SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-1363
ENVIROSOURCE, INC.
(Exact name of Registrant 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, Horsham, PA 19044-3454
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(215) 956-5500
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, par value $.05 Pacific Exchange, Inc.
per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period the Registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $1,490,376 as of March 1, 2000.
The number of shares outstanding of the Registrant's Common Stock as of the
close of business on March 1, 2000 was 5,813,394.
<PAGE>
ENVIROSOURCE, INC.
PART I
ITEM 1. Business.
THE COMPANY
Envirosource, Inc. (the "Company") 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 integrate its processes with those of its customers. The Company's principal
business segments are (a) the IMS segment, which provides the steel industry
with slag processing, metal recovery, materials handling, scrap management and a
wide range of specialty services, such as surface conditioning and high speed
flame cutting of steel slabs; and (b) the Technologies segment, which provides
hazardous waste treatment, stabilization and disposal services, regulatory
assistance and laboratory services for the steel industry and other industrial
and governmental customers.
The Company conducts its operations exclusively through its
subsidiaries. International Mill Service, Inc. and its subsidiaries ("IMS")
constitute the IMS segment, and Envirosource Technologies, Inc. ("Technologies")
and its subsidiaries constitute the Technologies segment.
References herein to the Company include its subsidiaries as well as
its Ohio predecessor, NEOAX, Inc., except where the context requires otherwise.
"Note" references herein are to Notes to Consolidated Financial Statements
appearing elsewhere in this Report.
DEVELOPMENT OF THE COMPANY
The Company's predecessor was originally incorporated in Ohio in 1915
as White Motor Corporation. Its name was changed to Northeast Ohio Axle, Inc.
when it emerged from reorganization proceedings in 1983 and was changed again in
1986 to NEOAX, Inc. ("NEOAX"). In 1987, NEOAX reincorporated in Delaware. In
1989, the Company changed its name to EnviroSource, Inc., and in 1998, to
Envirosource, Inc.
Envirosource's present business units originally represented a portion
of the operations of IU International Corporation ("IU International"). Early in
1988, the Company acquired IU International with the goal of establishing a
substantial operating company centered primarily on the Company's stable and
growing steel industry business relationships and prospects. Since 1988, the
Company has disposed of all the businesses it had owned prior to the IU
International acquisition and virtually all of IU International's operations and
assets other than the present IMS and Technologies segments.
During 1993, the Company completed a comprehensive recapitalization
that resulted in an affiliate of Freeman Spogli & Co. ("FS&Co") purchasing a
significant amount of the Company's equity securities. As of December 31, 1999,
FS&Co held approximately 47% of the outstanding shares of Common Stock of the
Company. Also during 1993, the Company sold $220 million principal amount of
9-3/4% Senior Notes Due 2003 (the "1993 Notes"). A significant portion of the
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ENVIROSOURCE, INC.
proceeds from the sale of the 1993 Notes was used to retire $150 million
principal amount of the Company's 14% Extendible Reset Senior Subordinated Notes
Due 1998.
In 1996, the Company moved its headquarters from Stamford, Connecticut,
consolidating the activities of its corporate headquarters, as well as the
headquarters for its IMS and Technologies segments, in Horsham, Pennsylvania.
In 1997, the Company issued $50 million of 9-3/4% Senior Notes Due
2003, Series B, (the "1997 Notes") having substantially the same terms as the
Company's 1993 Notes. The Company used substantially all of the net proceeds to
repay borrowings under the Company's bank credit facility that had been incurred
to finance capital expenditures.
In the first quarter of 1998, the Company embarked on a profit
improvement program entitled "ENSO 2000" that was intended to lower costs and
increase revenues significantly. Management believes that it has realized
substantial benefits from this program and will continue to do so in 2000 and
beyond.
BUSINESS SEGMENTS
IMS
The Company has served the steel industry for over 60 years. The
Company believes it increases its customers' productivity by providing
cost-effective and reliable on-site reclamation of steel and iron and a variety
of other specialized services that are essential to the efficient functioning of
steel mills.
North America'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 recycling and metal
recovery operations under long-term contracts with a diversified customer base
of over 50 steel mill sites 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 co-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 has pursued a strategy of building on its experience by
offering an expanded range of services that enhance mill productivity and
provide IMS with growth opportunities. These services include processing blast
furnace iron scrap through an IMS-developed iron crushing process, as well as
specialized materials handling. IMS's services also include a proprietary
specialized steel slab surface conditioning process (called scarfing) that helps
its customers increase product yields and improve product quality, while gaining
measurable cost savings. This service is currently provided at seven steel
mills.
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ENVIROSOURCE, INC.
Substantially all of IMS's services are provided on-site at steel
mills, by IMS employees using IMS equipment. IMS's services are integrated
with the operations of its customers, providing for strong working partnerships.
IMS's largest site is at USX Corporation's Gary Works, in Gary,
Indiana, the largest steel mill in the U.S. During the three years ended
December 31, 1999, USX Corporation contributed approximately 18 to 20 percent of
the Company's consolidated revenues of continuing operations (including revenues
attributable to services performed by the Technologies segment).
Competition. Competition in IMS's markets is based primarily on quality
-----------
of service, reliability, technology and price. In its core steel reclamation
business, the Company believes that IMS services customers which account for
approximately 25% of total domestic steel production. The Company believes that
IMS has one large competitor and a number of smaller competitors, including
several newer entrants. The Company believes that IMS's significant market share
is based on its reliability, competitiveness, responsiveness to customer needs,
reputation and breadth of experience.
TECHNOLOGIES
Technologies has been dedicated to the safe, economical treatment and
disposal of industrial and hazardous wastes since 1976. Through its Envirosafe
subsidiaries, Envirosafe Services of Ohio, Inc. and Envirosafe Services of
Idaho, Inc. (collectively, "Envirosafe"), Technologies owns and operates two of
the 19 hazardous waste landfills in the United States. Envirosafe services over
20 steel companies, as well as companies in other industries and government
agencies.
The Ohio and Idaho facilities hold operating permits, issued by state
and federal environmental agencies under the Resource Conservation and Recovery
Act, as amended ("RCRA"), that require renewal and modification from time to
time. The Company expects that it will obtain the renewals and modifications to
its permits that it requires to continue to provide waste management services.
Historically, the Company's hazardous waste treatment and disposal services
business has been somewhat seasonal, with fewer waste remediation projects in
the winter. However, the Company believes that the volume of electric arc
furnace ("EAF") dust stabilized at its facilities has made this business less
seasonal.
Envirosafe and its competitors and customers 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 Envirosafe's services, but
could 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. It is possible that future changes in
environmental compliance requirements could have a material effect on
Technologies' future results of operations or financial condition, but the
Company is unable to predict any such future requirements. The Company believes
that the Consolidated Financial Statements appearing elsewhere in this Report
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 Envirosafe to
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ENVIROSOURCE, INC.
violations and fines from time to time, none of which has been material to the
Company. In fact, the Company believes that it has an excellent environmental
compliance record.
A Technologies unit is the sole licensee of a proprietary technology
(Super Detox(R)) for stabilizing EAF dust - a listed hazardous waste (KO61)
under RCRA that is generated by steel mills. Technologies, through its
subsidiaries, currently operates an EAF dust stabilization facility on-site at
one of the larger domestic mini-mills, and provides Super Detox(R) stabilization
for EAF dust at both of its regional Envirosafe facilities. In recent years,
Technologies entered into a number of new contracts to receive, process and
dispose of EAF dust at its Envirosafe facilities. Technologies actively
continues to market this treatment and disposal service to other U.S.
mini-mills. The Company believes that the Super Detox(R) technology provides a
more cost-effective solution that is environmentally more safe than competitive
off-site thermal processes.
Competition. The Company's hazardous waste treatment and disposal
-----------
business is characterized by intense competition. The Company believes that
Technologies treats and disposes of approximately 30% of the total domestic EAF
dust production. Technologies has two primary competitors in this market:
Horsehead Resource Development Company, Inc., a thermal metal recovery processor
that has a larger market share, and another thermal recovery processor that has
a smaller market share. In addition, there are a number of smaller competitors.
There are a limited number of competitors in the off-site hazardous
waste landfill business, only two of which operate more than two landfills.
There are 19 active, permitted commercial hazardous waste landfills in the U.S.
There are also several competitors engaged in the treatment or stabilization of
hazardous waste. Competition in this industry is based on service, site and
process integrity and the all-in cost of disposal, which includes treatment,
transportation costs and taxes. The market for hazardous waste services
generally is geographically broad, but is narrowed depending on factors such as
the types of waste a facility is permitted to accept, the types of services
offered by a facility, the cost of operation of a facility and the proximity of
the facility to the customer.
SEGMENT DATA
See Note 10 to the Consolidated Financial Statements appearing
elsewhere in this Report for information concerning revenues and operating
income by segment for the years ended December 31, 1999, 1998 and 1997 and the
percentage of total revenues contributed by each class of service of the
Company's continuing operations for each such year.
EMPLOYEES
At March 1, 2000, the Company employed approximately 1,450 persons. A
majority of the hourly employees in both business segments are covered by
site-specific collective bargaining agreements with various unions, including
the International Union of Operating Engineers, the United Steelworkers and the
International Brotherhood of Teamsters. Several of these contracts will be
renegotiated in 2000.
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ENVIROSOURCE, INC.
ITEM 2. Properties.
HEADQUARTERS
The Company, IMS and Technologies maintain their headquarters at a
single location in Horsham, Pennsylvania in leased premises.
IMS
IMS has operations providing metal recovery and other services at steel
mills throughout the continental United States and in Canada. Equipment located
at the sites operated by IMS and its subsidiaries includes prefabricated
storage, shop and office structures, pot carriers, slab haulers, loaders,
railcars, cranes, trucks, metal recovery plants and crushers and other
specialized mobile and stationary equipment used in metal-recovery operations
and industrial service work, most of which is owned. In addition, IMS leases
office space near Pittsburgh, Pennsylvania.
Management believes that the physical facilities for the Company's IMS
segment are adequate for its operations and provide sufficient capacity to meet
its anticipated requirements. The metal recovery and slag processing
installations are generally located at specific customer facilities and are
adequate to handle current levels of customer operations and anticipated future
needs for current customers.
TECHNOLOGIES
Envirosafe owns substantially all of the land, buildings and equipment
used in its treatment and disposal operations in Oregon, Ohio and near Grand
View, Idaho. Technologies' Conversion Systems, Inc. subsidiary owns the building
and equipment at one stabilization facility in Illinois and one in Pennsylvania
and leases land for both facilities.
The Envirosafe facilities currently have an aggregate of approximately
1.9 million cubic yards of permitted, unused waste disposal capacity. Management
believes that the physical facilities for Technologies are adequate for its
operations and provide sufficient capacity to meet its anticipated requirements.
5
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ENVIROSOURCE, INC.
ITEM 3. Legal Proceedings.
The information pertaining to the litigation described under Note 7 to
the Consolidated Financial Statements appearing elsewhere in this Report is
incorporated herein by reference.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
* * *
EXECUTIVE OFFICERS OF THE COMPANY
The Company's executive officers are as follows:
Name Age Position
Robert N. Gurnitz 61 Chairman of the Board; Director
John T. DiLacqua 47 President and Chief Executive
Officer; Director
John C. Heenan 49 Senior Vice President and Chief
Financial Officer
John P. Carroll 45 Vice President, Human Resources
William B. Davis 49 Vice President and Treasurer
Richard J. Fitz 51 Controller
Leon Z. Heller 50 Vice President, General Counsel
and Secretary
The specified age of each Executive Officer of the Company is as of
March 31, 2000.
Officers are elected annually and hold office until their successors
are elected and qualified.
Robert N. Gurnitz became a director of the Company in November 1997 and
Chairman of the Board of the Company in December 1998. Mr. Gurnitz served as
President and Chief Executive Officer of Northwestern Steel and Wire Co. from
1991 to 1993 and as its Chairman and Chief Executive Officer from 1993 to 1997.
Prior to that he served in various senior management capacities with Rockwell
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ENVIROSOURCE, INC.
International Corporation, Bethlehem Steel Corporation and Webcraft
Technologies.
John T. DiLacqua became President, Chief Executive Officer and a
director of the Company in January 1999. From October 1997 to December 1998, Mr.
DiLacqua served as President of the U.S. Ferrous Operations of Philip Services
Corporation, which included, among others, the former Luria Brothers Division of
Connell Limited Partnership. Prior to that, he served as the President of the
Luria Brothers Division of Connell Limited Partnership from May 1994 to October
1997, and, from December 1990 to May 1994, he served as its Vice President of
Finance and Administration.
John C. Heenan has been Senior Vice President and Chief Financial
Officer of the Company since August 1999. Prior to that, Mr. Heenan had been
Senior Vice President, Finance, Administration and Planning of the Company since
February 1999. From October 1997 to December 1998, Mr. Heenan served as Chief
Financial Officer of the U.S. Ferrous Operations of Philip Services Corporation,
which included, among others, the former Luria Brothers Division of Connell
Limited Partnership. Prior to that, he served as the Vice President - Controller
of the Luria Brothers Division of Connell Limited Partnership from April 1997 to
October 1997. Prior to that, he served as Chief Financial Officer of Standard
Chlorine Chemical Company from 1993 to 1997.
John P. Carroll was elected Vice President - Human Resources of the
Company in June 1999. Mr. Carroll has been the Vice President - Human Resources
of the Company's International Mill Service, Inc. subsidiary since September
1995. Prior to that, Mr. Carroll had been International Mill Service, Inc.'s
Director - Human Resources since September 1994. Mr. Carroll joined
International Mill Service, Inc. in 1980.
William B. Davis was elected Vice President of the Company in February
1995 and has been Treasurer of the Company since September 1991. Mr. Davis
joined the Company in July 1987 as Assistant Treasurer.
Richard J. Fitz was elected Controller of the Company in June 1999.
Prior to that, Mr. Fitz had been the Company's Director of Corporate Audit
Services since March 1988.
Leon Z. Heller was elected Vice President of the Company in February
1998 and has served as the Company's General Counsel and Secretary since
September 1996. Mr. Heller also has been the Vice President and General Counsel
of International Mill Service, Inc., a subsidiary of the Company, since February
1991.
7
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ENVIROSOURCE, INC.
PART II
ITEM 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's Common Stock trades on the OTC Bulletin Board under the
symbol "ENSO" and on The Pacific Exchange under the symbol "ES". Prior to
September 2, 1999, the Company's stock traded on The Nasdaq Stock Market under
the symbol "ENSO" and on The Pacific Exchange under the symbol "ES". The
following table sets forth the high and low sales prices for the Common Stock
for each of the calendar quarters of 1999 and 1998, based upon prices supplied
by The Nasdaq Stock Market and Commodity Systems, Inc. On June 22, 1998, the
Company effected a 1-for-7 reverse stock split. Prices per share have been
restated accordingly for all periods presented.
1999 1998
High Low High Low
---- --- ---- ---
First Quarter $5.25 $1.38 $21.44 $13.34
Second Quarter 2.72 .94 17.63 12.25
Third Quarter 3.38 .25 17.25 8.13
Fourth Quarter .80 .38 8.13 4.00
The Company has not paid a cash dividend on its Common Stock since the
confirmation of its plan of reorganization in November 1983 and has no present
plan to pay cash dividends. The Company is currently prohibited from paying cash
dividends on its Common Stock by its bank credit agreement and by the indentures
under which the 1993 Notes and the 1997 Notes were issued.
On March 1, 2000 the Company had approximately 2,900 holders of record
of its Common Stock.
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ENVIROSOURCE, INC.
ITEM 6. Selected Financial Data
The information presented below should be read in conjunction with the
accompanying Consolidated Financial Statements and Notes thereto.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
(In thousands, except for per share amounts)
<S> <C> <C> <C> <C> <C>
FOR THE YEAR ENDED DECEMBER 31:
Revenues $ 211,975 $ 232,376 $ 227,678 $ 212,789 $ 223,722
Costs and expenses 195,985 209,449 205,387 188,443 189,233
----------- ----------- ----------- ----------- -----------
Operating income before unusual charges 15,990 22,927 22,291 24,346 34,489
Unusual charges (credits) 81,035 7,934 1,300 5,471 (2,624)
----------- ----------- ----------- ----------- -----------
Operating income (loss) (65,045) 14,993 20,991 18,875 37,113
Interest expense, net of income 29,754 29,248 28,085 26,831 22,350
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations
before income taxes (94,799) (14,255) (7,094) (7,956) 14,763
Income tax expense (benefit) 952 16,384 1,368 (3,266) 5,208
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations (95,751) (30,639) (8,462) (4,690) 9,555
Income from discontinued operations - - 9,600 399 949
Extraordinary items and cumulative
effect of accounting change - - (639) - (806)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (95,751) $ (30,639) $ 499 $ (4,291) $ 9,698
=========== =========== =========== =========== ===========
Income (loss) applicable to common share $ (95,751) $ (30,639) $ 499 $ (4,442) $ 7,959
=========== =========== =========== =========== ===========
Per share:
Income (loss) from continuing operations $ (16.47) $ (5.27) $ (1.46) $ (0.84) $ 1.35
Income from discontinued operations - - 1.66 0.07 0.16
Extraordinary items and cumulative
effect of accounting change - - (0.11) - (0.13)
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (16.47) $ (5.27) $ 0.09 $ (0.77) $ 1.38
=========== =========== =========== =========== ===========
Average common shares outstanding 5,813 5,813 5,787 5,775 5,787
OTHER DATA:
EBITDA of continuing operations (1) $ 53,992 $ 61,840 $ 59,483 $ 57,346 $ 64,967
Cash flow provided by operating activities $ 24,948 $ 27,883 $ 30,523 $ 28,163 $ 41,905
Cash flow provided (used) before
financing activities $ 16,359 $ (12,980) $ 41,032 $ (4,158) $ (12,383)
AT DECEMBER 31:
Total assets $ 278,257 $ 387,456 $ 413,302 $ 459,909 $ 444,436
Working capital (deficiency) $ 3,961 $ (444) $ (779) $ (8,762) $ (34,099)
Long-term debt $ 278,666 $ 298,023 $ 281,614 $ 268,424 $ 275,158
Total debt $ 284,952 $ 303,572 $ 295,400 $ 332,928 $ 283,682
Stockholders' equity (deficit) $ (85,563) $ 9,843 $ 40,211 $ 39,057 $ 32,604
- -----------------------------------------
(1) EBITDA represents earnings from continuing operations before interest
expense, income taxes, depreciation and amortization expenses (net of
amortization of deferred financing costs), and unusual charges. It should
not be considered as an alternative measure to operating income as an
indicator of the Company's results of operations, nor should it be viewed
as an alternative to cash flow as an indicator of the Company's overall
liquidity, as presented in the accompanying financial statements.
Furthermore, EBITDA measures shown for the Company in this report may not
be comparable to similarly titled measures given by other companies.
</TABLE>
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ENVIROSOURCE, INC.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
RESULTS OF OPERATIONS
1999 COMPARED WITH 1998
- -----------------------
Year Ended 1999
December 31, Increase (decrease)
------------------------- -------------------------
1999 1998 Amount %
----------- ----------- ----------- -----------
(Dollars in thousands)
REVENUES
IMS $ 180,697 $ 191,438 $ (10,741) (5.6)%
Technologies 31,278 40,938 (9,660) (23.6)%
----------- ----------- -----------
$ 211,975 $ 232,376 $ (20,401) (8.8)%
=========== =========== ===========
GROSS PROFIT (LOSS)
IMS $ 40,611 $ 42,190 $ (1,579) (3.7)%
Technologies (2,058) 3,766 (5,824) (154.6)%
----------- ----------- -----------
$ 38,553 $ 45,956 $ (7,403) (16.1)%
=========== =========== ===========
OPERATING INCOME (LOSS)
IMS $ 25,254 $ 26,465 $ (1,211)
Technologies (7,538) (796) (6,742)
Corporate headquarters (1,726) (2,742) 1,016
----------- ----------- -----------
15,990 22,927 (6,937) (30.3)%
Technologies impairment
loss (75,192) ------ (75,192)
Other unusual charges:
IMS (2,924) (2,851) (73)
Technologies (530) (790) 260
Corporate headquarters (2,389) (4,293) 1,904
----------- ----------- -----------
(5,843) (7,934) 2,091
----------- ----------- -----------
CONSOLIDATED OPERATING
INCOME (LOSS) $ (65,045) $ 14,993 $ (80,038)
=========== =========== ===========
Consolidated revenue for 1999 decreased $20.4 million, or 8.8%,
compared with 1998. Both operating segments reported lower revenues in 1999.
Revenues of the IMS segment decreased primarily from the loss of a steel
industry customer in late 1998 that had contributed almost five percent of total
IMS 1998 revenue. Reduced steel production in North America by the Company's
ongoing customers during early 1999 also contributed to the decrease, though
this effect was partly mitigated in the latter half of the year. As a result of
heightened competition, contracts with two large IMS steel mill customers were
not renewed and expired near year-end 1999, which will affect results in 2000.
Technologies segment revenues for 1999 decreased significantly, due to price
reductions resulting from overall competition in the waste processing markets,
and a change in the mix of material processed.
Consolidated gross profit during 1999 decreased from the same period a
year ago. The gross profit decline of $7.4 million resulted primarily from the
revenue decrease noted above. The IMS segment benefited from cost reductions as
a result of the Company's profit improvement program originated in 1998. The
Technologies segment experienced a gross loss in 1999, resulting from the
revenue decline, and from the margin effects of the unfavorable change in the
mix of material processed.
Selling, general and administrative expenses for 1999 were reduced by
4.4% from 1998.
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ENVIROSOURCE, INC.
RESULTS OF OPERATIONS (CONTINUED)
The Company announced in early 1999 that it was evaluating strategic
alternatives for its Technologies business, including its potential sale. In
December 1999, the Company announced it had not received satisfactory offers for
Technologies, and would retain this business. Concurrent with that announcement,
the Company completed a thorough review of the Technologies operations. Due to a
very competitive market, the average price per ton for waste processed at
Technologies' landfill sites had decreased significantly in late 1998, and
remained well below expectations throughout 1999. Management did not expect
significant future price improvements, though further deterioration was not
anticipated either. Based on the above, management determined that certain
assets of the Technologies business were no longer fully recoverable.
Accordingly, in the fourth quarter of 1999 the Company recorded an unusual
non-cash charge totaling $75.2 million for impaired assets related to the
Company's waste landfill sites in Ohio and Idaho. As a result of this charge,
the Company expects to realize non-cash cost savings of approximately $8 million
in 2000 from reduced depreciation and amortization expenses.
In addition, the Company recorded other unusual charges during 1999 of
$5.8 million. Included in these charges were $2.8 million recorded in the fourth
quarter of 1999 related to the write-down to net realizable value of excess
capital equipment that resulted primarily from the Company's loss of contracts.
Also included were $3.0 million of unusual charges recorded in the 1999 first
quarter related to a profit improvement program initiated by the Company during
1998, of which $2.3 million were for employee severance costs and the balance
for consulting expenses. During 1998 the Company recorded $7.9 million of
unusual charges, which included $7.3 million related to the profit improvement
program, and consisted of $3 million of excess equipment write-downs, $2.2
million of consulting fees, and $2.1 million of severance costs.
Although the Company had significantly reduced outstanding borrowings
on its revolving credit facility by the end of 1999, average outstanding
borrowings during the year were not significantly different from 1998. As a
result, interest expense for 1999 was essentially unchanged from the prior year.
In the 1998 fourth quarter the Company recorded a charge totaling $15.3
million to write-off all of its previously recorded deferred tax assets. The
reversal was made when the Company reported negative quarterly operating income,
preventing a determination that it was more likely than not the Company would
earn sufficient taxable income during the next several years to realize its
net deferred tax assets.
The Company recorded a net loss for 1999 totaling $95.8 million, or
$16.47 per share. The net loss in 1998 totaled $30.6 million, or $5.27 per
share.
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ENVIROSOURCE, INC.
RESULTS OF OPERATIONS
1998 COMPARED WITH 1997
- -----------------------
Year Ended 1998
December 31, Increase (decrease)
------------------------- -------------------------
1998 1997 Amount %
----------- ----------- ----------- -----------
(Dollars in thousands)
REVENUES
IMS $ 191,438 $ 185,587 $ 5,851 3.2%
Technologies 40,938 42,091 (1,153) (2.7)%
----------- ----------- -----------
$ 232,376 $ 227,678 $ 4,698 2.1%
=========== =========== ===========
GROSS PROFIT
IMS $ 42,190 $ 42,320 $ (130) (0.3)%
Technologies 3,766 5,235 (1,469) (28.1)%
----------- ----------- -----------
$ 45,956 $ 47,555 $ (1,599) (3.4)%
=========== =========== ===========
OPERATING INCOME (LOSS)
IMS $ 26,465 $ 26,494 $ (29)
Technologies (796) (173) (623)
Corporate headquarters (2,742) (4,030) 1,288
----------- ----------- -----------
22,927 22,291 636 2.9%
Unusual charges:
IMS (2,851) 69 (2,920)
Technologies (790) (1,491) 701
Corporate headquarters (4,293) 122 (4,415)
----------- ----------- -----------
(7,934) (1,300) (6,634)
----------- ----------- -----------
CONSOLIDATED OPERATING
INCOME $ 14,993 $ 20,991 $ (5,998)
=========== =========== ===========
IMS 1998 revenues increased $5.9 million or 3% over 1997 primarily
because 1997 revenues were reduced by the effects of a strike (settled in
mid-August 1997) by employees of a major steel industry customer. The revenue
increase was partially offset by a revenue decrease attributable to an overall
steel industry slowdown. Technologies revenues decreased in 1998 as compared to
1997. While the volume of waste processed increased over the prior year, average
prices were lower in 1998 because much of the volume increase was lower-priced
cleanup project business and because the market was very competitive.
The gross profit contribution associated with IMS's increased revenue
in 1998 was entirely offset by the negative effects of blast furnace outages at
the segment's largest customer, changes in manufacturing practices at several
important customers and the overall steel industry slowdown, which significantly
reduced steel production in the fourth quarter. IMS results were impacted by the
production volumes of its steel mill customers. Technologies' gross profit
decreased due to processing lower-priced cleanup project business and market
conditions noted above.
Selling, general and administrative expenses decreased as compared to
1997 primarily due to cost reductions resulting from the Company's profit
improvement program and a reduction in legal expenses attributable to litigation
between the Company and its largest competitor in the electric arc furnace dust
processing market (concluded in the 1998 first quarter).
12
<PAGE>
ENVIROSOURCE, INC.
RESULTS OF OPERATIONS (CONTINUED)
In 1998 unusual charges totaled $7.9 million, consisting of $7.3
million of costs related to the Company's profit improvement program (including
$3 million to write down excess equipment to its net realizable value, $2.2
million of program consulting costs and $2.1 million of severance costs) and $.6
million for other costs. The 1997 unusual charges of $1.3 million were recorded
for costs to satisfy regulatory requirements at waste disposal sites that have
been inactive since before the Company's 1988 acquisition of IU International
Corporation ("IU International") and to vacate an office as part of the
Company's consolidation of operations.
Interest expense increased $1.2 million as the overall debt level was
higher in 1998.
In 1998 the Company wrote off its deferred tax assets of $15.3 million.
Prior to 1997, the Company had recognized $26 million of net deferred tax assets
in its balance sheet. Of this amount, $12 million was realized when the Company
utilized income tax loss carryforwards and other deferred tax assets to
eliminate income tax payments on the gain from the January 1997 sale of its
IMSAMET subsidiary. An additional $1.3 million of net deferred tax assets was
recognized in 1997. In the fourth quarter of 1998, all of the Company's net
deferred tax assets were charged against operations when the production of the
Company's steel industry customers declined sharply and the Company reported
negative quarterly operating income, thus preventing a determination that it was
more likely than not that the Company will earn sufficient taxable income during
the next several years to realize its net deferred tax assets.
In 1997 the Company sold its IMSAMET subsidiary realizing an after-tax
gain of $9.6 million. Also in 1997, the Company recognized a $.6 million charge
for the cumulative effect of a mandatory accounting change.
The 1998 net loss was $30.6 million as compared with net income of $.5
million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise primarily from the funding
of capital expenditures, working capital needs, and debt service obligations. At
December 31, 1999, the Company had working capital totaling $4.0 million,
compared with negative working capital of $.4 million at December 31, 1998. The
1999 working capital total included $15.2 million of a trust fund that had
provided financial assurance for the estimated closure and post-closure costs at
the Company's Idaho waste landfill site. This trust fund had been classified as
a long-lived asset on the 1998 balance sheet. During 1999 the Company requested
permission from various regulatory agencies to replace the Idaho trust fund with
a surety bond as an alternative form of financial assurance. The $15.2 million
in the trust fund was subsequently recovered by the Company in the first quarter
of 2000, and accordingly was classified as a current asset on the accompanying
balance sheet for 1999. Excluding the trust fund, working capital at December
31, 1999 decreased approximately $10.8 million, mostly due to higher accounts
payable and accrued expenses.
13
<PAGE>
ENVIROSOURCE, INC.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Company's capital expenditures for 1999 were $17.3 million, a
reduction of $18.3 million or 51% from 1998. These expenditures were primarily
for equipment replacements and providing new services. In 1999 IMS was awarded a
significant new contract to provide services at a "greenfield" steel mill unit
of an established customer that is expected to begin operations in early 2001.
Due to this contract, the Company expects capital expenditures in 2000 to exceed
1999 levels. At December 31, 1999 the Company had commitments for capital
equipment additions totaling approximately $29.4 million for 2000 and beyond.
In November 1999, the Company replaced its previous bank credit
facility with a new $40 million loan agreement with Bank of America, N.A. (the
"Agreement"). The Agreement matures March 31, 2003, and replaces a facility that
would have expired January 2001. After deducting outstanding borrowings, $5.7
million of commitments for standby letters of credit, and minimum availability
requirements, approximately $20.3 million of the total facility was unused and
available at December 31, 1999. The Agreement is secured by various assets of
the Company's IMS subsidiary, primarily capital equipment and accounts
receivable. The Agreement contains covenants which, among other things, require
the Company to meet various performance ratios. At December 31, 1999, the
Company was in compliance with all such covenants of the Agreement.
During 1999 the Company made net repayments totaling $16 million on its
bank facilities, compared with net borrowings of $14 million in 1998. Management
intends to continue using cash flow from operations to fund its capital
expenditure needs, and to further reduce its outstanding borrowings. Management
believes it has sufficient resources, either through cash generated from
operations, or from its bank credit facility, to enable it to meet its
objectives; see risk factors in the "Forward-Looking Information" section below.
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define applicable years. Computer programs
that have date-sensitive software may recognize a date coded "00" as the year
1900 rather than the year 2000. This could result in system failures or
miscalculations that could cause disruptions of operations, including temporary
inability to process transactions.
Prior to year-end 1999, the Company completed an assessment of all of
its significant operating systems. The Company had, in the ordinary course of
business, purchased new software packages for most of its computer systems. Most
of these purchases occurred prior to the 1999 fiscal year. The Company had also
implemented, through routine software releases, Year 2000-compliant upgrades to
most of its financial and operational software. Any remaining software
applications were insignificant to the Company's operations, and were upgraded
to Year 2000-compliant status prior to the end of 1999.
14
<PAGE>
ENVIROSOURCE, INC.
YEAR 2000 (CONTINUED)
The Company had also addressed the Year 2000 activities of its
suppliers and customers. By reviewing their Year 2000 Readiness Disclosures, or
by direct contact, the Company determined that substantially all of its
significant suppliers and customers were Year 2000 compliant. The Company has
not, to date, experienced any negative effects from its suppliers or customers
related to the Year 2000 issue. While there can be no guarantee that Year 2000
issues by a third party will not occur in future periods, and such effects could
have a material adverse effect on the Company, management believes that its
continuing communications with its suppliers and customers will minimize these
risks.
The Company has to date not experienced any negative effects from the
Year 2000 date change, and does not expect any such effects in future periods.
The Company has not incurred and does not anticipate incurring material
incremental costs for Year 2000 issues relating to its computer information
systems, since all updates or replacements of such systems occurred in the
ordinary course of business, most of which occurred prior to the 1999 year.
FORWARD-LOOKING INFORMATION ("SAFE HARBOR STATEMENT")
Certain matters discussed in this report are "forward-looking
statements" as defined in the Private Securities Litigation Reform Act (PSLRA)
of 1995. Although the Company believes that its forward-looking statements are
based on expectations and assumptions that are reasonable, forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted. Various uncertainties exist with respect to the Company's
operations and business environment, and their outcomes are dependent on various
important risk factors. The Company cautions users of this report that numerous
important risk factors discussed below, among others, may have caused prior
actual results, and could cause future results, to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Among the factors or uncertainties that could cause actual results to
differ from forward-looking statements are:
o Dependence on steel mill production; economic conditions - The Company's
revenues are impacted by the level of steel production at its customers'
sites in North America. In addition to commercial factors such as foreign
imports, other factors such as weather, labor issues or mill outages for
refurbishment can negatively affect production levels of the Company's
customers.
o Dependence on key customers; competition - The Company derives significant
revenue from a single customer, USX Corporation. The loss of any key
customer as a result of termination or non-renewal of its contracts could
have a material adverse effect on the Company's revenue and operating
income. Both the IMS and Technologies operating segments face significant
competition in their respective industries. Heightened competition during
1999 resulted in the loss of two large steel mill contracts for IMS. The
Company's Technologies business experienced significant price reductions
for waste processing during the late 1990s due to competitive pressures.
There can be no assurance that the Company will not continue to experience
negative effects from increased competition, with possible future effects
of reduced revenue, gross margins, and operating income.
o Operational efficiency - The Company's inability to achieve cost reduction
targets, maintain relationships with its vendors, and obtain skilled labor
could have a material effect on the Company's future operations.
15
<PAGE>
ENVIROSOURCE, INC.
FORWARD-LOOKING INFORMATION (CONTINUED)
o Environmental regulation - Because its businesses are
environmentally-oriented, and therefore highly regulated, the Company, and
in particular its Technologies business, is subject to a complex, evolving
array of federal, state and local environmental laws and regulations. It is
possible that future imposition of additional environmental compliance
requirements could have a material effect on the Company, however the
Company cannot predict any such future requirements.
o Financial leverage and debt service - The Company has $8.5 million of debt
due in late 2002, and $270 million of publicly held debt due in June, 2003.
