalf of the beneficial owner of
such Note, or if a foreign office of a broker (as defined in applicable U.S.
Treasury regulations) pays the proceeds of the sale of a Note to the owner
thereof. If, however, such nominee, custodian, agent or broker is, for United
States federal income tax purposes, a United States person, a controlled foreign
corporation or a foreign person that derives 50% or more of its gross income for
certain periods from the conduct of a trade or business in the United States,
such payments will be subject to information reporting (but not backup
withholding), unless (1) such custodian, nominee, agent or broker has
documentary evidence in its records that the beneficial owner is not a United
States person and certain other conditions are met or (2) the beneficial owner
otherwise establishes an exemption. Temporary U.S. Treasury regulations provide
that the U.S. Treasury is considering whether backup withholding will apply with
respect to payments of principal, premium, if any, interest or the proceeds of a
sale that are not subject to backup withholding under the current regulations.
Payments on a Note paid to the beneficial owner of a Note by a United
States office of a custodian, nominee or agent, or the payment by the United
States office of a broker of the proceeds of sale of a Note, will be subject to
both backup withholding and information reporting unless the beneficial owner
provides the statement referred to in (a)(iv) above and the payor does not have
actual knowledge that the beneficial owner is a United States person or
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules will be
credited toward such Holder's United States federal income tax liability, if
any. To the extent that the amounts withheld exceed the Holder's tax liability,
the excess may be refunded to the Holder provided the required information is
furnished to the IRS. In addition to providing the necessary information, the
Holder must file a United States tax return in order to obtain a refund of the
excess withholding.
49
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant
to the Exchange Offer must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such New Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Notes received in exchange
for Existing Notes where such Existing Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until _______________, 199__
(90 days after the date of this Prospectus), all dealers effecting transactions
in the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes.
New Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market price or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer (including the expenses of one counsel for the
holders of the Existing Notes) other than commissions or concessions of any
brokers or dealers and will indemnify the holders of the Existing Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
50
<PAGE>
LEGAL MATTERS
The legality of the New Notes offered hereby is being passed upon for
the Company by Dechert Price & Rhoads, New York, New York, special counsel for
the Company, and Leon Z. Heller, Esq., its General Counsel.
EXPERTS
The consolidated financial statements of EnviroSource, Inc. appearing
in the Annual Report (Form 10-K) for the year ended December 31, 1996, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
51
<PAGE>
ANNEX 1
The Third Quarter 10-Q was previously filed by the registrant through the
EDGAR system and is therefore excluded from this EDGAR filing.
<PAGE>
ANNEX 2
The Form 10-K was previously filed by the registrant through the EDGAR
system and is therefore excluded from this EDGAR filing.
<PAGE>
ANNEX 3
The Proxy Statement was previously filed by the registrant through the
EDGAR system and is therefore excluded from this EDGAR filing.
<PAGE>
No person has been authorized to PROSPECTUS
give any information or to make any
representations other than those
contained in this Prospectus and, if
given or made, such information or
representations must not be relied upon
as having been authorized. This $50,000,000
Prospectus does not constitute an offer
to sell or the solicitation of an offer
to buy any securities other than those
to which it relates, nor does it
constitute an offer to sell or the
solicitation of an offer to buy such
securities in any circumstances in which ENVIROSOURCE
such solicitation is unlawful. Neither
the delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication
that there has been no change in the
affairs of the Company since the date
hereof or that the information contained
herein is correct as of any time
subsequent to the date hereof.
TABLE OF CONTENTS
Page
OFFER TO EXCHANGE
Available Information................ 3 9 3/4% Senior Notes due 2003,
Annexes and Incorporation of Series B
Documents By Reference............. 4 for all outstanding
Summary.............................. 5 9 3/4% Senior Notes due 2003,
Summary Financial Data............... 12 Series B
Risk Factors......................... 14
Use of Proceeds...................... 18
Capitalization....................... 19
The Exchange Offer................... 20
Description of the Notes............. 25
Book-Entry; Delivery and Form........ 44 , 199
Certain Federal Income Tax
Consequences....................... 46
Plan of Distribution................. 50
Legal Matters........................ 51
Experts.............................. 51
Until _____________, 1998 (90 days
after the date of this Prospectus), all
dealers effecting transactions in the
Notes, whether or not participating in
the original distribution, may be
required to deliver a Prospectus. This
is in addition to the obligation of
dealers to deliver a Prospectus when
acting as underwriters and with respect
to their unsold allotments or
subscriptions.
<PAGE>
PART II INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
EnviroSource is a Delaware corporation. Article VII Section 4 of the
Company's By-Laws provides that the Company may indemnify its officers and
directors to the full extent permitted by law. Section 145 of the General
Corporation Law of the State of Delaware ("GCL") provides that a Delaware
corporation has the power to indemnify its officers and directors in certain
circumstances.
Subsection (a) of Section 145 of the GCL empowers a corporation to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation),
against expenses (including attorneys' fees). judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with such action,
suit or proceeding provided that such director or officer acted in good faith in
a manner reasonably believed to be in or not opposed to the best interests of
the corporation, and with respect to any criminal action or proceeding, provided
that such director or officer had no cause to believe his or her conduct was
unlawful.
Subsection (b) of the Section 145 empowers a corporation to indemnify
any director or officer, or former director or officer, who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that such person acted in any of the capacities set forth
above, against expenses actually and reasonably incurred in connection with the
defense or settlement of such action or suit provided that such director or
officer acted in good faith and in a manner reasonably believe to be in or not
opposed to the best interests of the corporation, except that no indemnification
may be made in respect of any claim, issue or matter as to which such director
or officer shall have been adjudged to be liable to the corporation unless and
only to the extent that the Court of Chancery or the court in which such action
was brought shall determine that despite the adjudication of liability such
director or officer is fairly and reasonably entitled to indemnity for such
expenses which the court shall deem proper.
Section 145 further provides that the extent a director or officer of a
corporation has been successful in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) or in the defense of any claim, issue or
matter therein, he or she shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him or her in connection
therewith; that indemnification provided for by Section 145 shall not be deemed
exclusive of any other rights to which the indemnified party may be entitled;
and that the corporation shall have power to purchase and maintain insurance on
behalf of a director or officer of the corporation against any liability
asserted against him or her or incurred by him or her in any such capacity or
arising ut of his status as such whether or not the corporation would have the
power to indemnify him against such liabilities under Section 145.
Article TENTH of the Company's Certificate of Incorporation currently
provides that no director shall be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the GCL, or (iv) for any transaction from which the director
derived an improper personal benefit.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits:
Exhibit
No. Description
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated herein by reference to Appendix A (pages A-1 to A-3) to
the Company's Proxy Statement filed April 29, 1996, in respect of its
1996 Annual Meeting of Stockholders (File No. 1-1363))
3.2 Amendment of Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Page 2 to the Company's Proxy
Statement filed April 30, 1997, in respect of its 1997 Annual Meeting
of Stockholders (File No. 1-1363))
3.3 By-Laws of the Company (incorporated herein by reference to Exhibit C
(pages C-1 to C-9) to the Company's Proxy Statement filed April 24,
1987, in respect of its 1987 Annual Meeting of Stockholders (File No.
1-1363))
3.4 Amendment to the By-Laws of the Company (incorporated herein by
reference to Exhibit 3.4 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1987 (File No. 1-1363))
3.5 By-Law Amendment Adopted March 26, 1997 By Unanimous Written Consent of
the Board of Directors, Effective June 19, 1997 (incorporated herein by
reference to Exhibit 3.5 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended June 30, 1997 (File No. 1-1363))
4.1 Indenture, dated as of September 30, 1997, between the Company and
United States Trust Company of New York, as Trustee, relating to the
Company's 9-3/4% Senior Notes due 2003, Series B, including the form of
such notes attached as Exhibit A thereto (incorporated herein by
reference to Exhibit 4.6 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1997 (File No. 1- 1363))
4.2 Registration Rights Agreement, dated as of September 30, 1997, among
the Company, Morgan Stanley & Co. Incorporated, Jefferies & Company,
Inc. and NationsBanc Capital Markets, Inc. (incorporated herein by
reference to Exhibit 4.7 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended September 30, 1997 (File No. 1-1363))
4.3 Loan and Security Agreement, dated as of April 6, 1993, between IMS
Funding Corporation and Greyhound Financial Corporation. (The Company
agrees to furnish a copy of such agreement to the Commission upon
request)
4.4 Agreement Amending Loan and Security Agreement and Corporate Guarantee
Agreement, dated as of December 8, 1995, between FINOVA Capital
Corporation (formerly known as Greyhound Financial Corporation), IMS
Funding Corporation, and International Mill Service, Inc. (The Company
agrees to furnish a copy of such agreement to the Commission upon
request)
4.5 Indenture, dated as of July 1, 1993, between the Company and United
States Trust Company of new York, as Trustee, relating to the Company's
9-3/4% Senior Notes due 2003, including the form of such notes attached
as Exhibit A thereto (incorporated herein by reference to Exhibit 4.10
to the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1993 (File No. 1-1363))
4.6 First Supplemental Indenture, dated as of November 2, 1995, between the
Company and United States Trust Company of New York, as Trustee,
relating to the Company's 9-3/4% Senior Notes due 2003 (incorporated
herein by reference to Exhibit 4.15 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1995 (File No.
1-1363))
4.7 Second Supplemental Indenture, dated as of September 24, 1997, between
the Company and United States Trust Company of New York, as Trustee,
relating to the Company's 9-3/4% Senior Notes due 2003 (incorporated
herein by reference to Exhibit 4.5 to the Company's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1997 (File No.
1-1363))
4.8 Registration Rights Agreement, dated as of May 13, 1993, among the
Company, FS Equity partners II, L.P., The IBM Retirement Plan Trust
Fund and Enso Partners, L.P. (incorporated herein by reference to
Exhibit 4.29 to Amendment No. 1 to the Company's Registration Statement
on Form S-1, filed June 14, 1993 (File No. 33-62050))
II-2
<PAGE>
4.9 Warrant to purchase shares of Common Stock or the Company issued to FS
Equity Partners II, L.P., dated as of May 13, 1993 (incorporated herein
by reference to Exhibit 4.30 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June 14, 1993 (File No.
33-62050))
4.10 Warrant to purchase shares of Common Stock of the Company issued to The
IBM Retirement Plan Trust Fund, dated as of May 13, 1993 (incorporated
herein by reference to Exhibit 4.31 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June 14, 1993 (File No.
33-62050))
4.11 Warrant to purchase shares of Common Stock of the Company issued to
Enso Partners, L.P., dated as of May 13, 1993 (incorporated herein by
reference to Exhibit 4.32 to Amendment No. 1 to the Company's
Registration Statement on Form S-1, filed June 14, 1993 (File No.