The Company also currently has a negative net worth, resulting from losses
in recent years. However, the Company has, through its positive operating
cash flow, continued to successfully service its outstanding debt and other
obligations, and is currently in compliance with all of its requirements
under its bank credit facility. The ability of the Company to meet its debt
obligations in the future will be dependent on its future performance,
which is subject to, among other things, the various factors discussed
above. If unable to meet its debt obligations, the Company would have to
seek additional financing, or refinancing of its outstanding debt. There
can be no assurance that any such additional financing or refinancing would
be possible.
16
<PAGE>
ENVIROSOURCE, INC.
ITEM 7A. Quantitative and Qualitative Disclosure About Market Risk.
Since the Company performs services principally on a contractual basis,
and operates mostly within the United States, its primary market risk is the
exposure to interest rate fluctuations on its debt instruments. The bank
revolving credit facility of the Company's IMS subsidiary, which bears interest
at variable rates, is classified in the accompanying balance sheet as short-term
debt, as it was fully repaid during the first quarter of 2000. The Company's
long-term debt at December 31, 1999 bears fixed interest rates. The table below
presents expected maturity of the Company's debt in thousands of dollars, and
the related average interest rates in effect during each year, and should be
read in conjunction with Note 6 in Item 8, Financial Statements and
Supplementary Data, included in this Report.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Fixed rate debt $ 301 $ 37 $ 8,539 $ 270,043 $ 47
Weighted average
interest rate 10.2% 10.2% 10.3% 10.2% 10.0%
Variable rate debt $ 5,985 -- -- -- --
Weighted average
interest rate 9.8% -- -- -- --
</TABLE>
17
<PAGE>
ENVIROSOURCE, INC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS (ITEM 14(A) 1)
Reports of Independent Auditors
Consolidated Balance Sheet at December 31, 1999 and 1998
Consolidated Statement of Operations for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statement of Stockholders' Equity for the Years Ended
December 31, 1999, 1998 and 1997
Consolidated Statement of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES (ITEM 14(A) 2)
Financial statement schedules have been omitted because either they are
not applicable, or the required information is included in the
financial statements or the notes thereto.
18
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
Board of Directors and Shareholders
Envirosource, Inc.
We have audited the accompanying consolidated balance sheet of
Envirosource, Inc. and subsidiaries as of December 31, 1999, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Envirosource, Inc. and subsidiaries as of December 31, 1999, and the
consolidated results of their operations and their consolidated cash flows for
the year then ended in conformity with generally accepted accounting principles.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
February 23, 2000
19
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Envirosource, Inc.
We have audited the accompanying consolidated balance sheet of Envirosource,
Inc. as of December 31, 1998, and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the two years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Envirosource, Inc. at December 31, 1998, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1998, in conformity with accounting principles generally accepted
in the United States.
As discussed in Footnote No. 1 to the financial statements, in 1997 the Company
changed its method of accounting for systems development costs.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 19, 1999
20
<PAGE>
<TABLE>
<CAPTION>
ENVIROSOURCE, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
December 31,
-----------------------------
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,125 $ 5,134
Accounts receivable, less allowance
for doubtful accounts 32,829 32,305
Trust fund 15,173 -
Other current assets 3,645 3,520
----------- -----------
Total current assets 53,772 40,959
Property, plant and equipment, net 103,192 146,937
Goodwill, less accumulated amortization 109,586 127,931
Closure trust funds and deferred charges,
less accumulated amortization 402 33,205
Landfill permits, less accumulated amortization - 22,974
Other assets 11,305 15,450
----------- -----------
$ 278,257 $ 387,456
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 14,933 $ 10,949
Salaries, wages and related benefits 8,345 7,370
Insurance obligations 4,290 4,588
Other current liabilities 15,957 12,947
Current portion of debt 6,286 5,549
----------- -----------
Total current liabilities 49,811 41,403
Long-term debt:
Senior Notes due 2003 270,000 270,000
Other long-term debt 8,666 28,023
----------- -----------
Total long-term debt 278,666 298,023
Other long-term liabilities 35,343 38,187
Stockholders' equity (deficit):
Common stock, par value $.05 per share,
shares authorized -- 20,000,000 shares
issued and outstanding - 5,813,394 at
December 31, 1999 and 1998 291 291
Capital in excess of par value 175,969 175,969
Accumulated deficit (260,522) (164,771)
Accumulated other comprehensive losses (1,211) (1,556)
Stock purchase loan receivable from officer (90) (90)
----------- -----------
Total stockholders' equity (deficit) (85,563) 9,843
----------- -----------
$ 278,257 $ 387,456
=========== ===========
</TABLE>
See accompanying notes.
21
<PAGE>
<TABLE>
<CAPTION>
ENVIROSOURCE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except for per share amounts)
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 211,975 $ 232,376 $ 227,678
----------- ----------- -----------
Expenses:
Cost of revenues 142,763 155,063 150,210
Selling, general and administrative 16,004 16,735 19,208
Depreciation and amortization
(less interest amortization) 37,218 37,651 35,969
Loss on impairment of long-lived assets 75,192 - -
Other unusual charges 5,843 7,934 1,300
----------- ----------- -----------
Total expenses 277,020 217,383 206,687
----------- ----------- -----------
Operating income (loss) (65,045) 14,993 20,991
Interest income 784 1,262 1,223
Interest expense (30,538) (30,510) (29,308)
----------- ----------- -----------
Loss from continuing operations
before income taxes (94,799) (14,255) (7,094)
Income tax expense:
Current (952) (1,047) (1,399)
Deferred - (15,337) 31
----------- ----------- -----------
Total income tax expense (952) (16,384) (1,368)
----------- ----------- -----------
Loss from continuing operations (95,751) (30,639) (8,462)
Income from discontinued operations,
after taxes - - 9,600
----------- ----------- -----------
Income (loss) before cumulative
effect of accounting change (95,751) (30,639) 1,138
Cumulative effect of accounting change,
after taxes - - (639)
----------- ----------- -----------
Net income (loss) $ (95,751) $ (30,639) $ 499
=========== =========== ===========
Basic and diluted income (loss) per share:
Continuing operations $ (16.47) $ (5.27) $ (1.46)
Discontinued operations - - 1.66
Cumulative effect of accounting change - - (0.11)
----------- ----------- -----------
Net income (loss) $ (16.47) $ (5.27) $ 0.09
=========== =========== ===========
Weighted average shares 5,813 5,813 5,787
=========== =========== ===========
</TABLE>
See accompanying notes.
22
<PAGE>
<TABLE>
<CAPTION>
ENVIROSOURCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
Accumulated
Capital in Other Stock
Common Excess of Accumulated Comprehensive Purchase
Stock Par Value Deficit Income (Loss) Loans Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 288 $ 175,202 $ (134,631) $ (992) $ (810) $ 39,057
Comprehensive income (loss):
Net income 499 499
Translation adjustment (232) (232)
-----------
Total comprehensive
income (loss) 267
-----------
Common stock issued
(51,760 shares) 3 737 740
Loan repayment 147 147
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1997 291 175,939 (134,132) (1,224) (663) 40,211
Comprehensive income (loss):
Net loss (30,639) (30,639)
Translation adjustment (332) (332)
-----------
Total comprehensive
income (loss) (30,971)
-----------
Loan repayment 573 573
Other 30 30
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1998 291 175,969 (164,771) (1,556) (90) 9,843
Comprehensive income (loss):
Net loss (95,751) (95,751)
Translation adjustment 345 345
-----------
Total comprehensive
income (loss) (95,406)
-----------
----------- ----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1999 $ 291 $ 175,969 $ (260,522) $ (1,211) $ (90) $ (85,563)
=========== =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
23
<PAGE>
<TABLE>
<CAPTION>
ENVIROSOURCE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Loss from continuing operations $ (95,751) $ (30,639) $ (8,462)
Adjustments to reconcile loss from
continuing operations to cash provided by
operating activities:
Non-cash impairment loss on long-lived assets 75,192 - -
Other unusual charges, net of payments 2,479 4,896 (628)
Deferred income taxes - 15,337 11,969
Depreciation 26,832 27,330 26,492
Amortization 12,437 12,075 11,029
Changes in working capital 3,449 (2,031) (271)
Other, net 310 915 2,394
----------- ----------- -----------
Cash provided by continuing operations 24,948 27,883 42,523
Net cash used by discontinued operations - - (12,000)
----------- ----------- -----------
Cash provided by operating activities 24,948 27,883 30,523
----------- ----------- -----------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (17,336) (35,588) (29,354)
Proceeds from dispositions of assets 3,099 1,475 883
Landfill permit additions and closure
expenditures (419) (2,751) (4,044)
Closure trust fund recovery (payments), net 171 (1,072) (1,515)
Cash flows related to IU International
acquisition, net 6,129 (2,400) (10,808)
Other (233) (527) (1,117)
Proceeds from sale of discontinued operations - - 56,464
----------- ----------- -----------
Cash provided by (used for) investing activities (8,589) (40,863) 10,509
----------- ----------- -----------
Cash provided (used) before financing activities 16,359 (12,980) 41,032
----------- ----------- -----------
FINANCING ACTIVITIES:
Revolving credit facility:
Borrowings 78,719 68,000 32,000
Repayments (94,734) (54,000) (113,000)
----------- ----------- -----------
(16,015) 14,000 (81,000)
----------- ----------- -----------
Long-term debt issued - - 50,000
Other debt repayment (2,521) (5,828) (6,528)
Debt issuance costs (832) - (3,240)
----------- ----------- -----------
Cash provided by (used for) financing activities (19,368) 8,172 (40,768)
----------- ----------- -----------
CASH AND CASH EQUIVALENTS:
Increase (decrease) during the year (3,009) (4,808) 264
Beginning of year 5,134 9,942 9,678
----------- ----------- -----------
End of year $ 2,125 $ 5,134 $ 9,942
=========== =========== ===========
</TABLE>
See accompanying notes.
24
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
Principles of consolidation: The consolidated financial statements include the
- ---------------------------
accounts of the Company and its subsidiaries. Intercompany accounts and
transactions have been eliminated. Certain amounts reported in prior years have
been reclassified for comparative purposes.
Use of estimates: Preparing financial statements in accordance with generally
- ----------------
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Cash equivalents: Cash equivalents are highly liquid investments with maturities
- ----------------
of three months or less when acquired.
Long-lived assets: Property, plant and equipment is stated at cost. Depreciation
- -----------------
is computed by the straight-line method based on the following lives: buildings
and improvements -- 10 to 30 years and machinery and equipment -- 3 to 25 years.
Landfill development costs are depreciated based on the ratio of cubic yards of
disposal capacity utilized to total cubic yards of disposal capacity (see
Note 2).
Landfill permit costs to acquire and maintain landfill permits are deferred and
amortized based on the ratio of cubic yards of disposal capacity utilized to
total cubic yards of disposal capacity (see Note 2).
Landfill closure costs and post-closure obligations (accrued as liabilities in
the balance sheet) at the Company's landfill in Idaho were secured by a trust
fund invested in U.S. government and government agency securities. These
investments, totaling $15.2 million and $15.3 million at December 31, 1999 and
1998, were classified as "available-for-sale," and were carried at amortized
cost which approximates market value. Interest income and realized gains and
losses were recognized in earnings. The Company obtained permission from the
necessary regulatory agencies to replace this trust fund with a surety bond
obtained from an insurance company. The entire $15.2 million balance of the
trust fund was recovered in the first quarter of 2000. Accordingly, the trust
fund was classified as short-term on the accompanying balance sheet at December
31, 1999.
Ohio landfill trust fund balances represent deferred charges that are amortized
as part of closure costs. These trusts (also invested in U.S. government and
government agency securities) will fund the latter stages of closure activity
and all post-closure activity in perpetuity. Excess funds, if any, revert to the
State of Ohio; accordingly, no interest income is recognized (see Note 2).
The excess of purchase price over fair value of net assets of acquired
businesses (goodwill) is recorded as an asset and amortized using the
straight-line method over periods of 15 to 40 years (see Note 2).
Costs of computer software developed or obtained for internal use expended after
December 31, 1998 are generally expensed as incurred, however certain
development stage costs may be capitalized , based on guidance provided by the
Accounting Institute of Certified Public Accountants' Statement of Position No.
98-1. In 1997 the Company wrote-off $639,000 of unamortized software selection
costs it had previously capitalized, pursuant to the Emerging Issues Task Force
issue 97-13, which required such costs to be expensed as incurred.
25
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES (continued)
The Company accounts for potential impairment of long-lived assets in accordance
with the Financial Accounting Standards Board's (FASB) Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." As required by that Statement, the carrying value of long-lived
assets will be reviewed when facts and circumstances suggest that they may have
become impaired. If this review indicates that such assets will not be fully
recoverable, as determined based on anticipated cash flows over their estimated
remaining useful lives, the carrying value of such assets will be reduced to
their fair value, based on the discounted present value of the anticipated cash
flows (see Note 2).
Closure costs: The estimated costs of future closure and post-closure monitoring
- -------------
and maintenance of landfills are amortized or accrued based on the ratio of
cubic yards of disposal capacity utilized to total cubic yards of disposal
capacity. Closure costs are similar to landfill development costs, but are
generally incurred for aboveground construction (see Note 2).
Revenues: The Company's revenues are recognized as services are provided.
- --------
Earnings per share: Basic earnings per share is calculated by dividing income
- ------------------
(loss) applicable to common shares by the weighted average number of shares
outstanding during the period, excluding any dilutive effects of options and
warrants. Diluted earnings per share includes the effects of common stock
equivalents outstanding during the period. Basic and diluted earnings per share
amounts are the same in each year because there is no dilution when there is a
loss from continuing operations.
In June 1998 the company completed a 1-for-7 reverse stock split. Numbers of
shares and per share amounts have been restated for all periods presented prior
to that date.
Stock-based compensation plans: The Company follows Accounting Principles Board
- -------------------------------
Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for
stock-based compensation plans and discloses the fair value of options granted
and pro forma effects of compensation expense on earnings as required by
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-Based Compensation.
NOTE 2. UNUSUAL ITEMS
1999
- ----
During 1999, the Company's Technologies business recognized operating losses
significantly in excess of both historical trends and current year expectations.
The average price per ton of waste processed at its landfill sites remained well
below expectations during the year. Management does not expect significant
future improvements in such prices, though further deterioration is not expected
either. The Company had announced in early 1999 that management was examining
various strategic alternatives for the Technologies business, including its
potential sale. Negotiations with outside parties held throughout 1999 were
unsuccessful, and in December 1999 the Company announced it would retain the
Technologies business. During these negotiations, however, the Company received
bids significantly less than the carrying value of the long-lived assets on the
Technologies balance sheet at the time.
26
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. UNUSUAL ITEMS (continued)
Based on the above factors, management deemed an impairment review of the
Technologies long-lived assets was required, and performed such a review. The
resulting estimate of undiscounted future cash flows of the Technologies
businesses indicated an impairment of the long-lived assets in use at the
Company's two major waste landfill sites. Management then estimated the fair
value of these assets using the estimated future cash flows, discounted at a
rate commensurate with the Company's long-term borrowing rates. Accordingly, in
December 1999 the Company recorded an impairment loss of $75.2 million, or
$12.94 per share, to reduce the long-lived assets related to these landfill
sites to their estimated fair value. The write-down included $28.4 million of
property, plant and equipment, $20.5 million of landfill permits, $15.8 million
of non-recoverable trust funds and other deferred charges, $8.6 million of
goodwill, and $1.9 million related to other long-lived assets. In addition, the
estimated lives of certain remaining assets at the Company's landfill sites were
reviewed and subsequently reduced, corresponding to the estimates of future cash
flows used to calculate their fair value.
The Company recorded other unusual charges during 1999 of $5.8 million. The
charges included a fourth quarter non-cash charge of $2.8 million to write-down
excess equipment to net realizable value, and related costs. Also included in
the 1999 total were first quarter charges totaling $3 million related to the
Company's profit improvement program, which had originated in 1998. The profit
improvement program charge consisted of $2.3 million for employee severance
costs and the balance for consulting fees. During 1999, the Company charged
costs against its unusual item liabilities totaling $6 million, consisting of
$2.5 million for severance costs, $1.9 million for excess equipment, consulting
fees totaling $.9 million and $.7 million of other costs, leaving a remaining
liability for all unusual items of $2.7 million at December 31, 1999.
1998
- ----
Unusual charges of $7.9 million consisted primarily of $7.3 million for the
Company's profit improvement program, and included $3 million to write down
excess equipment to its net realizable value, $2.2 million of program consulting
costs and $2.1 million of severance costs. During 1998, costs totaling $8
million were charged against these and other unusual item liabilities, leaving a
balance of $2.9 million at December 31, 1998.
1997
- ----
Unusual charges of $1.3 million were recorded for costs to satisfy regulatory
requirements at the inactive waste disposal sites and to vacate another office.
During 1997, costs totaling $2.5 million were charged against these and previous
unusual item liabilities.
NOTE 3. INCOME TAXES
In the fourth quarter of 1998, all of the Company's net deferred tax assets were
written-off with a charge against operations, when the Company reported negative
quarterly operating income, thus preventing a determination that it was more
likely than not that the Company will earn sufficient taxable income during the
next several years to realize its net deferred tax assets. In 1997, the Company
utilized income tax loss carryforwards and other deferred tax assets totaling
$12 million to eliminate income tax payments on the gain from the January 1997
sale of its IMSAMET subsidiary (see Note 4). An additional $1.3 million of net
deferred tax assets was recognized, virtually all of which was credited to
goodwill.
27
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INCOME TAXES (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows (in thousands):
1999 1998
----------- -----------
Deferred tax assets:
Net operating loss carryforwards $ 38,509 $ 35,652
Asset impairment 23,317 --
Insurance accruals 1,950 2,232
Pension and other postretirement benefits
accruals 3,909 4,040
Closure cost accruals 4,778 4,216
Other accruals 6,581 6,068
----------- -----------
Total deferred tax assets 79,044 52,208
Valuation allowance (65,533) (36,811)
----------- -----------
Net deferred tax assets 13,511 15,397
Deferred tax liabilities:
Tax over book depreciation plus
IU International acquisition purchase
price allocation to property, plant,
and equipment (5,002) (6,365)
Tax over book post-closure deductions (5,125) (5,417)
Tax over book landfill permit amortization (3,384) (3,615)
----------- -----------
Total deferred tax liabilities (13,511) (15,397)
----------- -----------
Net deferred taxes $ -- $ --
=========== ===========
The $38.5 million deferred tax asset above represents net operating loss
carryforwards totaling $110 million that expire at various dates from 2001 to
2019. Subject to the Company's ability to generate sufficient future taxable
income, upon recognition of additional net deferred tax assets, the $65.5
million valuation allowance would be credited as follows: $2 million to capital
in excess of par value, $8.8 million to goodwill and $54.7 million to reduce
income tax expense.
In 1999 the valuation allowance was increased by a net $28.7 million, primarily
due to the asset impairment charge. In 1998 the valuation allowance was reduced
by a net $33.7 million, primarily because the $15.3 million increase resulting
from the corresponding charge against operations was more than offset by a $49
million reduction due to the write-off of the deferred tax asset representing an
expired net operating loss carryforward and other changes. In 1997 the valuation
allowance increased by a net $1.5 million because the deferred tax benefit
applicable to continuing operations for the year was more than offset by the
reversal of a portion of the valuation allowance that was credited to capital in
excess of par value in 1996.
28
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. INCOME TAXES (continued)
The components of income tax (expense) benefit attributable to continuing
operations are as follows (in thousands):
1999 1998 1997
----------- ----------- -----------
Current:
State $ (749) $ (897) $ (1,170)
Canadian (203) (150) (229)
----------- ----------- -----------
(952) (1,047) (1,399)
Deferred:
Federal -- (15,337) 31
----------- ----------- -----------
$ (952) $ (16,384) $ (1,368)
=========== =========== ===========
Canadian income before income taxes was not significant in 1999, 1998 and 1997.
Income tax (expense) benefit varies from amounts computed by applying the 35%
federal statutory rate for the following reasons (in thousands):
1999 1998 1997
----------- ----------- -----------
Benefit of pre-tax loss from
continuing operations at
statutory rate $ 33,180 $ 4,989 $ 2,483
Goodwill amortization (1,633) (1,692) (1,692)
Effect of increasing deferred
tax valuation allowance (32,012) (19,098) (1,454)
Effect of state and Canadian
income taxes (487) (583) (761)
Other -- -- 56
----------- ----------- -----------
$ (952) $ (16,384) $ (1,368)
=========== =========== ===========
NOTE 4. DISCONTINUED OPERATION
In January 1997, the Company sold the capital stock of IMSAMET, Inc., a
wholly-owned subsidiary that performed recycling and waste management services
for the aluminum industry. After deferred income tax charges of $12.0 million,
the 1997 gain on sale amounted to $9.6 million or $1.66 per share. Operating
results of the discontinued operation were not significant for 1997.
29
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. OTHER BALANCE SHEET INFORMATION
Long-lived assets (in thousands):
1999 1998
----------- -----------
Property, plant and equipment, at cost:
Land and improvements $ -- $ 1,184
Landfill development 17,080 34,729
Buildings and improvements 25,338 35,024
Machinery and equipment 212,060 233,387
----------- -----------
254,478 304,324
Less accumulated depreciation (151,286) (157,387)
----------- -----------
$ 103,192 $ 146,937
=========== ===========
Goodwill, at cost $ 167,875 $ 181,556
Less accumulated amortization (58,289) (53,625)
----------- -----------
$ 109,586 $ 127,931
=========== ===========
Long-term closure trust funds & deferred
charges, at cost $ 17,721 $ 48,865
Less accumulated amortization (17,319) (15,660)
----------- -----------
$ 402 $ 33,205
=========== ===========
Landfill permits, at cost $ 22,242 $ 42,504
Less accumulated amortization (22,242) (19,530)
----------- -----------
$ -- $ 22,974
=========== ===========
Costs and accumulated depreciation and amortization amounts shown at December
31, 1999 include the effects of a $75.2 million unusual charge for the
impairment of long-lived assets (see Note 2).
Other long-term liabilities (in thousands):
Closure and post-closure liabilities $ 10,715 $ 9,078
Other 24,628 29,109
----------- -----------
$ 35,343 $ 38,187
=========== ===========
Allowance for doubtful accounts (in thousands):
1999 1998 1997
----------- ----------- -----------
Balance at the beginning of year $ 1,045 $ 701 $ 1,220
Additions charged to expense 36 728 158
Amounts written off (185) (384) (677)
----------- ----------- -----------
Balance at end of year $ 896 $ 1,045 $ 701
=========== =========== ===========
30
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
1999 1998
----------- -----------
9 3/4% Senior Notes due 2003 $ 270,000 $ 270,000
Revolving credit facility 5,985 22,000
Industrial revenue bond financings,
equipment loans and other 8,967 11,572
----------- -----------
284,952 303,572
Less current maturities (6,286) (5,549)
----------- -----------
Long-term debt $ 278,666 $ 298,023
=========== ===========
At December 31, 1999, required principal payments by year for the next five
years are as follows: $.3 million in 2000, $.1 million in 2001, $8.5 million in
2002, and $270 million in 2003, and none in 2004. The Company repaid the $6
million outstanding on its revolving credit facility at December 31 during the
first quarter of 2000.
All of the Senior Notes (10.2% effective rate including amortization of issuance
costs) are redeemable, in whole or in part, at the Company's option at 103.3% of
principal amount, declining to 100% by June 15, 2001. Upon a change in control,
the Company must offer to purchase the Senior Notes at 101% of principal amount.
The Senior Notes indenture contains restrictions customarily found in such
agreements, such as limits on indebtedness and payments with respect to capital
stock.
On November 17, 1999, the Company, through its IMS subsidiary, replaced its
previous $43.8 million bank credit facility, which would have expired in January
2001, with a new $40 million credit facility (the "Agreement") with Bank of
America, N.A. As required by the Emerging Issues Task Force issue 98-14, the
unamortized issuance costs from the previous bank facility totaling $1.1 million
were combined with issuance costs from the Agreement and will be amortized
through the Agreement's maturity date of March 31, 2003. The Agreement is
secured by certain assets of IMS, principally equipment and accounts receivable.
Interest on borrowings is based on either the bank's prime rate or the London
Interbank Offering Rate (LIBOR), plus a negotiated bank margin. The interest
rate on outstanding borrowings at December 31, 1999 was 9.75%. The Company also
pays a commitment fee on the unused portion of the facility, as well as fees on
any outstanding letters of credit. The Agreement contains certain restrictions
on the Company and its subsidiaries, including, among other things, a
requirement to maintain a specified minimum level of available credit, and a
prohibition for payment of cash dividends. The Agreement also contains covenants
that require the Company to meet certain financial ratios and tests. At December
31, 1999, the Company was in compliance with all such covenants. After deducting
outstanding borrowings, $5.7 million of commitments for standby letters of
credit, and minimum availability requirements, approximately $20.3 million of
the total facility was unused and available.
An $8.5 million industrial revenue bond financing carries an effective interest
rate of 9.3%. Equipment loans and other debt carry a weighted average effective
interest rate of 9.6%.
31
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. IU INTERNATIONAL ACQUISITION OBLIGATIONS
The Company has certain obligations resulting from the 1988 acquisition of IU
International Corporation ("IU") that are unrelated to current operations. At
December 31, 1999, these liabilities totaled $22.6 million, of which $5.6
million were classified as short-term, and $17 million as long-term on the
accompanying balance sheet. At December 31, 1998, such liabilities totaled $21.7
million, of which $2.7 million were short-term. These amounts represent
obligations for product liability claims, insurance, employee benefits and other
matters.
The product liability obligations primarily pertain to personal injury claims
for certain asbestos-related products distributed by two IU subsidiaries during
the 1960s and 1970s. The two subsidiaries are participants in the Center for
Claims Resolution ("CCR"), a group of manufacturers and distributors of
asbestos-related products. The CCR acts as a central administrative entity to
attempt cost-effective claims handling, reduce litigation costs, and effect
broad-based settlements of claims.
Management believes: a) that most of the Company's product liability and related
litigation defense costs will ultimately be recovered through its various layers
of insurance coverage in place during the periods covered by such claims, and b)
the ultimate exposure to the Company will result primarily from certain
insurance companies, operating outside the United States, that provided the
Company with insurance coverage for such claims, and have since become
insolvent. Management is actively pursuing recovery claims from the insolvent
estates and potential reinsurance such insolvent companies may have had with
other solvent insurers. Management cannot with any reasonable certainty estimate
the ultimate amount of claims probable of assertion, nor can it accurately
predict the level of success expected with its pursuit to secure recoveries from
insolvent insurers. However, management has recorded a liability which it
believes reflects all currently available information including known claims,
and probable insurance coverage. Management will continue to evaluate whether
the Company's ultimate liability for product liability claims can be reasonably
estimated. If such an estimate is feasible, charges against future operations
may be necessary, however the timing or amount of any such charge cannot
presently be determined.
During 1999, the Company received a cash settlement of $8.7 million from an
insurance company in settlement of its obligations to insure the Company under
two insurance policies. Any previously asserted or future claims covered by such
policies become the responsibility of the Company. The net cash inflow for 1999
related to the IU International acquisition obligations was $6.1 million, which
included the cash settlement noted above.
NOTE 8. STOCKHOLDERS' EQUITY (DEFICIT)
At December 31, 1999, a total of 878,159 shares of the Company's common stock
have been reserved for stock options (see Note 9). Under the terms of the Senior
Notes indenture and bank credit facility, the Company may not declare or pay
dividends or make cash distributions to the common stockholders.
An affiliate of Freeman Spogli & Co. owns approximately 47% of the Company's
common stock.
The Company is authorized to issue 5.6 million shares of preferred stock, par
value $.25 per share, with such terms and conditions as shall be specified by
the Company's Board of Directors.
32
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCKHOLDERS' EQUITY (DEFICIT) (CONTINUED)
The Company has a loan to an employee which originated to purchase common stock
of the Company in 1989. The loan bears interest at 6%, and requires payment in
full within 30 days of the employee's termination and provides for forgiveness
in the event of the employee's death. As of December 31, 1999 and 1998, the loan
principal balance was $90,000. Accrued intrest receivable on the loan as of such
dates was approximately $51,000 and $47,000, respectively.
NOTE 9. STOCK OPTIONS
The Company maintains plans that provide incentive stock options and
non-qualified stock options to key employees to purchase shares of the Company's
common stock. The terms, conditions and numbers of shares are determined by the
Compensation and Stock Option Committee of the Board of Directors. In 1999, the
Company adopted the 1999 Stock Option Plan (the "1999 Plan"). The 1999 Plan
provided for up to 500,000 shares of the Company's common stock subject to
grants issued under the Plan, such grants may be in the form of incentive stock
options, non-qualified stock options, or stock appreciation rights, with a term
not to exceed ten years from the grant date. Incentive stock options may not be
granted at exercise prices less than the fair market value of the stock at the
time of grant. Options generally vest over three or five year periods.
Option activity is summarized below:
<TABLE>
<CAPTION>
Weighted
Number of Shares -Average
-----------------------------
Under Exercise Range
-----------------------------
Available Option Price From To
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1997 189,117 237,682 29.13 17.50 58.63
Granted (15,140) 15,140 13.51 10.06 20.13
Canceled 24,701 (24,701) 27.49 17.50 57.75
----------- -----------
BALANCE AT DECEMBER 31, 1997 198,678 228,121 28.27 10.63 57.75
Granted (82,747) 82,747 14.34 13.60 21.00
Canceled 45,229 (45,229) 31.27 10.06 57.75
----------- -----------
BALANCE AT DECEMBER 31, 1998 161,160 265,639 23.42 10.06 49.00
----------- -----------
Authorized 500,000 ------
Granted (167,856) 167,856 4.09 2.06 5.13
Canceled 82,786 (131,426) 27.05 14.00 49.00
----------- -----------
BALANCE AT DECEMBER 31, 1999 576,090 302,069 11.10 2.06 45.50
=========== ===========
</TABLE>
33
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTIONS (CONTINUED)
Summarized information about stock options outstanding at December 31, 1999 is
as follows:
<TABLE>
<CAPTION>
Weighted-
Average Weighted- Weighted-
Range of Number of Remaining Average Number of Average
Exercise Options Contractual Exercise Options Exercise
Prices Outstanding Life Price Exercisable Price
- ---------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$2.06 to $21.00 252,876 8.5 years $ 7.84 53,497 $ 15.70
$21.01 to $30.63 46,764 4.8 27.23 46,077 27.22
$30.64 to $45.50 2,429 .2 45.50 2,429 45.50
----------- -----------
$2.06 to $45.50 302,069 7.8 11.15 102,003 21.61
=========== ===========
</TABLE>
The Company also maintains a stock option plan for outside directors that are
neither employees of the Company nor affiliated with Freeman Spogli & Co. Under
the plan, on January 1 of each year each such outside director is granted
options to purchase 714 shares of the Company's common stock at the prior
year-end market price. The plan also allows these directors to elect to receive
below-market options in lieu of their annual directors' fees. In 1998 two
directors, and in 1997 one director elected to receive such options in lieu of
their $15,000 annual directors' fees. All options granted under the plan become
exercisable on the following January 1.
In addition, three outside directors hold options, granted prior to 1995, to
purchase 8,571 shares of the Company's common stock at exercise prices equal to
the fair market value at the time of grant.
Using the Black-Scholes option pricing model, the estimated per share weighted
average fair values of stock options granted were $1.18 in 1999, $9.95 during
1998 and $8.19 during 1997. Assumptions made in determining the estimates of
fair value include: risk-free interest rates of 6.6% in 1999, 4.7% in 1998 and
5.5% in 1997; a volatility factor of .58 in 1999 and 1998, and .48 in 1997; and
a weighted-average expected life of 8 years for all three years.
The following table summarizes the pro forma effects assuming compensation cost
for such awards had been recorded based upon estimated fair values (in
thousands, except for per share amounts):
1999 1998 1997
----------- ----------- -----------
Pro forma net (loss) income $ (95,845) $ (30,913) $ 213
Pro forma net (loss) income
per share $ (16.49) $ (5.32) $ .04
34
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. OPERATING SEGMENTS
The Company's reportable operating segments, which are organized by type of
service, are: IMS, which provides recycling and other specialized services for
the steel industry, and Technologies, which operates hazardous waste disposal
landfills and provides waste management and stabilization services for the steel
industry, as well as companies in other industries and governmental agencies.
Information by reportable segment for the three years ended December 31, 1999 is
as follows (in thousands):
1999 1998 1997
----------- ----------- -----------
REVENUES
IMS $ 180,697 $ 191,438 $ 185,587
Technologies 31,278 40,938 42,091
----------- ----------- -----------
$ 211,975 $ 232,376 $ 227,678
=========== =========== ===========
UNUSUAL ITEM (CHARGES)
CREDITS, NET
IMS $ (2,924) $ (2,851) $ 69
Technologies (75,722) (790) (1,491)
Corporate headquarters (2,389) (4,293) 122
----------- ----------- -----------
$ (81,035) $ (7,934) $ (1,300)
=========== =========== ===========
TOTAL OPERATING INCOME (LOSS)
IMS $ 22,330 $ 23,614 $ 26,563
Technologies (83,260) (1,586) (1,664)
Corporate headquarters (4,115) (7,035) (3,908)
----------- ----------- -----------
$ (65,045) $ 14,993 $ 20,991
=========== =========== ===========
IDENTIFIABLE ASSETS
IMS $ 226,763 $ 246,768 $ 252,584
Technologies 45,395 131,440 131,231
Corporate headquarters 6,099 9,248 29,487
----------- ----------- -----------
$ 278,257 $ 387,456 $ 413,302
=========== =========== ===========
DEPRECIATION AND AMORTIZATION
IMS $ 26,613 $ 27,079 $ 25,925
Technologies 11,498 11,275 10,807
Corporate headquarters 1,158 1,051 789
----------- ----------- -----------
$ 39,269 $ 39,405 $ 37,521
=========== =========== ===========
CAPITAL EXPENDITURES
IMS $ 15,876 $ 27,874 $ 21,002
Technologies 1,460 7,714 8,342
Corporate headquarters ----- ----- 10
----------- ----------- -----------
$ 17,336 $ 35,588 $ 29,354
=========== =========== ===========
Corporate headquarters expenses and assets support both segments but are not
directly associated with either. Corporate assets consist principally of cash
and cash equivalents, unamortized debt issuance costs, and in 1997 deferred tax
assets.
35
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10. OPERATING SEGMENTS (continued)
Revenues from USX Corporation, the Company's largest steel industry customer,
ranged from approximately $41 to $46 million annually during the three years
ended December 31, 1999. Almost all of this revenue was recorded by the
Company's IMS business. Accounts receivable due from USX Corporation totaled
$4.2 million at December 31, 1999. The Company conducts business primarily in
the United States, its IMS business has some Canadian customers, however foreign
operations are not material. Technologies' waste landfill sites are located in
Idaho and Ohio.
The following table sets forth the percentage of total revenue contributed by
each class of services during the three years ended December 31, 1999:
1999 1998 1997
----------- ----------- -----------
Industrial recycling 70.6% 69.6% 67.8%
Specialized services 14.6% 12.8% 13.7%
Waste stabilization and disposal 14.8% 17.6% 18.5%
----------- ----------- -----------
100.0% 100.0% 100.0%
----------- ----------- -----------
NOTE 11. RETIREMENT PLANS
The Company has several non-contributory defined benefit pension plans covering
certain salaried and hourly employees. The plans provide pension benefits that
are based on varying levels of service and compensation. Assets of the plans are
principally common stocks, fixed income securities and cash equivalents. The
Company's contributions are based on funding standards established by the
Employee Retirement Income Security Act of 1974.
36
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. RETIREMENT PLANS (continued)
1999 1998
----------- -----------
Change in benefit obligations:
Benefit obligations at beginning of year $ 21,443 $ 21,585
Service cost 475 564
Interest cost 1,504 1,550
Net actuarial (gains) losses (792) 553
Benefits paid (2,950) (2,886)
Other 36 77
----------- -----------
Benefit obligations at end of year $ 19,716 $ 21,443
=========== ===========
Change in plan assets:
Fair value of plan assets at beginning of year $ 20,294 $ 21,766
Actual return on assets 4,284 1,533
Employer contributions 145 226
Benefits paid (2,950) (2,886)
Plan expenses (338) (312)
Other 28 (33)
----------- -----------
Fair value of plan assets at end of year $ 21,463 $ 20,294
=========== ===========
Funded status $ 1,747 $ (1,149)
Unrecognized net actuarial (gains) losses (2,998) 393
Unamortized prior service cost decrease (2,798) (3,120)
Other (7) (9)
----------- -----------
Accrued pension cost $ (4,056) $ (3,885)
=========== ===========
Net periodic pension cost for defined benefit plans includes the following (in
thousands):
1999 1998 1997
----------- ----------- -----------
Service cost $ 475 $ 564 $ 700
Interest cost 1,524 1,550 1,533
Expected return on plan assets (1,427) (1,463) (1,423)
Net amortization and deferral (257) (195) (267)
----------- ----------- -----------
Net periodic pension costs $ 315 $ 456 $ 543
=========== =========== ===========
The actuarial present value of projected benefit obligations was determined
using discount rates of 7.75% in 1999 and 7.25% in 1998. The expected annual
long-term rate of return on plan assets used in determining net periodic pension
cost was 8.5% in both years.
The Company also sponsors several defined contribution retirement plans for
which contributions and costs are based on percentages of defined earnings of
participating employees. Costs for these plans amounted to $1.2 million in 1999
and 1998, and $1.4 million in 1997.
37
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. RETIREMENT PLANS (continued)
In addition, for the benefit of certain unionized employees, the Company
participates in defined benefit multiemployer pension plans, for which reliable
information concerning the Company's share of related estimated plan benefits
and assets is not available, and defined contribution multiemployer pension
plans. Costs for multiemployer pension plans amounted to $2.4 million in 1999,
$2.2 million in 1998 and $1.8 million in 1997.
The Company also participates in several defined contribution multiemployer
plans that provide health care and other welfare benefits to certain unionized
employees during their working lives and after retirement. Costs for these plans
amounted to $2.2 million in 1999, $2.1 million in 1998 and $2 million in 1997.
The Company also has several defined benefit postretirement plans that provide
varying amounts of medical and death benefits, primarily to retired employees.
The actuarially computed cost for these plans was $.5 million in 1999,
$.3 million in 1998 and $.4 million in 1997. The plans are not funded, the
Company pays postretirement benefits as required for individual participants.
The accrued postretirement benefit obligation at December 31, 1999 and 1998 was
$4.4 million, of which $4 million represents obligations in connnection with the
IU International acquisition. The discount rate used to actuarially compute this
liability was 7.75% for 1999 and 7.25% for 1998.
Future cost increases in health care benefits are assumed to be 7.5% in 1999,
decreasing less than 1% per year to 5% by 2002 and remaining at that level
thereafter. Increasing these rates by 1% each year would increase the
accumulated postretirement benefit obligation as of December 31, 1999 by $.2
million and would not have had a significant impact on the postretirement
benefit cost for 1999.
NOTE 12. SUPPLEMENTAL CASH FLOW INFORMATION
Amortization in the consolidated statement of cash flows includes amortization
of goodwill, landfill permits and deferred charges related to landfill closure
together with non-cash interest costs.
Changes in working capital include the following (in thousands):
1999 1998 1997
----------- ----------- -----------
Accounts receivable $ (524) $ 664 $ (2,000)
Other current assets (581) 446 425
Accounts payable and other
current liabilities 4,554 (3,141) 1,304
----------- ----------- -----------
Cash provided (used) $ 3,449 $ (2,031) $ (271)
=========== =========== ===========
38
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. SUPPLEMENTAL CASH FLOW INFORMATION (continued)
Closure trust fund recoveries (payments) include the following activity (in
thousands):
1999 1998 1997
----------- ----------- -----------
Purchases of investments $ (797) $ (1,243) $ (1,654)
Sales of investments 968 171 139
----------- ----------- -----------
Cash recovered (used) $ 171 $ (1,072) $ (1,515)
=========== =========== ===========
Net cash flows related to the IU International acquisition are principally
payments of pre-acquisition obligations. In 1999, the Company recovered $8.7
million from an insurance company related to such obligations.
The Company paid interest of $28.5 million in 1999, and $28.8 million in 1998
and 1997. Payments for income taxes, net of refunds, were $.9 million in 1999,
$1.4 million in 1998 and $1.1 million in 1997.
NOTE 13. FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments carried in the Company's
consolidated balance sheet are as follows (in thousands):
1999 1998
------------------------- -------------------------
Carrying Fair Carrying Fair
Amounts Values Amounts Values
----------- ----------- ----------- -----------
Long-term debt $ 278,666 $ 189,566 $ 298,023 $ 276,423
Other non-current assets
and stock purchase loans 138 138 1,375 1,375
The fair values of financial instruments included in current assets and
liabilities approximate their carrying amounts. The fair value of fixed-rate
long-term debt, which is thinly traded, is based on management's best knowledge
of recent trading prices. The fair values of other non-current assets and stock
purchase loans are estimated using discounted cash flow analysis and borrowing
rates in the Company's bank credit facility.
NOTE 14. COMMITMENTS AND CONTINGENCIES
Future minimum lease payments for non-cancelable operating leases as of December
31, 1999 amount to $8.4 million in 2000, $6.6 million in 2001, $4.9 million in
2002, $2.6 million in 2003, $1.2 million in 2004, and decreasing amounts
thereafter. Operating leases are primarily for machinery and equipment. Rent
expense was $11.7 million in 1999, $11.6 million in 1998 and $10.2 million in
1997.
39
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14. COMMITMENTS AND CONTINGENCIES (continued)
At December 31, 1999, the Company had commitments for capital equipment
additions totaling $29.4 million. This amount includes expenditures the Company
may seek to finance through operating leases which have not yet obtained by the
Company, and not included in the non-cancelable lease amounts disclosed above.
The total commitment amount includes amounts that may be expended beyond 2000.
The Company's Ohio and Idaho facilities hold operating permits issued by state
and federal environmental agencies under the Resource Conservation and Recovery
Act, as amended, that require renewal and modification from time to time. The
Company expects to obtain the required renewals and modifications to its permits
to continue to provide landfill capacity in its approved disposal cells.
The Company, its competitors and customers are subject to a complex, evolving
array of federal, state and local environmental laws and regulations. Such
regulations may not only affect the demand for treatment and disposal services,
but could also require the Company to incur significant costs for remediation or
other corrective action, facility closure and post-closure maintenance and
monitoring. It is possible that the future imposition of additional
environmental compliance requirements could have a material effect on the
Company's results of operations or financial condition, but the Company is
unable to predict any such future requirements. The Company believes that the
consolidated financial statements appropriately reflect all presently known
compliance costs in accordance with generally accepted accounting principles.
The Company is a party to litigation and proceedings arising in the normal
course of its present or former businesses. The Company has recorded a
contingent liability for certain product liability claims related to its former
businesses (see IU Acquisition Obligations at Note 7 in this Report). In the
opinion of management, based on currently available information, the outcome
of such matters will not have a material adverse effect on the Company's
financial condition or results of operations.
40
<PAGE>
ENVIROSOURCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
(In thousands, except per share amounts)
Fourth Third Second First
Quarter(1) Quarter Quarter Quarter
----------- ----------- ----------- -----------
1999
Revenues $ 54,271 $ 55,584 $ 53,837 $ 48,283
Gross profit 9,124 10,948 10,434 8,047
Unusual charges (78,071) -- -- (2,964)
Operating income (loss) (74,474) 5,867 4,733 (1,171)
Net loss $ (81,966) $ (1,633) $ (3,088) $ (9,064)
=========== =========== =========== ===========
Basic and diluted net
loss per share $ (14.10) $ (.28) $ (.53) $ (1.56)
=========== =========== =========== ===========
Fourth Third Second First
Quarter(2) Quarter Quarter Quarter
----------- ----------- ----------- -----------
1998
Revenues $ 52,124 $ 57,710 $ 62,963 $ 59,579
Gross profit 8,220 11,944 14,431 11,361
Unusual charges (3,508) (526) (3,489) (411)
Operating income (loss) (1,065) 6,294 5,075 4,689
Net loss $ (23,921) $ (4,259) $ (887) $ (1,572)
=========== =========== =========== ===========
Basic and diluted net
loss per share $ (4.12) $ (.73) $ (.15) $ (.27)
=========== =========== =========== ===========
(1) Included in the 1999 fourth quarter is a loss on impaired assets totaling
$75.2 million related to the waste landfills of the Company's Technologies
business.
(2) Included in the 1998 fourth quarter is a write-down of all of the Company's
deferred tax assets totaling $15.3 million.
41
<PAGE>
ENVIROSOURCE, INC.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
The Company filed a Current Report on Form 8-K, Item 4, regarding a
change in the Company's independent accountants, dated September 24,
1999.
42
<PAGE>
ENVIROSOURCE, INC.
PART III
ITEM 10. Directors and Executive Officers of the Company.
Reference is made to the information set forth under the headings (i)
"Election of Class B Directors" and "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement to be filed pursuant to
Regulation 14A under the Securities Act of 1934 within 120 days after December
31, 1999 and (ii) "Executive Officers of the Company" in Part I of this Annual
Report on Form 10-K, which information is incorporated herein by reference.
ITEM 11. Executive Compensation.
Reference is made to the information set forth under the heading
"Executive Compensation" in the Company's Proxy Statement to be filed pursuant
to Regulation 14A under the Securities Act of 1934 within 120 days after
December 31, 1999, which information is incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
Reference is made to the information set forth under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's Proxy Statement to be filed pursuant to Regulation 14A under the
Securities Act of 1934 within 120 days after December 31, 1999, which
information is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
Reference is made to the information set forth under the heading
"Certain Transactions" in the Company's Proxy Statement to be filed pursuant to
Regulation 14A under the Securities Act of 1934 within 120 days after December
31, 1999, which information is incorporated herein by reference.
43
<PAGE>
ENVIROSOURCE, INC.
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits filed.
(1) and (2)
Financial statements and schedules are shown in the index and
other information contained in Item 8 of this report.
(3) Exhibits.
--------
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 Amendment of Amended and Restated Certificate of Incorporation
(incorporated herein by reference to Pages 13 and 14 of the
Company's Proxy Statement filed April 30, 1998, in respect of its
1998 Annual Meeting of Stockholders (File No. 1-1363)).
3.4 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)).
3.5 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)).
3.6 By-Laws Amendment Adopted March 26, 1997 By Unanimous Written
Consent of the Board of Directors, Effective June 19, 1997
(incorporated 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)).
44
<PAGE>
ENVIROSOURCE, INC.
4.1 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)).
4.2 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)).
4.3 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)).
4.4 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)).
4.5 Registration Rights Agreement, dated as of September 30, 1997,
among the Company and Morgan Stanley Dean Witter, Jeffries &
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)).
4.6 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)).
4.7 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).
45
<PAGE>
ENVIROSOURCE, INC.
4.8* Loan and Security Agreement, dated as of November 16, 1999, the
lenders parties thereto, Bank of America, N.A., as Agent,
International Mill Service, Inc. and IMS Alabama, Inc.
10.1 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)).
10.2 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)).
10.3 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)).
10.4 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)).
10.5 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)).
10.6 Envirosource, Inc. 1993 Stock Option Plan (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)).
10.7 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)).
46
<PAGE>
ENVIROSOURCE, INC.
10.8 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)).
10.9 Envirosource, Inc. 1999 Stock Option Plan (incorporated herein by
reference to Appendix A to the Company's Proxy Statement filed
April 30, 1999, in respect of its 1999 Annual Meeting of
Stockholders (File No. 1-1363)).
10.10 Employment Agreement, dated as of January 20, 1999, between the
Company and John T. DiLacqua (incorporated herein by reference to
Exhibit 10.19 to the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended March 31, 1999 (File No. 1-1363)).
10.11 Letter Agreement, dated February 15, 1999, between the Company and
John C. Heenan (incorporated herein by reference to Exhibit 10.21
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1999 (File No. 1-1363)).
10.12 Letter Agreement, dated March 23, 1999, between the Company and
James C. Hull (incorporated herein by reference to Exhibit 10.22
to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended March 31, 1999 (File No. 1-1363)).
10.13* Letter Agreement, dated July 30, 1999, between the Company and
James C. Hull.
10.14* Employment Agreement, dated as of January 3, 2000, between the
Company and John P. Carroll.
10.15* Employment Agreement, dated as of January 3, 2000, between the
Company and John C. Heenan.
10.16* Employment Agreement, dated as of January 3, 2000, between the
Company and Leon Z. Heller.
21.1* Subsidiaries of the Company
23.1* Consent of Grant Thornton LLP
23.2* Consent of Ernst & Young LLP
(b) Reports on Form 8-K.
-------------------
No reports on Form 8-K were filed during the quarter ended
December 31, 1999.
* Filed herewith.
47
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 29, 2000
ENVIROSOURCE, INC.
By: /s/ JOHN T. DILACQUA
--------------------
John T. DiLacqua
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities indicated on March 29, 2000.
Signature Title
- --------- -----
/s/ JOHN T. DILACQUA President, Chief Executive Officer
- --------------------
John T. DiLacqua and Director (Principal Executive
Officer)
/s/ JOHN C. HEENAN Senior Vice President and Chief
- ------------------
John C. Heenan Financial Officer (Principal
Financial and Accounting Officer)
/s/ ROBERT N. GURNITZ Chairman of the Board of Directors
- ---------------------
Robert N. Gurnitz
<PAGE>
/s/ WALLACE B. ASKINS Director
- ---------------------
Wallace B. Askins
/s/ RAYMOND P. CALDIERO Director
- -----------------------
Raymond P. Caldiero
/s/ JEFFREY G. MILLER Director
- ---------------------
Jeffrey G. Miller
/s/ JON D. RALPH Director
- ----------------
Jon D. Ralph
/s/ JOHN M. ROTH Director
- ----------------
John M. Roth
/s/ J. FREDERICK SIMMONS Director
- ------------------------
J. Frederick Simmons
/S/ RONALD P. SPOGLI Director
- --------------------
Ronald P. Spogli
<PAGE>
EXHIBIT INDEX
Number Description Page
- ------ ----------- ----
4.8 Loan and Security Agreement, dated as of November 16, EXHIBIT 1
1999, the lenders parties thereto, Bank of America, N.A.,
as Agent, International Mill Service, Inc. and
IMS Alabama, Inc.
10.13 Letter Agreement, dated July 30, 1999, between the EXHIBIT 2
Company and James C. Hull.
10.14 Employment Agreement, dated as of January 3, 2000, EXHIBIT 3
between the Company and John P. Carroll.
10.15 Employment Agreement, dated as of January 3, 2000, EXHIBIT 4
between the Company and John C. Heenan.
10.16 Employment Agreement, dated as of January 3, 2000, EXHIBIT 5
between the Company and Leon Z. Heller.
21.1 Subsidiaries of the Company EXHIBIT 6
23.1 Consent of Grant Thornton LLP EXHIBIT 7
23.2 Consent of Ernst & Young LLP EXHIBIT 8
LOAN AND SECURITY AGREEMENT
Dated as of November 16, 1999
Among
THE FINANCIAL INSTITUTIONS NAMED HEREIN
as the Lenders
--------------
and
BANK OF AMERICA, N.A.
as the Agent
------------
and
INTERNATIONAL MILL SERVICE, INC.
as a Borrower
-------------
and
IMS ALABAMA, INC.
as a Borrower
-------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1 INTERPRETATION OF THIS AGREEMENT 1
1.1 Definitions 1
1.2 Accounting Terms 26
1.3 Interpretive Provisions 27
ARTICLE 2 LOANS AND LETTERS OF CREDIT 28
2.1 Total Facility 28
2.2 Revolving Loans 28
2.3 [Reserved] 34
2.4 Letters of Credit 34
2.5 Bank Products 40
ARTICLE 3 INTEREST AND FEES 41
3.1 Interest 41
3.2 Continuation and Conversion Elections 41
3.3 Maximum Interest Rate 43
3.4 Closing Fee 43
3.5 Unused Line Fee 43
3.6 Letter of Credit Fee 43
3.7 Administration Fee 44
ARTICLE 4 PAYMENTS AND PREPAYMENTS 44
4.1 Revolving Loans 44
4.2 Termination of Facility 44
4.3 Reserved 45
4.4 Reserved 45
4.5 Reserved 45
4.6 Payments by the Borrowers 45
4.7 Payments as Revolving Loans 45
4.8 Apportionment, Application and Reversal
of Payments 46
4.9 Indemnity for Returned Payments 46
4.10 Agent's and Lenders'Books and Records;
Monthly Statements 47
ARTICLE 5 TAXES, YIELD PROTECTION AND ILLEGALITY 47
5.1 Taxes 47
5.2 Illegality 48
5.3 Increased Costs and Reduction of Return 49
5.4 Funding Losses 49
5.5 Inability to Determine Rates 50
5.6 Certificates of Lenders 50
-i-
<PAGE>
Page
----
5.7 Survival 50
ARTICLE 6 COLLATERAL 50
6.1 Grant of Security Interest 50
6.2 Perfection and Protection of Security Interest 52
6.3 Location of Collateral 53
6.4 Title to, Liens on, and Sale and Use of Collateral 53
6.5 Appraisals 53
6.6 Access and Examination; Confidentiality 53
6.7 Collateral Reporting 54
6.8 Accounts 55
6.9 Collection of Accounts; Payments 56
6.10 Inventory; Perpetual Inventory 57
6.11 Equipment 57
6.12 Assigned Contracts 58
6.13 Documents, Instruments, and Chattel Paper 59
6.14 Right to Cure 59
6.15 Power of Attorney59
6.16 The Agent's and Lenders'Rights, Duties
and Liabilities 60
ARTICLE 7 BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES 60
7.1 Books and Records 60
7.2 Financial Information 60
7.3 Notices to the Lenders 64
ARTICLE 8 GENERAL WARRANTIES AND REPRESENTATIONS 66
8.1 Authorization, Validity, and Enforceability
of this Agreement and the Loan Documents 66
8.2 Validity and Priority of Security Interest 67
8.3 Organization and Qualification 68
8.4 Corporate Name; Prior Transactions 68
8.5 Subsidiaries and Affiliates 68
8.6 Financial Statements and Projections 68
8.7 Capitalization 69
8.8 Solvency 69
8.9 Debt 69
8.10 Distributions 69
8.11 Title to Property 69
8.12 Real Estate; Leases 69
8.13 Proprietary Rights 69
8.14 Trade Names 70
8.15 Litigation 70
8.16 Restrictive Agreements 70
-ii-
<PAGE>
Page
----
8.17 Labor Disputes 70
8.18 Environmental Laws 70
8.19 No Violation of Law 72
8.20 No Default 72
8.21 ERISA Compliance 72
8.22 Taxes 72
8.23 Regulated Entities 72
8.24 Use of Proceeds; Margin Regulations 73
8.25 Copyrights, Patents, Trademarks and Licenses, etc 73
8.26 No Material Adverse Change 73
8.27 Full Disclosure 73
8.28 Material Agreements 73
8.29 Bank Accounts 74
8.30 Governmental Authorization 74
8.31 Envirosource Letters of Credit 74
8.32 No Liability for Senior Notes 74
ARTICLE 9 AFFIRMATIVE AND NEGATIVE COVENANTS 74
9.1 Taxes and Other Obligations 74
9.2 Corporate Existence and Good Standing 75
9.3 Compliance with Law and Agreements;
Maintenance of Licenses 75
9.4 Maintenance of Property 75
9.5 Insurance 75
9.6 Intentionally Omitted 76
9.7 Environmental Laws 76
9.8 Compliance with ERISA 77
9.9 Mergers, Consolidations or Sales 77
9.10 Distributions; Capital Change;
Restricted Investments 78
9.11 Transactions Affecting Collateral or Obligations 78
9.12 Guaranties 78
9.13 Debt 78
9.14 Prepayment 78
9.15 Transactions with Affiliates 78
9.16 Investment Banking and Finder's Fees 79
9.17 Reserved 79
9.18 Business Conducted 79
9.19 Liens 79
9.20 Sale and Leaseback Transactions 79
9.21 New Subsidiaries 79
9.22 Fiscal Year 79
9.23 Capital Expenditures 80
9.24 Operating Lease Obligations 80
9.25 EBITDA 80
-iii-
<PAGE>
Page
----
9.26 Fixed Charge Coverage Ratios 81
9.27 Use of Proceeds 81
9.28 Intentionally Omitted 81
9.29 Conduct of Business by Limited 81
9.30 Minimum Availability 81
9.31 Further Assurances 81
ARTICLE 10 CONDITIONS OF LENDING 82
10.1 Conditions Precedent to Making of Loans
on the Closing Date 82
10.2 Conditions Precedent to Each Loan 83
ARTICLE 11 DEFAULT; REMEDIES 84
11.1 Events of Default 84
11.2 Remedies 87
ARTICLE 12 TERM AND TERMINATION 88
12.1 Term and Termination 88
ARTICLE 13 AMENDMENTS; WAIVER; PARTICIPATIONS;
ASSIGNMENTS; SUCCESSORS 88
13.1 Amendments and Waivers 88
13.2 Assignments; Participations 89
ARTICLE 14 THE AGENT 91
14.1 Appointment and Authorization 91
14.2 Delegation of Duties 92
14.3 Liability of Agent 92
14.4 Reliance by Agent 92
14.5 Notice of Default 93
14.6 Credit Decision 93
14.7 Indemnification 93
14.8 Agent in Individual Capacity 94
14.9 Successor Agent 94
14.10 Withholding Tax 94
14.11 Reserved 96
14.12 Collateral Matters 96
14.13 Restrictions on Actions by Lenders;
Sharing of Payments 97
14.14 Agency for Perfection 97
14.15 Payments by Agent to Lenders 98
14.16 Concerning the Collateral and the
Related Loan Documents 98
14.17 Field Audit and Examination Reports;
Disclaimer by Lenders 98
14.18 Relation Among Lenders 99
-iv-
<PAGE>
Page
----
ARTICLE 15 MISCELLANEOUS 99
15.1 No Waivers; Cumulative Remedies 99
15.2 Severability 99
15.3 Governing Law; Choice of Forum;
Service of Process; Jury Trial Waiver 99
15.4 Waiver of Jury Trial 100
15.5 Survival of Representations and Warranties 101
15.6 Other Security and Guaranties 101
15.7 Fees and Expenses 101
15.8 Notices 101
15.9 Waiver of Notices 102
15.10 Binding Effect 103
15.11 Indemnity of the Agent and the
Lenders by the Borrowers 103
15.12 Joint and Several Liability 104
15.13 Limitation of Liability 105
15.14 Final Agreement 105
15.15 Counterparts 105
15.16 Captions 105
15.17 Right of Setoff 105
15.18 Replacement of Affected Lenders 106
ARTICLE 16 GUARANTY 107
-v-
<PAGE>
LOAN AND SECURITY AGREEMENT
Loan and Security Agreement, dated as of November 16, 1999, among the
financial institutions listed on the signature pages hereof (such financial
institutions, together with their respective successors and assigns, are
referred to hereinafter each individually as a "Lender" and collectively as the
"Lenders"), Bank of America, N.A. (the "Bank") with an office at 335 Madison
Avenue, New York, N.Y., as agent for the Lenders (in its capacity as agent, the
"Agent"), International Mill Service, Inc., ("IMS") a Pennsylvania corporation,
with offices at 1155 Business Center Drive, Horsham, PA 19044-3454 and IMS
Alabama, Inc. ("IMS AB"), a Delaware corporation, with offices at 1155 Business
Center Drive, Horsham, PA 19044-3454 (each, a "Borrower" and jointly and
severally, the "Borrowers").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Borrowers have requested the Lenders to make available to
the Borrowers a revolving line of credit for loans and letters of credit in an
amount not to exceed $40,000,000 in the aggregate outstanding at any time and
which extensions of credit the Borrowers will use to refinance existing Debt for
Borrowed Money, for their working capital needs and general business purposes;
and
WHEREAS, the Lenders have agreed to make available to the Borrowers a
revolving credit facility upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Lenders, the Agent, and the
Borrowers hereby agree as follows:
ARTICLE l
INTERPRETATION OF THIS AGREEMENT
--------------------------------
l.l Definitions. As used herein:
-----------
"Accounts" means all of the Borrowers' now owned or hereafter
--------
acquired or arising accounts, as defined in the UCC, including any rights to
payment for the sale or lease of goods or rendition of services, whether or not
they have been earned by performance.
"Account Debtor" means each Person obligated in any way on or
--------------
in connection with an Account.
"ACH Transactions" means any cash management or related
------------------
services including the automatic clearing house transfer of funds by the Bank
for the account of either Borrower pursuant to agreement or overdrafts.
<PAGE>
"Affiliate" means, as to any Person, any other Person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person or which owns, directly or indirectly, ten percent
(10%) or more of the outstanding equity interest of such Person. A Person shall
be deemed to control another Person if the controlling Person possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of the other Person, whether through the ownership of
voting securities, by contract, or otherwise.
"Affiliate Guaranties" means the guaranties by Services and
---------------------
Envirosource of the Obligations, dated the Closing Date, as amended and in
effect from time to time.
"Affiliate Security Agreements" means the Security Agreement
-------------------------------
made by Services to secure the Affiliate Guaranty made by Services, dated the
Closing Date, as amended and in effect from time to time, the Pledge Agreement
made by Envirosource, dated the Closing Date, as amended and in effect from time
to time and the Pledge Agreement made by IMS AB, dated the Closing Date, as
amended and in effect from time to time.
"Agent" means the Bank, solely in its capacity as agent for
-----
the Lenders, and any successor agent appointed in accordance with the terms
hereof.
"Agent Advances" has the meaning specified in Section 2.2(i).
-------------- ------
"Agent's Liens" means the Liens in the Collateral granted to
--------------
the Agent, for the benefit of the Lenders, Bank, and Agent pursuant to this
Agreement and the other Loan Documents.
"Agent Related Persons" means the Agent, together with its
-----------------------
Affiliates, and the officers, directors, employees, agents and attorneys-in-fact
of such Agent and such Affiliates.
"Aggregate Revolver Outstandings" means, at any time: the sum
--------------------------------
of (a) the unpaid balance of Revolving Loans, (b) the aggregate amount of
Pending Revolving Loans, (c) one hundred percent (100%) of the aggregate undrawn
face amount of all outstanding Letters of Credit, and (d) the aggregate amount
of any unpaid reimbursement obligations in respect of Letters of Credit.
"Agreement" means this Loan and Security Agreement, as amended
---------
and in effect from time to time.
"Anniversary Date" means each anniversary of the Closing Date.
----------------
"Applicable Margin" means with respect to any Loan, except as
------------------
otherwise provided in the immediately succeeding sentence, the amount set forth
below which corresponds to the Leverage Ratio set forth below for the four (4)
fiscal quarter period of IMS ended with the most recent fiscal quarter of IMS
for which the Agent receives the financial statements and Leverage Ratio
Certificate required below, determined and adjusted as provided herein. On the
Closing Date and thereafter until delivery of IMS's and its Subsidiaries
financial statements pursuant to Section 7.2(c) for IMS's fiscal quarter ending
September 30, 2000, the Libor Applicable Margin shall be 2.75% and the Base Rate
2
<PAGE>
Applicable Margin shall be 1.25% and each shall thereafter be adjusted after
each delivery to the Agent of the quarterly financial statements of IMS and its
Subsidiaries required pursuant to Section 7.2(c) for each quarter (commencing
------
with the quarter ending September 30, 2000) together with the corresponding
Leverage Ratio Certificate for the four fiscal quarter period ending on the last
day of such fiscal quarter, each such adjustment to be effective on the first
day of the first full calendar month after each such delivery.
Libor Applicable Base Rate
Leverage Ratio Margin Applicable Margin
-------------- ------ -----------------
4.0 2.25% .75%
4.0 and 5.0 2.50% 1.00%
5.0 and 6.0 2.75% 1.25%
6.0 and 7.0 3.00% 1.50%
7.0 3.25% 1.75%
Notwithstanding anything in this definition to the contrary in
the event that the Agent shall fail to receive any such financial statements and
the related Leverage Ratio Certificate for any of the first three fiscal
quarters in any Fiscal Year of IMS within fifty-five (55) days following the end
of such fiscal quarter (or within one-hundred (100) days following the end of
the last fiscal quarter of each Fiscal Year), then the Applicable Margin shall,
at the end of each such period, as appropriate, immediately and without notice
or further action be the highest Applicable Margin provided herein (such
Applicable Margin to be in effect until the first day of the first full calendar
month after the Agent receives the quarterly financial statements of IMS and its
Subsidiaries required under Section 7.2(c) for the most recent fiscal quarter of
------
IMS and the related Leverage Ratio Certificate).
"Assigned Contracts" means, collectively, all of the
--------------------
Borrowers' rights and remedies under, and all moneys and claims for money due or
to become due to the Borrowers under those contracts set forth on Schedule 1.1,
and any other material contracts, and any and all amendments, supplements,
extensions, and renewals thereof including all rights and claims of the
Borrowers now or hereafter existing: (i) under any insurance, indemnities,
warranties, and guarantees provided for or arising out of or in connection with
any of the foregoing agreements; (ii) for any damages arising out of or for
breach or default under or in connection with any of the foregoing contracts ;
(iii) to all other amounts from time to time paid or payable under or in
connection with any of the foregoing agreements; or (iv) to exercise or enforce
any and all covenants, remedies, powers and privileges thereunder.
"Assignee" has the meaning specified in Section 13.2(a).
-------- -------
3
<PAGE>
"Assignment and Acceptance" has the meaning specified in
---------------------------
Section 13.2(a).
- ---------------
"Attorney Costs" means and includes all reasonable fees,
---------------
expenses and disbursements of any law firm or other counsel engaged by the Agent
and the reasonable allocated cost of internal legal services of the Agent and
all reasonable expenses and disbursements of internal counsel of the Agent.
"Availability" means, at any time, (a) the Borrowing Base
------------
minus (b) the Aggregate Revolver Outstandings.
"Bank" means Bank of America, N.A., a national banking
----
association, or any successor entity thereto.
"Bank Products" means any one or more of the following types
--------------
of services or facilities extended to the Borrowers by the Bank or any affiliate
of the Bank in reliance on the Bank's agreement to indemnify such affiliate: (i)
credit cards; (ii) ACH Transactions; and (iii) Interest Rate Protection
Agreements.
"Bank Product Reserves" means all reserves which the Agent
-----------------------
from time to time establishes in its sole discretion for the Bank Products then
provided or outstanding.
"Bankruptcy Code" means Title 11 of the United States Code
---------------
(11 U.S.C. ss. 101 et seq.).
"Base Rate" means, for any day, the rate of interest in effect
---------
for such day as publicly announced from time to time by the Bank in Charlotte,
North Carolina as its "prime rate" (the "prime rate" being a rate set by the
Bank based upon various factors including the Bank's costs and desired return,
general economic conditions and other factors, and is used as a prime point for
pricing some loans, which may be priced at, above, or below such announced
rate). Any change in the prime rate announced by the Bank shall take effect at
the opening of business on the day specified in the public announcement of such
change. Each Interest Rate based upon the Base Rate shall be adjusted
simultaneously with any change in the Base Rate.
"Base Rate Loans" means, collectively, the Base Rate Revolving
---------------
Loans.
"Base Rate Revolving Loan" means a Revolving Loan during any
-------------------------
period in which it bears interest based on the Base Rate.
"Blocked Account Agreement" means an agreement among a
----------------------------
Borrower, the Agent and a Clearing Bank, in form and substance reasonably
satisfactory to the Agent, concerning the collection of payments which represent
the proceeds of Accounts or of any other Collateral.
"Borrowing" means a borrowing hereunder consisting of
---------
Revolving Loans made on the same day by the Lenders to a Borrower (or by Bank in
the case of a Borrowing funded by Non-Ratable Loans) or by the Agent in the case
of a Borrowing consisting of an Agent Advance.
4
<PAGE>
"Borrowing Base" means, at any time, an amount equal to (a)
---------------
the lesser of (i) the Maximum Revolver Amount or (ii) the sum of (A) eighty-five
percent (85%) of the Net Amount of Eligible Accounts of IMS; plus (B) the lesser
of (I) $20,000,000 and (II) forty-five percent (45%) of the orderly liquidation
value of Eligible Equipment of IMS minus, in each case, any amount included in
the calculation of Borrowing Base under subsections (C)(y) and (D)(II)(y)
hereof; plus (C) the sum of (x) eighty-five percent (85%) of the Net Amount of
Eligible Accounts of IMS AB plus (y) forty-five percent (45%) of the orderly
liquidation value of Eligible Equipment of IMS AB; plus (D) solely for the
period commencing the Closing Date through March 31, 2000 the lesser of (I)
$3,000,000 and (II) the sum of (x) eighty-five percent (85%) of the Net Amount
of Eligible Services Accounts plus (y) forty-five percent (45%) of the orderly
liquidation value of Eligible Services Equipment minus (b) the sum of (i) the
Bank Product Reserve and (ii) all other reserves which the Agent deems necessary
in the exercise of its reasonable credit judgment to maintain with respect to
the Borrowers' account, including reserves for any amounts which the Agent or
any Lender may be obligated to pay in the future for the account of the
Borrowers.