33-62050))
4.12 Loan Agreement, dated as of June 1, 1994, between the Industrial
Development Corporation of Owyhee County, Idaho and Envirosafe Services
of Idaho, Inc. relating to $8,500,000 Industrial Revenue Bonds, Series
1994. (The Company agrees to furnish a copy of such agreement to the
Commission upon request)
4.13 Credit Agreement, dated as of December 19, 1995, among the Company,
International Mill Service, Inc., the lenders parties thereto,
NationsBank, N.A., as Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference to Exhibit 4.14 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 (File No. 1-1363))
4.14 Assignment and Acceptance, dated as of February 8, 1996, between
NationsBank, N.A. and Banque Paribas; and Assignment and Acceptance,
dated as of February 8, 1996, between Credit Lyonnais New York Branch
and Banque Paribas (incorporated herein by reference to Exhibit 4.13 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1996 (File No. 1-1363))
4.15 First Amendment, dated as of May 15, 1996, to the Credit Agreement,
dated as of December 19, 1995, among the Company, International mill
Service, Inc., the lenders parties thereto, NationsBank, N.A., as
Administrative Agent, and Credit lyonnais as Syndication Agent
(incorporated herein by reference to Exhibit 4.15 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30,
1996 (File No. 1-1363))
4.16 Second Amendment, dated as of December 23, 1996, to the Credit
Agreement, dated as of December 19, 1995, among the Company,
International Mill Service, Inc., the lenders parties thereto,
NationsBank, N.A., as Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference to Exhibit 4.13 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (File No. 1-1363))
4.17 Third Amendment, effective as of June 30, 1997, to the Credit
Agreement, dated as of December 19, 1995, among the Company,
International Mill Service, Inc., the lenders parties thereto,
NationsBank, N.A., as Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference to Exhibit 4.14 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997 (File No. 1-1363))
4.18 Fourth Amendment, effective as of September 23, 1997, to the Credit
Agreement, dated as of December 19, 1995, among the Company,
International Mill Service, Inc., the lenders parties thereto,
NationsBank, N.A., as Administrative Agent, and Credit Lyonnais as
Syndication Agent (incorporated herein by reference to Exhibit 4.18 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997 (File No. 1-1363))
5.1 Opinion of Dechert Price & Rhoads*
5.2 Opinion of Leon Z. Heller, Esq., General Counsel to the Company*
10.1 Placement Agreement dated September 25, 1997 among the Company, Morgan
Stanley & Co. Incorporated, Jefferies & Company, Inc. and NationsBanc
Capital Markets, Inc., with respect to the 9-3/4% Senior Notes due
2003, Series B
10.2 Restated Incentive Stock Option Plan of the Company, as amended
(incorporated herein by reference to Exhibit A to the Company's
Registration Statement on Form S-8, filed January 17, 1989 (File No.
33- 26633))
10.3 Promissory note of Louis A. Guzzetti, Jr., dated March 31, 1993,
payable to the Company, amending and replacing the Promissory notes
dated October 15, 1987, march 31, 1991 and march 31, 1992 and the
letter Amendments dated April 13, 1991 and May 12, 1992 (incorporated
herein by reference to Exhibit 10.13 to Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-1, filed September
16, 1993 (File No. 33-46930))
10.4 Promissory Notes of Aarne Anderson, George E. Fuehrer and Mr. Guzzetti,
dated as of April 1, 1993, payable to the Company, amending and
replacing the Promissory Notes dated January 13, 1989, April 1,
II-3
<PAGE>
1991 and April 1, 1992 (incorporated herein by reference to Exhibit
10.17 to Post-Effective Amendment No. to the Company's Registration
Statement on Form S-1, filed September 16, 1993 (File No. 33-46930))
10.5 Stock Option Agreement, dated March 18, 1992, between the Company and
Raymond P. Caldiero (incorporated herein by reference to Exhibit 10.20
to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 1-1363))
10.6 Stock Option Agreement, dated March 18, 1992, between the Company and
Jeffrey G. Miller (incorporated herein by reference to Exhibit 10.21 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (File No. 1-1363))
10.7 Amendment, dated August 5, 1993, to the Stock Option Agreement, dated
March 18, 1992, between the Company and Jeffrey G. Miller (incorporated
herein by reference to Exhibit 10.22 to Post-Effective Amendment No. 1
to the Company's Registration Statement on Form S-1, filed September
16, 1993 (File No. 33-46930))
10.8 Stock Option Agreement, dated August 5, 1993, between the Company and
Wallace B. Askins (incorporated herein by reference to Exhibit 10.23 to
Post-Effective Amendment No. 1 to the Company's Registration Statement
on Form S-1, filed September 16, 1993 (File No. 33-46930))
10.9 1993 Stock Option Plan of the Company (incorporated herein by reference
to Exhibit 10.21 to Amendment No. 1 to the Company's Registration
Statement on Form S-1, filed June 14, 1993 (File No. 33-62050))
10.10 EnviroSource, Inc. Stock Option Plan for Non-Affiliated Directors,
dated as of January 1, 1995 (incorporated herein by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 (File No. 1-1363))
10.11 Supplemental Executive Retirement Plan of the Company, effective
January 1, 1995 (incorporated herein by reference to Exhibit 10.19 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 (File No. 1-1363))
10.12 Employment Agreement, dated November 5, 1996, between the Company and
Aarne Anderson (incorporated herein by reference to Exhibit 10.12 to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 (File No. 1-1363))
10.13 Employment Agreement, dated November 5, 1996, between the Company and
William B. Davis (incorporated herein by reference to Exhibit 10.13 to
the Company's Quarterly Report on Form 10-Q for the period ended
September 30, 1996 (File No. 1-1363))
10.14 Employment Agreement, dated November 5, 1996, between the Company and
James C. Hull (incorporated herein by reference to Exhibit 10.14 to the
Company's Quarterly Report on Form 10-Q for the period ended September
30, 1996 (File No. 1-1363))
10.15 Stock Purchase Agreement, dated November 26, 1996, by and among IMCO
Recycling Inc., IMSAMET, Inc. and EnviroSource, Inc. (incorporated
herein by reference to Exhibit 10.1 to the Company's Form 8-K filed
January 21, 1997 (file No. 1-1363))
10.16 Amendment No. 1, dated as of January 21, 1997, to Stock Purchase
Agreement, dated November 26, 1996, by and among IMCO Recycling Inc.,
IMSAMET, Inc. and EnviroSource, Inc. (incorporated herein by reference
to Exhibit 10.2 to the Company's Form 8-K filed January 21, 1997 (File
No. 1-1363))
12.1 Statement of Ratio of Earnings to Fixed Charges
21.1 Subsidiaries of the Company (incorporated herein by reference to
Exhibit 21.1 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996 (File No. 1-1363))
23.1 Consent of Dechert Price & Rhoads (included in Exhibit 5.1)
23.2 Consent of Ernst & Young LLP
24 Power of Attorney (included on signature page)
25 Statement of Eligibility and Qualification, Form T-1, of United States
Trust Company of New York
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
* To be supplied by amendment.
(b) Financial Statement Schedules:
Schedules are omitted because of the absence of the conditions under
which they are required or because the information required by such omitted
schedules is set forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, attached to and incorporated by reference in the
Prospectus.
II-4
<PAGE>
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Township of
Horsham, Commonwealth of Pennsylvania, on the 20th day of November, 1997.
ENVIROSOURCE, INC.
By: /s/Louis A. Guzzetti, Jr.
-------------------------
Louis A. Guzzetti, Jr.
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below appoints Louis A. Guzzetti,
Jr., James C. Hull and Leon Z. Heller, each of whom may act without the joinder
of the others, as his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or their substitute or substitutes may lawfully do
or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities indicated on November 20, 1997.
Signature Title
/s/ Louis A. Guzzetti, Jr.
- ---------------------------
Louis A. Guzzetti, Jr. President, Chief Executive Officer
and Director (Principal Executive Officer)
/s/ James C. Hull
- ---------------------------
James C. Hull Vice President and Chief Financial Officer
(Principal Accounting Officer)
/s/ Ronald P. Spogli
- ---------------------------
Ronald P. Spogli Chairman of the Board of Directors
/s/ Wallace B. Askins
- ---------------------------
Wallace B. Askins Director
/s/ Raymond P. Caldiero
- ---------------------------
Raymond P. Caldiero Director
/s/ Robert N. Gurnitz
- ---------------------------
Robert N. Gurnitz Director
/s/ Jeffrey G. Miller
- ---------------------------
Jeffrey G. Miller Director
/s/ Jon D. Ralph
- ---------------------------
Jon D. Ralph Director
/s/ John M. Roth
- ---------------------------
John M. Roth Director
/s/ J. Frederick Simmons
- ---------------------------
J. Frederick Simmons Director
II-6
<PAGE>
Exhibit 10.1 Placement Agreement dated September 25, 1997
ENVIROSOURCE, INC.
PLACEMENT AGREEMENT
September 25, 1997
Morgan Stanley & Co.
Incorporated and Jefferies &
Company, Inc., for themselves
and the other Placement Agent
named below
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036-8293
Dear Sirs:
EnviroSource, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to you (the "Managers") and the other purchaser named in Schedule
I hereto (collectively with the Managers, the "Placement Agents") $50,000,000
principal amount of its 9 3/4% Senior Notes due 2003, Series B (the
"Securities") to be issued pursuant to the provisions of an Indenture dated as
of September 30, 1997 (the "Indenture") between the Company and United States
Trust Company of New York, as Trustee (the "Trustee").
The Securities will be offered without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions therefrom.
The Placement Agents and their direct and indirect transferees will be
entitled to the benefits of a Registration Rights Agreement between the Company
and the Placement Agents, to be dated the Closing Date (as defined below) and to
be substantially in the form attached hereto as Exhibit A (the "Registration
Rights Agreement").
In connection with the sale of the Securities, the Company has prepared
a preliminary private placement memorandum (the "Preliminary Memorandum") and
will prepare a final private placement memorandum (the "Final Memorandum" and,
with the Preliminary Memorandum, each a "Memorandum") setting forth or including
a description of the terms of the Securities, the terms of the offering and a
description of the Company and its business. As used herein, the terms
"Preliminary Memorandum", "Final Memorandum" and "Memorandum" shall include in
each case the Company's: annual report on Form 10-K for the year ended December
31, 1996 (the "Form 10-K"), quarterly report on Form 10-Q for the period ended
June 30, 1997 (the "Form 10-Q") and Proxy Statement dated April 30, 1997 (the
"Proxy Statement") (collectively with the Form 10-K and Form 10-Q, the
"Annexes"), each as annexed thereto.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, you that as of the date hereof:
(a) (i) Each Annex which was filed pursuant to the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), complied when so filed in all
material respects with the Exchange Act and the applicable rules and regulations
thereunder and (ii) the Preliminary Memorandum does not contain and the Final
Memorandum, in the form used by the Placement Agents to confirm sales and on the
Closing Date (as defined below), will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in this
Section 1(a) do not apply to statements or omissions in either Memorandum based
upon information relating to any Placement Agent furnished to the Company in
writing by such Placement Agent through you expressly for use therein.
(b) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its
<PAGE>
business as described in each Memorandum and is duly qualified to transact
business and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(c) Each of International Mill Service, Inc., Conversion Systems, Inc.,
Waylite Corporation, Envirosafe Services of Ohio, Inc., Envirosafe Services of
Idaho, Inc., EnviroSource Treatment & Disposal Services, Inc., EnviroSource
Management Systems, Inc. and Alexander Mill Service, Inc. (each a "Material
Subsidiary" and collectively the "Material Subsidiaries") has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described in each
Memorandum and is duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that the
failure to be so qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a whole.
(d) This Agreement has been duly authorized, executed and delivered by
the Company.
(e) The Securities have been duly authorized and, when authenticated in
accordance with the Indenture, and delivered to and paid for by the Placement
Agents in accordance with the terms of this Agreement, will (i) be valid and
binding obligations of the Company enforceable in accordance with their terms,
except as (A) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or transfer or
similar laws affecting creditors' rights generally and (B) rights of
acceleration, if applicable, and the availability of equitable remedies may be
limited by equitable principles and (ii) be entitled to the benefits of the
Indenture.
(f) Each of the Indenture and Registration Rights Agreement has been
duly authorized, executed and delivered by, and is a valid and binding agreement
of, the Company, enforceable in accordance with its terms except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or transfer or similar laws affecting
creditors' rights generally, (ii) rights of acceleration, if applicable, and the
availability of equitable remedies may be limited by equitable principles of
general applicability and (iii) in the case of the Registration Rights
Agreement, any rights to indemnity and contribution may be limited by federal
and state securities laws and public policy considerations.
(g) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement, the Indenture, the
Registration Rights Agreement and the Securities will not contravene any
provision of applicable law or the certificate of incorporation or by-laws of
the Company or any agreement or other instrument binding upon the Company or any
of its subsidiaries that is material to the Company and its subsidiaries, taken
as a whole, or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, other than any
such contravention that would not have a material adverse effect on the Company
and its subsidiaries, taken as a whole, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is required
for the performance by the Company of its obligations under this Agreement, the
Indenture, the Registration Rights Agreement or the Securities, except such as
may be required (x) by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities, and (y) the Registration
Rights Agreement.
(h) Neither the Company nor any of its material Subsidiaries is in
violation of its respective charter or by-laws, as the case may be, or in
default in the performance of any obligation, agreement or condition contained
in any bond, debenture, note or any other evidence of indebtedness or in any
other material agreement, indenture or instrument material to the conduct of the
business of the Company and its subsidiaries, taken as a whole, to which the
Company or any of its Material Subsidiaries is a party or by which it or any of
its Material Subsidiaries or their respective property is bound, other than any
such violation or default that would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(i) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the business,
earnings, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, from that set forth in the Preliminary
Memorandum.
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<PAGE>
(j) There are no legal or governmental proceedings pending, or to the
knowledge of the Company, threatened to which the Company or any of its Material
Subsidiaries is a party or to which any of the properties of the Company or any
of its Material Subsidiaries is subject other than proceedings accurately
described in all material respects in each Memorandum and proceedings that would
not have a material adverse effect on the Company and its subsidiaries, taken as
a whole, or on the power or ability of the Company to perform its obligations
under this Agreement, the Indenture,the Registration Rights Agreement or the
Securities or to consummate the transactions contemplated by the Final
Memorandum.
(k) Neither the Company nor any affiliate (as defined in Rule 501(b) of
Regulation D under the Securities Act, an "Affiliate") of the Company has
directly, or through any agent, (i) sold, offered for sale, solicited offers to
buy or otherwise negotiated to sell, offer to sell or solicit offers to buy, any
security (as defined in the Securities Act) which is or will be integrated with
the sale of the Securities in a manner that would require the registration under
the Securities Act of the Securities or (ii) engaged in any form of general
solicitation or general advertising in connection with the offering of the
Securities (as those terms are used in Regulation D under the Securities Act) or
in any manner involving a public offering within the meaning of Section 4(2) of
the Securities Act.
(l) The Company is not, and, after giving effect to the offering and
sale of the Securities and the application of the proceeds therefrom as
described in the Final Memorandum, will not be an "investment company" as such
term is defined in the Investment Company Act of 1940, as amended.
(m) Assuming compliance at all times with the offer, sale and transfer
restrictions set forth in the "Transfer Restrictions" section of each
Memorandum, it is not necessary in connection with the offer, sale and delivery
of the Securities to the Placement Agents in the manner contemplated by this
Agreement to register the Securities under the Securities Act or to qualify the
Indenture under the Trust Indenture Act of 1939, as amended.
(n) The Company and its Material Subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals would not, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) In the ordinary course of its business, the Company reviews the
effect of Environmental Laws on the business, operations and properties of the
Company and its subsidiaries; in the course of such reviews it identifies and
evaluates associated costs and liabilities (including, without limitation, any
capital or operating expenditures required for clean-up, closure of properties
or compliance with Environmental Laws or any permit, license or approval, any
related constraints on operating activities and any potential liabilities to
third parties). On the basis of such reviews, the Company has reasonably
concluded that such associated costs and liabilities would not, singly or in the
aggregate, have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(p) The Company and its Material Subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, except
to the extent that the failure to possess any such certificate, authorization or
permit would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole; and neither the Company nor any Material
Subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which, singly or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and its
subsidiaries, taken as a whole, except as described or contemplated by the Final
Memorandum.
(q) The Company and each of its Material Subsidiaries are insured by
insurers of recognized financial responsibility against such losses and risks
and in such amounts as are prudent and customary in the businesses in which they
are engaged; and neither the Company nor any Material Subsidiary has any reason
to believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may
3
<PAGE>
be necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a whole,
except as described or contemplated by the Final Memorandum.
(r) The financial statements (other than the pro forma financial data),
together with related schedules and notes annexed to and included in each
Memorandum (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and cash flows of the
Company and its subsidiaries at the respective dates or for the respective
periods to which they apply; except as disclosed therein, such statements and
related schedules and notes have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, except that the unaudited interim financial statements are subject to
normal year-end adjustments, the pro forma financial data included in each
Memorandum include all adjustments necessary to present fairly the pro forma
financial condition and results of operations at the date and for the period
indicated, and all assumptions used in preparing such pro forma financial
statements are reasonable.
(s) The present fair salable value of the assets of the Company and its
subsidiaries, taken as a whole, exceeds the amount that will be required to be
paid on or in respect of the existing debts and other liabilities (including
contingent liabilities) of the Company and its subsidiaries as they become
absolute and matured. The assets of the Company and its subsidiaries, taken as a
whole, do not constitute unreasonably small capital to carry out their business
as conducted or as proposed to be conducted. The Company does not intend to, and
does not believe that it will, incur debts beyond its ability to pay such debts
as they mature. The Company does not intend to permit its subsidiaries to incur
debts beyond their respective ability to pay such debts as they mature. Upon the
issuance of the Securities, (i) the present fair salable value of the assets of
the Company and its subsidiaries, taken as a whole, will exceed the amount that
will be required to be paid on or in respect of their existing debts and other
liabilities (including contingent liabilities) as they become absolute and
matured, and (ii) the assets of the Company and its subsidiaries, taken as a
whole, will not constitute unreasonably small capital to carry out their
business as now conducted or as proposed to be conducted, including the capital
needs of the Company and each of its subsidiaries, taking into account the
projected capital requirements and capital availability of the Company and each
of its subsidiaries.
(t) None of the Company, its Affiliates or any person acting on its or
their behalf (other than the Placement Agents) has engaged in any directed
selling efforts (as that term is defined in Regulation S under the Securities
Act ("Regulation S")) with respect to the Securities and the Company and its
Affiliates and any person acting on its or their behalf (other than the
Placement Agents) have complied with the offering restrictions requirement of
Regulation S.
2. Offering. You have advised the Company that the Placement Agents
will make an offering of the Securities purchased by the Placement Agents
hereunder on the terms set forth in the Final Memorandum and Section 6 hereof as
soon as practicable after this Agreement is entered into as in your judgment is
advisable.
3. Purchase and Delivery. The Company hereby agrees to sell to the
several Placement Agents, and the Placement Agents, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agree, severally and not jointly, to purchase from the
Company the respective principal amounts of Securities set forth in Schedule I
hereto opposite their names at a purchase price of 96.5% of the principal amount
thereof plus accrued interest, if any, from June 15, 1997 to the Closing Date.
Payment for the Securities shall be made against delivery of the
Securities at a closing (the "Closing") to be held at the office of Shearman &
Sterling, 599 Lexington Avenue, New York, New York, at 10:00 A.M., local time,
on September 30, 1997, or at such other time on the same or such other date, not
later than October 10, 1997, as shall be designated in writing by you. The time
and date of such payment are herein referred to as the Closing Date. Payment for
the Securities shall be made by wire transfer of immediately available funds to
an account designated by the Company.
Certificates for the Securities shall be in definitive form and
registered in such names and in such denominations as you shall request in
writing not less than three full business days prior to the Closing Date. The
certificates evidencing the Securities shall delivered to you on the Closing
Date for the respective accounts of the several Placement Agents, with any
transfer taxes payable in connection with the transfer of the Securities to the
Placement Agents duly paid, against payment of the purchase price therefor.
4
<PAGE>
4. Conditions to Closing. The several obligations of the Placement
Agents under this Agreement to purchase the Securities will be subject to the
following conditions:
(a) Subsequent to the date of this Agreement and prior to the Closing
Date,
(i) there shall not have occurred any downgrading, nor shall any notice
have been given of any intended or potential downgrading or of any review
for a possible change that does not indicate the direction of the possible
change, in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as such term is
defined for purposes of Rule 436(g)(2) under the Securities Act; and
(ii) there shall not have occurred any change, or any development
involving a prospective change, in the condition, financial or otherwise,
or in the earnings, business or operations, of the Company and its
subsidiaries, taken as a whole, from that set forth in the Preliminary
Memorandum that, in your judgment, is material and adverse and that makes
it, in your judgment, impracticable to market the Securities on the terms
and in the manner contemplated in the Final Memorandum.
(b) You shall have received on the Closing Date a certificate, dated
the Closing Date and signed by an executive officer of the Company, to the
effect set forth in clause (a)(i) above and to the effect that the
representations and warranties of the Company contained in this Agreement are
true and correct as of the Closing Date and that the Company has complied with
all of the agreements and satisfied all of the conditions on its part to be
performed or satisfied on or before the Closing Date.
The officer signing and delivering such certificate may rely upon the
best of his knowledge as to proceedings threatened.
(c) You shall have received on the Closing Date an opinion of Dechert
Price & Rhoads, New York, New York, special counsel for the Company, dated the
Closing Date, to the effect set forth in Exhibit B.
(d) You shall have received on the Closing Date an opinion of Leon Z.
Heller, General Counsel and Secretary of the Company, dated the Closing Date, to
the effect set forth in Exhibit C.
(e) You shall have received on the Closing Date an opinion of Shearman
& Sterling, counsel for the Placement Agents, dated the Closing Date, in form
and substance satisfactory to you.
(f) You shall have received on each of the date hereof and the Closing
Date a letter, dated the date hereof or the Closing Date, as the case may be, in
form and substance reasonably satisfactory to you, from the Company's
independent public accountants, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to underwriters with
respect to the financial statements and certain financial information contained
in or annexed to the Final Memorandum.
(g) Before the Closing Date, the Company shall have obtained a waiver
from the lenders under the bank credit facility among International Mill
Service, Inc., the Company and the lenders party thereto dated December 19,
1995, as amended (the "Bank Credit Facility"), or such Bank Credit Facility
shall have been amended, and you shall have received a copy of such waiver or
amendment which in effect shall provide that consummation of the transactions
contemplated hereby does not in any way violate or contravene the provisions of
the Bank Credit Facility.
5. Covenants of the Company. In further consideration of the agreements
of the Placement Agents contained in this Agreement, the Company covenants as
follows:
(a) To furnish to you, without charge, during the period mentioned in
paragraph (c) below, as many copies of the Final Memorandum, any documents
incorporated by reference therein and any supplements and amendments
thereto as you may reasonably request and to use its best efforts to
deliver such copies to you by 5 p.m. (New York time) on the business day
next following the execution of this Agreement.
5
<PAGE>
(b) Before amending or supplementing either Memorandum at any time
prior to the completion of the sale of securities by you, to furnish to you
a copy of each such proposed amendment or supplement and not to use any
such proposed amendment or supplement to which you reasonably object.
(c) If, during such period after the date hereof and prior to the date
on which all of the Securities shall have been sold by the Placement
Agents, any event shall occur or condition exist as a result of which it is
necessary in your reasonable judgment to amend or supplement the Final
Memorandum in order to make the statements therein, in the light of the
circumstances when such Memorandum is delivered to a purchaser, not
misleading, or if, with the opinion of counsel to the Placement Agents it
is necessary to amend or supplement such Memorandum to comply with
applicable law, forthwith to prepare and furnish, at its own expense, to
the Placement Agents, either amendments or supplements to such Memorandum
so that the statements in such Memorandum as so amended or supplemented
will not, in the light of the circumstances when such Memorandum is
delivered to a purchaser, be misleading or so that such Memorandum, as so
amended or supplemented, will comply with applicable law.