"Borrowing Base Certificate" means a certificate by a
-----------------------------
Responsible Officer of IMS, substantially in the form of Exhibit B (or another
---------
form acceptable to the Agent) setting forth the calculation of the Borrowing
Base, including a calculation of each component thereof, all in such detail as
shall be satisfactory to the Agent. All calculations of the Borrowing Base in
connection with the preparation of any Borrowing Base Certificate shall
originally be made by IMS and certified to the Agent; provided, that the Agent
shall have the right to review and adjust, in the exercise of its reasonable
credit judgment, any such calculation (1) to reflect its reasonable estimate of
declines in value of any of the Collateral described therein, and (2) to the
extent that such calculation is not in accordance with this Agreement.
"Business Day" means (a) any day that is not a Saturday,
-------------
Sunday, or a day on which banks in New York, New York or Charlotte, North
Carolina are required or permitted to be closed, and (b) with respect to all
notices, determinations, fundings and payments in connection with the LIBOR Rate
or LIBOR Rate Loans, any day that is a Business Day pursuant to clause (a) above
and that is also a day on which trading in Dollars is carried on by and between
banks in the London interbank market.
"Capital Adequacy Regulation" means any guideline, request or
---------------------------
directive of any central bank or other Governmental Authority, or any other law,
rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a bank.
"Capital Expenditures" means all payments due (whether or not
---------------------
paid) in respect of the cost of any fixed asset or improvement, or replacement,
substitution, or addition thereto, which has a useful life of more than one
year, including, without limitation, those costs arising in connection with the
direct or indirect acquisition of such asset by way of increased product or
service charges or in connection with a Capital Lease.
5
<PAGE>
"Capital Lease" means any lease of property by a Borrower
--------------
which, in accordance with GAAP, should be reflected as a capital lease on the
balance sheet of such Borrower.
"Capital Stock" means any and all shares, partnership and
--------------
other interests, rights to purchase, warrants, options, participation or other
equivalents of or interests in (however designated) the equity of a Person.
"Change of Control" means (a) IMS shall no longer continue to
-----------------
own 100% of all classes of stock of IMS AB, Limited and Services (other than as
a result of a merger of Services or IMS AB into IMS), (b) IU shall no longer
continue to own 100% of all classes of stock of IMS, (c) Envirosource shall no
longer continue to own 100% of all classes of stock of IU, (d) 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 Permitted Holders, 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 Capital Stock
representing more than the greater of (i) 20% of the total voting power entitled
to vote in the election of the Board of Directors of Envirosource or such other
Person surviving the transaction and (ii) the total voting power (entitled to
vote in the election of the Board of Directors of Envirosource or such other
Person surviving the transaction) of the Principals; (e) during any period of
two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of Envirosource (together with any new
directors whose election by such board of Directors or whose nomination for
election by the shareholders of Envirosource was approved by a vote of 66-2/3%
of the directors of Envirosource 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 majority of the
Board of Directors of Envirosource then in office or (f) a "Change of Control"
under and as defined in the Senior Notes Indentures shall have occurred.
"Clearing Bank" means the Bank or any other banking
---------------
institution with whom a Payment Account has been established pursuant to a
Blocked Account Agreement.
"Closing Date" means the date of this Agreement.
------------
"Closing Fee" has the meaning specified in Section 3.4.
----------- -----------
"Code" means the Internal Revenue Code of 1986, as amended
----
from time to time, and any successor statute, and regulations promulgated
thereunder.
"Collateral" has the meaning specified in Section 6.1.
---------- -----------
"Commitment" means, at any time with respect to a Lender, the
----------
principal amount set forth beside such Lender's name under the heading
"Commitment" on the signature pages of this Agreement or on the signature page
6
<PAGE>
of the Assignment and Acceptance pursuant to which such Lender became a Lender
hereunder in accordance with the provisions of Section 13.2, as such Commitment
------------
may be adjusted from time to time in accordance with the provisions of Section
-------
13.2, and "Commitments" means, collectively, the aggregate amount of the
- ----
commitments of all of the Lenders.
"Contaminant" means any waste, pollutant, hazardous substance,
-----------
toxic substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or any constituent of any such substance or waste.
----
"Credit Support" has the meaning specified in Section 2.4(a).
-------------- --------------
"Debt" means, as to each Borrower, all liabilities,
----
obligations and indebtedness of such Borrower to any Person, of any kind or
nature, now or hereafter owing, arising, due or payable, howsoever evidenced,
created, incurred, acquired or owing, whether primary, secondary, direct,
contingent, fixed or otherwise, and including, without in any way limiting the
generality of the foregoing: (i) such Borrowers' liabilities and obligations to
trade creditors; (ii) all Obligations; (iii) all obligations and liabilities of
any Person secured by any Lien on the property of a Borrower, even though such
Borrower shall not have assumed or become liable for the payment thereof;
provided, however, that all such obligations and liabilities which are limited
- -------- -------
in recourse to such property shall be included in Debt only to the extent of the
book value of such property as would be shown on a balance sheet of such
Borrower prepared in accordance with GAAP; (iv) all obligations or liabilities
created or arising under any Capital Lease or conditional sale or other title
retention agreement with respect to property used or acquired by either
Borrower, even if the rights and remedies of the lessor, seller or lender
thereunder are limited to repossession of such property; provided, however, that
-------- -------
all such obligations and liabilities which are limited in recourse to such
property shall be included in Debt only to the extent of the book value of such
property as would be shown on a balance sheet of either Borrower prepared in
accordance with GAAP; and (v) all obligations and liabilities under Guaranties.
"Debt For Borrowed Money" means, as to any Person, Debt for
------------------------
borrowed money or as evidenced by notes, bonds, debentures or similar evidences
of any such Debt of such Person, the deferred and unpaid purchase price of any
property or business (other than trade accounts payable incurred in the ordinary
course of business and constituting current liabilities) and all obligations
under Capital Leases.
"Default" means any event or circumstance which, with the
-------
giving of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Defaulting Lender" has the meaning specified in
-----------------
Section 2.2(g)(ii).
- ------------------
7
<PAGE>
"Default Rate" means a fluctuating per annum interest rate at
------------
all times equal to the sum of (a) the otherwise applicable Interest Rate plus
(b) two percent (2%). Each Default Rate shall be adjusted simultaneously with
any change in the applicable Interest Rate. In addition, with respect to Letters
of Credit, the Default Rate shall mean an increase in the Letter of Credit Fee
by two (2) percentage points.
<PAGE>
"Distribution" means, in respect of any corporation: (a) the
------------
payment or making of any dividend or other distribution of property in respect
of capital stock (or any options or warrants for such stock) of such
corporation, other than distributions in capital stock (or any options or
warrants for such stock) of the same class; or (b) the redemption or other
acquisition by such corporation of any capital stock (or any options or warrants
for such stock) of such corporation.
"DOL" means the United States Department of Labor or any
---
successor department or agency.
"Dollar" and "$" mean dollars in the lawful currency of the
------ -
United States.
"EBITDA" means, with respect to any fiscal period of any
------
Person, such Person's net income after provision for income taxes for such
fiscal period, as determined in accordance with GAAP and reported on the
Financial Statements for such period, excluding any and all of the following
included in such net income: (a) gain or loss arising from the sale of any
capital assets; (b) gain arising from any write-up in the book value of any
asset; (c) earnings of any Person, substantially all the assets of which have
been acquired by such Person in any manner, to the extent realized by such other
Person prior to the date of acquisition; (d) earnings of any Person other than a
wholly owned Subsidiary in which such Person has an ownership interest unless
(and only to the extent) such earnings shall actually have been received by such
Person in the form of cash distributions; (e) earnings of any Person to which
assets of such Person shall have been sold, transferred or disposed of, or into
which such Person shall have been merged, or which has been a party with such
Person to any consolidation or other form of reorganization, prior to the date
of such transaction; (f) gain arising from the acquisition of debt or equity
securities of such Person or from cancellation or forgiveness of Debt; (g) gain
arising from extraordinary items or non-recurring items, as determined in
accordance with GAAP, or from any other non-recurring transaction; (h) non-cash
writedowns of fixed assets and (i) the sum of the provisions for income taxes,
interest expense, depreciation and amortization expense, other non-cash charges
and the effect of accounting changes, in each case to the extent deducted in
determining net income for such period.
"Eligible Accounts" means the Accounts which the Agent in the
------------------
exercise of its reasonable commercial discretion determines to be Eligible
Accounts. Without limiting the discretion of the Agent to establish other
criteria of ineligibility in accordance with the exercise of its reasonable
commercial discretion, Eligible Accounts shall not, unless the Agent in its sole
discretion elects, include any Account:
(a) with respect to which more than 90 days have elapsed since
the date of the original invoice therefor or it is more than 60 days past due;
8
<PAGE>
(b) with respect to which any of the representations,
warranties, covenants, and agreements contained in Section 6.8 are not or have
-----------
ceased to be complete and correct or have been breached;
(c) with respect to which Account (or any other Account due
from such Account Debtor), in whole or in part, a check, promissory note, draft,
trade acceptance or other instrument for the payment of money has been received,
presented for payment and returned uncollected for any reason;
(d) which represents a progress billing (as hereinafter
defined) or as to which a Borrower has extended the time for payment without the
consent of the Agent; for the purposes hereof, "progress billing" means any
invoice for goods sold or leased or services rendered under a contract or
agreement pursuant to which the Account Debtor's obligation to pay such invoice
is conditioned upon a Borrower's completion of any further performance under the
contract or agreement;
(e) with respect to which any one or more of the following
events has occurred to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual; the
filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors; the appointment
of a receiver or trustee for the Account Debtor or for any of the assets of the
Account Debtor, including, without limitation, the appointment of or taking
possession by a "custodian," as defined in the Federal Bankruptcy Code; the
institution by or against the Account Debtor of any other type of insolvency
proceeding (under the bankruptcy laws of the United States or otherwise) or of
any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the Account Debtor;
the sale, assignment, or transfer of all or any material part of the assets of
the Account Debtor; the nonpayment generally by the Account Debtor of its debts
as they become due; or the cessation of the business of the Account Debtor as a
going concern;
(f) if fifty percent (50%) or more of the aggregate Dollar
amount of outstanding Accounts owed at such time by the Account Debtor thereon
is classified as ineligible under clause (a) above;
(g) owed by an Account Debtor which: (i) does not maintain its
chief executive office in the United States or Canada; or (ii) is not organized
under the laws of the United States or Canada or any state or province thereof;
or (iii) is the government of any foreign country or sovereign state, or of any
state, province, municipality, or other political subdivision thereof, or of any
department, agency, public corporation, or other instrumentality thereof; except
to the extent that such Account is secured or payable by a letter of credit
satisfactory to the Agent in its discretion;
9
<PAGE>
(h) owed by an Account Debtor which is an Affiliate or
employee of a Borrower;
(i) except as provided in clause (k) below, with respect to
which either the perfection, enforceability, or validity of the Agent's Lien in
such Account, or the Agent's right or ability to obtain direct payment to the
Agent of the proceeds of such Account, is governed by any federal, state, or
local statutory requirements other than those of the UCC;
(j) owed by an Account Debtor to which either Borrower is
indebted in any way, or which is subject to any right of setoff or recoupment by
the Account Debtor, unless the Account Debtor has entered into an agreement
acceptable to the Agent to waive setoff rights; or if the Account Debtor thereon
has disputed liability or made any claim with respect to any other Account due
from such Account Debtor; but in each such case only to the extent of such
indebtedness, setoff, recoupment, dispute, or claim;
(k) owed by the government of the United States of America, or
any department, agency, public corporation, or other instrumentality thereof,
unless the Federal Assignment of Claims Act of 1940, as amended (31 U.S.C. ss.
3727 et seq.), and any other steps necessary to perfect the Agent's Lien
-- ---
therein, have been complied with to the Agent's satisfaction with respect to
such Account;
(l) owed by any state, municipality, or other political
subdivision of the United States of America, or any department, agency, public
corporation, or other instrumentality thereof to the extent that the aggregate
amount of all such Accounts is greater than $1,000,000;
(m) which represents a sale on a bill-and-hold, guaranteed
sale, sale and return, sale on approval, consignment, or other repurchase or
return basis;
(n) which is evidenced by a promissory note or other
instrument or by chattel paper;
(o) if the Agent believes, in the exercise of its reasonable
credit judgment, that the prospect of collection of such Account is impaired or
that the Account may not be paid by reason of the Account Debtor's financial
inability to pay;
(p) with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business Activities Report or similar
report in order to permit a Borrower to seek judicial enforcement in such State
of payment of such Account, unless such Borrower has qualified to do business in
such state or has filed a Notice of Business Activities Report or equivalent
report for the then current year; or
(q) which arises out of a sale not made in the ordinary course
of a Borrower's business;
10
<PAGE>
(r) with respect to which the goods giving rise to such
Account have not been shipped and delivered to and accepted by the Account
Debtor or the services giving rise to such Account have not been performed by
either Borrower, and, if applicable, accepted by the Account Debtor, or the
Account Debtor revokes its acceptance of such goods or services;
(s) owed by an Account Debtor which is obligated to the
Borrowers respecting Accounts the aggregate unpaid balance of which exceeds
twenty percent (20%) (thirty-five percent (35%) with respect to Accounts of USX,
Inc.) of the aggregate unpaid balance of all Accounts owed to the Borrowers at
such time by all of the Borrowers Account Debtors, but only to the extent of
such excess;
(t) which arises out of an enforceable contract or order
which, by its terms, forbids, restricts or makes void or unenforceable the
granting of a Lien by either Borrower to the Agent with respect to such Account;
or
(u) which is not subject to a first priority and perfected
security interest in favor of the Agent for the benefit of the Lenders.
If any Account at any time ceases to be an Eligible Account,
then such Account shall promptly be excluded from the calculation of Eligible
Accounts.
"Eligible Assignee" means (a) a commercial bank, commercial
------------------
finance company or other asset based lender, having total assets in excess of
$1,000,000,000; (b) any Lender listed on the signature page of this Agreement;
(c) any Affiliate of any Lender; and (d) if an Event of Default exists, any
Person reasonably acceptable to the Agent.
"Eligible Equipment" means Equipment, valued at orderly
-------------------
liquidation value as determined by appraisers acceptable to Agent, or, if any
Equipment is subject to a purchase option granted to an Account Debtor, such
Equipment shall be valued at the lower of such appraised orderly liquidation
value and the purchase price option therefor. In each case Eligible Equipment
shall be solely that Equipment which the Agent, in its reasonable commercial
discretion, determines to meet all of the following requirements:
(a) such Equipment is subject to the Agent's Liens, which are
perfected as to such Equipment, and is subject to no other Lien whatsoever
(other than the Liens described in clause (d) of the definition of Permitted
Liens and that such Permitted Liens (i) are junior in priority to the Agent's
Liens and (ii) do not impair directly or indirectly the ability of the Agent to
realize on or obtain the full benefit of the Collateral),
(b) such Equipment is in good condition, not unmerchantable,
and meets all standards imposed by any applicable governmental agency, or
department or division thereof, having regulatory authority over such goods,
their use or sale,
11
<PAGE>
(c) such Equipment is currently either usable or salable, at
prices not less than the orderly liquidation value of such Equipment (as set
forth in the most recent appraisal or update thereof delivered to the Agent), in
the normal course of the applicable Borrower's business,
(d) such Equipment is located within the United States or
Canada (and not in-transit from vendors or suppliers),
(e) if such Equipment is located in a public warehouse or in
possession of a bailee or in a facility leased by a Borrower, or operated by
another Person (other than an Account Debtor), the warehouseman, or the bailee,
or the lessor or such other person has delivered to the Agent, if requested by
the Agent, a subordination agreement in form and substance satisfactory to the
Agent,
(f) if such Equipment contains or bears any Proprietary Rights
licensed to a Borrower by any Person, the Agent shall be satisfied that it may
sell or otherwise dispose of such Equipment in accordance with Article 11
----------
without infringing the rights of the licensor of such Proprietary Rights or
violating any contract with such licensor (and without payment of any royalties
other than any royalties due with respect to the sale or disposition of such
Equipment pursuant to the existing license agreement), and, if the Agent deems
it necessary, the applicable Borrower shall deliver to the Agent a consent or
sublicense agreement from such licensor in form and substance reasonably
acceptable to the Agent, and
(g) such Equipment is not determined by the Agent in its
reasonable commercial discretion, to be ineligible for any other reason.
If any Equipment at any time ceases to be Eligible Equipment,
such Equipment shall promptly be excluded from the calculation of Eligible
Equipment.
"Eligible Services Accounts" means Accounts of Services, which
--------------------------
the Agent, in the exercise of its reasonable commercial discretion, would have
determined to have been Eligible Accounts if such Accounts had been Accounts of
IMS.
"Eligible Services Equipment" means Equipment of Services,
-----------------------------
which the Agent, in the exercise of its reasonable commercial discretion, would
have determined to have been Eligible Equipment if such Equipment had been owned
by a Borrower. Eligible Services Equipment shall be valued in the same manner as
Eligible Equipment.
"Environmental Claims" means all claims, however asserted, by
---------------------
any Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"Environmental Laws" means all federal, state or local laws,
-------------------
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental Authority,
in each case relating to environmental, health, safety and land use matters.
12
<PAGE>
"Environmental Lien" means a Lien in favor of any Governmental
------------------
Authority for (1) any liability under Environmental Laws, or (2) damages arising
from, or costs incurred by such Governmental Authority in response to, a Release
or threatened Release of a Contaminant into the environment.
"Environmental Property Transfer Act" means any applicable
--------------------------------------
requirement of law that conditions, restricts, prohibits or requires any
notification or disclosure triggered by the closure of any property or the
transfer, sale or lease of any property or deed or title for any property for
environmental reasons, including, but not limited to, any so-called
"Environmental Cleanup Responsibility Acts" or "Responsible Property Transfer
Acts."
"Envirosource" means Envirosource, Inc., a Delaware corporation.
------------
"Equipment" means all of the Borrowers' now owned and
---------
hereafter acquired machinery, equipment, furniture, furnishings, fixtures, and
other tangible personal property (except Inventory), including motor vehicles
with respect to which a certificate of title has been issued, aircraft, dies,
tools, jigs, and office equipment, as well as all of the Borrowers' rights and
interests with respect to all of such types of property leased by a Borrower and
under all such leases (including, without limitation, options to purchase);
together with all present and future additions and accessions thereto,
replacements therefor, component and auxiliary parts and supplies used or to be
used in connection therewith, and all substitutes for any of the foregoing, and
all manuals, drawings, instructions, warranties and rights with respect thereto;
wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of
-----
1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or
----------------
not incorporated) under common control with either Borrower within the meaning
of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code
for purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
------------
Pension Plan; (b) a withdrawal by a Borrower or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it was
a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA; (c) a complete or partial withdrawal by a Borrower or any
ERISA Affiliate from a Multi-employer Plan or notification that a Multi-employer
Plan is in reorganization; (d) the filing of a notice of intent to terminate,
the treatment of a Plan amendment as a termination under Section 4041 or 4041A
of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multi-employer Plan; (e) the occurrence of an event or condition which
might reasonably be expected to constitute grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan or Multi-employer Plan; or (f) the imposition of any liability
under Title IV of ERISA, other than for PBGC premiums due but not delinquent
under Section 4007 of ERISA, upon a Borrower or any ERISA Affiliate.
13
<PAGE>
"Event of Default" has the meaning specified in Section 11.1.
---------------- ------------
"Exchange Act" means the Securities Exchange Act of 1934, and
------------
regulations promulgated thereunder.
"Existing Credit Agreement" means the Credit Agreement, dated
-------------------------
as of December 19, 1995, among Envirosource, IMS, the lenders party thereto,
Nationsbank, N.A., as Administrative Agent, and Credit Lyonnais New York Branch,
as syndication Agent, as the same has been amended, supplemented or otherwise
modified from time to time.
"FDIC" means the Federal Deposit Insurance Corporation, and
----
any Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate per annum
-------------------
(rounded upwards, if necessary, to the nearest 1/100 of 1%) equal to the
weighted average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds brokers on such
day, as published by the Federal Reserve Bank of New York on the Business Day
next succeeding such day; provided that (a) if such day is not a Business Day,
the Federal Funds Rate for such day shall be such rate on such transactions on
the next preceding Business Day as so published on the next succeeding Business
Day, and (b) if no such rate is so published on such next succeeding Business
Day, the Federal Funds Rate for such day shall be the average rate charged to
the Bank on such day on such transactions as determined by the Agent.
"Federal Reserve Board" means the Board of Governors of the
-----------------------
Federal Reserve System or any successor thereto.
"Fee Letter" means the letter agreement dated as of the
-----------
Closing Date between the Borrowers and the Agent.
"Financial Statements" means, according to the context in
---------------------
which it is used, the financial statements referred to in Section 8.6 or any
-----------
other financial statements required to be given to the Lenders pursuant to this
Agreement.
"Fiscal Year" means the Borrowers' fiscal year for financial
-----------
accounting purposes. The current Fiscal Year of the Borrowers will end on
December 31, 1999.
"Fixed Assets" means the Equipment and Real Estate of the
------------
Borrowers.
"Fixed Charge Coverage Ratio" means for any Person for any
------------------------------
four fiscal quarter period ending on the date of determination, the ratio of (a)
EBITDA, to (b) the sum of (i) total interest expense for such period (exclusive
of interest on Intercompany Accounts not paid in cash, amortization of deferred
financing fees in connection with this Agreement and amortization of deferred
financing fees that were accelerated as a result of the termination of the
Existing Credit Agreement), (ii) all payments on account of the principal amount
of any Debt for Borrowed Money (other than the Obligations and the Debt under
14
<PAGE>
the Existing Credit Agreement), (iii) taxes accrued during such period, (iv)
Capital Expenditures made during such period other than Capital Expenditures
that have been funded with Debt permitted pursuant to Section 9.13(e) and (v)
without duplication of (i), (ii), (iii) and (iv) above, all interest expense of
Envirosource in respect of the Senior Notes for such period to the extent the
cash utilized to make any interest payment on the Senior Notes during such
period was generated by IMS or any of its Subsidiaries, all Distributions,
Restricted Investments, repayments of Debt, management fees and all other
transfers and payments made during such period by IMS or any of its Subsidiaries
to Parent, Envirosource or any other Affiliate of Envirosource other than IMS or
a subsidiary of IMS except for the repayment of $7,309,589 of insurance proceeds
received prior to the Closing Date by IMS and repayment of any Intercompany
Accounts constituting advances made to IMS after the Closing Date by a Person
other than IMS or any of its Subsidiaries.
"FS&C" means Freeman Spogli & Company, a California general
----
partnership, or Freeman Spogli & Company, Incorporated, a Delaware corporation.
"Funding Date" means the date on which a Borrowing occurs.
------------
"GAAP" means generally accepted accounting principles and
----
practices set forth from time to time in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are (subject to Section
1.2) applicable to the circumstances as of the date of determination.
"General Intangibles" means all of the Borrower's now owned or
-------------------
hereafter acquired general intangibles, choses in action and causes of action
and all other intangible personal property of the Borrower of every kind and
nature (other than Accounts), including, without limitation, all contract
rights, Proprietary Rights, corporate or other business records, inventions,
designs, blueprints, plans, specifications, patents, patent applications,
trademarks, service marks, trade names, trade secrets, goodwill, copyrights,
computer software, customer lists, registrations, licenses, franchises, tax
refund claims, any funds which may become due to the Borrower in connection with
the termination of any Plan or other employee benefit plan or any rights thereto
and any other amounts payable to the Borrower from any Plan or other employee
benefit plan, rights and claims against carriers and shippers, rights to
indemnification, business interruption insurance and proceeds thereof, property,
casualty or any similar type of insurance and any proceeds thereof, proceeds of
insurance covering the lives of key employees on which the Borrower is
beneficiary, and any letter of credit, guarantee, claim, security interest or
other security held by or granted to the Borrower.
"Governmental Authority" means any nation or government, any
-----------------------
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
15
<PAGE>
"Guarantors" means Envirosource, IU, Services and each
----------
Borrower.
"Guaranty" means, with respect to any Person, all obligations
--------
of such Person which in any manner directly or indirectly guarantee or assure,
or in effect guarantee or assure, the payment or performance of any
indebtedness, dividend or other obligations of any other Person (the "guaranteed
obligations"), or assure or in effect assure the holder of the guaranteed
obligations against loss in respect thereof, including any such obligations
incurred through an agreement, contingent or otherwise: (a) to purchase the
guaranteed obligations or any property constituting security therefor; (b) to
advance or supply funds for the purchase or payment of the guaranteed
obligations or to maintain a working capital or other balance sheet condition;
or (c) to lease property or to purchase any debt or equity securities or other
property or services.
"IMS" has the meaning set forth in the first paragraph of this
---
Agreement.
"IMS AB" has the meaning set forth in the first paragraph of
------
its Agreement.
"Intercompany Accounts" means all assets and liabilities,
----------------------
however arising, which are due to a Borrower from, which are due from a Borrower
to, or which otherwise arise from any transaction by such Borrower with, any
Affiliate.
"Interest Period" means, as to any LIBOR Rate Loan, the period
---------------
commencing on the Funding Date of such Loan or on the Continuation/Conversion
Date on which the Loan is converted into or continued as a LIBOR Rate Loan, and
ending on the date one, two, three or six months thereafter as selected by the
applicable Borrower in its Notice of Borrowing, in the form attached hereto as
Exhibit A, or Notice of Continuation/Conversion, in the form attached hereto as
- ---------
Exhibit C provided that:
- ---------
(i) if any Interest Period would otherwise end on a day
that is not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such Interest
Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Rate Loan
that begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end of
such Interest Period) shall end on the last Business Day of the calendar month
at the end of such Interest Period; and
(iii) no Interest Period shall extend beyond the Stated
Termination Date.
"Interest Rate" means each or any of the interest rates,
--------------
including the Default Rate, set forth in Section 3.1.
-----------
"Interest Rate Protection Agreement" means (a) any and all
-------------------------------------
rate swap transactions, basis swaps, forward rate transactions, commodity swaps,
commodity options, forward commodity contracts, equity or equity index swaps or
16
<PAGE>
options, bond or bond price or bond index swaps or options or forward bond or
forward bond price or forward bond index transactions, interest rate options,
forward foreign exchange transactions, cap transactions, floor transactions,
collar transactions, currency swap transactions, cross-currency rate swap
transactions, currency options, or any other similar transactions or any
combination of any of the foregoing (including any options to enter into any of
the foregoing), whether or not any such transaction is governed by or subject to
any master agreement, or (b) any and all transactions of any kind, and the
related confirmations, which are subject to the terms and conditions of, or
governed by, any form of master agreement published by the International Swaps
and Derivatives Associations, Inc., or any other master agreement (any such
master agreement, together with any related schedules, as amended, restated,
extended, supplemented or otherwise modified in writing from time to time, a
"Master Agreement"), including but not limited to any such obligations or
-----------------
liabilities under any Master Agreement.
"Inventory" means all of the Borrowers' now owned and
---------
hereafter acquired inventory, goods and merchandise, wherever located, to be
furnished under any contract of service or held for sale or lease, all returned
goods, raw materials, other materials and supplies of any kind, nature or
description which are or might be consumed in each Borrower's business or used
in connection with the packing, shipping, advertising, selling or finishing of
such goods, merchandise and such other personal property, and all documents of
title or other documents representing them.
"Investment Property" means all the Borrowers' right title and
-------------------
interest in and to any and all: (a) securities whether certificated or
uncertificated; (b) securities entitlements; (c) securities accounts; (d)
commodity contracts; or (e) commodity accounts.
"IRS" means the Internal Revenue Service and any Governmental
---
Authority succeeding to any of its principal functions under the Code.
"IU" means IU International Corporation, a Delaware
--
corporation.
"Latest Projections" means: (a) on the Closing Date and
-------------------
thereafter until the Agent receives new projections pursuant to Section 7.2(f),
--------------
the projections of the Borrowers' financial condition, results of operations,
and cash flow, for the period commencing on January 1, 1999 and ending on
December 31, 1999 and delivered to the Agent prior to the Closing Date; and (b)
thereafter, the projections most recently received by the Agent pursuant to
Section 7.2(f).
- --------------
"Lender" and "Lenders" have the meanings specified in the
------ -------
introductory paragraph hereof and shall include the Agent to the extent of any
Agent Advance outstanding and the Bank to the extent of any Non-Ratable Loan
outstanding; provided that no such Agent Advance or Non-Ratable Loan shall be
--------
taken into account in determining any Lender's Pro Rata Share.
"Letter of Credit" means a letter of credit issued or caused
----------------
to be issued for the account of a Borrower pursuant to Section 2.4 and those
------------
letters of credit issued for the account of Envirosource, set forth on Schedule
8.31 hereto, which are guaranteed by the Borrowers hereunder.
17
<PAGE>
"Letter of Credit Fee" has the meaning specified in Section
--------------------- -------
3.6.
- ---
"Letter of Credit Issuer" means the Bank, any affiliate of the
-----------------------
Bank or any other financial institution that issues any Letter of Credit
pursuant to this Agreement.
"Leverage Ratio" means, for any four fiscal quarter period,
---------------
the ratio of (a) the sum of (i) the average amount outstanding of Debt for
Borrowed Money of IMS and its Subsidiaries for such period plus (ii) the average
outstanding principal amount of the Senior Notes for such period to (b) EBITDA
for IMS and its Subsidiaries for such period.
"Leverage Ratio Certificate" means a certificate of a
-----------------------------
Responsible Officer of IMS setting forth the Leverage Ratio for the four (4)
fiscal quarter period of IMS ending on the last day of each fiscal quarter of
IMS, together with such supporting documentation and calculations as the Agent
may reasonably request with respect to such Leverage Ratio.
"LIBOR Rate" means, for any Interest Period, with respect to
----------
LIBOR Rate Loans, the rate of interest per annum determined pursuant to the
following formula:
LIBOR Rate = Offshore Base Rate
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where:
"Offshore Base Rate" means the rate per annum appearing on
-------------------
Telerate Page 3750 (or any successor page) as the London interbank offered rate
for deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable to
such Interest Period. If for any reason such rate is not available, the Offshore
Base Rate shall be, for any Interest Period, the rate per annum appearing on
Reuters Screen LIBO Page as the London interbank offered rate for deposits in
Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest Period;
provided, however, if more than one rate is specified on Reuters Screen LIBO
- -------- -------
Page, the applicable rate shall be the arithmetic mean of all such rates. If for
any reason none of the foregoing rates is available, the Offshore Base Rate
shall be, for any Interest Period, the rate per annum determined by Agent as the
rate of interest at which dollar deposits in the approximate amount of the LIBOR
Rate Loan comprising part of such Borrowing would be offered by the Agent's
London Branch to major banks in the offshore dollar market at their request at
or about 11:00 a.m. (London time) two Business Days prior to the first day of
such Interest Period for a term comparable to such Interest Period.
"Eurodollar Reserve Percentage" means, for any day during any
------------------------------
Interest Period, the reserve percentage (expressed as a decimal, rounded upward
to the next 1/100th of 1%) in effect on such day applicable to Lender under
regulations issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities"). The Offshore Rate
18
<PAGE>
for each outstanding LIBOR Rate Loan shall be adjusted automatically as of the
effective date of any change in the Eurodollar Reserve Percentage.
"LIBOR Rate Loans" means, collectively, the LIBOR Revolving
----------------
Loans.
"LIBOR Revolving Loan" means a Revolving Loan during any
----------------------
period in which it bears interest based on the LIBOR Rate.
"Lien" means: (a) any interest in property securing an
----
obligation owed to, or a claim by, a Person other than the owner of the
property, whether such interest is based on the common law, statute, or
contract, and including a security interest, charge, claim, or lien arising from
a mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment,
deposit arrangement, agreement, security agreement, conditional sale or trust
receipt or a lease, consignment or bailment for security purposes; (b) to the
extent not included under clause (a), any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restriction, lease or other title
exception or encumbrance affecting property; and (c) any contingent or other
agreement to provide any of the foregoing.
"Limited" means International Mill Services, Limited, a
-------
Canadian corporation.
"Loan Account" means the loan account of each Borrower, which
------------
account shall be maintained by the Agent.
"Loan Documents" means this Agreement, the Patent and
---------------
Trademark Agreements, the Mortgages (if any), the Parent Guaranty, Affiliate
Guaranties, Affiliate Security Agreements, Pledge Agreement, Parent Pledge
Agreement, the Fee Letter and any other agreements, instruments, and documents
heretofore, now or hereafter evidencing, securing, guaranteeing or otherwise
relating to the Obligations, the Collateral, or any other aspect of the
transactions contemplated by this Agreement.
"Loans" means, collectively, all loans and advances provided
-----
for in Article 2.
---------
"Majority Lenders" means at any time Lenders whose Pro Rata
-----------------
Shares aggregate more than 50% as such percentage is determined under the
definition of Pro Rata Share set forth herein.
"Margin Stock" means "margin stock" as such term is defined in
------------
Regulation T, U or X of the Federal Reserve Board.
"Master Agreement" has the meaning specified in the definition
----------------
of "Interest Rate Protection Agreement".
"Material Adverse Effect" means (a) a material adverse change
------------------------
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Borrowers or the
19
<PAGE>
Collateral; (b) a material impairment of the ability of any Borrower to perform
under any Loan Document and to avoid any Event of Default; or (c) a material
adverse effect upon the legality, validity, binding effect or enforceability
against any Borrower of any Loan Document.
"Maximum Revolver Amount" means $40,000,000.
-----------------------
"Mortgages" means and includes any and all of the mortgages,
---------
deeds of trust, deeds to secure debt, assignments and other instruments executed
and delivered by a Borrower to or for the benefit of the Agent by which the
Agent, on behalf of the Lenders, acquires a Lien on the Real Estate or a
collateral assignment of a Borrower's interest under leases of Real Estate, and
all amendments, modifications and supplements thereto.
"Multi-employer Plan" means a "multi-employer plan" as defined
-------------------
in Section 4001(a)(3) of ERISA which is or was at any time during the current
year or the immediately preceding six (6) years contributed to by a Borrower or
any ERISA Affiliate.
"Net Amount of Eligible Accounts" means, at any time, the
---------------------------------
gross amount of Eligible Accounts less sales, excise or similar taxes, and less
returns, discounts, claims, credits and allowances of any nature at any time
issued, owing, granted, outstanding, available or claimed.
"Non-Ratable Loan" and "Non-Ratable Loans" have the meanings
---------------- -----------------
specified in Section 2.2(h).
"Notice of Borrowing" has the meaning specified in Section
-------------------
2.2(b).
"Notice of Conversion/Continuation" has the meaning specified
---------------------------------
in Section 3.2(b).
"Obligations" means all present and future loans, advances,
-----------
liabilities, obligations, covenants, duties, and debts owing by the Borrowers to
the Agent and/or any Lender, arising under or pursuant to this Agreement or any
of the other Loan Documents, whether or not evidenced by any note, or other
instrument or document, whether arising from an extension of credit, opening of
a letter of credit, acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect, absolute or contingent, due or to become due,
primary or secondary, as principal or guarantor, and including all principal,
interest, charges, expenses, fees, attorneys' fees, filing fees and any other
sums chargeable to the Borrowers hereunder or under any of the other Loan
Documents. "Obligations" includes, without limitation, (a) all debts,
liabilities, and obligations now or hereafter arising from or in connection with
the Letters of Credit and (b) all debts, liabilities and obligations now or
hereafter arising from or in connection with Bank Products.
"Other Taxes" means any present or future stamp or documentary
-----------
taxes or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other Loan
Documents.
20
<PAGE>
"Parent" means IU.
------
"Parent Guaranty" means the guaranty by the Parent of the
----------------
Obligations dated the Closing Date, as amended and in effect from time to time.
"Parent Pledge Agreement" means the Pledge Agreement made by
------------------------
the Parent dated the Closing Date, as amended and in effect from time to time.
"Participant" means any Person who shall have been granted the
-----------
right by any Lender to participate in the financing provided by such Lender
under this Agreement, and who shall have entered into a participation agreement
in form and substance satisfactory to such Lender which does not violate Section
13.2(e) hereof.
"Passive Investor" means any Person or group of Persons (other
----------------
than the Principals) that at all times reports its voting power and beneficial
ownership of capital stock of the Parent to the SEC on Schedule 13G or has the
right to do so.
"Patent and Trademark Agreements" means the Trademarks,
-----------------------------------
Copyrights and Patents Collateral Assignment, Security Agreement and Mortgage,
together with the assignments attached thereto, dated as of the date hereof,
executed and delivered by the Borrowers and Services to the Agent to evidence
and perfect the Agent's security interest in the Borrowers' and Services'
present and future patents, trademarks, and related licenses and rights, for the
benefit of the Agent and the Lenders.
"Payment Account" means each bank account established pursuant
---------------
to Section 6.9, to which the proceeds of Accounts and other Collateral are
------------
deposited or credited, and which is maintained in the name of the Agent, a
Borrower or Services, as the Agent may determine, on terms acceptable to the
Agent.
"PBGC" means the Pension Benefit Guaranty Corporation or
----
any Governmental Authority succeeding to the functions thereof.
"PCBs" has the meaning specified in the definition of
----
"Contaminant."
"Pending Revolving Loans" means, at any time, the aggregate
-------------------------
principal amount of all Revolving Loans requested in any Notice of Borrowing
received by the Agent which have not yet been advanced.
"Pension Plan" means a pension plan (as defined in Section
-------------
3(2) of ERISA) subject to Title IV of ERISA which either Borrower sponsors,
maintains, or to which it makes, is making, or is obligated to make
contributions, or in the case of a Multi-employer Plan has made contributions at
any time during the immediately preceding five (5) plan years.
21
<PAGE>
"Permitted Holders" means the collective reference to the
-----------------
Principals and any Passive Investor.
"Permitted Liens" means:
---------------
(a) Liens for taxes not delinquent or statutory Liens for
taxes in an amount not to exceed $2,000,000 provided that the payment of such
taxes which are due and payable is being contested in good faith and by
appropriate proceedings diligently pursued and as to which adequate financial
reserves have been established on the applicable Borrower's books and records
and a stay of enforcement of any such Lien is in effect;
(b) the Agent's Liens;
(c) Liens consisting of deposits made in the ordinary course
of business in connection with, or to secure payment of, obligations under
worker's compensation, unemployment insurance, social security and other similar
laws, or to secure the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure indemnity, performance or other
similar bonds for the performance of bids, tenders or contracts (other than for
the repayment of borrowed money) or to secure statutory obligations (other than
liens arising under ERISA or Environmental Liens) or surety or appeal bonds, or
to secure indemnity, performance or other similar bonds or Liens on proceeds of
insurance policies solely to secure payment of premiums under such policies;
(d) Liens securing the claims or demands of materialmen,
mechanics, carriers, warehousemen, landlords and other like Persons, provided
--------
that if any such Lien arises from the nonpayment of such claims or demand when
due, such claims or demands do not exceed $100,000 in the aggregate;
(e) Liens constituting encumbrances in the nature of
reservations, exceptions, encroachments, easements, rights of way, covenants
running with the land, and other similar title exceptions or encumbrances
affecting any Real Estate; provided that they do not in the aggregate materially
--------
detract from the value of the Real Estate or materially interfere with its use
in the ordinary conduct of the applicable Borrower's business;
(f) Liens arising from judgments and attachments in connection
with court proceedings provided that the attachment or enforcement of such Liens
would not result in an Event of Default hereunder and such Liens are being
contested in good faith by appropriate proceedings, adequate reserves have been
set aside and no material Property is subject to a material risk of loss or
forfeiture and the claims in respect of such Liens are fully covered by
insurance (subject to ordinary and customary deductibles) and a stay of
execution pending appeal or proceeding for review is in effect; and
(g) Liens listed on Schedule 9.19 hereof.
22
<PAGE>
"Permitted Rentals" has the meaning specified in Section 9.24.
----------------- ------------
"Person" means any individual, sole proprietorship,
------
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, Governmental Authority, or any other
entity.
"Plan" means an employee benefit plan (as defined in Section
----
3(3) of ERISA) which either Borrower sponsors or maintains or to which either
Borrower makes, is making, or is obligated to make contributions and includes
any Pension Plan.
"Pledge Agreement" means the Pledge Agreement made by IMS
-----------------
dated the Closing Date, as amended and in effect from time
to time.
"Principals" means (a) FS&C and any of its Affiliates
----------
(provided that FS&C has the power, directly or indirectly, to direct or cause
the direction of the management and policies of such Affiliates) and (b) any
member of the executive management of Envirosource prior to the occurrence of
the circumstance constituting a potential Change of Control.
"Pro Rata Share" means, with respect to a Lender, a fraction
--------------
(expressed as a percentage), the numerator of which is the amount of such
Lender's Commitment and the denominator of which is the sum of the amounts of
all of the Lenders' Commitments, or if no Commitments are outstanding, a
fraction (expressed as a percentage), the numerator of which is the amount of
Obligations owed to such Lender and the denominator of which is the aggregate
amount of the Obligations owed to the Lenders, in each case giving effect to a
Lender's participation in Non-Ratable Loans and Agent Advances.
"Proprietary Rights" means all of the Borrowers' now owned and
------------------
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, service marks, trade names, trade styles, patent, trademark and
service mark applications, and all licenses and rights related to any of the
foregoing, including those patents, trademarks, service marks, trade names and
copyrights set forth on Schedule 8.13 hereto, and all other rights under any of
-------------
the foregoing, all extensions, renewals, reissues, divisions, continuations, and
continuations-in-part of any of the foregoing, and all rights to sue for past,
present and future infringement of any of the foregoing.
"Purchase Money Liens" means purchase money mortgages or other
--------------------
purchase money Liens (including, without limitation, Capital Leases) in favor of
non-Affiliates of the Borrowers upon any fixed or capital assets hereafter
acquired by a Borrower constituting real property interests or machinery and
equipment, or purchase money mortgages (including, without limitation, Capital
Leases) on any such assets hereafter acquired or existing at the time of
acquisition of such assets by a Borrower, whether or not assumed, so long as (i)
any such Lien does not extend to or cover any other asset of a Borrower, (ii)
such Lien secures only the obligation to pay the purchase price of such asset
(or the obligation under such Capital Leases), interest thereon and other
customary incidental obligations relating thereto only, and (iii) the cost of
each such acquisition constitutes a Capital Expenditure permitted by Section
23
<PAGE>
9.23(a) hereunder but is not part of the Capital Expenditures required to be
made under Section 9.23(b) hereunder.
"Real Estate" means all of the Borrowers' now or hereafter
------------
owned or leased estates in real property, including, without limitation, all
fees, leaseholds and future interests, together with all of the Borrowers' now
or hereafter owned or leased interests in the improvements and emblements
thereon, the fixtures attached thereto and the easements appurtenant thereto.
"Release" means a release, spill, emission, leaking, pumping,
-------
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any Real
Estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or Real Estate or other property.
"Rentals" has the meaning specified in Section 9.24.
------- ------------
"Reportable Event" means, any of the events set forth in
-----------------
Section 4043(b) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Required Lenders" means at any time Lenders whose Pro Rata
-----------------
Shares aggregate more than 66 2/3% as such percentage is determined under the
definition of Pro Rata Share set forth herein.
"Requirement of Law" means, as to any Person, any law
--------------------
(statutory or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its property or to which the Person or any of its
property is subject.
"Responsible Officer" means the chief executive officer or the
-------------------
president of the applicable Borrower, the chief financial officer, or any other
officer having substantially the same authority and responsibility; or, with
respect to compliance with financial covenants and the preparation of the
Borrowing Base Certificate, the chief financial officer, the treasurer or
controller of the applicable Borrower, or any other officer having substantially
the same authority and responsibility.
"Restricted Investment" means, as to each Borrower, any
----------------------
acquisition of property by such Borrower in exchange for cash or other property,
whether in the form of an acquisition of Capital Stock, debt, or other
indebtedness or obligation, or the purchase or acquisition of any other
property, or a loan, advance, capital contribution, or subscription, except the
following: (a) acquisitions of Equipment to be used in the business of the
Borrowers so long as the acquisition costs thereof constitute Capital
Expenditures permitted hereunder; (b) acquisitions of Inventory in the ordinary
course of business of the Borrowers; (c) acquisitions of current assets acquired
in the ordinary course of business of the Borrowers; (d) direct obligations of
the United States of America, or any agency thereof, or obligations guaranteed
by the United States of America, provided that such obligations mature within
--------
24
<PAGE>
one year from the date of acquisition thereof; (e) acquisitions of certificates
of deposit maturing within one year from the date of acquisition, bankers'
acceptances, Eurodollar bank deposits, or overnight bank deposits, in each case
issued by, created by, or with a bank or trust company organized under the laws
of the United States or any state thereof having capital and surplus aggregating
at least $100,000,000; (f) acquisitions of commercial paper given a rating of
"A2" or better by Standard & Poor's Corporation or "P2" or better by Moody's
Investors Service, Inc. and maturing not more than 90 days from the date of
creation thereof; (g) Interest Rate Protection Agreements; and (h) a one time
purchase of technology and related rights in an amount not to exceed $700,000;
provided that in the case of each investment set forth in clauses (d), (e) and
(f) above, such investment is pledged to the Agent for the benefit of the
Lenders.
"Revolving Loans" has the meaning specified in Section 2.2 and
--------------- -----------
includes each Agent Advance and Non-Ratable Loan.
"SEC" means the United States Securities and Exchange
---
Commission and any other Governmental Authority succeeding to the
responsibilities thereof.
"Senior Notes" means the notes issued by Envirosource pursuant
------------
to the Senior Notes Indentures.
"Senior Notes Indentures" means (a) the Indenture made by
-------------------------
Envirosource dated as of July 1, 1993 providing for the issuance of $220,000,000
9 3/4% Senior Notes due 2003 and (b) the Indenture made by Envirosource dated
September 30, 1997 providing for the issuance of $50,000,000 9 3/4% Senior Notes
due 2003.
"Services" means IMS Steel Services, Inc., a Pennsylvania
--------
corporation.
"Settlement" and "Settlement Date" have the meanings specified
---------- ---------------
in Section 2.2(j)(i).
-----------------
"Solvent" means when used with respect to any Person that at
-------
the time of determination:
(i) the assets of such Person, at a fair valuation, are
in excess of the total amount of its debts (including contingent liabilities);
(ii) the present fair saleable value of its assets is
greater than its probable liability on its existing debts as such debts become
absolute and matured;
(iii) it is then able and expects to be able to pay its
debts (including contingent debts and other commitments) as they mature; and
(iv) it has capital sufficient to carry on its business
as conducted and as proposed to be conducted.
25
<PAGE>
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"Stated Termination Date" means March 31, 2003.
-----------------------
"Subsidiary" of a Person means any corporation, association,
----------
partnership, joint venture or other business entity of which more than fifty
percent (50%) of the voting stock or other equity interests (in the case of
Persons other than corporations), is owned or controlled directly or indirectly
by the Person, or one or more of the Subsidiaries of the Person, or a
combination thereof. Unless the context otherwise clearly requires, references
herein to a "Subsidiary" refer to a Subsidiary of IMS.
"Taxes" means any and all present or future taxes, levies,
-----
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender and the Agent, such taxes
(including income taxes or franchise taxes) as are imposed on or measured by
each Lender's net income by the jurisdiction (or any political subdivision
thereof) under the laws of which such Lender or the Agent, as the case may be,
is organized or maintains a lending office.
"Termination Date" means the earliest to occur of (i) the
-----------------
Stated Termination Date, (ii) the date the Total Facility is terminated either
by the Borrowers pursuant to Section 4.2 or by the Majority Lenders pursuant to
-----------
Section 11.2, and (iii) the date this Agreement is otherwise terminated for any
- ------------
reason whatsoever.
"Total Facility" has the meaning specified in Section 2.1.
--------------
"UCC" means the Uniform Commercial Code (or any successor
---
statute) of the State of New York or of any other state the laws of which are
required by Section 9-103 thereof to be applied in connection with the issue of
perfection of security interests.
"Unfunded Pension Liability" means the excess of a Plan's
----------------------------
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
"Unused Letter of Credit Subfacility" means an amount equal to
-----------------------------------
$10,000,000 minus the sum of (a) the aggregate undrawn amount of all outstanding
-----
Letters of Credit plus (b) the aggregate unpaid reimbursement obligations with
----
respect to all Letters of Credit.
"Unused Line Fee" has the meaning specified in Section 3.5.
--------------- -----------
1.2 Accounting Terms. Any accounting term used in this Agreement shall
-----------------
have, unless otherwise specifically provided herein, the meaning customarily
26
<PAGE>
given in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied. Financial Statements and other information required to
be delivered by the Borrowers to the Lenders pursuant to Article VII shall be
prepared in accordance with GAAP as in effect on the date of such Financial
Statements; amounts used for determining compliance with the covenants set forth
in Sections 9.23, 9.24, 9.25 and 9.26 and for calculating the Applicable Margin
shall be computed in accordance with GAAP as in effect on the Closing Date. In
the event GAAP as in effect after the Closing Date differs from GAAP as in
effect on the Closing Date in a manner that causes the amounts for specified
items shown in the Financial Statements or other information to differ from
amounts for such items used in determining compliance with the foregoing
covenants or in calculating the Applicable Margin, the Borrowers will deliver a
statement reconciling such differences.
1.3 Interpretive Provisions. (a) The meanings of defined terms are
-----------------------
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof," "herein," "hereunder" and similar words
refer to this Agreement as a whole and not to any particular provision of this
Agreement; and Subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including," the
words "to" and "until" each mean "to but excluding" and the word "through" means
"to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience
of reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement and other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Borrowers
and the other parties, and are the products of all parties. Accordingly, they
27
<PAGE>
shall not be construed against the Lenders or the Agent merely because of the
Agent's or Lenders' involvement in their preparation.
ARTICLE 2
LOANS AND LETTERS OF CREDIT
---------------------------
2.1 Total Facility. Subject to all of the terms and conditions of this
---------------
Agreement, the Lenders severally agree to make available a total credit facility
of up to $40,000,000 (the "Total Facility") for the Borrowers' use from time to
time during the term of this Agreement and for the use of Envirosource to the
extent of the Envirosource Letters of Credit. The Total Facility shall be
composed of a revolving line of credit consisting of Revolving Loans and Letters
of Credit up to the Borrowing Base, as described in Sections 2.2 and 2.4.
------------- ---
2.2 Revolving Loans (a) Amounts. Subject to the satisfaction of the
--------------- -------
conditions precedent set forth in Article 10, each Lender severally, but not
jointly, agrees, upon the applicableBorrower's request from time to time on any
Business Day during the period from the Closing Date to the Termination Date, to
make revolving loans (the "Revolving Loans") to the applicable Borrower in
amounts not to exceed (except for the Bank with respect to Non-Ratable Loans or
for the Agent with respect to Agent Advances) such Lender's Pro Rata Share of
the Borrowing Base; provided that the Revolving Loans to IMS AB shall not exceed
an amount equal to clause (a)(ii)(C) of the definition of Borrowing Base. The
Lenders, however, in their unanimous discretion, may elect to make Revolving
Loans or issue or arrange to have issued Letters of Credit in excess of the
Availability on one or more occasions, but if they do so, neither the Agent nor
the Lenders shall be deemed thereby to have changed the limits of the Borrowing
Base or to be obligated to exceed such limits on any other occasion. If the
Aggregate Revolver Outstandings exceed the Borrowing Base, the Lenders may
refuse to make or otherwise restrict the making of Revolving Loans as the
Lenders determine until such excess has been eliminated, subject to the Agent's
authority, in its sole discretion, to make Agent Advances pursuant to the terms
of Section 2.2(i).
-------------
(b) Procedure for Borrowing. (1) Each Borrowing shall be made upon
the applicable Borrower's irrevocable written notice delivered to the Agent in
the form of a notice of borrowing ("Notice of Borrowing"), in the form of
Exhibit A hereto, together with a Borrowing Base Certificate reflecting
- ----------
sufficient Availability, (which must be received by the Agent prior to 11:00
a.m. (New York City time) (i) three Business Days prior to the requested Funding
Date, in the case of LIBOR Rate Loans and (ii) no later than 11:00 a.m. on the
requested Funding Date, in the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing and the Borrower
requesting the Borrowing;
(B) the requested Funding Date, which shall be a Business
Day;
28
<PAGE>
(C) whether the Revolving Loans requested are to be Base
Rate Revolving Loans or LIBOR Revolving Loans (and if not specified, it shall be
deemed a request for a Base Rate Revolving Loan); and
(D) the duration of the Interest Period if the requested
Revolving Loans are to be LIBOR Revolving Loans. If the Notice of Borrowing
fails to specify the duration of the Interest Period for any Borrowing comprised
of LIBOR Rate Loans, such Interest Period shall be one month;
provided, however, that with respect to the Borrowing to be made on the Closing
- -------- -------
Date, such Borrowings will consist of Base Rate Revolving Loans only.
(2) With respect to any request for Base Rate Revolving Loans,
in lieu of delivering the above-described Notice of Borrowing the Borrower may
give the Agent telephonic notice of such request by the required time, with such
telephonic notice to be confirmed in writing within 24 hours of the giving of
such notice but the Agent at all times shall be entitled to rely on the
telephonic notice in making such Revolving Loans, regardless of whether any such
confirmation is received by Agent.
(3) The Borrowers shall have no right to request a LIBOR Rate
Loan while a Default or Event of Default has occurred and is continuing.
(c) Reliance upon Authority. The Borrowers shall deliver to the
-----------------------
Agent, prior to the Closing Date, a writing setting forth the account of the
Borrowers to which the Agent is authorized to transfer the proceeds of the
Revolving Loans requested pursuant to this Section 2.2, which account shall be
-----------
reasonably satisfactory to the Agent. The Agent shall be entitled to rely
conclusively on any Person's request for Revolving Loans on behalf of either
Borrower, the proceeds of which are to be transferred to the account specified
by the Borrowers pursuant to the immediately preceding sentence, until the Agent
receives written notice from the Borrowers that the proceeds of the Revolving
Loans are to be sent to a different account. The Agent shall have no duty to
verify the identity of any individual representing him or herself as a person
authorized by any Borrower to make such requests on its behalf.
(d) No Liability. The Agent shall not incur any liability to the
------------
Borrowers as a result of acting upon any notice referred to in Sections 2.2(b)
----------------
and (c), which notice the Agent believes in good faith to have been given by an
---
officer or other person duly authorized by the Borrowers to request Revolving
Loans on its behalf or for otherwise acting in good faith under this Section
-------
2.2, and the crediting of Revolving Loans to the Borrowers' deposit account, or
- ---
transmittal to such Person as the Borrowers shall direct, shall conclusively
establish the obligation of the Borrowers to repay such Revolving Loans as
provided herein.
(e) Notice Irrevocable. Any Notice of Borrowing (or telephonic
-------------------
notice in lieu thereof) made pursuant to Section 2.2(b) shall be irrevocable and
--------------
the Borrowers shall be bound to borrow the funds requested therein in accordance
therewith.
29
<PAGE>
(f) Agent's Election. Promptly after receipt of a Notice of
-----------------
Borrowing (or telephonic notice in lieu thereof) pursuant to Section 2.2(b), the
--------------
Agent shall elect, in its discretion, (i) to have the terms of Section 2.2(g)
--------------
apply to such requested Borrowing, or (ii) to request the Bank to make a
Non-Ratable Loan pursuant to the terms of Section 2.2(h) in the amount of the
---------------
requested Borrowing; provided, however, that if the Bank declines in its sole
-------- -------
discretion to make a Non-Ratable Loan pursuant to Section 2.2(h), the Agent
---------------
shall elect to have the terms of Section 2.2(g) apply to such requested
---------------
Borrowing.
(g) Making of Revolving Loans. (i) In the event that the Agent
---------------------------
shall elect to have the terms of this Section 2.2(g) apply to a requested
---------------
Borrowing as described in Section 2.2(f), then promptly after receipt of a
---------------
Notice of Borrowing or telephonic notice pursuant to Section 2.2(b), the Agent
--------------
shall notify the Lenders by telecopy, telephone or other similar form of
transmission, of the requested Borrowing. Each Lender shall make the amount of
such Lender's Pro Rata Share of the requested Borrowing available to the Agent
in immediately available funds, to such account of the Agent as the Agent may
designate, not later than 12:00 noon (New York City time) on the Funding Date
applicable thereto. After the Agent's receipt of the proceeds of such Revolving
Loans, the Agent shall make the proceeds of such Revolving Loans available to
the applicable Borrower on the applicable Funding Date by transferring same day
funds equal to the proceeds of such Revolving Loans received by the Agent to the
account of the Borrowers, designated in writing by the Borrowers and acceptable
to the Agent; provided, however, that, subject to the second sentence of Section
2.2(a), the amount of Revolving Loans so made on any date shall in no event
exceed the Availability on such date.
(ii) Unless the Agent receives notice from a Lender on or
prior to the Closing Date or, with respect to any Borrowing after the Closing
Date, at least one Business Day prior to the date of such Borrowing, that such
Lender will not make available as and when required hereunder to the Agent for
the account of the applicable Borrower the amount of that Lender's Pro Rata
Share of the Borrowing, the Agent may assume that each Lender has made such
amount available to the Agent in immediately available funds on the Funding Date
and the Agent may (but shall not be so required), in reliance upon such
assumption, make available to the applicable Borrower on such date a
corresponding amount. If and to the extent any Lender shall not have made its
full amount available to the Agent in immediately available funds and the Agent
in such circumstances has made available to the Borrower such amount, that
Lender shall on the Business Day following such Funding Date make such amount
available to the Agent, together with interest at the Federal Funds Rate for
each day during such period. A notice by the Agent submitted to any Lender with
respect to amounts owing under this subsection shall be conclusive, absent
manifest error. If such amount is so made available, such payment to the Agent
shall constitute such Lender's Revolving Loan for all purposes of this
Agreement. If such amount is not made available to the Agent on the Business Day
following the Funding Date, the Agent will notify the applicable Borrower of
such failure to fund and, upon demand by the Agent, the applicable Borrower
shall pay such amount to the Agent for the Agent's account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the Interest Rate applicable at the time to the
Revolving Loans comprising such Borrowing. The failure of any Lender to make any
30
<PAGE>
Revolving Loan on any Funding Date (any such Lender, prior to the cure of such
failure, being hereinafter referred to as a "Defaulting Lender") shall not
relieve any other Lender of any obligation hereunder to make a Revolving Loan on
such Funding Date, but no Lender shall be responsible for the failure of any
other Lender to make the Revolving Loan to be made by such other Lender on any
Funding Date.
(iii) The Agent shall not be obligated to transfer to a
Defaulting Lender any payments made by either Borrower to the Agent for the
Defaulting Lender's benefit; nor shall a Defaulting Lender be entitled to the
sharing of any payments hereunder. Amounts payable to a Defaulting Lender shall
instead be paid to or retained by the Agent. The Agent may hold and, in its
discretion, re-lend to the applicable Borrower the amount of all such payments
received or retained by it for the account of such Defaulting Lender. Any
amounts so re-lent to the applicable Borrower shall bear interest at the rate
applicable to Base Rate Revolving Loans and for all other purposes of this
Agreement shall be treated as if they were Revolving Loans, provided, however,
-------- -------
that for purposes of voting or consenting to matters with respect to the Loan
Documents and determining Pro Rata Shares, such Defaulting Lender shall be
deemed not to be a "Lender". Until a Defaulting Lender cures its failure to fund
its Pro Rata Share of any Borrowing (A) such Defaulting Lender shall not be
entitled to any portion of the Unused Line Fee and (B) the Unused Line Fee shall
accrue in favor of the Lenders which have funded their respective Pro Rata
Shares of such requested Borrowing and shall be allocated among such performing
Lenders ratably based upon their relative Commitments. This Section shall remain
effective with respect to such Lender until such time as the Defaulting Lender
shall no longer be in default of any of its obligations under this Agreement.
The terms of this Section shall not be construed to increase or otherwise affect
the Commitment of any Lender, or relieve or excuse the performance by the
Borrowers of their duties and obligations hereunder.
(h) Making of Non-Ratable Loans. (i) In the event the Agent shall
----------------------------
elect, with the consent of the Bank, to have the terms of this Section 2.2(h)
---------------
apply to a requested Borrowing as described in Section 2.2(f), the Bank shall
---------------
make a Revolving Loan in the amount of such Borrowing (any such Revolving Loan
made solely by the Bank pursuant to this Section 2.2(h) being referred to as a
---------------
"Non-Ratable Loan" and such Revolving Loans being referred to collectively as
"Non-Ratable Loans") available to the applicable Borrower on the Funding Date
applicable thereto by transferring same day funds to an account of the
applicable Borrower, designated in writing by the applicable Borrower and
acceptable to the Agent. Each Non-Ratable Loan shall be subject to all the terms
and conditions applicable to other Revolving Loans except that all payments
thereon shall be payable to the Bank solely for its own account (and for the
account of the holder of any participation interest with respect to such
Revolving Loan). The Agent shall not request the Bank to make any Non-Ratable
Loan if (A) the Agent shall have received written notice from any Lender that
one or more of the applicable conditions precedent set forth in Article 10 will
----------
not be satisfied on the requested Funding Date for the applicable Borrowing, or
(B) the requested Borrowing would exceed the Availability on such Funding Date.
The Agent shall not otherwise be required to determine whether the applicable
conditions precedent set forth in Article 10 have been satisfied or the
-----------
requested Borrowing would exceed the Availability on the Funding Date applicable
thereto prior to making, in its sole discretion, any Non-Ratable Loan.
31
<PAGE>
(ii) The Non-Ratable Loans shall be secured by the Agent's
Liens in and to the Collateral, shall constitute Revolving Loans and Obligations
hereunder, and shall bear interest at the rate applicable to the Revolving Loans
from time to time.
(i) Agent Advances. (i) Subject to the limitations set forth in the
--------------
provisos contained in this Section 2.2(i), the Agent is hereby authorized by the
--------------
Borrowers and the Lenders, from time to time in the Agent's sole discretion, (A)
after the occurrence of a Default or an Event of Default, or (B) at any time
that any of the other applicable conditions precedent set forth in Article 10
have not been satisfied, to make Base Rate Revolving Loans to the Borrowers on
behalf of the Lenders which the Agent, in its reasonable business judgment,
deems necessary or desirable (1) to preserve or protect the Collateral, or any
portion thereof, (2) to enhance the likelihood of, or maximize the amount of,
repayment of the Loans and other Obligations, or (3) to pay any other amount
chargeable to the Borrowers pursuant to the terms of this Agreement, including
costs, fees and expenses as described in Section 15.7 (any of the advances
-------------
described in this Section 2.2(i) being hereinafter referred to as "Agent
---------------
Advances"); provided, that the Required Lenders may at any time revoke the
--------
Agent's authorization contained in this Section 2.2(i) to make Agent Advances,
--------------
any such revocation to be in writing and to become effective prospectively upon
the Agent's receipt thereof;
(ii) The Agent Advances shall be repayable on demand and
secured by the Agent's Liens in and to the Collateral, shall constitute
Revolving Loans and Obligations hereunder, and shall bear interest at the rate
applicable to Base Rate Revolving Loans from time to time. The Agent shall
notify each Lender in writing of each such Agent Advance.
(j) Settlement. It is agreed that each Lender's funded portion of
----------
the Revolving Loans is intended by the Lenders to be equal at all times to such
Lender's Pro Rata Share of the outstanding Revolving Loans. Notwithstanding such
agreement, the Agent, the Bank, and the other Lenders agree (which agreement
shall not be for the benefit of or enforceable by the Borrowers) that in order
to facilitate the administration of this Agreement and the other Loan Documents,
settlement among them as to the Revolving Loans, the Non-Ratable Loans and the
Agent Advances shall take place on a periodic basis in accordance with the
following provisions:
(i) The Agent shall request settlement ("Settlement") with the
Lenders on at least a weekly basis, or on a more frequent basis if so determined
by the Agent, (A) on behalf of the Bank, with respect to each outstanding
Non-Ratable Loan, (B) for itself, with respect to each Agent Advance, and (C)
with respect to collections received, in each case, by notifying the Lenders of
such requested Settlement by telecopy, telephone or other similar form of
transmission, of such requested Settlement, no later than 12:00 noon (New York
City time) on the date of such requested Settlement (the "Settlement Date").
Each Lender (other than the Bank, in the case of Non-Ratable Loans and the Agent
in the case of Agent Advances) shall make the amount of such Lender's Pro Rata
Share of the outstanding principal amount of the Non-Ratable Loans and Agent
Advances with respect to which Settlement is requested available to the Agent,
to such account of the Agent as the Agent may designate, not later than 3:00
p.m. (New York City time), on the Settlement Date applicable thereto, which may
occur before or after the occurrence or during the continuation of a Default or
32
<PAGE>
an Event of Default and whether or not the applicable conditions precedent set
forth in Article 10 have then been satisfied. Such amounts made available to the
Agent shall be applied against the amounts of the applicable Non-Ratable Loan or
Agent Advance and, together with the portion of such Non-Ratable Loan or Agent
Advance representing the Bank's Pro Rata Share thereof, shall constitute
Revolving Loans of such Lenders. If any such amount is not made available to the
Agent by any Lender on the Settlement Date applicable thereto, the Agent shall
(A) on behalf of the Bank, with respect to each outstanding Non-Ratable Loan,
and (B) for itself, with respect to each Agent Advance be entitled to recover
such amount on demand from such Lender together with interest thereon at the
Federal Funds Rate for the first three (3) days from and after the Settlement
Date and thereafter at the Interest Rate then applicable to the Revolving Loans.
(ii) Notwithstanding the foregoing, not more than one (1)
Business Day after demand is made by the Agent (whether before or after the
occurrence of a Default or an Event of Default and regardless of whether the
Agent has requested a Settlement with respect to a Non-Ratable Loan or Agent
Advance), each other Lender (A) shall irrevocably and unconditionally purchase
and receive from the Bank or the Agent, as applicable, without recourse or
warranty, an undivided interest and participation in such Non-Ratable Loan or
Agent Advance equal to such Lender's Pro Rata Share of such Non-Ratable Loan or
Agent Advance and (B) if Settlement has not previously occurred with respect to
such Non-Ratable Loans or Agent Advances, upon demand by Bank or Agent, as
applicable, shall pay to Bank or Agent, as applicable, as the purchase price of
such participation an amount equal to one-hundred percent (100%) of such
Lender's Pro Rata Share of such Non-Ratable Loans or Agent Advances. If such
amount is not in fact made available to the Agent by any Lender, the Agent shall
be entitled to recover such amount on demand from such Lender together with
interest thereon at the Federal Funds Rate for the first three (3) days from and
after such demand and thereafter at the Interest Rate then applicable to Base
Rate Revolving Loans.
(iii) From and after the date, if any, on which any Lender
purchases an undivided interest and participation in any Non-Ratable Loan or
Agent Advance pursuant to subsection (ii) above, the Agent shall promptly
distribute to such Lender, such Lender's Pro Rata Share of all payments of
principal and interest and all proceeds of Collateral received by the Agent in
respect of such Non-Ratable Loan or Agent Advance.
(iv) Between Settlement Dates, the Agent, to the extent no
Agent Advances are outstanding, may pay over to the Bank any payments received
by the Agent, which in accordance with the terms of this Agreement would be
applied to the reduction of the Revolving Loans, for application to the Bank's
Revolving Loans including Non-Ratable Loans. If, as of any Settlement Date,
collections received since the then immediately preceding Settlement Date have
been applied to the Bank's Revolving Loans (other than to Non-Ratable Loans or
Agent Advances in which such Lender has not yet funded its purchase of a
participation pursuant to clause 2.2(j)(ii) above), as provided for in the
previous sentence, the Bank shall pay to the Agent for the accounts of the
Lenders, to be applied to the outstanding Revolving Loans of such Lenders, an
amount such that each Lender shall, upon receipt of such amount, have, as of
such Settlement Date, its Pro Rata Share of the Revolving Loans. During the
period between Settlement Dates, the Bank with respect to Non-Ratable Loans, the
Agent with respect to Agent Advances, and each Lender with respect to the
33
<PAGE>
Revolving Loans other than Non-Ratable Loans and Agent Advances, shall be
entitled to interest at the applicable rate or rates payable under this
Agreement on the actual average daily amount of funds employed by the Bank, the
Agent and the other Lenders.
(k) Notation. The Agent shall record on its books the principal
--------
amount of the Revolving Loans owing to each Lender, including the Non-Ratable
Loans owing to the Bank, and the Agent Advances owing to the Agent, from time to
time. In addition, each Lender is authorized, at such Lender's option, to note
the date and amount of each payment or prepayment of principal of such Lender's
Revolving Loans in its books and records, including computer records, such books
and records constituting presumptive evidence, absent manifest error, of the
accuracy of the information contained therein.