(d) To endeavor to qualify the Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request; provided, however, that the Company shall not be required to (i)
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to file but for this
Section 5(d), (ii) file any general consent to service of process or (iii)
subject itself to taxation in any such jurisdiction if it is not so
subject.
(e) If the sale of such Securities is consummated or is not consummated
due to a breach by the Company, to pay the following expenses incident to
the performance of its obligations under this Agreement: (i) the
preparation of each Memorandum and all amendments and supplements thereto,
(ii) the preparation, issuance and delivery of the Securities, (iii) the
fees and disbursements of the Company's counsel and accountants and the
Trustee and its counsel, (iv) the qualification of such Securities under
securities or Blue Sky laws in accordance with the provisions of Section
5(d), including filing fees and the fees and disbursements of counsel for
the Placement Agents in connection therewith and in connection with the
preparation of any Blue Sky or legal investment memoranda, (v) the printing
and delivery to the Placement Agents in quantities as hereinabove stated of
copies of the Memorandum and any amendments or supplements thereto, (vi)
any fees charged by rating agencies for the rating of such Securities,
(vii) all document production charges in connection with the preparation of
this Agreement, (viii) the fees and expenses, if any, incurred in
connection with the admission of such Securities for trading in PORTAL or
any other appropriate market system, (ix) the costs and expenses of the
Company (and not the Placement Agents) relating to investor presentations
on any "road show" undertaken in connection with the marketing of the
Securities, including, without limitation, expenses associated with the
production of road show slides and graphics, fees and expenses of any
consultants engaged in connection with the road show presentations with the
prior approval of the Company, travel and lodging expense of the
representatives and officers of the Company and any such consultants, and
the cost of any aircraft chartered in connection with the road show, and
(x) all other costs and expenses incident to the performance of the
obligations of the Company hereunder for which provision is not otherwise
made in this Section.
(f) Neither the Company nor any Affiliate will sell, offer for sale or
solicit offers to buy or otherwise negotiate to sell, offer to sell or
solicit offers to buy, (as defined in the Securities Act) which could be
integrated with the sale of the Securities in a manner which would require
the registration under the Securities Act of such Securities.
(g) Not to solicit any offer to buy or offer or sell the Securities by
means of any form of general solicitation or general advertising (as those
terms are used in Regulation D under the Securities Act) or in any manner
involving a public offering within the meaning of Section 4(2) of the
Securities Act.
(h) While any of the Securities remain outstanding, to make available,
upon request, to any seller of such Securities the information specified in
Rule 144A(d)(4) under the Securities Act, unless the Company is then
subject to Section 13 or 15(d) of the Exchange Act.
(i) None of the Company, its Affiliates or any person acting on its or
their behalf (other than the Placement Agents) will engage in any directed
selling efforts (as that term is defined in Regulation S) with respect
6
<PAGE>
to the Securities, and the Company and its Affiliates and each person
acting on its or their behalf (other than the Placement Agents) will comply
with the offering restrictions of Regulation S.
(j) To use its best efforts to permit the Securities to be designated
PORTAL securities in accordance with the rules and regulations adopted by
the National Association of Securities Dealers, Inc. relating to trading in
the PORTAL Market.
(k) To apply the net proceeds from the sale of the Securities in the
manner described under "Use of Proceeds" in the Final Memorandum.
(l) It will, and will use its best efforts to cause the Trustee to,
refuse to register any transfer of Securities sold pursuant to Regulation S
if such transfer is not made in accordance with the provisions of the
Indenture.
6. Offering of Securities; Restrictions on Transfer. (a) Each Placement
Agent, severally and not jointly, represents and warrants that such Placement
Agent is a qualified institutional buyer as defined in Rule 144A under the
Securities Act (a "QIB"). Each Placement Agent, severally and not jointly,
agrees with the Company that (i) it will not solicit offers for, or offer or
sell, such Securities by any form of general solicitation or general advertising
(as those terms are used in Regulation D under the Securities Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Securities Act and (ii) it will solicit offers for such Securities only from,
and will offer such Securities only to, persons that it reasonably believes to
be (A) in the case of offers inside the United States, (x) QIBs or (y) other
institutional accredited investors (as defined in Rule 501(a) (1), (2), (3) or
(7) under the Securities Act) ("institutional accredited investors") that, prior
to their purchase of the Securities, deliver to such Placement Agent a letter
containing the representations and agreements set forth in Appendix A-1 to the
Memorandum and (B) in the case of offers outside the United States, to persons
other than U.S. persons ("foreign purchasers", which term shall include dealers
or other professional fiduciaries in the United States acting on a discretionary
basis for foreign beneficial owners (other than an estate or trust)) that, in
each case, in purchasing such Securities are deemed to have represented and
agreed as provided in the Final Memorandum under the caption "Transfer
Restrictions."
(b) Each Placement Agent, severally and not jointly, represents,
warrants, and agrees with respect to offers and sales outside the United States
that:
(i) it understands that no action has been or will be taken in any
jurisdiction by the Company that would permit a public offering of the
Securities, or would permit the possession or distribution of either
Memorandum or any other offering or publicity material relating to the
Securities, in any country or jurisdiction where action for that
purpose is required;
(ii) such Placement Agent will comply with all applicable laws and
regulations in each jurisdiction in which it acquires, offers, sells or
delivers Securities or has in its possession or distributes either
Memorandum or any such other material, in all cases at its own expense
(notwithstanding anything to the contrary set forth in Section 5(e));
(iii) the Securities have not been and will not be registered
under the Securities Act and may not be offered or sold within the
United States or to, or for the account or benefit of, U.S. persons
except in accordance with Regulation S under the Securities Act or
pursuant to another exemption from the registration requirements of the
Securities Act;
(iv) such Placement Agent has offered the Securities and will
offer and sell the Securities (A) as part of their distribution at any
time and (B) otherwise until 40 days after the later of the
commencement of the offering of the Securities and the Closing Date,
only in accordance with Rule 903 of Regulation S or another exemption
from the registration requirements of the Securities Act. Accordingly,
neither such Placement Agent, its Affiliates nor any persons acting on
its or their behalf have engaged or will engage in any directed selling
efforts (within the meaning of Regulation S) with respect to the
Securities, and any such Placement Agent, its Affiliates and any such
persons have complied and will comply with the offering restrictions
requirements of Regulation S;
7
<PAGE>
(v) such Placement Agent has (A) not offered or sold and will not
offer or sell any Securities to persons in the United Kingdom except to
persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the
purposes of their businesses or otherwise in circumstances which have
not resulted and will not result in an offer to the public in the
United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995 (the "Regulations"); (B) complied and will comply with
all applicable provisions of the Financial Services Act 1986 and the
Regulations with respect to anything done by it in relation to the
Securities in, from or otherwise involving the United Kingdom; and (C)
only issued or passed on and will only issue or pass on to any person
in the United Kingdom any document received by it in connection with
the issue of the Securities if that person is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements) (Exemptions) Order 1996 or is a person to whom such
document may otherwise lawfully be issued or passed on; and
(vi) such Placement Agent understands that the Securities have not
been and will not be registered under the Securities and Exchange Law
of Japan (or any other securities law of Japan), and represents that it
has not offered or sold, and agrees that it will not offer or sell, any
Securities, directly or indirectly in Japan or to any resident of Japan
except (A) pursuant to an exemption from the registration requirements
of the Securities and Exchange Law of Japan (and any other applicable
securities law of Japan) and (B) in compliance with any other
applicable requirements of Japanese law.
Terms used in this Section 6 have the meanings given to them by Regulation S.
7. Indemnification and Contribution. (a) The Company agrees to
indemnify and hold harmless each Placement Agent, and each person, if any, who
controls such Placement Agent within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, or is under common control
with, or is controlled by, such Placement Agent, from and against any and all
losses, claims, damages and liabilities (including, without limitation, any
legal or other expenses reasonably incurred by any Placement Agent or any such
controlling of affiliated person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in either Memorandum (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto), or caused by any omission or alleged omission to state therein a
material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to any Placement Agent furnished to the Company in writing by such
Placement Agent through you expressly for use therein, provided, however, that
the foregoing indemnity agreement with respect to any Preliminary Memorandum
shall not inure to the benefit of any Placement Agent from whom the person
asserting any such losses, claims, damages or liabilities purchased Securities,
or any person controlling such Placement Agent, if a copy of the Final
Memorandum (as then amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) was not sent or given by or on behalf of
such Placement Agent to such person at or prior to the written confirmation of
the sale of the Securities to such person, and if the Final Memorandum (as so
amended or supplemented) would have cured the defect giving rise to such losses,
claims, damages or liabilities, unless such failure is the result of
noncompliance by the Company with Section 5(a) hereof.
(b) Each Placement Agent agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers and each
person, if any, who controls the Company within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such Placement Agent, but only with
reference to information relating to such Placement Agent furnished to the
Company in writing by such Placement Agent through you expressly for use in
either Memorandum or any amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to either paragraph (a) or (b) above, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at
8
<PAGE>
the expense of such indemnified party unless (i) the indemnifying party and the
indemnified party shall have mutually agreed to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and representation
of both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the fees and expenses of
more than one separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be reimbursed as
they are incurred. Such firm shall be designated in writing by Morgan Stanley &
Co. Incorporated in the case of parties indemnified pursuant to paragraph (a)
above and by the Company in the case of parties indemnified pursuant to
paragraph (b) above. The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an indemnified party shall have requested
an indemnifying party to reimburse the indemnified party for fees and expenses
of counsel as contemplated by the second and third sentences of this paragraph,
the indemnifying party agrees that it shall be liable for any settlement of any
proceeding effected without its written consent if (i) such settlement is
entered into more than 30 days after receipt by such indemnifying party of the
aforesaid request and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of such
settlement. No indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which any indemnified party is or could have been a
party and indemnity could have been sought hereunder by such indemnified party,
unless such settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of such
proceeding.
(d) To the extent the indemnification provided for in paragraph (a) or
(b) of this Section 7 is unavailable to an indemnified party or insufficient in
respect of any losses, claims, damages or liabilities, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified party
thereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, on the one hand, and the Placement Agents, on the other hand, from the
offering of such Securities or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Placement Agents
on the other hand in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Placement Agents on the other hand in connection with the
offering of such Securities shall be deemed to be in the same respective
proportions as the net proceeds from the offering of such Securities (before
deducting expenses) received by the Company and the total discounts and
commissions received by the Placement Agents in respect thereof bear to the
aggregate offering price of such Securities. The relative fault of the Company
on the one hand and of the Placement Agents on the other hand shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company or by the
Placement Agents and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Placement Agents' respective obligations to contribute pursuant to this
Section 7 are several in proportion to the respective principal amount of
Securities they have purchased hereunder, and not joint.
(e) The Company and the Placement Agents agree that it would not be
just or equitable if contribution pursuant to this Section 7 were determined by
pro rata allocation (even if the Placement Agents were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in paragraph (d) above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages
and liabilities referred to in paragraph (d) above shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7, no Placement Agent shall be required to contribute any amount in
excess of the amount by which the total price at which the Securities resold by
it in the initial placement of such Securities were offered to investors exceeds
the amount of any damages that such Placement Agent has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The indemnity and contribution provisions contained in this
Section 7 and the representations and warranties of the Company contained in
this Agreement shall remain operative
9
<PAGE>
and in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of the Placement Agents
or any person controlling the Placement Agents or by or on behalf of the
Company, its officers or directors or any person controlling the Company and
(iii) acceptance of and payment for any of the Securities. The remedies provided
for in this Section 7 are not exclusive and shall not limit any rights or
remedies which may otherwise be available to any indemnified party at law or in
equity.
8. Termination. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a)(i) through (iv), such event singly or
together with any other such event makes it, in your judgment, impracticable to
market the Securities on the terms and in the manner contemplated in the Final
Memorandum.
9. Miscellaneous. If, on the Closing Date, any one or more of the
Placement Agents shall fail or refuse to purchase Securities that it or they
have agreed to purchase hereunder on such date, and the aggregate principal
amount of Securities which such defaulting Placement Agent or Placement Agents
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate principal amount of Securities to be purchased on such date, the other
Placement Agents shall be obligated severally in the proportions that the
principal amount of Securities set forth opposite their respective names in
Schedule I bears to the aggregate principal amount of Securities set forth
opposite the names of all such non-defaulting Placement Agents, or in such other
proportions as you may specify, to purchase the Securities which such defaulting
Placement Agent or Placement Agents agreed but failed or refused to purchase on
such date; provided that in no event shall the principal amount of Securities
that any Placement Agent has agreed to purchase pursuant to Section 3 be
increased pursuant to this Section 9 by an amount in excess of one-ninth of such
principal amount of Securities without the written consent of such Placement
Agent. If, on the Closing Date, any Placement Agent or Placement Agents shall
fail or refuse to purchase Securities which it or they have agreed to purchase
hereunder on such date and the aggregate principal amount of Securities with
respect to which such default occurs is more than one-tenth of the aggregate
principal amount of Securities to be purchased on such date and arrangements
satisfactory to you and the Company for the purchase of such Securities are not
made within 36 hours after such default, this Agreement shall terminate without
liability on the part of any non-defaulting Placement Agent or of the Company.
In any such case either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Final Memorandum or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Placement Agent from liability in respect of any default
of such Placement Agent under this Agreement.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
If this Agreement shall be terminated by the Placement Agents, or any
of them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Placement Agents or such Placement
Agents as have so terminated this Agreement with respect to themselves,
severally, for all out-of-pocket expenses (including the fees and disbursements
of their counsel) reasonably incurred by such Placement Agents in connection
with this Agreement or the offering contemplated hereunder.
This Agreement shall be governed by and construed in accordance with
the internal laws of the State of New York.
The headings of the sections of this Agreement have been inserted for
convenience of reference only and shall not be deemed a part of this Agreement.
10
<PAGE>
Please confirm your agreement to the foregoing by signing in the space
provided below for that purpose and returning to us a copy hereof, whereupon
this Agreement shall constitute a binding agreement between us.
Very truly yours,
ENVIROSOURCE, INC.
By:
---------------------------
Agreed, September 25, 1997
Morgan Stanley & Co.
Incorporated
Jefferies & Company, Inc.
NationsBanc Capital Markets, Inc.
Acting severally on behalf
of itself and the several
Placement Agents named herein.
By Morgan Stanley & Co.
Incorporated
By:
----------------------------
11
<PAGE>
SCHEDULE I
Principal
Amount of
Securities
Placement Agent To Be Purchased
--------------- ---------------
Morgan Stanley & Co. Incorporated $21,250,000
Jefferies & Company, Inc. 21,250,000
NationsBanc Capital Markets, Inc. 7,500,000
Total............. $50,000,000
===========
<PAGE>
EXHIBIT A
Form of Registration Rights Agreement
(See Exhibit 4.2 to Exchange Offer Registration Statement)
<PAGE>
EXHIBIT B
Opinion of Dechert Price & Rhoads,
Counsel for the Company
The opinion of the counsel for the Company to be delivered pursuant to Section
4(c) of the Placement Agreement shall be to the effect that:
(A) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Final Memorandum (references herein to the Final Memorandum
being taken to mean the same, as amended or supplemented);
(B) the Placement Agreement has been duly authorized, executed and
delivered by the Company;
(C) assuming the due authorization of the Securities by the Company,
when executed, and delivered by the Company, authenticated by the Trustee and
paid for in accordance with the terms of the Placement Agreement, the Securities
are (i) the valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as (A) the enforceability thereof
may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or transfer or similar laws affecting creditors' rights generally and
(B) rights of acceleration, if applicable, and the availability of equitable
remedies may be limited by equitable principles and (ii) be entitled to the
benefits of the Indenture;
(D) assuming the due authorization, execution and delivery of each of
the Indenture and the Registration Rights Agreement by the Company, each of the
Registration Rights Agreement and the Indenture is a valid and binding agreement
of the Company, enforceable against the Company in accordance with its terms
except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or transfer or
similar laws affecting creditors' rights generally, (ii) rights of acceleration,
if applicable, and the availability of equitable remedies may be limited by
equitable principles, and (iii) in the case of the Registration Rights
Agreement, any rights to indemnity and contribution may be limited by federal
and state securities laws and public policy considerations, and no consent,
approval, authorization or order of, or qualification with, any governmental
body or agency is required for the performance by the Company or its
subsidiaries of their obligations under the Placement Agreement, the Indenture,
the Registration Rights Agreement or the Securities, except such as may be
required by (i) the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Securities and with the Exchange
Securities (as defined in the Registration Rights Agreement) and (ii) the
Securities Act and Trust Indenture Act, in connection with the obligations of
the Company under the Registration Rights Agreement;
(E) the execution and delivery by the Company of, and the performance
by the Company of its obligations under, each of the Placement Agreement, the
Indenture, the Registration Rights Agreement and the Securities do not
contravene (i) any provision of applicable law or (ii) the certificate of
incorporation or by-laws of the Company;
(F) the Company is not, and, after giving effect to the offering and
sale of the Securities and the application of the proceeds therefrom as
described in the Final Memorandum will not be, an "investment company", as such
term is defined in the Investment Company Act of 1940, as amended;
(G) assuming the due authorization, execution and delivery of the
Placement Agreement, Indenture and Registration Rights Agreement by the Company,
that such agreements are enforceable against the other parties thereto and that
the representations and warranties therein are true, complete and correct, the
statements in the Final Memorandum under the captions "Description of the
Notes", "Private Placement" and "Transfer Restrictions", insofar as
<PAGE>
such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly summarize the matters referred to
therein in all material respects;
(H) the statements in the Final Memorandum, under the caption "Certain
United States Federal Income Tax Considerations" are accurate and fairly
summarize the matters referred to therein in all material respects;
(I) no facts have come to such counsel's attention to cause such
counsel to believe that (except for financial statements, the Form 10-K, the
Form 10-Q and the Proxy Statement, as to each of which such counsel need not
express any belief) the Final Memorandum when issued did not, and as of the date
such opinion is delivered does not, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and
(J) assuming the truth, accuracy and completeness of the
representations, warranties, and agreements of the Company in the Placement
Agreement and of the Placement Agents in Section 6 of the Placement Agreement,
it is not necessary in connection with the offer, sale and delivery of the
Securities to the Placement Agents under the Placement Agreement or in
connection with the initial resale of such Securities by the Placement Agents in
accordance with Section 6 of the Placement Agreement to register the Securities
under the Securities Act of 1933, it being understood that no opinion is
expressed as to any subsequent resale of any Security.
With respect to paragraph (I) above, counsel may state that their
opinion and belief are based upon their participation in the preparation of the
Final Memorandum (and any amendments or supplements thereto but not the Form
10-K, the Form 10-Q or Proxy Statement, as to which such counsel need not
express any belief) and review and discussion of the contents thereof (but not
the Form 10-K, the Form 10-Q or Proxy Statement, as to which such counsel need
not express any belief), but are without independent check or verification
except with respect to paragraphs (G) and (H) above.
B-2
<PAGE>
EXHIBIT C
Opinion of General Counsel
for the Company
The opinion of the General Counsel for the Company to be delivered
pursuant to Section 4(d) of the Placement Agreement shall be to the effect that:
(A) the Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the State of Delaware, has the
corporate power and authority to own its property and to conduct its business as
described in the Final Memorandum (references herein to the Final Memorandum
being taken to mean the same, as amended or supplemented), and is duly qualified
to transact business and is in good standing in each jurisdiction in which the
conduct of its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole;
(B) each Material Subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the Final Memorandum
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its business or its
ownership or leasing of property requires such qualification, except to the
extent that the failure to be so qualified or be in good standing would not have
a material adverse effect on the Company and its subsidiaries, taken as a whole;
(C) the Placement Agreement, Indenture and Registration Rights
Agreement have been duly authorized, executed and delivered by the Company;
(D) the Securities have been duly authorized, executed and delivered by
the Company, and, when authenticated by the Trustee and paid for in accordance
with the terms of the Placement Agreement, will be valid and binding obligations
of, the Company;
(E) the execution and delivery by the Company of, and the performance
by the Company of its obligations under, each of the Placement Agreement, the
Indenture, the Registration Rights Agreement and the Securities do not
contravene (i) any provision of applicable law, (ii) the certificate of
incorporation or by-laws of the Company, (iii) to such counsel's knowledge, any
agreement or other instrument binding upon the Company or any of its
subsidiaries that is material to the Company and its subsidiaries, taken as a
whole, or (iv) to such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the Company or any
subsidiary, and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is required for the
performance by the Company or its subsidiaries of their obligations under the
Placement Agreement, the Indenture, the Registration Rights Agreement or the
Securities, except such as may be required by (i) the securities or Blue Sky
laws of the various states in connection with the offer and sale of the
Securities and with the Exchange Securities (as defined in the Registration
Rights Agreement), and (ii) the Securities Act and Trust Indenture Act, in
connection with the obligations of the Company under the Registration Rights
Agreement;
(F) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject other than proceedings fairly summarized in
all material respects in the Final Memorandum and proceedings which such counsel
believes are not likely to have a material adverse effect on the Company and its
subsidiaries, taken as a whole, or on the power or ability of the Company to
perform its obligations under the Placement Agreement, the Indenture, the
Registration Rights Agreement or the Securities or to consummate the
transactions contemplated by the Final Memorandum;
<PAGE>
(G) the Company is not, and, after giving effect to the offering and
sale of the Securities and the application of the proceeds therefrom as
described in the Final Memorandum will not, be an "investment company", as such
term is defined in the Investment Company Act of 1940, as amended;
(H) the statements in "Item 3 - Legal Proceedings" of the Form 10-K
annexed to the Final Memorandum, insofar as such statements constitute a summary
of the legal matters, documents or proceedings referred to therein, fairly
summarize the matters referred to therein in all material aspects;
(I) to the best of such counsel's knowledge, the Company and its
Material Subsidiaries (i) are in substantial compliance in all material respects
with all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all material permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses which they believe are necessary for their
respective operations and (iii) are in substantial compliance with all terms and
conditions of any such permit, license or approval, except as otherwise
described in or contemplated by the Final Memorandum and except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and conditions
of such permits, licenses or approvals are not likely, singly or in the
aggregate, to have a material adverse effect on the Company and its
subsidiaries, taken as a whole;
(J) (i) each of the Form 10-K, Form 10-Q and Proxy Statement, each of
which is annexed to, and forms a part of, the Final Memorandum (except for
financial statements included therein as to which such counsel need not express
any opinion) complied as to form when filed with the Commission in all material
respects with the Exchange Act and the rules and regulations of the Commission
thereunder and (ii) no facts have come to such counsel's attention to cause such
counsel to believe that (except for financial statements as to which such
counsel need not express any belief) the Final Memorandum when issued did not,
and as of the date such opinion is delivered does not, contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading; and
With respect to paragraph (J) (ii) above, counsel may state that their
opinion and belief are based upon their participation in the preparation of the
Final Memorandum (and any amendments or supplements thereto) and documents
annexed thereto and review and discussion of the contents thereof, but are
without independent check or verification except with respect to paragraph (H)
above.