(l) Lenders' Failure to Perform. All Revolving Loans (other than
----------------------------
Non-Ratable Loans and Agent Advances) shall be made by the Lenders
simultaneously and in accordance with their Pro Rata Shares. It is understood
that (i) no Lender shall be responsible for any failure by any other Lender to
perform its obligation to make any Revolving Loans hereunder, nor shall any
Commitment of any Lender be increased or decreased as a result of any failure by
any other Lender to perform its obligation to make any Revolving Loans
hereunder, (ii) no failure by any Lender to perform its obligation to make any
Revolving Loans hereunder shall excuse any other Lender from its obligation to
make any Revolving Loans hereunder, and (iii) the obligations of each Lender
hereunder shall be several, not joint and several.
2.3 [Reserved].
----------
2.4 Letters of Credit.
-----------------
(a) Agreement to Issue or Cause To Issue. Subject to the terms and
------------------------------------
conditions of this Agreement, and in reliance upon the representations and
warranties of the Borrowers herein set forth, the Agent agrees (i) to cause the
Letter of Credit Issuer to issue for the account of a Borrower one or more
commercial/documentary and standby letters of credit and to cause the Letter of
Credit Issuer to keep outstanding and not to require cash collateral or other
credit support (other than the guaranty provided for herein secured by the
Collateral) in respect of those letters of credit issued for the account of
Envirosource set forth on Schedule 8.31 hereto (collectively, "Letters of
Credit") and/or (ii) to provide credit support or other enhancement to a Letter
of Credit Issuer acceptable to Agent, which issues Letters of Credit for the
account of either Borrower (any such credit support or enhancement being herein
referred to as a "Credit Support") in accordance with this Section 2.4 from time
to time during the term of this Agreement. The letters of credit set forth in
Schedule 2.4 shall be Letters of Credit for all purposes hereunder.
(b) Amounts; Outside Expiration Date. The Agent shall not have any
---------------------------------
obligation to take steps to issue or cause to be issued any Letter of Credit or
to provide Credit Support for any Letter of Credit at any time if: (i) the
maximum undrawn amount of the requested Letter of Credit is greater than the
Unused Letter of Credit Subfacility at such time; (ii) the maximum undrawn
amount of the requested Letter of Credit and all commissions, fees, and charges
due from the Borrowers in connection with the opening thereof exceed the
34
<PAGE>
Availability of the Borrowers at such time; or (iii) such Letter of Credit has
an expiration date later than thirty (30) days prior to the Stated Termination
Date or more than twelve (12) months from the date of issuance for standby
letters of credit and 180 days for merchandise letters of credit; provided that
standby letters of credit may have "evergreen" clauses in form and substance
satisfactory to the Agent providing for automatic annual renewals unless
terminated by the issuer thereof by written notice to the beneficiary of such
Letter of Credit at least thirty days (120 days for existing Letters of Credit
outstanding on the Closing Date) prior to the then scheduled expiration date.
(c) Other Conditions. In addition to being subject to the
-----------------
satisfaction of the applicable conditions precedent contained in Article 10, the
obligation of the Agent to issue or to cause to be issued any Letter of Credit
or to provide Credit Support for any Letter of Credit is subject to the
following conditions precedent having been satisfied in a manner satisfactory to
the Agent:
(1) The applicable Borrower shall have delivered to the Letter
of Credit Issuer, at such times and in such manner as such Letter of Credit
Issuer may prescribe, an application in form and substance satisfactory to such
Letter of Credit Issuer and reasonably satisfactory to the Agent for the
issuance of the Letter of Credit and such other documents as may be required
pursuant to the terms thereof, and the form and terms of the proposed Letter of
Credit shall be reasonably satisfactory to the Agent and the Letter of Credit
Issuer; and
(2) As of the date of issuance, no order of any court,
arbitrator or Governmental Authority shall purport by its terms to enjoin or
restrain money center banks generally from issuing letters of credit of the type
and in the amount of the proposed Letter of Credit, and no law, rule or
regulation applicable to money center banks generally and no request or
directive (whether or not having the force of law) from any Governmental
Authority with jurisdiction over money center banks generally shall prohibit, or
request that the proposed Letter of Credit Issuer refrain from, the issuance of
letters of credit generally or the issuance of such Letters of Credit.
(d) Issuance of Letters of Credit.
-----------------------------
(1) Request for Issuance. The applicable Borrower shall give
--------------------
the Agent three (3) Business Days prior written notice of such Borrower's
request for the issuance of a Letter of Credit. Such notice shall be irrevocable
and shall specify the original face amount of the Letter of Credit requested,
the effective date (which date shall be a Business Day) of issuance of such
requested Letter of Credit, whether such Letter of Credit may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit is
to expire (which date shall be a Business Day), the purpose for which such
Letter of Credit is to be issued, and the beneficiary of the requested Letter of
Credit. The applicable Borrower shall attach to such notice the proposed form of
the Letter of Credit.
(2) Responsibilities of the Agent; Issuance. The Agent shall
----------------------------------------
determine, as of the Business Day immediately preceding the requested effective
date of issuance of the Letter of Credit set forth in the notice from the
applicable Borrower pursuant to Section 2.4(d)(1), (A) the amount of the
------------------
35
<PAGE>
applicable Unused Letter of Credit Subfacility and (B) the Availability as of
such date. If (i) the undrawn amount of the requested Letter of Credit is not
greater than the Unused Letter of Credit Subfacility and (ii) the amount of such
requested Letter of Credit and all commissions, fees, and charges due from the
Borrowers in connection with the opening thereof would not exceed the
Availability of the Borrowers, the Agent shall, so long as the other conditions
hereof are met, cause the Letter of Credit Issuer to issue the requested Letter
of Credit on such requested effective date of issuance.
(3) Notice of Issuance. On each Settlement Date, the Agent
------------------
shall give notice to each Lender of the issuance of all Letters of Credit issued
since the last Settlement Date.
(4) No Extensions or Amendment. The Agent shall not be
-----------------------------
obligated to extend or amend any Letter of Credit issued hereunder unless the
requirements of this Section 2.4 are met as though a new Letter of Credit were
-----------
being requested and issued. With respect to any Letter of Credit which contains
any "evergreen" or automatic renewal provision, each Lender shall be deemed to
have consented to any such extension or renewal unless any such Lender shall
have provided to the Agent, not less than 30 days prior to the last date on
which the applicable issuer can in accordance with the terms of the applicable
Letter of Credit decline to extend or renew such Letter of Credit, written
notice that it declines to consent to any such extension or renewal; provided,
that if all of the requirements of this Section 2.4 are met and no Default or
-----------
Event of Default exists, no Lender shall decline to consent to any such
extension or renewal. Anything contained in this Agreement to the contrary
notwithstanding, neither the Letter of Credit Issuer nor the Agent shall have
any obligation (a) to renew or extend any Letter of Credit issued for the
account of Envirosource unless the Borrowers shall have certified to the Agent
that they have used their best efforts (without having to pay any material
amount in connection therewith) to cause such Envirosource Letter of Credit to
be issued for the account of a Borrower but were unable to obtain the
beneficiary's consent or (b) to increase the amount of any Letter of Credit
issued for the account of Envirosource.
(e) Payments Pursuant to Letters of Credit.
--------------------------------------
(1) Payment of Letter of Credit Obligations. The Borrowers
----------------------------------------
agree to reimburse immediately, without duplication, the Letter of Credit Issuer
for any draw under any Letter of Credit and the Agent for the account of the
Lenders upon any payment pursuant to any Credit Support immediately upon demand,
and to pay the Letter of Credit Issuer the amount of all other obligations and
other amounts payable to such Letter of Credit Issuer under or in connection
with any Letter of Credit immediately when due, irrespective of any claim,
setoff, defense or other right which the Borrowers may have at any time against
such issuer or any other Person.
(2) Revolving Loans to Satisfy Reimbursement Obligations. Each
----------------------------------------------------
drawing under any Letter of Credit shall constitute a request by the Borrowers
to the Agent for a Borrowing of a Base Rate Revolving Loan in the amount of such
drawing. The Funding Date with respect to such borrowing shall be the date of
such drawing.
36
<PAGE>
(f) Participations.
--------------
(1) Purchase of Participations. Immediately upon issuance of
---------------------------
any Letter of Credit in accordance with Section 2.4(d), each Lender shall be
---------------
deemed to have irrevocably and unconditionally purchased and received without
recourse or warranty, an undivided interest and participation equal to such
Lender's Pro Rata Share of the face amount of such Letter of Credit or the
Credit Support provided through the Agent to the Letter of Credit Issuer, if not
the Agent, in connection with the issuance of such Letter of Credit (including
all obligations of the Borrowers with respect thereto, and any security therefor
or guaranty pertaining thereto).
(2) Sharing of Reimbursement Obligation Payments. Whenever the
--------------------------------------------
Agent receives a payment from the Borrowers on account of reimbursement
obligations in respect of a Letter of Credit or Credit Support as to which the
Agent has previously received for the account of the Letter of Credit Issuer
thereof payment from a Lender pursuant to Section 2.4(e)(2), the Agent shall
------------------
promptly pay to such Lender such Lender's Pro Rata Share of such payment from
the Borrowers in Dollars. Each such payment shall be made by the Agent on the
Business Day on which the Agent receives immediately available funds paid to
such Person pursuant to the immediately preceding sentence, if received prior to
12:00 noon (New York City time) on such Business Day and otherwise on the next
succeeding Business Day.
(3) Documentation. Upon the request of any Lender, the Agent
-------------
shall furnish to such Lender copies of any Letter of Credit, reimbursement
agreements executed in connection therewith, application for any Letter of
Credit and credit support or enhancement provided through the Agent in
connection with the issuance of any Letter of Credit, and such other
documentation as may reasonably be requested by such Lender.
(4) Obligations Irrevocable. The obligations of each Lender to
-----------------------
make payments to the Agent with respect to any Letter of Credit or with respect
to their participation therein or with respect to any Credit Support provided
through the Agent with respect to a Letter of Credit or with respect to the
Revolving Loans made as a result of a drawing under a Letter of Credit and the
obligations of the Borrowers to make payments to the Agent, for the account of
the Lenders, shall be irrevocable, not subject to any qualification or exception
whatsoever, including any of the following circumstances:
(i) any lack of validity or enforceability of this
Agreement or any of the other Loan Documents;
(ii) the existence of any claim, setoff, defense or other
right which the Borrowers may have at any time against a beneficiary named in a
Letter of Credit or any transferee of any Letter of Credit (or any Person for
whom any such transferee may be acting), any Lender, the Agent, the issuer of
such Letter of Credit, or any other Person, whether in connection with this
Agreement, any Letter of Credit, the transactions contemplated herein or any
unrelated transactions (including any underlying transactions between the
Borrowers or any other Person and the beneficiary named in any Letter of
Credit);
37
<PAGE>
(iii) any draft, certificate or any other document
presented under the Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Loan Documents;
(v) the occurrence of any Default or Event of Default; or
(vi) the failure of the Borrowers to satisfy the
applicable conditions precedent set forth in Article 10.
(g) Recovery or Avoidance of Payments. In the event any payment by
---------------------------------
or on behalf of the Borrowers received by the Agent with respect to any Letter
of Credit or Credit Support provided for any Letter of Credit and distributed by
the Agent to the Lenders on account of their respective participations therein
is thereafter set aside, avoided or recovered from the Agent in connection with
any receivership, liquidation or bankruptcy proceeding, the Lenders shall, upon
demand by the Agent, pay to the Agent their respective Pro Rata Shares of such
amount set aside, avoided or recovered, together with interest at the rate
required to be paid by the Agent upon the amount required to be repaid by it.
(h) Indemnification; Exoneration; Power of Attorney.
-----------------------------------------------
(1) Indemnification. In addition to amounts payable as
---------------
elsewhere provided in this Section 2.4, each Borrower hereby agrees to protect,
-----------
indemnify, pay and save the Lenders and the Agent harmless from and against any
and all claims, demands, liabilities, damages, losses, costs, charges and
expenses (including reasonable attorneys' fees) which any Lender or the Agent
(other than the Bank in its capacity as Letter of Credit Issuer) may incur or be
subject to as a consequence, direct or indirect, of the issuance of any Letter
of Credit or the provision of any credit support or enhancement in connection
therewith, other than as a result of gross negligence or willful misconduct by
the Agent or such Lender. The agreement in this Section 2.4(h)(1) shall survive
payment of all Obligations. Nothing contained in this Agreement is intended to
limit the applicable Borrower's rights, if any, with respect to the Letter of
Credit Issuer which arise as a result of the letter of credit application and
related documents executed by and between the applicable Borrower and the Letter
of Credit Issuer.
(2) Assumption of Risk by the Borrowers. As among the
----------------------------------------
Borrowers, the Lenders, and the Agent, the Borrowers assume all risks of the
acts and omissions of, or misuse of any of the Letters of Credit by, the
respective beneficiaries of such Letters of Credit. In furtherance and not in
limitation of the foregoing, the Lenders and the Agent shall not be responsible
for: (A) the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any Person in connection with the application for
and issuance of and presentation of drafts with respect to any of the Letters of
Credit, even if it should prove to be in any or all respects invalid,
38
<PAGE>
insufficient, inaccurate, fraudulent or forged; (B) the validity or sufficiency
of any instrument transferring or assigning or purporting to transfer or assign
any Letter of Credit or the rights or benefits thereunder or proceeds thereof,
in whole or in part, which may prove to be invalid or ineffective for any
reason; (C) the failure of the beneficiary of any Letter of Credit to comply
duly with conditions required in order to draw upon such Letter of Credit; (D)
errors, omissions, interruptions, or delays in transmission or delivery of any
messages, by mail, cable, telegraph, telex or otherwise, whether or not they be
in cipher; (E) errors in interpretation of technical terms; (F) any loss or
delay in the transmission or otherwise of any document required in order make a
drawing under any Letter of Credit or of the proceeds thereof; (G) the
misapplication by the beneficiary of any Letter of Credit of the proceeds of any
drawing under such Letter of Credit; or (H) any consequences arising from causes
beyond the control of the Lenders or the Agent, including any act or omission,
whether rightful or wrongful, of any present or future de jure or de facto
-- ---- -- -----
Governmental Authority. None of the foregoing shall affect, impair or prevent
the vesting of any rights or powers of the Agent or any Lender under this
Section 2.4(h). Nothing contained in this Agreement is intended to limit the
- ---------------
applicable Borrower's rights, if any, with respect to the Letter of Credit
Issuer which arise as a result of the letter of credit application and related
documents executed by and between the applicable Borrower and the Letter of
Credit Issuer.
(3) Exoneration. In furtherance and extension, and not in
-----------
limitation, of the specific provisions set forth above, any action taken or
omitted by the Agent or any Lender under or in connection with any of the
Letters of Credit or any related certificates, if taken or omitted in good faith
and not as a result of willful misconduct or gross negligence by the Agent or
such Lender, shall not put the Agent or any Lender under any resulting liability
to the Borrowers or relieve the Borrowers of any of their obligations hereunder
to any such Person.
(4) Indemnification by Lenders. The Lenders agree to indemnify
--------------------------
the Letter of Credit Issuer (to the extent not reimbursed by the Borrowers and
without limiting the obligations of the Borrowers hereunder) ratably in
accordance with their respective Pro Rata Shares, for any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorneys' fees) or disbursements of any kind and nature
whatsoever that may be imposed on, incurred by or asserted against the Letter of
Credit Issuer in any way relating to or arising out of any Letter of Credit or
the transactions contemplated thereby or any action taken or omitted by the
Letter of Credit Issuer under any Letter of Credit or any Loan Document in
connection therewith; provided that no Lender shall be liable for any of the
--------
foregoing to the extent it arises from the gross negligence or willful
misconduct of the Person to be indemnified. Without limitation of the foregoing,
each Lender agrees to reimburse the Letter of Credit Issuer promptly upon demand
for its Pro Rata Share of any costs or expenses payable by the Borrowers to the
Letter of Credit Issuer, to the extent that the Letter of Credit Issuer is not
promptly reimbursed for such costs and expenses by the Borrowers. The agreement
contained in this section shall survive payment in full of all Obligations.
(5) Intentionally Omitted.
39
<PAGE>
(6) Account Party. Each Borrower hereby authorizes and directs
-------------
any Letter of Credit Issuer to name such Borrower as the "Account Party" therein
and to deliver to the Agent all instruments, documents and other writings and
property received by the Letter of Credit Issuer pursuant to the Letter of
Credit, and to accept and rely upon the Agent's instructions and agreements with
respect to all matters arising in connection with the Letter of Credit or the
application therefor.
(7) Intentionally Omitted.
(i) Supporting Letter of Credit; Cash Collateral. If,
------------------------------------------------------
notwithstanding the provisions of Section 2.4(b) and Section 12.1 any Letter of
-------------- ------------
Credit is outstanding upon the termination of this Agreement, then upon such
termination the Borrowers shall deposit with the Agent, for the ratable benefit
of the Agent and the Lenders, with respect to each Letter of Credit then
outstanding, as the Majority Lenders, in their discretion shall specify, either
(A) a standby letter of credit (a "Supporting Letter of Credit") in form and
substance satisfactory to the Agent, issued by an issuer satisfactory to the
Agent in an amount equal to the greatest amount for which such Letter of Credit
may be drawn plus any fees and expenses associated with such Letter of Credit,
under which Supporting Letter of Credit the Agent is entitled to draw amounts
necessary to reimburse the Agent and the Lenders for payments to be made by the
Agent and the Lenders under such Letter of Credit or under any Credit Support
provided through the Agent with respect thereto and any fees and expenses
associated with such Letter of Credit, or (B) cash in amounts necessary to
reimburse the Agent and the Lenders for payments made by the Agent or the
Lenders under such Letter of Credit or under any Credit Support provided through
the Agent with respect thereto and any fees and expenses associated with such
Letter of Credit. Such Supporting Letter of Credit or deposit of cash shall be
held by the Agent, for the ratable benefit of the Agent and the Lenders, as
security for, and to provide for the payment of, the aggregate undrawn amount of
such Letters of Credit remaining outstanding.
2.5 Bank Products.
-------------
The Borrowers may request and the Bank may, in its sole and
absolute discretion, arrange for the Borrowers to obtain from the Bank or the
Bank's Affiliates Bank Products although the Borrowers are not required to do
so. Each Borrower agrees to indemnify and hold the Bank and the Lenders harmless
from any and all costs and obligations now or hereafter incurred by or owing to
any other Person by the Bank or any of the Lenders or the Bank's Affiliates
arising from or related to such Bank Products; provided, however, nothing
contained herein is intended to limit such Borrower's rights, if any, which
arise as a result of the execution of documents by and between the Borrowers and
the Bank which relate to Bank Products. The agreement contained in this section
shall survive termination of the Agreement. Each Borrower acknowledges and
agrees that the obtaining of Bank Products from the Bank or the Bank's
Affiliates (a) is in the sole and absolute discretion of the Bank or the Bank's
Affiliates, and (b) is subject to all rules and regulations of the Bank or the
Bank's Affiliates.
40
<PAGE>
ARTICLE 3
INTEREST AND FEES
3.1 Interest.
--------
(a) Interest Rates. All outstanding Obligations shall bear interest
on the unpaid principal amount thereof (including, to the extent permitted by
law, on interest thereon not paid when due) from the date made until paid in
full in cash at a rate determined by reference to the Base Rate or the LIBOR
Rate and Sections 3.1(a)(i) or (ii), as applicable, but not to exceed the
Maximum Rate described in Section 3.3. Subject to the provisions of Section 3.2,
any of the Loans may be converted into, or continued as, Base Rate Loans or
LIBOR Rate Loans in the manner provided in Section 3.2. If at any time Loans are
outstanding with respect to which notice has not been delivered to the Agent in
accordance with the terms of this Agreement specifying the basis for determining
the interest rate applicable thereto, then those Loans shall be Base Rate Loans
and shall bear interest at a rate determined by reference to the Base Rate until
notice to the contrary has been given to the Agent in accordance with this
Agreement and such notice has become effective. Except as otherwise provided
herein, the outstanding Obligations shall bear interest as follows:
(i) For all Base Rate Revolving Loans and other Obligations
(other than LIBOR Rate Loans) at a fluctuating per annum rate equal to the Base
Rate plus the Applicable Margin;
(ii) For all LIBOR Revolving Loans at a per annum rate equal
to the LIBOR Rate plus the Applicable Margin.
Each change in the Base Rate shall be reflected in the interest rate described
in clause (i) above as of the effective date of such change. All interest
charges shall be computed on the basis of a year of 360 days and actual days
elapsed (which results in more interest being paid than if computed on the basis
of a 365-day year). Interest accrued on all Loans will be payable in arrears on
the first day of each month hereafter and on the Termination Date.
(b) Default Rate. If any Event of Default occurs and is continuing
and the Agent or the Majority Lenders in their discretion so elect, then, while
any such Event of Default is outstanding, all of the Obligations shall bear
interest at the Default Rate applicable thereto.
3.2 Continuation and Conversion Elections. (a) Each Borrower may, upon
--------------------------------------
irrevocable written notice to the Agent in accordance with Section 3.2(b):
(i) elect, as of any Business Day, in the case of Base Rate
Loans to convert any such Loans made to such Borrower (or any part thereof in an
amount not less than $1,000,000, or that is in an integral multiple of
$1,000,000 in excess thereof) into LIBOR Rate Loans; or
41
<PAGE>
(ii) elect, as of the last day of the applicable Interest
Period, to continue any LIBOR Rate Loans made to such Borrower having Interest
Periods expiring on such day (or any part thereof in an amount not less than
$1,000,000, or that is in an integral multiple of $1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of LIBOR Rate Loans in
- --------
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such LIBOR Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of such Borrower to continue such Loans as, and convert such Loans into, LIBOR
Rate Loans, as the case may be, shall terminate, and provided further that if
the notice shall fail to specify the duration of the Interest Period, such
Interest Period shall be one month.
(b) The applicable Borrower shall deliver a notice of
conversion/continuation ("Notice of Continuation/Conversion"), in the form of
Exhibit C hereto, to be received by the Agent not later than 11:00 a.m. (New
- ---------
York City time) at least three Business Days in advance of the
Continuation/Conversion Date, if the Loans are to be converted into or continued
as LIBOR Rate Loans and specifying:
(i) the proposed Continuation/Conversion Date;
(ii) the aggregate amount of Loans to be converted or renewed;
(iii) the type of Loans resulting from the proposed conversion
or continuation; and
(iv) the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
LIBOR Rate Loans, the applicable Borrower has failed to select timely a new
Interest Period to be applicable to LIBOR Rate Loans or if any Default or Event
of Default then exists, such Borrower shall be deemed to have elected to convert
such LIBOR Rate Loans into Base Rate Loans effective as of the expiration date
of such Interest Period.
(d) The Agent will promptly notify each Lender of its receipt of a
Notice of Conversion/Continuation. All conversions and continuations shall be
made ratably according to the respective outstanding principal amounts of the
Loans with respect to which the notice was given held by each Lender.
(e) During the existence of a Default or Event of Default, the
Borrowers may not elect to have a Loan converted into or continued as a LIBOR
Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
there may not be more than five different Interest Periods in effect hereunder.
42
<PAGE>
3.3 Maximum Interest Rate. In no event shall any interest rate provided
----------------------
for hereunder exceed the maximum rate legally chargeable by any Lender under
applicable law for such Lender with respect to loans of the type provided for
hereunder (the "Maximum Rate"). If, in any month, any interest rate, absent such
limitation, would have exceeded the Maximum Rate, then the interest rate for
that month shall be the Maximum Rate, and, if in future months, that interest
rate would otherwise be less than the Maximum Rate, then that interest rate
shall remain at the Maximum Rate until such time as the amount of interest paid
hereunder equals the amount of interest which would have been paid if the same
had not been limited by the Maximum Rate. In the event that, upon payment in
full of the Obligations, the total amount of interest paid or accrued under the
terms of this Agreement is less than the total amount of interest which would,
but for this Section 3.3, have been paid or accrued if the interest rates
------------
otherwise set forth in this Agreement had at all times been in effect, then the
Borrowers shall, to the extent permitted by applicable law, pay the Agent, for
the account of the Lenders, an amount equal to the excess of (a) the lesser of
(i) the amount of interest which would have been charged if the Maximum Rate
had, at all times, been in effect or (ii) the amount of interest which would
have accrued had the interest rates otherwise set forth in this Agreement, at
all times, been in effect over (b) the amount of interest actually paid or
accrued under this Agreement. In the event that a court of competent
jurisdiction determines that the Agent and/or any Lender has received interest
and other charges hereunder in excess of the Maximum Rate, such excess shall be
deemed received on account of, and shall automatically be applied to reduce, the
Obligations other than interest, and if there are no Obligations outstanding,
the Agent and/or such Lender shall refund to the Borrower such excess.
3.4 Closing Fee. The Borrowers agree to pay the Agent those fees set
------------
forth in the Fee Letter to be paid on the Closing Date (the "Closing Fees"),
which Fees shall be fully earned on the Closing Date. The Agent, the Lenders and
the Borrowers agree that the fees set forth in the Fee Letter shall be financed
by the Lenders as a Revolving Loan.
3.5 Unused Line Fee. Until the Loans have been paid in full and the
----------------
Agreement terminated, the Borrowers agree to pay, on the first day of each month
and on the Termination Date, to the Agent, for the account of the Lenders, in
accordance with their respective Pro Rata Shares, an unused line fee (the
"Unused Line Fee") equal to three-eighths percent (.375%) per annum times the
amount by which the Maximum Revolver Amount exceeded the sum of the average
daily outstanding amount of Revolving Loans and the average daily undrawn face
amount of outstanding Letters of Credit, during the immediately preceding month
or shorter period if calculated on the Termination Date. The Unused Line Fee
shall be computed on the basis of a 360-day year for the actual number of days
elapsed. All payments received by the Agent shall be deemed to be credited to
the Borrowers' Loan Accounts immediately upon receipt for purposes of
calculating the Unused Line Fee pursuant to this Section 3.5.
-----------
3.6 Letter of Credit Fee. The Borrowers agree to pay to the Agent, for
--------------------
the account of the Lenders, in accordance with their respective Pro Rata Shares,
for each Letter of Credit, a fee (the "Letter of Credit Fee") equal to the
product of (x) the Applicable Margin for LIBOR Rate Loans then in effect minus
.5% multiplied by (y) the undrawn face amount of each Letter of Credit, plus all
----
out-of-pocket costs, fees and expenses incurred by the Agent in connection with
the application for, processing of, issuance of, or amendment to any Letter of
43
<PAGE>
Credit, which costs, fees and expenses shall include a "fronting fee" payable to
such issuer (which "fronting fee" if the Bank is the Letter of Credit Issuer is
presently .5% of the face amount of each Letter of Credit); the Letter of Credit
Fee shall be payable monthly in arrears on the first day of each month following
any month in which a Letter of Credit was issued and/or in which a Letter of
Credit remains outstanding and on the Termination Date. The Letter of Credit Fee
shall be computed on the basis of a 360-day year for the actual number of days
elapsed. On the Closing Date, in addition to all other applicable fees and
expenses, the Borrowers will pay a fronting fee of .5% of the face amount of the
Envirosource Letters of Credit.
3.7 Administration Fee. The Borrowers agree to pay to the Agent, for the
------------------
account of the Agent, an administration fee of $1,000 per month, payable in
advance on the Closing Date (for the month in which the Closing Date occurs) and
on the first day of each month thereafter until this Loan Agreement has been
terminated and all Obligations paid in full.
ARTICLE 4
PAYMENTS AND PREPAYMENTS
------------------------
4.1 Revolving Loans. The Borrowers shall repay the outstanding principal
---------------
balance of the Revolving Loans, plus all accrued but unpaid interest thereon and
all other Obligations on the Termination Date. The Borrowers may prepay
Revolving Loans at any time, and reborrow subject to the terms of this
Agreement; provided, however, that with respect to any LIBOR Revolving Loans
-------- -------
prepaid by the Borrowers prior to the expiration date of the Interest Period
applicable thereto, the Borrowers shall pay to the Agent for account of the
Lenders the amounts described in Section 5.4. In addition, and without limiting
-----------
the generality of the foregoing, upon demand the Borrowers shall pay to the
Agent, for account of the Lenders, the amount, without duplication, by which the
Aggregate Revolver Outstandings (less the amount of Pending Revolving Loans)
exceeds the Borrowing Base.
4.2 Termination of Facility. The Borrowers may terminate this Agreement
-----------------------
upon at least thirty (30) Business Days' notice to the Agent and the Lenders,
upon (a) the payment in full of all outstanding Revolving Loans, together with
accrued interest thereon and all other Obligations, and the cancellation and
return of all outstanding Letters of Credit, (b) the payment of the early
termination fee set forth in the next sentence, (c) the payment in full in cash
of all other Obligations together with accrued interest thereon, and (d) with
respect to any LIBOR Rate Loans prepaid in connection with such termination
prior to the expiration date of the Interest Period applicable thereto, the
payment of the amounts described in Section 5.4. If this Agreement is terminated
-----------
at any time prior to the second Anniversary Date, whether pursuant to this
Section or pursuant to Section 11.2, the Borrowers shall pay to the Agent, for
------------
the account of the Lenders, an early termination fee determined in accordance
with the following table:
44
<PAGE>
Period during which early termination occurs Early Termination Fee
- ---------------------------------------------- ---------------------
On or prior to the first Anniversary Date 1% of the Total Facility
After the first Anniversary Date but on
or prior to the second Anniversary Date .5% of the Total Facility
provided, however, that the early termination fee described in this Section 4.2
- -------- ------- -----------
shall not be payable in the event the Borrowers terminate this Agreement and pay
all Obligations utilizing the proceeds of a credit facility agented by the Bank.
4.3 Reserved.
--------
4.4 Reserved.
--------
4.5 Reserved.
--------
4.6 Payments by the Borrowers. (a) All payments to be made by the
---------------------------
Borrowers shall be made without setoff, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrowers shall be made
to the Agent for the account of the Lenders, at the account designated by the
Agent and shall be made in Dollars and in immediately available funds, no later
than 3:00 p.m. (New York City time) on the date specified herein. Any payment
received by the Agent later than 3:00 p.m. (New York City time) shall be deemed
to have been received on the following Business Day and any applicable interest
or fee shall continue to accrue.
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Agent receives notice from the Borrowers prior to
the date on which any payment is due to the Lenders that the Borrowers will not
make such payment in full as and when required, the Agent may assume that the
Borrowers have made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so required), in
reliance upon such assumption, distribute to each Lender on such due date an
amount equal to the amount then due such Lender. If and to the extent the
Borrowers have not made such payment in full to the Agent, each Lender shall
repay to the Agent on demand such amount distributed to such Lender, together
with interest thereon at the Federal Funds Rate for each day from the date such
amount is distributed to such Lender until the date repaid.
4.7 Payments as Revolving Loans. All payments of principal, interest,
----------------------------
reimbursement obligations in connection with Letters of Credit, fees, premiums
and other sums payable hereunder, including all reimbursement for expenses
pursuant to Section 15.7, may, at the option of the Agent, in its sole
-------------
discretion, subject only to the terms of this Section 4.7, be paid from the
------------
proceeds of Revolving Loans made hereunder, whether made following a request by
45
<PAGE>
the Borrowers pursuant to Section 2.2 or a deemed request as provided in this
-----------
Section 4.7. The Borrowers hereby irrevocably authorize the Agent to charge the
- -----------
Loan Account for the purpose of paying principal, interest, reimbursement
obligations in connection with Letters of Credit, fees, premiums and other sums
payable hereunder, including reimbursing expenses pursuant to Section 15.7, and
------------
agrees that all such amounts charged shall constitute Revolving Loans (including
Non-Ratable Loans and Agent Advances) and that all such Revolving Loans so made
shall be deemed to have been requested by Borrowers pursuant to Section 2.2;
-----------
provided that the Agent agrees to give the Borrowers notice prior to charging
the applicable Borrower's Loan Account for the reimbursement of any expenses due
to any third party.
4.8 Apportionment, Application and Reversal of Payments. Principal and
----------------------------------------------------
interest payments shall be apportioned ratably among the Lenders (according to
the unpaid principal balance of the Loans to which such payments relate held by
each Lender) and payments of the fees shall, as applicable, be apportioned
ratably among the Lenders. All payments shall be remitted to the Agent and all
such payments not relating to principal or interest of specific Loans, or not
constituting payment of specific fees, and all proceeds of Accounts or other
Collateral received by the Agent, shall be applied, ratably, subject to the
provisions of this Agreement, first, to pay any fees, indemnities or expense
-----
reimbursements including any amounts relating to Bank Product then due to the
Agent from the Borrowers; second, to pay any fees or expense reimbursements then
------
due to the Lenders from the Borrowers; third, to pay interest due in respect of
-----
all Revolving Loans, including Non-Ratable Loans and Agent Advances; fourth, to
------
pay or prepay principal of the Non-Ratable Loans and Agent Advances; fifth, to
-----
pay or prepay principal of the Revolving Loans (other than Non-Ratable Loans and
Agent Advances) and unpaid reimbursement obligations in respect of Letters of
Credit; and sixth, to the payment of any other Obligation due to the Agent or
-----
any Lender by the Borrowers. Notwithstanding anything to the contrary contained
in this Agreement, unless so directed by the Borrowers, or unless an Event of
Default is outstanding, neither the Agent nor any Lender shall apply any
payments which it receives to any LIBOR Revolving Loan, except (a) on the
expiration date of the Interest Period applicable to any such LIBOR Rate Loan,
or (b) in the event, and only to the extent, that there are no outstanding Base
Rate Revolving Loans. The Agent shall promptly distribute to each Lender,
pursuant to the applicable wire transfer instructions received from each Lender
in writing, such funds as it may be entitled to receive, subject to a Settlement
delay as provided for in Section 2.2(j). The Agent and the Lenders shall have
---------------
the continuing and exclusive right to apply and reverse and reapply any and all
such proceeds and payments to any portion of the Obligations.
4.9 Indemnity for Returned Payments. If after receipt of any payment
---------------------------------
which is applied to the payment of all or any part of the Obligations, the Agent
or any Lender is for any reason compelled to surrender such payment or proceeds
to any Person because such payment or application of proceeds is invalidated,
declared fraudulent, set aside, determined to be void or voidable as a
preference, impermissible setoff, or a diversion of trust funds, or for any
other reason, then the Obligations or part thereof intended to be satisfied
shall be revived and continued and this Agreement shall continue in full force
as if such payment or proceeds had not been received by the Agent or such Lender
and the Borrowers shall be liable to pay to the Agent and the Lenders, and
46
<PAGE>
hereby does indemnify the Agent and the Lenders and hold the Agent and the
Lenders harmless for the amount of such payment or proceeds surrendered. The
provisions of this Section 4.9 shall be and remain effective notwithstanding any
-----------
contrary action which may have been taken by the Agent or any Lender in reliance
upon such payment or application of proceeds, and any such contrary action so
taken shall be without prejudice to the Agent's and the Lenders' rights under
this Agreement and shall be deemed to have been conditioned upon such payment or
application of proceeds having become final and irrevocable. The provisions of
this Section 4.9 shall survive the termination of this Agreement.