C-2
<PAGE>
Exhibit 12.1 Statement of Ratio of Earnings to Fixed Charges
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, Sept. 30,
-------------------------------------------------------------------- ---------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated pretax income
from continuing operations $ (6,131) $ (17,581) $ 15,529 $ 14,763 $ (7,956) $ (4,430)
Interest expense 33,653 28,863 25,372 27,400 31,517 21,763
Amortization of interest
capitalized in prior periods 328 358 368 375 373 255
Interest portion of rental expense 1,800 2,070 2,340 3,060 3,030 2,245
--------- --------- --------- --------- --------- ---------
Earnings $ 29,650 $ 13,710 $ 43,609 $ 45,598 $ 26,964 $ 19,833
========= ========= ========= ========= ========= =========
Interest expense $ 33,653 $ 28,863 $ 25,372 $ 27,400 $ 31,517 $ 21,763
Interest capitalized during period 804 616 627 196 0 0
Interest portion of rental expense 1,800 2,070 2,340 3,060 3,030 2,245
--------- --------- --------- --------- --------- ---------
Fixed Charges $ 36,257 $ 31,549 $ 28,339 $ 30,656 $ 34,547 $ 24,008
========= ========= ========= ========= ========= =========
Ratio of Earnings to Fixed Charges -- -- 1.54 1.49 -- --
Deficiency in Earnings Available
to Cover Fixed Charges $ 6,607 $ 17,839 $ -- $ -- $ 7,583 $ 4,175
</TABLE>
<PAGE>
Exhibit 23.2 Consent of Ernst & Young LLP
We consent to the references to our firm under the captions "Experts" and
"Summary Financial Data" in the Registration Statement (Form S-4) and related
Prospectus of EnviroSource, Inc. for the registration of $50,000,000 aggregate
principal amount of 9 3/4% Senior Notes due 2003, Series B and to the
incorporation by reference therein of our report dated February 21, 1997, with
respect to the consolidated financial statements and schedule of EnviroSource,
Inc. included in its Annual Report (Form 10-K) for the year ended December 31,
1996, filed with the Securities and Exchange Commission.
/s/ Marc A. Rabinowitz
----------------------
ERNST & YOUNG LLP
Stamford, Connecticut
November 20, 1997
<PAGE>
Exhibit 25 Statement of Eligibility and Qualification, Form T-1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
--------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) _______
--------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation or (I. R. S. Employer
organization if not a U. S. national bank) Identification Number)
114 West 47th Street 10036-1532
New York, New York (Zip Code)
(Address of principal
executive offices)
--------------------------
EnviroSource, Inc.
(Exact name of obligor as specified in its charter)
Delaware 34-0617390
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
1155 Business Center Drive 19044-3454
Horsham, Pennsylvania (Zip code)
(Address of principal executive offices)
--------------------------
93/4% Senior Notes due 2003, Series B
(Title of the indenture securities)
<PAGE>
-2-
GENERAL
1. General Information
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D. C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. Affiliations with the Obligor
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3,4,5,6,7,8,9,10,11,12,13,14 and 15.
The obligor is currently not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and
15 of Form T-1 are not required under General Instruction B.
16. List of Exhibits
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No.
33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
- 3 -
16. List of Exhibits (continued)
T-1.4 -- The By-laws of the United States Trust Company of New York,
as amended, is incorporated by reference to Exhibit T-1.4 to
Form T-1 filed on September 15, 1995 with the Commission
pursuant to the Trust Indenture Act of 1939, as amended by
the Trust Indenture Reform Act of 1990 (Registration No. 33-
97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust
Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
As of November 12, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U. S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility, as to matters
peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor and will
rely on information to be furnished by the obligor and the trustee
disclaims responsibility for the accuracy or completeness of such
information.
---------------------
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation organized
and existing under the laws of the State of New York, has duly caused this
statement of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New
York, on the 12th day of November, 1997.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ Patricia Stermer
---------------------------
Patricia Stermer
Assistant Vice President
<PAGE>
Exhibit T-1.6
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ Gerard F. Ganey
---------------------------
Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
JUNE 30, 1997
(IN THOUSANDS)
ASSETS
Cash and Due from Banks $ 83,529
Short-Term Investments 259,746
Securities, Available for Sale 924,165
Loans 1,437,342
Less: Allowance for Credit Losses 13,779
Net Loans 1,423,563
Premises and Equipment 61,515
Other Assets 122,696
----------
Total Assets $2,875,214
==========
LIABILITIES
Deposits:
Non-Interest Bearing $ 763,075
Interest Bearing 1,409,017
----------
Total Deposits 2,172,092
Short-Term Credit Facilities 404,212
Accounts Payable and Accrued Liabilities 132,213
----------
Total Liabilities $2,708,517
==========
STOCKHOLDER'S EQUITY
Common Stock14,995
Capital Surplus49,541
Retained Earnings 100,930
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 1,231
----------
Total Stockholder's Equity 166,697
Total Liabilities and ----------
Stockholder's Equity $2,875,214
==========
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
August 7, 1997
<PAGE>
Exhibit 99.1 Form of Letter of Transmittal
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _______,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF EXISTING NOTES MAY
BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE
ENVIROSOURCE, INC.
LETTER OF TRANSMITTAL
9 3/4% SENIOR NOTES DUE 2003, SERIES B
TO: UNITED STATED TRUST COMPANY OF NEW YORK
THE EXCHANGE AGENT
<TABLE>
<S> <C>
By Mail: By Hand before 4:30 p.m.:
United States Trust Company of New York United States Trust Company of New York
P.O. Box 843 Cooper Station 111 Broadway
New York, New York 10276 New York, New York 10006
Attention: Corporate Trust Services Attention: Lower Level, Corporate Trust Window
By Overnight Courier and by Hand after 4:30 p.m.: By Facsimile:
United States Trust Company of New York (212) 780-0592
770 Broadway, 13th Floor Attention: Customer Service
New York, New York 10003
Confirm by Telephone:
(800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CARE-
FULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
HOLDERS WHO WISH TO BE ELIGIBLE TO RECEIVE NEW NOTES FOR THEIR EXISTING NOTES
PURSUANT TO THE EXCHANGE OFFER MUST VALIDLY TENDER (AND NOT WITHDRAW)
THEIR EXISTING NOTES TO THE EXCHANGE AGENT PRIOR TO THE EXPIRATION DATE.
The undersigned acknowledges receipt of the Prospectus dated
_______________, 199__ (the "Prospectus") of EnviroSource, Inc. (the "Company")
and this Letter of Transmittal (the "Letter of Transmittal"), which together
constitute the Company's Offer to Exchange (the "Exchange Offer") $1,000
principal amount of its 9 3/4% Senior Notes due 2003, Series B (the "New
Notes"), which have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), pursuant to a Registration Statement of which the
Prospectus is a part, for each $1,000 principal amount of its outstanding 9 3/4%
Senior Notes due 2003, Series B (the "Existing Notes"), of which $50,000,000
principal amount is outstanding, upon the terms and conditions set forth in the
Prospectus and this Letter of Transmittal. Other capitalized terms used but not
defined herein have the meaning given to them in the Prospectus.
<PAGE>
For each Existing Note accepted for exchange, the holder of such
Existing Note will receive a New Note having a principal amount equal to that of
the surrendered Existing Note. Interest on the New Notes will accrue from the
last interest payment date on which interest was paid on the Existing Notes
surrendered in exchange therefor or, if no interest has been paid on the
Existing Notes, from June 15, 1997. Holders of Existing Notes accepted for
exchange will be deemed to have waived the right to receive any other payments
or accrued interest on the Existing Notes. The Company reserves the right, at
any time or from time to time, to extend the Exchange Offer at its discretion,
in which event the term "Expiration Date" shall mean the latest time and date to
which the Exchange Offer is extended. The Company shall notify holders of the
Existing Notes of any extension by means of a press release or other public
announcement prior to 9:00 A.M., New York City time, on the next business day
after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by Holders if: (i)
certificates representing Existing Notes are to be physically delivered to the
Exchange Agent herewith by Holders; (ii) tender of Existing Notes is to be made
by book-entry transfer to the Exchange Agent's account at The Depository Trust
Company ("DTC"), pursuant to the procedures set forth in the Prospectus under
"The Exchange Offer - Procedures for Tendering Existing Notes" by any financial
institution that is a participant in DTC and whose name appears on a security
position listing as the owner of Existing Notes or (iii) tender of Existing
Notes is to be made according to the guaranteed delivery procedures set forth in
the Prospectus under "The Exchange Offer - Guaranteed Delivery Procedures."
DELIVERY OF DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The term "Holder" with respect to the Exchange Offer means any person:
(i) in whose name Existing Notes are registered on the books of the Company or
any other person who has obtained a properly completed bond power from the
registered Holder; or (ii) whose Existing Notes are held of record by DTC (or
its nominee) who desires to deliver such Existing Notes by book-entry transfer
at DTC. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer.
The instructions included with this Letter of Transmittal must be
followed. Questions and requests for assistance or for additional copies of the
Prospectus, this Letter of Transmittal or the Notice of Guaranteed Delivery may
be directed to the Exchange Agent. See Instruction 11 herein.
2
<PAGE>
HOLDERS WHO WISH TO ACCEPT THE EXCHANGE OFFER AND TENDER THEIR
EXISTING NOTES MUST COMPLETE THIS LETTER OF TRANSMITTAL IN ITS
ENTIRETY. PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 9 3/4% SENIOR NOTES DUE 2003, SERIES B (EXISTING NOTES)
- ----------------------------------------------------------------------------------------------------------------------------------
Principal Amount
Name(s) and Address(es) of Registered Holder(s) Certificate Aggregate Principal Amount Tendered (If Less
(Please fill in, if blank) Number(s)* Represented by Certificate(s) Than All)**
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Holders tendering by book-entry transfer.
** Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of Existing Notes will be deemed to have tendered the
entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount Represented by Certificate(s)." If the space
provided above is inadequate, list the certificate numbers and principal
amounts on a separate signed schedule and affix the list to this Letter of
Transmittal.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The minimum permitted tender is $1,000 in principal amount of Existing Notes.
All other tenders must be integral multiples of $1,000.
3
<PAGE>
- ---------------------------------- ----------------------------------
SPECIAL ISSUANCE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, AND 6) (SEE INSTRUCTIONS 4, 5 AND 6)
To be completed ONLY if To be completed ONLY if
certificates for New Notes issued certificates for Existing Notes in
in exchange for Existing Notes a principal amount not tendered or
accepted for exchange, or Existing not accepted for exchange, are to
Notes not tendered or not accepted be sent to someone other than the
for exchange, are to be issued in undersigned, or to the undersigned
the name of someone other than the at an address other than that shown
undersigned or, if such Existing above.
Notes are being tendered by
book-entry transfer, to someone
other than DTC or to another
account maintained by DTC.
Issue certificate(s) to: Mail certificate(s) to:
Name: Name:
----------------------------- -----------------------------
Address: Address:
--------------------------- --------------------------
- ----------------------------------- -----------------------------------
(Include Zip Code) (Include Zip Code)
- ----------------------------------- -----------------------------------
(Taxpayer Identification or (Taxpayer Identification or
Social Security No.) Social Security No.)
DTC Acct. No.