-----------
4.10 Agent's and Lenders' Books and Records; Monthly Statements. Each
------------------------------------------------------------
Borrower agrees that the Agent's and each Lender's books and records showing the
Obligations and the transactions pursuant to this Agreement and the other Loan
Documents shall be admissible in any action or proceeding arising therefrom, and
shall constitute rebuttably presumptive proof thereof, irrespective of whether
any Obligation is also evidenced by a promissory note or other instrument. The
Agent will provide to the Borrowers a monthly statement of Loans, payments, and
other transactions pursuant to this Agreement. Such statement shall be deemed
correct, accurate, and binding on the Borrowers and an account stated (except
for reversals and reapplications of payments made as provided in Section 4.8 and
-----------
corrections of errors discovered by the Agent), unless the Borrowers notify the
Agent in writing to the contrary within thirty (30) days after such statement is
rendered. In the event a timely written notice of objections is given by the
Borrowers, only the items to which exception is expressly made will be
considered to be disputed by the Borrowers.
ARTICLE 5
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
5.1 Taxes. (a) Any and all payments by the Borrowers to each Lender or
-----
the Agent under this Agreement and any other Loan Document shall be made free
and clear of, and without deduction or withholding for any Taxes. In addition,
the Borrowers shall pay all Other Taxes.
(b) Each Borrower agrees to indemnify and hold harmless each Lender
and the Agent for the full amount of Taxes or Other Taxes (including any Taxes
or Other Taxes imposed by any jurisdiction on amounts payable under this
Section) paid by the Lender or the Agent and any liability (including penalties,
interest, additions to tax and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days after
the date the Lender or the Agent makes written demand therefor.
(c) If the Borrowers shall be required by law to deduct or withhold
any Taxes or Other Taxes from or in respect of any sum payable hereunder to any
Lender or the Agent, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section) such
47
<PAGE>
Lender or the Agent, as the case may be, receives an amount equal to the sum it
would have received had no such deductions or withholdings been made;
(ii) the Borrowers shall make such deductions and
withholdings;
(iii) the Borrowers shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) the Borrowers shall also pay to each Lender or the Agent
for the account of such Lender, at the time interest is paid, all additional
amounts which the respective Lender specifies as necessary to preserve the
after-tax yield the Lender would have received if such Taxes or Other Taxes had
not been imposed.
(d) Within 30 days after the date of any payment by any Borrower of
Taxes or Other Taxes, such Borrower shall furnish the Agent the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Agent.
(e) If any Borrower is required to pay additional amounts to any
Lender or the Agent pursuant to subsection (c) of this Section, then such Lender
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to change the jurisdiction of its lending office so as to eliminate any such
additional payment by such Borrower which may thereafter accrue, if such change
in the judgment of such Lender is not otherwise disadvantageous to such Lender.
(f) Notwithstanding anything to the contrary contained in this
Section 5.1, but subject to the following sentence, the Borrowers shall not be
obligated to gross-up payments to be made to a Lender in respect of income or
similar taxes imposed by the United States if such Lender has not provided the
forms required to be provided pursuant to Section 14.10. Borrowers agree to pay
additional amounts and to indemnify and gross-up in the manner set forth in
Section 5.1(c) (without regard to the jurisdiction requiring the deduction or
withholding) in respect of any amounts deducted or withheld by them as a result
of any changes that are effective after the Closing Date in any applicable law,
treaty, rule, regulation, guideline or order, or in the interpretation thereof,
relating to the deducting or withholding of Taxes or Other Taxes.
5.2 Illegality. (a) If any Lender determines that the introduction of
----------
any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Lender or its applicable lending office to make
LIBOR Rate Loans, then, on notice thereof by the Lender to the Borrowers through
the Agent, any obligation of that Lender to make LIBOR Rate Loans shall be
suspended until the Lender notifies the Agent and the Borrowers that the
circumstances giving rise to such determination no longer exist.
(b) If a Lender determines that it is unlawful to maintain any
LIBOR Rate Loan, the Borrowers shall, upon their receipt of notice of such fact
and demand from such Lender (with a copy to the Agent), prepay in full such
48
<PAGE>
LIBOR Rate Loans of that Lender then outstanding, together with interest accrued
thereon and amounts required under Section 5.4, either on the last day of the
-----------
Interest Period thereof, if the Lender may lawfully continue to maintain such
LIBOR Rate Loans to such day, or immediately, if the Lender may not lawfully
continue to maintain such LIBOR Rate Loan. If the Borrowers are required to so
prepay any LIBOR Rate Loan, then concurrently with such prepayment, the
Borrowers shall borrow from the affected Lender, in the amount of such
repayment, a Base Rate Loan.
5.3 Increased Costs and Reduction of Return. (a) If any Lender
--------------------------------------------
determines that due to either (i) the introduction of or any change in the
interpretation of any law or regulation or (ii) the compliance by that Lender
with any guideline or request from any central bank or other Governmental
Authority (whether or not having the force of law), in each case adopted, issued
or becoming effective after the Closing Date (or in the event of any change in
any law or regulation, from that in effect on the Closing Date), there shall be
any increase in the cost to such Lender of agreeing to make or making, funding
or maintaining any LIBOR Rate Loans, then the Borrowers shall be liable for, and
shall from time to time, upon demand (with a copy of such demand to be sent to
the Agent), pay to the Agent for the account of such Lender, additional amounts
as are sufficient to compensate such Lender for such increased costs.
(b) If any Lender shall have determined that (i) the introduction
of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Governmental Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Lender or any corporation or other entity controlling the Lender with any
Capital Adequacy Regulation , in each case adopted, issued or becoming effective
after the Closing Date (or in the event of any change in any law or regulation,
from that in effect on the Closing Date), affects or would affect the amount of
capital required or expected to be maintained by the Lender or any corporation
or other entity controlling the Lender and (taking into consideration such
Lender's or such corporation's or other entity's policies with respect to
capital adequacy and such Lender's desired return on capital) determines that
the amount of such capital is increased as a consequence of its Commitments,
loans, credits or obligations under this Agreement, then, upon demand of such
Lender to the Borrowers through the Agent, the Borrowers shall pay to the
Lender, from time to time as specified by the Lender, additional amounts
sufficient to compensate the Lender for such increase.
(c) Any demand made by any Lender pursuant to this Section 5.3
-----------
shall not cover any period more than 180 days prior to the date of demand.
5.4 Funding Losses. The Borrowers shall reimburse each Lender and hold
---------------
each Lender harmless from any loss or expense which the Lender may sustain or
incur as a consequence of:
(a) the failure of the Borrowers to make on a timely basis any
payment of principal of any LIBOR Rate Loan;
49
<PAGE>
(b) the failure of the Borrowers to borrow, continue or convert a
Loan after the Borrower has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/ Continuation;
(c) the prepayment or other payment (including after acceleration
thereof) of a LIBOR Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained. Any demand made by
any Lender pursuant to subsections (b) and (c) of this Section 5.4 shall not
cover any period more than 180 days prior to the date of demand.
5.5 Inability to Determine Rates. If the Agent determines that for any
-----------------------------
reason adequate and reasonable means do not exist for determining the LIBOR Rate
for any requested Interest Period with respect to a proposed LIBOR Rate Loan, or
that the LIBOR Rate for any requested Interest Period with respect to a proposed
LIBOR Rate Loan does not adequately and fairly reflect the cost to the Lenders
of funding such Loan, the Agent will promptly so notify the Borrower and each
Lender. Thereafter, the obligation of the Lenders to make or maintain LIBOR Rate
Loans hereunder shall be suspended until the Agent revokes such notice in
writing. Upon receipt of such notice, the applicable Borrower may revoke any
Notice of Borrowing or Notice of Conversion/Continuation then submitted by them.
If such Borrower does not revoke such Notice, the Lenders shall make, convert or
continue the Loans, as proposed by the Borrower, in the amount specified in the
applicable notice submitted by such Borrower, but such Loans shall be made,
converted or continued as Base Rate Loans instead of LIBOR Rate Loans.
5.6 Certificates of Lenders. Any Lender claiming reimbursement or
-------------------------
compensation under this Article 5 shall deliver to the Borrowers (with a copy to
the Agent) a certificate setting forth in reasonable detail the amount payable
to the Lender hereunder and such certificate shall be conclusive and binding on
the Borrowers in the absence of manifest error.
5.7 Survival. The agreements and obligations of the Borrowers in this
--------
Article 5 shall survive the payment of all other Obligations.
ARTICLE 6
COLLATERAL
----------
6.1 Grant of Security Interest. (a) As security for all Obligations,
---------------------------
each Borrower hereby grants to the Agent, for the benefit of the Agent and the
Lenders, a continuing security interest in, lien on, assignment of and right of
setoff against, all of the following property and assets of such Borrower,
whether now owned or existing or hereafter acquired or arising, regardless of
where located:
50
<PAGE>
(i) all Accounts (including any credit enhancement therefor);
(ii) all Inventory;
(iii) all contract rights, letters of credit, Assigned
Contracts, chattel paper, instruments, notes, documents, and documents of title;
(iv) all General Intangibles;
(v) all Equipment;
(vi) all Investment Property;
(vii) all money, cash, cash equivalents, securities and other
property of any kind of the Borrower held directly or indirectly by the Agent or
any Lender;
(viii) all of such Borrower's deposit accounts, credits, and
balances with and other claims (other than litigation claims) against the Agent
or any Lender or any of their Affiliates or any other financial institution with
which such Borrower maintains deposits, including any Payment Accounts;
(ix) all books, records and other property related to or
referring to any of the foregoing, including books, records, account ledgers,
data processing records, computer software and other property and General
Intangibles at any time evidencing or relating to any of the foregoing; and
(x) all accessions to, substitutions for and replacements,
products and proceeds of any of the foregoing, including, but not limited to,
proceeds of any insurance policies, claims against third parties, and
condemnation or requisition payments with respect to all or any of the
foregoing.
All of the foregoing, together with the Real Estate covered by the Mortgage(s)
(if any), and all other property of the Borrowers in which the Agent or any
Lender may at any time be granted a Lien, is herein collectively referred to as
the "Collateral."
(b) Notwithstanding anything to the contrary contained herein, the
foregoing grant of a security interest shall not include any rights or interests
in any General Intangible or contracts (including, without limitation, Assigned
Contracts) if and to the extent that (a) the terms of the contract or document
creating or evidencing such General Intangible or contract right prohibits
assignment or encumbrance thereof, (b) the term prohibiting such assignment or
encumbrances is effective as a matter of law and (c) the term prohibiting such
assignment or encumbrances has not been waived or the consent of the necessary
party to the grant of such security interest to the Agent has not been obtained,
provided, however, that all proceeds of any such General Intangible or contract
- -------- -------
shall continue to be covered by the grant of a security interest.
51
<PAGE>
(c) All of the Obligations shall be secured by all of the
Collateral.
6.2 Perfection and Protection of Security Interest. (a) The Borrowers
------------------------------------------------
shall, at their expense, perform all steps requested by the Agent at any time to
perfect, maintain, protect, and enforce the Agent's Liens, including: (i)
executing, delivering and/or filing and recording of Mortgage(s) covering all
Real Property acquired by either Borrower after the Closing Date, the Patent and
Trademark Agreements and executing and filing financing or continuation
statements, and amendments thereof, in form and substance satisfactory to the
Agent; (ii) delivering to the Agent the originals of all instruments, documents,
and chattel paper, and all other Collateral of which the Agent determines it
should have physical possession in order to perfect and protect the Agent's
security interest therein, duly pledged, endorsed or assigned to the Agent
without restriction; (iii) delivering to the Agent warehouse receipts covering
any portion of the Collateral located in warehouses and for which warehouse
receipts are issued and, at the request of the Agent, delivering to the Agent
certificates of title covering any portion of the Collateral acquired on or
after the Closing Date for which certificates of title have been issued; (iv)
when an Event of Default exists, transferring Inventory to warehouses designated
by the Agent; (v) placing notations on the Borrowers' books of account to
disclose the Agent's security interest; (vi) delivering to the Agent all letters
of credit on which either Borrower is named beneficiary; and (vii) taking such
other steps as are deemed necessary or desirable by the Agent to maintain and
protect the Agent's Liens. To the extent permitted by applicable law, the Agent
may file, without either Borrower's signature, one or more financing statements
disclosing the Agent's Liens. The Borrowers agree that a carbon, photographic,
photostatic, or other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement. Notwithstanding anything contained in
this Agreement or any other Loan Document, the Borrowers shall not be required
to perfect the Agent's Liens in any patents purchased as permitted under clause
(h) of the definition of Restricted Investment to the extent such patents are
registered under the laws of any country other than the United States.
(b) If any Collateral is at any time in the possession or control
of any warehouseman, bailee or any of either Borrower's agents or processors,
then the Borrowers shall notify the Agent thereof and shall, at the request of
Agent, notify such Person of the Agent's security interest in such Collateral
and instruct such Person to hold all such Collateral for the Agent's account
subject to the Agent's instructions. If at any time any Collateral is located on
any operating facility of either Borrower which is not owned by either Borrower,
then the Borrower shall, at the request of the Agent, obtain written
subordinations, in form and substance satisfactory to the Agent, of all present
and future Liens to which the owner or lessor of such premises may be entitled
to assert against the Collateral.
(c) From time to time, the Borrowers shall, upon the Agent's
request, execute and deliver confirmatory written instruments pledging to the
Agent, for the ratable benefit of the Agent and the Lenders, the Collateral with
respect to the Borrowers, but the Borrowers' failure to do so shall not affect
or limit any security interest or any other rights of the Agent or any Lender in
and to the Collateral with respect to the Borrower. So long as this Agreement is
in effect and until all Obligations have been fully satisfied, the Agent's Liens
shall continue in full force and effect in all Collateral (whether or not deemed
52
<PAGE>
eligible for the purpose of calculating the Availability or as the basis for any
advance, loan, extension of credit, or other financial accommodation).
6.3 Location of Collateral. The Borrowers represent and warrant to the
----------------------
Agent and the Lenders that: (a) Schedule 6.3 is a correct and complete list of
------------
each Borrower's chief executive office, the location of its books and records,
the locations of the Collateral, and the locations of all of its other places of
business; and (b) Schedule 6.3 correctly identifies any of such facilities and
------------
locations that are not owned by either Borrower and sets forth the names of the
owners and lessors or sublessors of such facilities and locations. Each Borrower
covenants and agrees that it will not (i) maintain any Collateral at any
location other than those locations listed for such Borrower on Schedule 6.3,
------------
(ii) otherwise change or add to any of such locations, or (iii) change the
location of its chief executive office from the location identified in Schedule
--------
6.3, unless in each case it gives the Agent at least fifteen (15) days' prior
- ---
written notice thereof and executes any and all financing statements and other
documents that the Agent requests in connection therewith.
6.4 Title to, Liens on, and Sale and Use of Collateral. Each Borrower
---------------------------------------------------
represents and warrants to the Agent and the Lenders and agrees with the Agent
and the Lenders that: (a) all of the Collateral is and will continue to be owned
by such Borrowers free and clear of all Liens whatsoever, except for Permitted
Liens; (b) the Agent's Liens in the Collateral will not be subject to any prior
Lien except for those Liens identified in clauses (c), (d) and (e) of the
definition of Permitted Liens; and (c) the Borrowers will use, store, and
maintain the Collateral with all reasonable care and will use such Collateral
for lawful purposes only.
6.5 Appraisals. Whenever a Default or Event of Default exists, and at
----------
such other times not more frequently than once a year as the Agent requests, the
Borrowers shall, at their expense and upon the Agent's request, provide the
Agent with appraisals or updates thereof of any or all of the Collateral from an
appraiser, and prepared on a basis, reasonably satisfactory to the Agent, such
appraisals and updates to include, without limitation, information required by
applicable law and regulation and by the internal policies of the Lenders. In
addition to the foregoing, if Borrowers' Availability during any 30 day period
averages less than $7,500,000, at Agent's request, Borrowers shall, at their
expense, provide the Agent with appraisals or updates thereof of any or all of
the Collateral from an appraiser, and prepared on a basis, reasonably
satisfactory to the Agent, such appraisals and updates to include, without
limitation, information required by applicable law and regulation and by the
internal policies of the Lenders.
6.6 Access and Examination; Confidentiality. (a) The Agent, accompanied
----------------------------------------
by any Lender which so elects, may at all reasonable times on reasonable notice
during regular business hours (and at any time when a Default or Event of
Default exists and is continuing) have access to, examine, audit, make extracts
from or copies of and inspect any or all of each Borrower's records, files, and
books of account and the Collateral, and discuss each Borrower's affairs with
such Borrower's officers and management. Each Borrower will deliver to the Agent
any instrument necessary for the Agent to obtain records from any service bureau
maintaining records for such Borrower. The Agent may, and at the direction of
the Majority Lenders shall, at any time when a Default or Event of Default
exists, and at the Borrowers' expense, make copies of all of the Borrowers'
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books and records, or require the Borrowers to deliver such copies to the Agent.
The Agent may, without expense to the Agent, use such of the Borrowers'
respective personnel, supplies, and Real Estate as may be reasonably necessary
for maintaining or enforcing the Agent's Liens. The Agent shall have the right,
at any time, in the Agent's name or in the name of a nominee of the Agent, to
verify the validity, amount or any other matter relating to the Accounts,
Inventory, or other Collateral, by mail, telephone, or otherwise.
(b) Each Borrower agrees that, subject to such Borrower's prior
consent for uses other than in a traditional tombstone, which consent shall not
be unreasonably withheld or delayed, the Agent and each Lender may use each
Borrower's name in advertising and promotional material and in conjunction
therewith disclose the general terms of this Agreement. The Agent and each
Lender severally agree to take normal and reasonable precautions and exercise
due care to maintain the confidentiality of all information provided to the
Agent or such Lender by or on behalf of the Borrowers, under this Agreement or
any other Loan Document, except to the extent that such information (i) was or
becomes generally available to the public other than as a result of disclosure
by the Agent or such Lender, or (ii) was or becomes available on a
nonconfidential basis from a source other than the Borrowers, provided that such
source is not bound by a confidentiality agreement with the Borrowers known to
the Agent or such Lender; provided, however, that the Agent and any Lender may
-------- -------
disclose such information (1) at the request or pursuant to any requirement of
any Governmental Authority to which the Agent or such Lender is subject or in
connection with an examination of the Agent or such Lender by any such
Governmental Authority; (2) pursuant to subpoena or other court process; (3)
when required to do so in accordance with the provisions of any applicable
Requirement of Law; (4) to the extent reasonably required in connection with any
litigation or proceeding (including, but not limited to, any bankruptcy
proceeding) to which the Agent, any Lender or their respective Affiliates may be
party; (5) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document; (6) to the Agent's or
such Lender's independent auditors, accountants, attorneys and other
professional advisors provided that the Agent or such Lender shall have advised
such auditor, accountant, attorney, or other professional advisor of the
confidential nature of such information; (7) to any prospective Participant or
Assignee under any Assignment and Acceptance, actual or potential, provided that
such prospective Participant or Assignee agrees to keep such information
confidential to the same extent required of the Agent and the Lenders hereunder;
(8) as expressly permitted under the terms of any other document or agreement
regarding confidentiality to which either Borrower is party or is deemed party
with the Agent or such Lender, and (9) to its Affiliates who have agreed to
maintain the confidentiality of such information to the same extent as the Agent
and the Lenders hereunder.
6.7 Collateral Reporting. Each Borrower shall provide the Agent with the
--------------------
following documents at the following times in form satisfactory to the Agent:
(a) on a monthly basis not later than the twelfth day of each month or more
frequently if requested by the Agent or provided by the Borrowers, a schedule of
such Borrower's and Services' Accounts and a Borrowing Base Certificate, as of
the prior month end if such Borrowing Base Certificate was delivered on a
monthly basis and as of the date specified therein if such Borrowing Base
certificate was provided on a more frequent than monthly basis; (b) on a monthly
basis, by the twelfth day of the following month, or more frequently if
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requested by Agent, an aging of such Borrower's and Services' Accounts, together
with a reconciliation to the previous month's aging of such Borrower's and
Services' Accounts and to such Borrower's and Services' general ledger; (c) on a
monthly basis by the fifteenth day of the following month, or more frequently if
requested by Agent, an aging of such Borrower's and Services' accounts payable;
(d) if requested by the Agent, on a monthly basis by the fifteenth day of the
following month (or more frequently if requested by the Agent), Inventory
reports by category, with additional detail showing additions to and deletions
from the Inventory; (e) upon reasonable request, copies of invoices in
connection with such Borrower's and Services' Accounts, customer statements,
credit memos, remittance advices and reports, deposit slips, shipping and
delivery documents in connection with such Borrower's and Services' Accounts and
for Inventory and Equipment acquired by such Borrower or Services, purchase
orders and invoices; (f) together with the delivery of each Borrowing Base
Certificate, a report of sales, collections and credits; (g) on a monthly basis
by the thirtieth day of the following month a report of equipment purchases and
sales for such month in excess of $50,000 individually and $250,000 in the
aggregate, such report to be in form, substance and detail satisfactory to the
Agent; (h) on a quarterly basis, within 30 days of the end of each fiscal
quarter of Borrowers, a report of all equipment purchases and sales of the
Borrowers and Services during such fiscal quarter, such report to be in form,
substance and detail satisfactory to the Agent; (i) upon request, a statement of
the balance of each of the Intercompany Accounts; (j) such other reports as to
the Collateral of the Borrowers and Services as the Agent shall reasonably
request from time to time; and (k) with the delivery of each of the foregoing, a
certificate of the Borrowers and Services executed by an officer thereof
certifying as to the accuracy and completeness of the foregoing. If any of
either Borrower's or Services' records or reports of the Collateral are prepared
by an accounting service or other agent, such Borrower hereby authorizes such
service or agent to deliver such records, reports, and related documents to the
Agent, for distribution to the Lenders.
6.8 Accounts. (a) Each Borrower hereby represents and warrants to the
--------
Agent and the Lenders, with respect to such Borrower's Accounts and the Accounts
of Services, that: (i) each existing Account represents, and each future
Account, at the time of its creation, will represent, a bona fide sale or lease
and delivery of goods by the applicable Borrower or Services, or rendition of
services by the applicable Borrower or Services, in the ordinary course of the
applicable Borrower's or Services' business; (ii) each existing Account is, and
each future Account, at the time of its creation, will be, for a liquidated
amount payable by the Account Debtor thereon on the terms set forth in the
invoice therefor or in the schedule thereof delivered to the Agent, without any
offset, deduction, defense, or counterclaim except those known to the applicable
Borrower or Services and disclosed to the Agent and the Lenders to the extent
required to be disclosed pursuant to this Agreement; (iii) no payment will be
received with respect to any Account, and no credit, discount, or extension, or
agreement therefor will be granted on any Account, except as reported to the
Agent and the Lenders to the extent required to be reported in accordance with
this Agreement; (iv) each copy of an invoice delivered to the Agent by either
Borrower or Services will be a genuine copy of the original invoice sent to the
Account Debtor named therein; and (v) all goods described in any invoice
representing a sale of goods will have been delivered to the Account Debtor and
all services of the applicable Borrower or Services described in each invoice
will have been performed.
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(b) The Borrowers and Services shall not re-date any invoice or
sale or make sales on extended dating beyond that customary in the Borrowers'
business or extend or modify any Account other than extensions of the time for
payment in the normal course of business and consistent with prudent and
historical business practices of the Borrowers. If either Borrower becomes aware
of any matter adversely affecting the collectability of any Account or Account
Debtor involving an amount greater than $250,000, including information
regarding the Account Debtor's creditworthiness, the Borrowers will promptly so
advise the Agent.
(c) The Borrowers and Services shall not accept any note or other
instrument (except a check or other instrument for the immediate payment of
money) with respect to any Account in excess of $25,000 without the Agent's
written consent. If the Agent consents to the acceptance of any such instrument,
it shall be considered as evidence of the Account and not payment thereof. The
Borrowers will promptly deliver all such instruments to the Agent, endorsed by
the applicable Borrower to the Agent in a manner satisfactory in form and
substance to the Agent.
(d) The Borrowers and Services shall notify the Agent promptly of
all disputes and claims in excess of $250,000 with any Account Debtor, and agree
to settle, contest, or adjust such dispute or claim at no expense to the Agent
or any Lender. No discount, credit or allowance shall be granted to any such
Account Debtor without the Agent's prior written consent, except for discounts,
credits and allowances made or given in the ordinary course of the Borrowers
business when no Event of Default exists hereunder. The Borrowers and Services
shall send the Agent a copy of each credit memorandum in excess of $25,000 as
soon as issued. The Agent may, and at the direction of the Majority Lenders
shall, at all times when an Event of Default exists hereunder, settle or adjust
disputes and claims directly with Account Debtors for amounts and upon terms
which the Agent or the Majority Lenders, as applicable, shall consider advisable
and, in all cases, the Agent will credit the applicable Borrower's Loan Account
with only the net amounts received by the Agent in payment of any Accounts.
6.9 Collection of Accounts; Payments. (a) The Borrowers and Services
----------------------------------
shall continue to maintain a lock-box service for collections of Accounts at a
Clearing Bank acceptable to the Agent and subject to a Blocked Account Agreement
and other documentation acceptable to Agent. The Borrowers and Services shall
instruct all Account Debtors to make all payments directly to the address
established for such service. If, notwithstanding such instructions, either
Borrower or Services receives any proceeds of Accounts, it shall receive such
payments as the Agent's trustee, and shall immediately deliver such payments to
the Agent in their original form duly endorsed in blank or deposit them into a
Payment Account, as the Agent may direct. All collections received in any
lock-box or Payment Account or directly by either Borrower or Services or the
Agent, and all funds in any Payment Account or other account to which such
collections are deposited shall be subject to the Agent's sole control and
withdrawals by the Borrowers and Services shall not be permitted. The Agent or
the Agent's designee may, at any time after the occurrence and during the
continuance of an Event of Default, notify Account Debtors that the Accounts
have been assigned to the Agent and of the Agent's security interest therein,
and may collect them directly and charge the collection costs and expenses to
the Loan Account as a Revolving Loan. So long as an Event of Default has
occurred and is continuing, the Borrowers, at the Agent's request, shall execute
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and deliver to the Agent such documents as the Agent shall require to grant the
Agent access to any post office box in which collections of Accounts are
received.
(b) If sales of Inventory or Equipment are made or services are
rendered for cash, the Borrowers shall immediately deliver to the Agent or
deposit into a Payment Account the cash which the Borrowers or Services receive.
(c) All payments including immediately available funds received by
the Agent at a bank account designated by it, will be the Agent's sole property
for its benefit and the benefit of the Lenders and will be credited to the Loan
Account (conditional upon final collection) on the Business Day of receipt if
received by wire transfer through the Federal Reserve Bank wire system and on
the Business Day after receipt if received through an ACH transaction; provided,
--------
however, that such payments shall be deemed to be credited to the Loan Account
- -------
immediately upon receipt for purposes of (i) determining Availability, (ii)
calculating the unused line fee pursuant to Section 3.5, and (iii) calculating
the amount of interest accrued thereon solely for purposes of determining the
amount of interest to be distributed by the Agent to the Lenders (but not the
amount of interest payable by the Borrowers).
6.10 Inventory; Perpetual Inventory. Each Borrower represents and
--------------------------------
warrants to the Agent and the Lenders and agrees with the Agent and the Lenders
that all of the Inventory owned by the Borrowers is and will be held for sale or
lease, or to be furnished in connection with the rendition of services, in the
ordinary course of the Borrowers' business, and is and will be fit for such
purposes. Each Borrower will not, without the prior written consent of the
Agent, acquire or accept any Inventory on consignment or approval. Each Borrower
agrees that all Inventory produced by the Borrowers in the United States will be
produced in accordance with the Federal Fair Labor Standards Act of 1938, as
amended, and all rules, regulations, and orders thereunder. The Borrowers will
not, without the Agent's written consent, sell any Inventory on a bill-and-hold,
guaranteed sale, sale and return, sale on approval, consignment, or other
repurchase or return basis other than sales on consignment not in excess of
$10,000 outstanding at any time.
6.11 Equipment. (a) Each Borrower represents and warrants to the Agent
---------
and the Lenders and agrees with the Agent and the Lenders that all of the
Equipment owned by the Borrowers and Services is and will be used or held for
use in the Borrowers' or Services' business, and is and will be fit for such
purposes. Each Borrower and Services shall keep and maintain its Equipment in
good operating condition and repair (ordinary wear and tear excepted) and to the
extent consistent with prudent business practices shall make all necessary
replacements thereof.
(b) The Borrowers and Services shall not permit any Equipment to
become a fixture with respect to real property or to become an accession with
respect to other personal property with respect to which real or personal
property the Agent does not have a Lien. The Borrowers and Services will not,
without the Agent's prior written consent, alter or remove any identifying
symbol or number on any of the Borrowers' or Services' Equipment constituting
Collateral. None of the Equipment which is the subject of any appraisal
delivered to the Agent is covered by a certificate of title or required to be
covered by a certificate of title, except for such Equipment as to which the
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Agent's Lien is noted thereon. None of the Equipment is subject to any purchase
options except as set forth on Schedule 6.11 or as agreed to in writing by the
Agent.
(c) Except as expressly permitted pursuant to Section 9.9, the
Borrowers and Services shall not, without the Agent's prior written consent,
sell, lease as a lessor, or otherwise dispose of any of the Borrowers' or
Services' Equipment; provided, however, that the Borrowers and Services may (i)
-------- -------
dispose of obsolete, unusable or surplus Equipment having an orderly liquidation
value no greater than $2,500,000 in the aggregate in any Fiscal Year, without
the Agent's consent, subject to the conditions set forth in the next sentence,
(ii) lease Equipment to its Account Debtors in the ordinary course of its
business consistent with its historical business practices; provided that the
Borrowers shall give notice to the Agent with respect to each lease of Equipment
for a term longer than six months and (iii) transfer equipment from one Borrower
to the other Borrower. In the event any of such Equipment is sold, transferred
or otherwise disposed of pursuant to the proviso contained in the immediately
preceding sentence, then the Borrowers shall deliver all of the cash proceeds of
any such sale, transfer or disposition to the Agent, which proceeds shall be
applied to the reduction of the Obligations. Any lease of Equipment by the
Borrowers or Services to a customer shall require that the Equipment remain on
such customer's site or another site of such customer as to which the Agent's
Liens have been fully perfected.
6.12 Assigned Contracts. Each Borrower shall fully perform all of its
-------------------
obligations under each of the Assigned Contracts, and shall enforce all of its
rights and remedies thereunder, in each case, as it deems appropriate in its
business judgment; provided, however, that such Borrower shall not take any
action or fail to take any action with respect to its Assigned Contracts which
would cause the termination of a material Assigned Contract except, after
notification to the Agent, following a breach by the other party to such
Assigned Contract. Without limiting the generality of the foregoing, each
Borrower shall take all action necessary or appropriate to permit, and shall not
take any action which would have any materially adverse effect upon, the full
enforcement of all indemnification rights under its Assigned Contracts. Each
Borrower shall notify the Agent and the Lenders in writing, promptly after
either Borrower becomes aware thereof, of any event or fact which could give
rise to a material claim by it for indemnification under any of its Assigned
Contracts, and shall diligently pursue such right and report to the Agent on all
further developments with respect thereto. Each Borrower shall deposit into the
Payment Account or remit directly to the Agent for application to the
Obligations in such order as the Majority Lenders shall determine, all amounts
received by the Borrower as indemnification or otherwise pursuant to its
Assigned Contracts. If the Borrowers shall fail after the Agent's demand to
pursue diligently any right under its Assigned Contracts, or if an Event of
Default then exists, the Agent may, and at the direction of the Majority Lenders
shall, directly enforce such right in its own or the applicable Borrower's name
and may enter into such settlements or other agreements with respect thereto as
the Agent or the Majority Lenders, as applicable, shall determine. In any suit,
proceeding or action brought by the Agent for the benefit of the Lenders under
any Assigned Contract for any sum owing thereunder or to enforce any provision
thereof, each Borrower shall indemnify and hold the Agent and Lenders harmless
from and against all expense, loss or damage suffered by reason of any defense,
setoff, counterclaims, recoupment, or reduction of liability whatsoever of the
obligor thereunder arising out of a breach by either Borrower of any obligation
thereunder or arising out of any other agreement, indebtedness or liability at
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any time owing from either Borrower to or in favor of such obligor or its
successors. All such obligations of each Borrower shall be and remain
enforceable only against the Borrowers and shall not be enforceable against the
Agent or the Lenders. Notwithstanding any provision hereof to the contrary, each
Borrower shall at all times remain liable to observe and perform all of its
duties and obligations under its Assigned Contracts, and the Agent's or any
Lender's exercise of any of their respective rights with respect to the
Collateral shall not release the Borrowers from any of such duties and
obligations. Neither the Agent nor any Lender shall be obligated to perform or
fulfill any of the applicable Borrower's duties or obligations under its
Assigned Contracts or to make any payment thereunder, or to make any inquiry as
to the nature or sufficiency of any payment or property received by it
thereunder or the sufficiency of performance by any party thereunder, or to
present or file any claim, or to take any action to collect or enforce any
performance, any payment of any amounts, or any delivery of any property.
6.13 Documents, Instruments, and Chattel Paper. Each Borrower represents
-----------------------------------------
and warrants to the Agent and the Lenders that (a) all documents, instruments,
and chattel paper describing, evidencing, or constituting Collateral, and all
signatures and endorsements thereon, are and will be complete, valid, and
genuine, and (b) all goods evidenced by such documents, instruments, and chattel
paper are and will be owned by the applicable Borrower, free and clear of all
Liens other than Permitted Liens.
6.14 Right to Cure. The Agent may, in its discretion, and shall, at the
-------------
direction of the Majority Lenders, pay any amount or do any act required of the
Borrowers hereunder or under any other Loan Document in order to preserve,
protect, maintain or enforce the Obligations, the Collateral or the Agent's
Liens therein, and which the Borrowers fail to pay or do, including payment of
any judgment against the Borrowers, any insurance premium, any warehouse charge,
any finishing or processing charge, any landlord's or bailee's claim, and any
other Lien upon or with respect to the Collateral. All payments that the Agent
makes under this Section 6.14 and all out-of-pocket costs and expenses that the
------------
Agent pays or incurs in connection with any action taken by it hereunder shall
be charged to the applicable Borrower's Loan Account as a Revolving Loan. Any
payment made or other action taken by the Agent under this Section 6.14 shall be
------------
without prejudice to any right to assert an Event of Default hereunder and to
proceed thereafter as herein provided.