--------------------- -----------------------------------
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT DTC AND COMPLETE THE
FOLLOWING:
Name of Tendering Institution:_________________________________________
DTC Book-Entry Account No.:____________________________________________
Transaction Code No.:__________________________________________________
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT
AND COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s):_______________________________________
Window Ticket Number (if any):_________________________________________
Date of Execution of Notice of Guaranteed Delivery:____________________
IF DELIVERED BY BOOK-ENTRY TRANSFER, PLEASE COMPLETE THE FOLLOWING:
Account Number: ______________ Transaction Code Number: _____________
4
<PAGE>
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND ARE RECEIVING NEW NOTES FOR
YOUR OWN ACCOUNT IN EXCHANGE FOR EXISTING NOTES THAT WERE ACQUIRED AS A
RESULT OF MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES.
Name:
-----------------------------------------------------------------
Address:
--------------------------------------------------------------
5
<PAGE>
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Existing Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of Existing Notes tendered in accordance with this Letter
of Transmittal, the undersigned sells, assigns and transfers to, or upon the
order of, the Company all right, title and interest in and to the Existing Notes
tendered hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company and as Trustee under the
Indenture for the Existing Notes and New Notes) with respect to the tendered
Existing Notes with full power of substitution to (i) deliver certificates for
such Existing Notes to the Company, or transfer ownership of such Existing Notes
on the account books maintained by DTC and deliver all accompanying evidence of
transfer and authenticity to, or upon the order of, the Company and (ii) present
such Existing Notes for transfer on the books of the Company and receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Existing Notes, all in accordance with the terms and subject to the conditions
of the Exchange Offer. The power of attorney granted in this paragraph shall be
deemed irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Existing Notes
tendered hereby and that the Company will acquire good and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances and
not subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Existing Notes tendered hereby will have been acquired in the ordinary
course of business of the Holder receiving such New Notes, whether or not such
person is the Holder, that neither the Holder nor any such other person has any
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the Holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company or
any of its subsidiaries.
The undersigned also acknowledges that this Exchange Offer is being
made in reliance on an interpretation by the staff of the Securities and
Exchange Commission (the "SEC") that the New Notes issued in exchange for the
Existing Notes pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder that is
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangements or understandings with any person to participate in the
distribution of such New Notes. If the undersigned is not a broker-dealer, the
undersigned represents that it is not engaged in, and does not intend to engage
in, a distribution of New Notes. If the undersigned is a broker-dealer that will
receive New Notes for its own account in exchange for Existing Notes that were
acquired as a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the assignment, transfer and purchase of the Existing
Notes tendered hereby. All authority conferred or agreed to be conferred by this
Letter of Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns, trustees in bankruptcy or other legal
representatives of the undersigned.
6
<PAGE>
This tender may be withdrawn only in accordance with the procedures set forth in
"The Exchange Offer Withdrawal Rights" section of the Prospectus.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Existing Notes when, as and if the Company has given
oral or written notice thereof to the Exchange Agent.
If any tendered Existing Notes are not accepted for exchange pursuant
to the Exchange Offer for any reason, certificates for any such unaccepted
Existing Notes will be returned (except as noted below with respect to tenders
through DTC), without expense, to the undersigned at the address shown below or
at such different address as may be indicated under "Special Delivery
Instructions" as promptly as practicable after the Expiration Date.
The undersigned understands that tenders of Existing Notes pursuant to
the procedures described under the caption "The Exchange Offer - Procedures for
Tendering Existing Notes" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions,"
please issue the certificates representing the New Notes issued in exchange for
the Existing Notes accepted for exchange and return any Existing Notes not
tendered or not accepted for exchange in the name(s) of the undersigned (or in
either such event in the case of the Existing Notes tendered through DTC, by
credit to the undersigned's account at DTC). Similarly, unless otherwise
indicated under "Special Delivery Instructions," please send the certificates
representing the New Notes issued in exchange for the Existing Notes accepted
for exchange and any certificates for Existing Notes not tendered or not
accepted for exchange (and accompanying documents, as appropriate) to the
undersigned at the address shown below the undersigned's signature(s), unless,
in either event, tender is being made through DTC. In the event that both
"Special Issuance Instructions" and "Special Delivery Instructions" are
completed, please issue the certificates representing the New Notes issued in
exchange for the Existing Notes accepted for exchange and return any Existing
Notes not tendered or not accepted for exchange in the name(s) of, and send said
certificates to, the person(s) so indicated. The undersigned recognizes that the
Company has no obligation pursuant to the "Special Issuance Instructions" and
"Special Delivery Instructions" to transfer any Existing Notes from the name of
the registered Holder(s) thereof if the Company does not accept for exchange any
of the Existing Notes so tendered.
Holders of Existing Notes who wish to tender their Existing Notes and
(i) whose Existing Notes are not immediately available or (ii) who cannot
deliver their Existing Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent, or cannot complete the procedure for
book-entry transfer, prior to the Expiration Date, may tender their Existing
Notes according to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer - Guaranteed Delivery
Procedures." See Instruction 1 regarding the completion of the Letter of
Transmittal printed below.
7
<PAGE>
SIGNATURE PAGE
PLEASE SIGN HERE WHETHER OR NOT
EXISTING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X___________________________________________ _________________, 1998
Date
X___________________________________________ _________________, 1998
Signature(s) of Registered Holder(s) Date
or Authorized Signatory
Area Code and Telephone Number:_______________________
The above lines must be signed by the registered Holder(s) of Existing
Notes as their name(s) appear(s) on the Existing Notes or, if the Existing Notes
are tendered by a participant in DTC, as such participant's name appears on a
security position listing as the owner of Existing Notes, or by a person or
persons authorized to become registered Holder(s) by a properly completed bond
power from the registered Holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If Existing Notes to which this Letter of
Transmittal relates are held of record by two or more joint Holders, then all
such holders must sign this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority to act.
See Instruction 4 regarding the completion of this Letter of Transmittal printed
below.
Name(s):________________________________________________________________________
(Please Print)
Capacity:_______________________________________________________________________
(Title)
Address:________________________________________________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution (if required by Instruction
4):
__________________________________________________________
(Authorized Signature)
__________________________________________________________
(Title)
__________________________________________________________
(Name of Firm)
Dated:________________________, 1998
8
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions
of the Exchange Offer
1. Delivery of this Letter of Transmittal and Existing Notes;
Guaranteed Delivery Procedures. This Letter of Transmittal is to be completed by
Holders, either if certificates are to be forwarded herewith or if tenders are
to be made pursuant to the procedures for delivery by book-entry transfer set
forth in "The Exchange Offer - Book-Entry Transfer" section of the Prospectus.
Certificates for all physically tendered Existing Notes, or Book-Entry
Confirmation, as the case may be, as well as a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile hereof) and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at one of the addresses set forth herein on or prior to the
Expiration Date, or the tendering Holder must comply with the guaranteed
delivery procedures set forth below. Existing Notes tendered hereby must be in
denominations of principal amount of $1,000 and any integral multiple thereof.
Holders whose certificates for Existing Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent on or prior to the Expiration Date, or who
cannot complete the procedure for book-entry transfer on a timely basis, may
tender their Existing Notes pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer - Guaranteed Delivery Procedures" section of the
Prospectus. Pursuant to such procedures, (i) such tender must be made through an
Eligible Institution (as defined in Instruction 4 below), (ii) prior to the
Expiration Date, the Exchange Agent must receive from such Eligible Institution
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) and Notice of Guaranteed Delivery (by facsimile transmission, mail or
hand delivery), substantially in the form provided by the Company, setting forth
the name and address of the Holder of Existing Notes and the amount of Existing
Notes tendered, stating that the tender is being made thereby and guaranteeing
that, within five New York Stock Exchange ("NYSE") trading days after the date
of execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Existing Notes, or a Book-Entry Confirmation, and any other
documents required by this Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for all
physically tendered Existing Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by this
Letter of Transmittal, are received by the Exchange Agent within five NYSE
trading days after the date of execution of the Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE EXISTING
NOTES AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
TENDERING HOLDERS, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. IF EXISTING NOTES ARE SENT BY MAIL,
IT IS SUGGESTED THAT THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION DATE TO PERMIT THE DELIVERY TO THE EXCHANGE AGENT PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
See "The Exchange Offer" section in the Prospectus.
2. Tender by Holder. Only a Holder of Existing Notes may tender such
Existing Notes in the Exchange Offer. Any beneficial holder of Existing Notes
who is not the registered Holder and who wishes to tender should arrange with
the registered Holder to execute and deliver this Letter of Transmittal on his
or her behalf or must, prior to completing and executing this Letter of
Transmittal and delivering his or her Existing
9
<PAGE>
Notes, either make appropriate arrangements to register ownership of the
Existing Notes in such holder's name or obtain a properly completed bond power
from the registered Holder.
3. Partial Tenders. Tenders of Existing Notes will be accepted only in
integral multiples of $1,000. If less than the entire principal amount of any
Existing Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the fourth column of the box entitled "Description of 9 3/4%
Senior Notes due 2003, Series B (Existing Notes)" above. The entire principal
amount of Existing Notes delivered to the Exchange Agent will be deemed to have
been tendered unless otherwise indicated. If the entire principal amount of a
Holder's Existing Notes is not tendered, then Existing Notes for the principal
amount of Existing Notes not tendered and a certificate or certificates
representing New Notes issued in exchange for any Existing Notes accepted for
exchange will be sent to the Holder at his or her registered address (unless a
different address is provided in the appropriate box on this Letter of
Transmittal) promptly after the Existing Notes are accepted for exchange.
4. Signatures on this Letter of Transmittal; Endorsements and Powers of
Attorney; Guarantee of Signatures. If this Letter of Transmittal is signed by
the registered Holder of the Existing Notes tendered hereby, the signature must
correspond exactly with the name as written on the face of the certificates
without any change whatsoever.
If any tendered Existing Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any tendered Existing Notes are registered in different names on
several certificates, it will be necessary to complete, sign and submit as many
separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered Holder(s)
of the Existing Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the New Notes
are to be issued, or any Existing Notes not tendered or not accepted for
exchange are to be reissued, to a person or persons other than the registered
Holder(s), then endorsements of any certificate(s) transmitted hereby or
separate bond powers are required. Signatures on such certificate(s) or power(s)
must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of any certificate(s) specified herein, such certificate(s)
must be endorsed or accompanied by appropriate bond powers or powers of
attorney, in each case signed exactly as the name or names on the registered
Holder(s) appear(s) on the certificate(s) and signatures on such certificate(s)
or power(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates, bond powers or
powers of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
Endorsements on certificates for Existing Notes or signatures on bond
powers or powers of attorney required by this Instruction 4 must be guaranteed
by a firm which is a participant in a recognized signature guarantee medallion
program (an "Eligible Institution").
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<PAGE>
Signatures on this Letter of Transmittal must be guaranteed by an
Eligible Institution unless the Existing Notes are tendered (i) by a registered
Holder of Existing Notes (which term, for purposes of the Exchange Offer,
includes any DTC participant whose name appears on a security position listing
as the Holder of such Existing Notes) who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" on this
Letter of Transmittal, or (ii) for the account of an Eligible Institution.
5. Special Issuance and Delivery Instructions. Tendering Holders should
indicate, in the applicable box or boxes, the name and address to which New
Notes or substitute Existing Notes not tendered or not accepted for exchange are
to be issued or sent, if different from the name and address of the person
signing this Letter of Transmittal (or in the case of a tender of Existing Notes
through DTC, if different from DTC). In the case of issuance in a different
name, the taxpayer identification or social security number of the person named
must also be indicated. Holders tendering Existing Notes by book-entry transfer
may request that New Notes issued in exchange for Existing Notes accepted for
exchange or Existing Notes not tendered or accepted for exchange exchanged be
credited to such account maintained at DTC as such Holder may designate hereon.
If no such instructions are given, such New Notes or Existing Notes not
exchanged will be returned to the name and address of the person signing this
Letter of Transmittal.
6. Tax Identification Number. Federal income tax law requires that a
Holder whose Existing Notes are accepted for exchange must provide the Company
(as payer ) with his, her or its correct Taxpayer Identification Number ("TIN"),
which, in the case of an exchanging Holder who is an individual, is his or her
social security number. If the Company is not provided with the correct TIN or
an adequate basis for exemption, such Holder may be subject to a $50 penalty
imposed by the Internal Revenue Service (the "IRS"), and payments made with
respect to the New Notes or Exchange Offer may be subject to backup withholding
at a 31% rate. If withholding results in an overpayment of taxes, a refund may
be obtained. Exempt Holders (including, among others, all corporations and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed "Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9."
To prevent backup withholding, each exchanging Holder must provide his,
her or its correct TIN by completing the Substitute Form W-9 included below in
this Letter of Transmittal, certifying that the TIN provided is correct (or that
such Holder is awaiting a TIN) and that the Holder is exempt from backup
withholding because (i) the Holder has not been notified by the IRS that he, she
or it is subject to backup withholding as a result of a failure to report all
interest or dividends, or (ii) the IRS has notified the Holder that he, she or
it is no longer subject to backup withholding. In order to satisfy the Company
that a foreign individual qualifies as an exempt recipient, such Holder must
submit a statement signed under penalty of perjury attesting to such exempt
status. Such statements may be obtained from the Exchange Agent. If the Existing
Notes are in more than one name or are not in the name of the actual owner,
consult the substitute Form W-9 for information on which TIN to report. If you
do not provide your TIN to the Company within 60 days, backup withholding may
begin and continue until you furnish your TIN to the Company.
7. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Existing Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Existing Notes not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person(s) other than the registered Holder(s) of the
Existing Notes tendered hereby, or if tendered Existing Notes are registered in
the name of any person other than the person signing this Letter of Transmittal,
or if a transfer tax is imposed for any reason other than the exchange of
Existing Notes pursuant to the Exchange Offer, then the amount of any such
transfer taxes (whether imposed on the registered Holder(s) or on any other
person(s)) will be payable by the tendering Holder(s). If satisfactory evidence
of payment of such
11
<PAGE>
taxes or exemption therefrom is not submitted herewith, the amount of such
transfer taxes will be billed directly to such tendering Holder(s).
Except as provided in this Instruction 7, it will not be necessary for
transfer tax stamps to be affixed to the Existing Notes listed in this Letter of
Transmittal.
8. Waiver of Conditions. The Company reserves the absolute right to
amend, waive or modify conditions to in the Exchange Offer in the case of any
Existing Notes tendered (and to refuse to do so).
9. No Conditional Transfers. No alternative, conditional, irregular or
contingent tenders will be accepted. All tendering Holders of Existing Notes, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of their Existing Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Existing Notes, nor shall any of them incur any liability for failure
to give any such notice.
10. Mutilated, Lost, Stolen or Destroyed Existing Notes. Any tendering
Holder whose Existing Notes have been mutilated, lost, stolen or destroyed
should contact the Exchange Agent at one of the addresses indicated herein for
further instructions.
11. Requests for Assistance or Additional Copies. Questions and
requests for assistance for additional copies of the Prospectus, this Letter of
Transmittal, the Notice of Guaranteed Delivery or the "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Exchange Agent at one of the addresses specified in the
Prospectus.
12
<PAGE>
(DO NOT WRITE IN THE SPACE BELOW)
Account Number: Transaction Code Number:
------------------ -----------
Certificate Existing Existing
Surrendered Notes Tendered Notes Accepted
- --------------------- ----------------------- -------------------------
- --------------------- ----------------------- -------------------------
- --------------------- ----------------------- -------------------------
Delivery Prepared by:
----------------------
Checked by:
--------------------------------
Date:
--------------------------------------
13
<PAGE>
PAYER'S NAME: ENVIROSOURCE, INC.
<TABLE>
<CAPTION>
___________________________________________________________________________________________________________________
<S> <C>
Name (if joint names, list first and circle the name of the person or entity whose
number you enter in Part 1 below. See instructions if your name has changed.)
_________________________________________________________________________________________
SUBSTITUTE Address_________________________________________________________________________________
FORM W-9 City, state and ZIP code________________________________________________________________
Department of the
Treasury List account number(s) here (optional)__________________________________________________
Internal Revenue __________________________________________________________________________________________
Service
Payer's Request for Part 1-PLEASE PROVIDE YOUR TAXPAYER IDENTIFICA-TION Social Security number
TIN NUMBER ("TIN") IN THE BOX AT RIGHT AND CERTIFY BY
SIGNING AND DATING BELOW. or TIN _______________
__________________________________________________________________________________________
Part 2-Check the box if you are not subject to backup withholding under the provisions
of section 3408(a)(1)(c) of the Internal Revenue Code because (1) you have not been
notified that you are subject to backup withholding as a result of failure to report all
interest or dividends or (2) the Internal Revenue Service has notified you that you are
no longer subject to backup withholding [ ].
__________________________________________________________________________________________
CERTIFICATION - UNDER THE PENALTIES OF PERJURY, I
CERTIFY THAT THE INFORMATION PROVIDED ON THIS FORM Part 3 --
IS TRUE, CORRECT AND COMPLETE.
AWAITING TIN [ ]
Signature _____________________ Date _____________
___________________________________________________________________________________________________________________
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
14
<PAGE>
Exhibit 99.2 Form of Notice of Guaranteed Delivery
NOTICE OF GUARANTEED DELIVERY
FOR
9 3/4% SENIOR NOTES DUE 2003, SERIES B
OF
ENVIROSOURCE, INC.
As set forth in the Prospectus dated ________________, 199__ (the
"Prospectus") of EnviroSource, Inc. (the "Company") and in the accompanying
Letter of Transmittal (the "Letter of Transmittal"), this form or one
substantially equivalent hereto must be used to accept the Company's offer to
exchange (the "Exchange Offer") all of its outstanding 9 3/4% Senior Notes due
2003, Series B (the "Existing Notes") for its 9 3/4% Senior Notes due 2003,
Series B which have been registered under the Securities Act of 1933, as
amended, if certificates for the Existing Notes are not immediately available or
if the Existing Notes, the Letter of Transmittal or any other documents required
thereby cannot be delivered to the Exchange Agent, or the procedure for
book-entry transfer cannot be completed, prior to 5:00 P.M., New York City time,
on the Expiration Date (as defined below). This form may be delivered by an
Eligible Institution by hand or transmitted by facsimile transmission, overnight
courier or mail to the Exchange Agent as set forth below. Capitalized terms used
but not defined herein have the meaning given to them in the Prospectus.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
___________, ____________________, 1998, UNLESS THE OFFER IS EXTENDED (THE
"EXPIRATION DATE"). TENDERS OF EXISTING NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR
TO 5:00 P.M. ON THE EXPIRATION DATE.
To: United States Trust Company of New York
The Exchange Agent
<TABLE>
<CAPTION>
<S> <C>
By Mail: By Hand before 4:30 p.m.:
United States Trust Company United States Trust Company of New York
of New York 111 Broadway
P.O. Box 843 Cooper Station New York, New York 10006
New York, New York 10276 Attention: Lower Level, Corporate Trust Window
Attention: Corporate Trust Services
By Facsimile:
By Overnight Courier and by Hand after 4:30 p.m.: (212) 780-0592
United States Trust Company Attention: Customer Service
of New York
770 Broadway, 13th Floor Confirm by Telephone:
New York, New York 10003 (800) 548-6565
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF
INSTRUCTIONS VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A
VALID DELIVERY.
<PAGE>
This form is not to be used to guarantee signatures. If a signature on
the Letter of Transmittal to be used to tender Existing Notes is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the space provided therefor in the Letter of
Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and
subject to the conditions set forth in the Prospectus and the Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
are hereby acknowledged, (fill in number of Existing Notes) Existing Notes
pursuant to the guaranteed delivery procedures set forth in the Prospectus and
Instruction 1 of the Letter of Transmittal.
The undersigned understands that tenders of Existing Notes will be
accepted only in principal amounts equal to $1,000 or integral multiples
thereof. The undersigned understands that tenders of Existing Notes pursuant to
the Exchange Offer may not be withdrawn after 5:00 p.m., New York City time, on
the Expiration Date.
All authority herein conferred or agreed to be conferred by this Notice
of Guaranteed Delivery shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Notice of
Guaranteed Delivery shall be binding upon the heirs, personal representatives,
executors, administrators, successors, assigns, trustees in bankruptcy and other
legal representatives of the undersigned.
NOTE: SIGNATURES MUST BE PROVIDED WHERE INDICATED BELOW.
Certificate No(s). for Existing Notes Name(s) of Record Holder(s):
(if available):
_____________________________________ ____________________________________
_____________________________________ ____________________________________
PLEASE PRINT OR TYPE
Principal Amount of Existing Notes:
Address:
_____________________________________ ____________________________________
____________________________________
2
<PAGE>
If Existing Notes will be delivered Area code and Tel. No.________________
by book-entry transfer at the
Depository Trust Company,
Depository Account No.:
- -----------------------------------
Signature(s):
--------------------------------------
--------------------------------------
Dated:
-------------------------, 1998
This Notice of Guaranteed Delivery must be signed by the registered
holder(s) of Existing Notes exactly as its (their) name(s) appear(s) on the
certificate(s) for Existing Notes covered hereby or on a DTC security position
listing naming it (them) as the owner of such Existing Notes, or by person(s)
authorized to become registered holder(s) by endorsements and documents
transmitted with this Notice of Guaranteed Delivery. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person(s) must
provide the following information:
Please print name(s), title(s) and address(es)
Name(s):
------------------------------------------------------------------------
Capacity(ies):
------------------------------------------------------------------------
Address(es):
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States or an "Eligible Guarantor Institution" as defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), hereby (a)
represents that the tender of Existing Notes effected hereby complies with Rule
14e-4 under the Exchange Act and (b) guarantees to deliver to the Exchange Agent
a certificate or certificates representing the Existing Notes tendered hereby,
in proper form for transfer (or a confirmation of the book-entry transfer of
such Existing Notes into the Exchange Agent's account at DTC, pursuant to the
procedures for book-entry transfer set forth in the Prospectus), and a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) together with any required signatures and any other required documents,
at one of the Exchange Agent's addresses set forth above, within five New York
Stock Exchange trading days after the date of execution of this Notice of
Guaranteed Delivery.
THE UNDERSIGNED ACKNOWLEDGES THAT IT MUST DELIVER THE LETTER OF
TRANSMITTAL AND EXISTING NOTES TENDERED HEREBY TO THE EXCHANGE AGENT WITHIN THE
TIME PERIOD SPECIFIED FORTH ABOVE AND THAT ANY FAILURE TO DO SO COULD RESULT IN
FINANCIAL LOSS TO THE UNDERSIGNED.
Name of Firm:
-------------------------- -----------------------------------
Authorized Signatures
Address: Name:
------------------------------- -----------------------------
Please Print or Type
- ---------------------------------------- Title:
Zip Code ----------------------------
Area Code
and Tel. No.: Date:
-------------------------- -----------------------, 1998
NOTE: DO NOT SEND EXISTING NOTES WITH THIS FORM; EXISTING NOTES SHOULD BE
SENT WITH YOUR LETTER OF TRANSMITTAL SO THAT THEY ARE RECEIVED BY THE
EXCHANGE AGENT WITHIN THE TIME PERIOD SPECIFIED FORTH ABOVE.
4
<PAGE>