6.15 Power of Attorney. Each Borrower hereby appoints the Agent and the
-----------------
Agent's designee as the Borrower's attorney, with power: (a) to endorse such
Borrower's name on any checks, notes, acceptances, money orders, or other forms
of payment or security that come into the Agent's or any Lender's possession;
(b) to sign such Borrower's name on any invoice, bill of lading, warehouse
receipt or other document of title relating to any Collateral, on drafts against
customers, on assignments of Accounts, on notices of assignment, financing
statements and other public records and to file any such financing statements by
electronic means with or without a signature as authorized or required by
applicable law or filing procedure; (c) so long as any Event of Default has
occurred and is continuing, to notify the post office authorities to change the
address for delivery of such Borrower's mail to an address designated by the
Agent and to receive, open and dispose of all mail addressed to such Borrower;
(d) to send requests for verification of Accounts to customers or Account
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Debtors; and (e) to do all things necessary to carry out this Agreement. Each
Borrower ratifies and approves all acts of such attorney. None of the Lenders or
the Agent nor their attorneys will be liable for any acts or omissions or for
any error of judgment or mistake of fact or law except for their willful
misconduct or gross negligence. This power, being coupled with an interest, is
irrevocable until this Agreement has been terminated and the Obligations have
been fully satisfied.
6.16 The Agent's and Lenders' Rights, Duties and Liabilities. Each
------------------------------------------------------------
Borrower assumes all responsibility and liability arising from or relating to
the use, sale or other disposition of the Collateral. The Obligations shall not
be affected by any failure of the Agent or any Lender to take any steps to
perfect the Agent's Liens or to collect or realize upon the Collateral, nor
shall loss of or damage to the Collateral release the Borrowers from any of the
Obligations. Following the occurrence and continuation of an Event of Default,
the Agent may (but shall not be required to), and at the direction of the
Majority Lenders shall, without notice to or consent from the Borrowers, sue
upon or otherwise collect, extend the time for payment of, modify or amend the
terms of, compromise or settle for cash, credit, or otherwise upon any terms,
grant other indulgences, extensions, renewals, compositions, or releases, and
take or omit to take any other action with respect to the Collateral, any
security therefor, any agreement relating thereto, any insurance applicable
thereto, or any Person liable directly or indirectly in connection with any of
the foregoing, without discharging or otherwise affecting the liability of the
Borrowers for the Obligations or under this Agreement or any other agreement now
or hereafter existing between the Agent and/or any Lender and either Borrower.
ARTICLE 7.
BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES
-------------------------------------------------
7.1 Books and Records. Each Borrower shall maintain, at all times,
------------------
correct and complete books, records and accounts in which complete, correct and
timely entries are made of its transactions in accordance with GAAP applied
consistently with the audited Financial Statements required to be delivered
pursuant to Section 7.2(a). Each Borrower shall, by means of appropriate
---------------
entries, reflect in such accounts and in all Financial Statements proper
liabilities and reserves for all taxes and proper provision for depreciation and
amortization of property and bad debts, all in accordance with GAAP. Each
Borrower shall maintain at all times books and records pertaining to the
Collateral in such detail, form and scope as the Agent or any Lender shall
reasonably require, including, but not limited to, records of (a) all payments
received and all credits and extensions granted with respect to the Accounts;
and (b) all other dealings affecting the Collateral.
7.2 Financial Information. Each Borrower shall promptly furnish to each
---------------------
Lender, all such financial information as the Agent shall reasonably request.
Without limiting the foregoing, the Borrowers will furnish to the Agent and each
Lender, in such detail as the Agent or the Lenders shall request, the following:
(a) (i) As soon as available, but in any event within one hundred
(100) days after the close of each Fiscal Year, consolidated audited balance
sheets, and statements of income and expense, cash flow and of stockholders'
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equity for IMS and its Subsidiaries for such Fiscal Year, and the accompanying
notes thereto, setting forth in each case in comparative form figures for the
previous Fiscal Year, and consolidating unaudited balance sheets and statements
of income and expense for IMS and its Subsidiaries for such Fiscal Year, all of
the foregoing to be in reasonable detail, fairly presenting the financial
position and the results of operations of IMS and its consolidated Subsidiaries
as at the date thereof and for the Fiscal Year then ended, and prepared in
accordance with GAAP. Such statements shall be examined in accordance with
generally accepted auditing standards by and, in the case of such statements
performed on a consolidated basis, accompanied by a report thereon unqualified
in any respect (except for any qualification relating to the accounting for
Neoax Investments, Inc. (which was merged into IMS on June 30, 1999) for any
period prior to June 30, 1999 and any qualification to the effect that IMS's
current independent certified public accounts may rely on the work papers of
IMS's prior independent certified public accountants) of independent certified
public accountants selected by IMS and reasonably satisfactory to the Agent.
IMS, simultaneously with retaining such independent public accountants to
conduct such annual audit, shall send a letter to such accountants, with a copy
to the Agent and the Lenders, notifying such accountants that one of the primary
purposes for retaining such accountants' services and having audited financial
statements prepared by them is for use by the Agent and the Lenders. IMS and
each of its Subsidiaries hereby authorizes the Agent to communicate directly
with its certified public accountants and, by this provision, authorizes those
accountants to disclose to the Agent any and all financial statements and other
supporting financial documents and schedules relating to the Borrowers and to
discuss directly with the Agent the finances and affairs of the Borrowers. The
Agent agrees to give the Borrowers the opportunity to participate in any
discussion or other communication with IMS's accountants.
(ii) As soon as available, but in any event within ninety-
three (93) days after the close of each Fiscal Year, consolidated audited
balance sheets, and statements of income and expense, cash flow and of
stockholders' equity for Envirosource and its Subsidiaries for such Fiscal Year
and consolidating unaudited balance sheets and statements of income and expense
for Envirosource and its Subsidiaries for such Fiscal Year, and the accompanying
notes thereto, setting forth in each case in comparative form (for the
consolidated statements only) figures for the previous Fiscal Year, all in
reasonable detail, fairly presenting the financial position and the results of
operations of Envirosource and its consolidated Subsidiaries as at the date
thereof and for the Fiscal Year then ended, and prepared in accordance with
GAAP. Such statements shall be examined in accordance with generally accepted
auditing standards by and, in the case of such statements performed on a
consolidated basis, accompanied by a report thereon unqualified in any respect
(except for any qualification relating to the accounting for Neoax Investments,
Inc. (which was merged into the Borrower on June 30, 1999) for any period prior
to June 30, 1999 and any qualification to the effect that Envirosource's current
independent certified public accountants may rely on work papers of
Envirosource's prior independent certified public accountants) of independent
certified public accountants selected by Envirosource and reasonably
satisfactory to the Agent. Envirosource, simultaneously with retaining such
independent public accountants to conduct such annual audit, shall send a letter
to such accountants, with a copy to the Agent and the Lenders, notifying such
accountants that one of the primary purposes for retaining such accountants'
services and having audited financial statements prepared by them is for use by
the Agent and the Lenders.
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(b) (i) As soon as available, but in any event not later than
thirty (30) days after the end of each month, consolidated condensed and
consolidating unaudited balance sheets of IMS and its consolidated Subsidiaries
as at the end of such month, and consolidated condensed and consolidating
unaudited statements of income and expense for IMS and its consolidated
Subsidiaries for such month and for the period from the beginning of the Fiscal
Year to the end of such month, all in reasonable detail, fairly presenting the
financial position and results of operations of IMS and its consolidated
Subsidiaries as at the date thereof and for such periods, and prepared in
accordance with GAAP applied consistently with the audited Financial Statements
required to be delivered pursuant to Section 7.2(a), except for the absence of
--------------
footnotes. IMS shall certify by a certificate signed by its chief financial
officer that all such statements have been prepared in accordance with GAAP ,
except for the absence of footnotes, and present fairly, subject to normal
year-end adjustments, the Borrower's financial position as at the dates thereof
and its results of operations for the periods then ended, except for the absence
of footnotes.
(ii) As soon as available, but in any event not later than
thirty (30) days after the end of each month, consolidated condensed and
consolidating unaudited balance sheets of Envirosourse and its consolidated
Subsidiaries as at the end of such month, and consolidated condensed and
consolidating unaudited statements of income and expense for Envirosource and
its consolidated Subsidiaries for such month and for the period from the
beginning of the Fiscal Year to the end of such month, all in reasonable detail,
fairly presenting the financial position and results of operations of
Envirosource and its consolidated Subsidiaries as at the date thereof and for
such periods, and prepared in accordance with GAAP applied consistently with the
audited Financial Statements required to be delivered pursuant to Section
-------
7.2(a), except for the absence of footnotes. Envirosource shall certify by a
- ------
certificate signed by its chief financial officer that all such statements have
been prepared in accordance with GAAP and present fairly, subject to normal
year-end adjustments, Envirosource's financial position as at the dates thereof
and its results of operations for the periods then ended, except for the absence
of footnotes.
(c) (i) As soon as available, but in any event within fifty-five
(55) days after the close of each fiscal quarter other than the fourth quarter
of a Fiscal Year, consolidated condensed and consolidating unaudited balance
sheets of IMS and its consolidated Subsidiaries as at the end of such quarter,
and consolidated condensed and consolidating unaudited statements of income and
expense for IMS and its Subsidiaries for such quarter and for the period from
the beginning of the Fiscal Year to the end of such quarter, all in reasonable
detail, fairly presenting the financial position and results of operation of IMS
and its Subsidiaries as at the date thereof and for such periods, prepared in
accordance with GAAP consistent with the audited Financial Statements required
to be delivered pursuant to Section 7.2(a), except for the absence of footnotes.
--------------
IMS shall certify by a certificate signed by its chief financial officer that
all such statements have been prepared in accordance with GAAP and present
fairly, subject to normal year-end adjustments, IMS' financial position as at
the dates thereof and its results of operations for the periods then ended,
except for the absence of footnotes.
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(ii) As soon as available, but in any event within forty-
eight (48) days after the close of each fiscal quarter other than the fourth
quarter of a Fiscal Year, consolidated condensed and consolidating unaudited
balance sheets of Envirosource and its consolidated Subsidiaries as at the end
of such quarter, and consolidated condensed and consolidating unaudited
statements of income and expense and consolidated statement of cash flows, in
each case for Envirosource and its Subsidiaries for such quarter and for the
period from the beginning of the Fiscal Year to the end of such quarter, all in
reasonable detail, fairly presenting the financial position and results of
operation of Envirosource and its Subsidiaries as at the date thereof and for
such periods, prepared in accordance with GAAP consistent with the audited
Financial Statements required to be delivered pursuant to Section 7.2(a).
---------------
Envirosource shall certify by a certificate signed by its chief financial
officer that all such statements have been prepared in accordance with GAAP and
present fairly, subject to normal year-end adjustments, Envirosource's financial
position as at the dates thereof and its results of operations for the periods
then ended.
(d) With each of the audited Financial Statements delivered
pursuant to Section 7.2(a), a certificate of the independent certified public
--------------
accountants that examined such statement to the effect that they have reviewed
and are familiar with this Agreement and that, in examining such Financial
Statements, they did not become aware of any fact or condition which then
constituted a Default or Event of Default with respect to a financial covenant,
except for those, if any, described in reasonable detail in such certificate.
(e) With each of the annual audited Financial Statements delivered
pursuant to Section 7.2(a), and within forty-eight (48) days after the end of
--------------
each fiscal quarter, a certificate of the chief financial officer of IMS (i)
setting forth in reasonable detail the calculations required to establish that
the Borrowers were in compliance with the covenants set forth in Sections 9.23
through 9.26 during the period covered in such Financial Statements and as at
the end thereof, and (ii) stating that, except as explained in reasonable detail
in such certificate, (A) all of the representations and warranties of the
Borrowers contained in this Agreement and the other Loan Documents are correct
and complete in all material respects as at the date of such certificate as if
made at such time, except for those that speak as of a particular day, (B) each
Borrower is, at the date of such certificate, in compliance in all material
respects with all of its respective covenants and agreements in this Agreement
and the other Loan Documents, (C) no Default or Event of Default then exists or
existed during the period covered by such Financial Statements and (D)
describing and analyzing in reasonable detail material trends, changes, and
developments in Financial Statements. If such certificate discloses that a
representation or warranty is not correct or complete, or that a covenant has
not been complied with, or that a Default or Event of Default existed or exists,
such certificate shall set forth what action the Borrowers have taken or propose
to take with respect thereto.
(f) No later than thirty (30) days after the beginning of each
Fiscal Year, annual forecasts (to include forecasted consolidated balance
sheets, statements of income and expenses and statements of cash flow) for IMS
and its Subsidiaries as at the end of and for each month of such Fiscal Year.
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<PAGE>
(g) Intentionally omitted.
(h) Promptly upon the filing thereof, copies of all reports, if
any, to or other documents filed by Envirosource or any of its Subsidiaries with
the Securities and Exchange Commission under the Exchange Act, and all reports,
notices, or statements sent or received by the Parent or any of its Subsidiaries
to or from the holders of any equity interests of the Parent (other than routine
non-material correspondence sent by shareholders of the Borrower to the
Borrower) or any such Subsidiary or of any Debt for Borrowed Money of
Envirosource or any of its Subsidiaries registered under the Securities Act of
1933 or to or from the trustee under any indenture under which the same is
issued.
(i) As soon as available, but in any event not later than 30 days
after the Borrower's receipt thereof, a copy of all management reports and
management letters prepared for IMS by any independent certified public
accountants of IMS.
(j) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which Envirosource or the
Borrowers makes available to its shareholders.
(k) At the request of the Agent, promptly after filing with the
IRS, a copy of each tax return filed by IMS or by any of its Subsidiaries.
(l) Such additional information as the Agent and/or any Lender may
from time to time reasonably request regarding the financial and business
affairs of IMS or any Subsidiary.
7.3 Notices to the Lenders. The Borrowers shall notify the Agent and the
----------------------
Lenders in writing of the following matters at the following times:
(a) Promptly, but in any event not later than three Business Days
after becoming aware of any Default or Event of Default.
(b) Promptly, but in any event not later than three Business Days
after becoming aware of the assertion by the holder of any capital stock of IMS
or of any Subsidiary or of any Debt in excess of $500,000 that a default exists
with respect thereto or that IMS or such Subsidiary is not in compliance with
the terms thereof, or the threat or commencement by such holder of any
enforcement action because of such asserted default or non-compliance.
(c) Promptly, but in any event not later than three Business Days
after becoming aware of any material adverse change in IMS's and its
Subsidiaries' (taken as a whole) business, operations, or condition (financial
or otherwise).
(d) Promptly, but in any event not later than three Business Days
after becoming aware of any pending or threatened action, suit, or proceeding,
by any Person, or any pending or threatened investigation by a Governmental
Authority, which could reasonably be expected to materially and adversely affect
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<PAGE>
the Collateral, the repayment of the Obligations, the Agent's or any Lender's
rights under the Loan Documents, or IMS's and its Subsidiaries' (taken as a
whole) property, business, operations, or condition (financial or otherwise).
(e) Promptly, but in any event not later than three Business Days
after becoming aware of any pending or threatened strike, work stoppage, unfair
labor practice claim, or other labor dispute affecting IMS or any of its
Subsidiaries in a manner which could reasonably be expected to have a Material
Adverse Effect.
(f) Promptly, but in any event not later than three Business Days
after becoming aware of any violation of any law, statute, regulation, or
ordinance of a Governmental Authority affecting IMS or any subsidiary which
could reasonably be expected to have a Material Adverse Effect.
(g) Promptly, but in any event not later than three Business Days
after receipt of any notice of any violation by IMS or any of its Subsidiaries
of any Environmental Law which could reasonably be expected to have a Material
Adverse Effect or that any Governmental Authority has asserted that IMS or any
Subsidiary is not in compliance with any Environmental Law or is investigating
IMS's or such Subsidiary's compliance therewith and which, in either case, is
reasonably likely to give rise to liability in excess of $2,500,000.
(h) Promptly, but in any event not later than three Business Days
after receipt of any written notice that IMS or any of its Subsidiaries is or
may be liable to any Person as a result of the Release or threatened Release of
any Contaminant or that IMS or any Subsidiary is subject to investigation by any
Governmental Authority evaluating whether any remedial action is needed to
respond to the Release or threatened Release of any Contaminant which, in either
case, is reasonably likely to give rise to liability in excess of $2,500,000.
(i) Promptly, but in any event not later than three Business Days
after receipt of any written notice of the imposition of any Environmental Lien
against any property of IMS or any of its Subsidiaries.
(j) Any change in either Borrower's name, state of organization, or
form of organization, trade names under which either Borrower will sell
Inventory or create Accounts, or to which instruments in payment of Accounts may
be made payable, in each case at least thirty (30) days prior thereto.
(k) Within ten (10) Business Days after either or any ERISA
Affiliate knows or has reason to know, that an ERISA Event or a prohibited
transaction (as defined in Sections 406 of ERISA and 4975 of the Code) has
occurred, and, when known, any action taken or threatened by the IRS, the DOL or
the PBGC with respect thereto.
(l) Upon request, or, in the event that such filing reflects a
significant change with respect to the matters covered thereby, within three (3)
Business Days after the filing thereof with the PBGC, the DOL or the IRS, as
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<PAGE>
applicable, copies of the following: (i) each annual report (form 5500 series),
including Schedule B thereto, filed with the PBGC, the DOL or the IRS with
respect to each Plan, (ii) a copy of each funding waiver request filed with the
PBGC, the DOL or the IRS with respect to any Plan and all communications
received by any Borrower or any ERISA Affiliate from the PBGC, the DOL or the
IRS with respect to such request, and (iii) a copy of each other filing or
notice filed with the PBGC, the DOL or the IRS, with respect to each Plan of
either Borrower or any ERISA Affiliate.
(m) Upon request, copies of each actuarial report for any Plan or
Multi-employer Plan and annual report for any Multi-employer Plan; and within
three (3) Business Days after receipt thereof by either Borrower or any ERISA
Affiliate, copies of the following: (i) any notices of the PBGC's intention to
terminate a Plan or to have a trustee appointed to administer such Plan; (ii)
any favorable or unfavorable determination letter from the IRS regarding the
qualification of a Plan under Section 401(a) of the Code; or (iii) any notice
from a Multi-employer Plan regarding the imposition of withdrawal liability.
(n) Within thirty (30) days after the occurrence thereof: (i) any
changes in the benefits of any existing Plan which increase either Borrower's
annual costs with respect thereto by an amount in excess of $1,000,000 greater
than that budgeted, or the establishment of any new Plan or the commencement of
contributions to any Plan to which either Borrower or any ERISA Affiliate was
not previously contributing; or (ii) any failure by either Borrower or any ERISA
Affiliate to make a required installment or any other required payment under
Section 412 of the Code on or before the due date for such installment or
payment.
(o) Within three (3) Business Days after either Borrower or any
ERISA Affiliate knows or has reason to know that any of the following events has
or will occur: (i) a Multi-employer Plan has been or will be terminated; (ii)
the administrator or plan sponsor of a Multi-employer Plan intends to terminate
a Multi-employer Plan; or (iii) the PBGC has instituted or will institute
proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan.
Each notice given under this Section shall describe the
subject matter thereof in reasonable detail, and shall set forth the action that
either Borrower, any Subsidiary, or any ERISA Affiliate, as applicable, has
taken or proposes to take with respect thereto.
ARTICLE 8
GENERAL WARRANTIES AND REPRESENTATIONS
--------------------------------------
The Borrowers warrants and represents to the Agent and the
Lenders that except as hereafter disclosed to and accepted by the Agent and the
Majority Lenders in writing:
8.1 Authorization, Validity, and Enforceability of this Agreement and
-------------------------------------------------------------------
the Loan Documents. Each Borrower has the corporate power and authority to
- -------------------
execute, deliver and perform this Agreement and the other Loan Documents, to
66
<PAGE>
incur the Obligations, and to grant to the Agent Liens upon and security
interests in the Collateral. Each Borrower has taken all necessary corporate
action (including obtaining approval of its stockholders if necessary) to
authorize its execution, delivery, and performance of this Agreement and the
other Loan Documents to which it is a party. This Agreement and the other Loan
Documents have been duly executed and delivered by each Borrower, and constitute
the legal, valid and binding obligations of each Borrower, enforceable against
it in accordance with their respective terms without defense, setoff or
counterclaim, except, with respect to enforceability, as affected by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors'
rights generally and general principles of equity. Each Borrower's execution,
delivery, and performance of this Agreement and the other Loan Documents do not
and will not conflict with, or constitute a violation or breach of, or
constitute a default under, or result in the creation or imposition of any Lien
upon the property of either Borrower or any of their Subsidiaries or
Envirosource by reason of the terms of (a) any contract, mortgage, Lien, lease,
agreement, indenture, or instrument to which either Borrower or Envirosource is
a party or which is binding upon it, (b) any Requirement of Law applicable to
either Borrower or any of their Subsidiaries or Envirosource, or (c) the
certificate or articles of incorporation or by-laws of Envirosource or any of
its Subsidiaries.
Each Affiliate of IMS has the corporate power and authority to
execute, deliver and perform the Loan Documents entered into by such Affiliate.
Each Affiliate of IMS has taken all necessary corporate action (including
obtaining approval of its stockholders if necessary) to authorize its execution,
delivery, and performance of the Loan Documents to which it is a party. Such
Loan Documents have been duly executed and delivered by each Affiliate of IMS,
and constitute the legal, valid and binding obligations of each such Affiliate,
enforceable against it in accordance with their respective terms without
defense, setoff or counterclaim, except, with respect to enforceability, as
affected by bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally and general principles of equity. The
execution, delivery, and performance of the Loan Documents by each such
Affiliate of IMS does not and will not conflict with, or constitute a violation
or breach of, or constitute a default under, or result in the creation or
imposition of any Lien upon any of their respective properties by reason of the
terms of (a) any contract, mortgage, Lien, lease, agreement, indenture, or
instrument, (b) any Requirement of Law, or (c) the certificate or articles of
incorporation or by-laws of Envirosource or any of its Subsidiaries.
8.2 Validity and Priority of Security Interest. The provisions of this
-------------------------------------------
Agreement and the other Loan Documents create legal and valid Liens on all the
Collateral in favor of the Agent, for the ratable benefit of the Agent and the
Lenders, and such Liens constitute perfected and continuing Liens on all the
Collateral (other than motor vehicles covered by certificates of title owned by
IMS as of the Closing Date and motor vehicles covered by certificates of title
acquired by either Borrower after the Closing Date as to which the Agent has not
requested the notation of its Lien thereon at such time), having priority over
all other Liens on the Collateral, except for those Liens identified in clauses
(c), (d) and (e) of the definition of Permitted Liens securing all the
Obligations, and enforceable against the Borrowers and all third parties.
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8.3 Organization and Qualification. Each Borrower and each Subsidiary of
------------------------------
either Borrower (a) is duly incorporated and organized and validly existing in
good standing under the laws of the state of its incorporation, (b) is qualified
to do business as a foreign corporation and is in good standing in the
jurisdictions set forth on Schedule 8.3 which are the only jurisdictions in
-------------
which qualification is necessary in order for it to own or lease its property
and conduct its business other than in jurisdictions the failure to be so
qualified and in good standing would not reasonably be expected to have a
Material Adverse Effect and (c) has all requisite power and authority to conduct
its business and to own its property.
8.4 Corporate Name; Prior Transactions. Except as set forth on Schedule
----------------------------------
8.4, the Borrowers and Services have not, during the past five (5) years, been
known by or used any other corporate or fictitious name, or been a party to any
merger or consolidation, or acquired all or substantially all of the assets of
any Person, or acquired any of its property outside of the ordinary course of
business.
8.5 Subsidiaries and Affiliates. Schedule 8.5 is a correct and complete
--------------------------- ------------
list of the name and relationship to the Borrowers of each and all of the
Borrowers' Subsidiaries and other Affiliates. Each Subsidiary is (a) duly
incorporated and organized and validly existing in good standing under the laws
of its state of incorporation set forth on Schedule 8.5, (b) qualified to do
business as a foreign corporation and in good standing in each jurisdiction in
which the failure to so qualify or be in good standing could reasonably be
expected to have a material adverse effect on any such Subsidiary's business,
operations, prospects, property, or condition (financial or otherwise) and (c)
has all requisite power and authority to conduct its business and own its
property. IMS Waylite, Inc., formerly a Pennsylvania corporation, was merged
into IMS on June 30, 1999.
8.6 Financial Statements and Projections. (a) IMS has delivered to the
-------------------------------------
Agent and the Lenders the audited balance sheet and related statements of
income, retained earnings, cash flows, and changes in stockholders equity for
IMS and its consolidated Subsidiaries as of December 31, 1998, and for the
Fiscal Year then ended, accompanied by the report thereon of the Borrower's
independent certified public accountants at such time, Ernst & Young LLP. IMS
has also delivered to the Agent and the Lenders the unaudited balance sheet and
related statements of income and cash flows for IMS and its consolidated
Subsidiaries as of June 30, 1999. Such financial statements are attached hereto
as Exhibit D. All such financial statements have been prepared in accordance
---------
with GAAP and present accurately and fairly the financial position of IMS and
its consolidated Subsidiaries as at the dates thereof and their results of
operations for the periods then ended.
(b) The Latest Projections when submitted to the Lenders as
required herein represent the Borrowers' best estimate of the future financial
performance of IMS and its consolidated Subsidiaries for the periods set forth
therein. The Latest Projections have been prepared on the basis of the
assumptions set forth therein, which the Borrowers believe are fair and
reasonable in light of current and reasonably foreseeable business conditions at
the time submitted to the Lenders but are not guarantees of future performance.
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<PAGE>
8.7 Capitalization. IMS's authorized capital stock consists of 1,000
--------------
shares of common stock, par value $1.00 per share, of which 1,000 shares are
validly issued and outstanding, fully paid and non-assessable and are owned
beneficially and of record by IU. IMS AB's authorized capital stock consists of
1,000 shares of common stock, par value $1.00 per share, of which 1,000 shares
are validly issued and outstanding, fully paid and non-assessable and are owned
beneficially and of record by IMS.
8.8 Solvency. As of the date of each borrowing and each issuance of a
--------
Letter of Credit hereunder, and after giving effect thereto, each Borrower is
Solvent.
8.9 Debt. On the Closing Date, after giving effect to the making of the
----
Revolving Loans to be made on the Closing Date, IMS and its Subsidiaries have no
Debt, except (a) the Obligations, (b) Debt described on Schedule 8.9, (c) trade
------------
payables and other contractual obligations arising in the ordinary course of
business, and (d) other Debt existing on the Closing Date and reflected in the
Financial Statements attached hereto as Exhibit D.
---------
8.10 Distributions. Since July 31, 1999, except as expressly permitted
-------------
pursuant to Section 9.10 of this Agreement, no Distribution has been declared,
paid, or made upon or in respect of any capital stock or other securities of IMS
or any of its Subsidiaries.
8.11 Title to Property. Each Borrower has good title in fee simple to
------------------
the Real Estate identified on Schedule 8.12 as owned by such Borrower, and each
-------------
Borrower has good, indefeasible, and merchantable title to all of its other
property (including the assets reflected on the June 30, 1999 Financial
Statements delivered to the Agent and the Lenders, except as disposed of in the
ordinary course of business since the date thereof), free of all Liens except
Permitted Liens.
8.12 Real Estate; Leases. Schedule 8.12 sets forth, as of the Closing
-------------------- -------------
Date, a correct and complete list of all Real Estate owned by IMS and of any
real property owned by any of its Subsidiaries, all leases and subleases of real
or personal property held by either Borrower as lessee or sublessee (other than
leases of personal property as to which the Borrower is lessee or sublessee for
which the value of such personal property is less than $500,000), and all leases
and subleases of real or personal property held by either Borrower as lessor, or
sublessor. Each of such leases and subleases is valid and enforceable in
accordance with its terms and is in full force and effect, and no default by any
party to any such lease or sublease exists.
8.13 Proprietary Rights. Schedule 8.13 sets forth a correct and complete
------------------ -------------
list of all of each Borrower's Proprietary Rights. None of the Proprietary
Rights is subject to any licensing agreement or similar arrangement except as
set forth on Schedule 8.13. To the best of each Borrower's knowledge, none of
-------------
the Proprietary Rights infringes on or conflicts with any other Person's
property, and to the best of each Borrower's knowledge no other Person's
property infringes on or conflicts with the Proprietary Rights, in each case
which infringement or conflict could reasonably be expected to have a Material
Adverse Effect. The Proprietary Rights described on Schedule 8.13 constitute all
of the property of such type necessary to the current and anticipated future
conduct of each Borrower's business.
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8.14 Trade Names. All trade names or styles under which each Borrower or
-----------
any of its Subsidiaries will sell Inventory or create Accounts, or to which
instruments in payment of Accounts may be made payable, are listed on Schedule
--------
8.14.
- ----
8.15 Litigation. Except as set forth on Schedule 8.15, there is no
---------- --------------
pending, or to the best of each Borrower's knowledge threatened, action, suit,
proceeding, or counterclaim by any Person, or to the best of each Borrower's
knowledge investigation by any Governmental Authority, or any basis for any of
the foregoing, which could reasonably be expected to cause a Material Adverse
Effect.
8.16 Restrictive Agreements. Neither Borrower is a party to any contract
----------------------
or agreement, or subject to any charter or other corporate restriction, which
affects its ability to execute, deliver, and perform the Loan Documents and
repay the Obligations or which could reasonably be expected to cause a Material
Adverse Effect.
8.17 Labor Disputes. Except as set forth on Schedule 8.17, (a) there is
-------------- -------------
no collective bargaining agreement or other labor contract covering employees of
IMS or any of its Subsidiaries, (b) no such collective bargaining agreement or
other labor contract is scheduled to expire during the term of this Agreement,
which expiration could reasonably be expected to cause a Material Adverse
Effect, (c) to the best knowledge of each Borrower, no union or other labor
organization is seeking to organize, or to be recognized as, a collective
bargaining unit of employees of IMS or any of its Subsidiaries or for any
similar purpose, which organization or recognition could reasonably be expected
to cause a Material Adverse Effect, and (d) there is no pending or (to the best
of each Borrower's knowledge) threatened, strike work stoppage, material unfair
labor practice claim, or other labor dispute against or affecting IMS or its
Subsidiaries or their employees, which could reasonably be expected to cause a
Material Adverse Effect.
8.18 Environmental Laws. Except as otherwise disclosed on Schedule 8.18:
------------------ -------------
(a) IMS and its Subsidiaries have complied in all respects with all
Environmental Laws and neither IMS nor any Subsidiary nor any of its presently
owned real property or presently conducted operations, nor its previously owned
real property or prior operations, is subject to any enforcement order from or
liability agreement with any Governmental Authority or private Person respecting
(i) compliance with any Environmental Law or (ii) any potential liabilities and
costs or remedial action arising from the Release or threatened Release of a
Contaminant, in each case which could reasonably be expected to cause a Material
Adverse Effect.
(b) IMS and its Subsidiaries have obtained all permits necessary
for their current operations under Environmental Laws or have applied for
renewals thereof, and all such permits are in good standing and IMS and its
Subsidiaries are in compliance with all material terms and conditions of such
permits.
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(c) Neither IMS nor any of its Subsidiaries, nor, to the best of
the Borrowers' knowledge, any of its predecessors in interest, has in violation
of applicable law stored, treated or disposed of any hazardous waste, in each
case which could reasonably be expected to cause a Material Adverse Effect.
(d) Neither IMS nor any of its Subsidiaries has received any
summons, complaint, order or similar written notice that it is not currently in
compliance with, or that any Governmental Authority is investigating its
compliance with, any Environmental Laws or that it is or may be liable to any
other Person as a result of a Release or threatened Release of a Contaminant, in
each case which could reasonably be expected to cause a Material Adverse Effect.
(e) To the best of the Borrowers' knowledge, none of the present or
past operations of the Borrower and its Subsidiaries is the subject of any
investigation by any Governmental Authority evaluating whether any remedial
action is needed to respond to a Release or threatened Release of a Contaminant.
(f) There is not now, nor to the best of the Borrowers' knowledge
has there ever been on or in the Real Estate:
(1) any underground storage tanks or surface impoundments,
(2) any asbestos-containing material, or
(3) any polychlorinated biphenyls (PCBs) used in hydraulic
oils, electrical transformers or other equipment,
in each case which could reasonably be expected to cause a Material Adverse
Effect.
(g) Neither IMS nor any of its Subsidiaries has filed any notice
under any requirement of Environmental Law reporting a spill or accidental and
unpermitted Release or discharge of a Contaminant into the environment.
(h) Neither IMS nor any of its Subsidiaries has entered into any
negotiations or settlement agreements with any Person (including the prior owner
of its property) imposing obligations or liabilities on IMS or any of its
Subsidiaries with respect to any remedial action in response to the Release of a
Contaminant or environmentally related claim, in each case which could
reasonably be expected to cause a Material Adverse Effect.
(i) None of the products manufactured, distributed or sold by IMS
or any of its Subsidiaries contain asbestos containing material.
(j) No Environmental Lien has attached to the Real Estate.
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8.19 No Violation of Law. Neither IMS nor any of its Subsidiaries is in
-------------------
violation of any law, statute, regulation, ordinance, judgment, order, or decree
applicable to it which violation could reasonably be expected to have a Material
Adverse Effect.
8.20 No Default. Neither IMS nor any of its Subsidiaries is in default
----------
with respect to any note, indenture, loan agreement, mortgage, lease, deed, or
other agreement to which IMS or such Subsidiary is a party or by which it is
bound, which default could reasonably be expected to have a Material Adverse
Effect.
8.21 ERISA Compliance. Except as specifically disclosed in Schedule
----------------- --------
8.21:
- ----
(a) Each Plan is in compliance in all material respects with the
applicable provisions of ERISA, the Code and other federal or state law. Each
Plan which is intended to qualify under Section 401(a) of the Code has received
a favorable determination letter from the IRS and to the best knowledge of the
Borrowers, nothing has occurred which would cause the loss of such
qualification. The Borrowers and each ERISA Affiliate have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrowers,
threatened claims, actions or lawsuits, or action by any Governmental Authority,
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect. There has been no prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably be expected to result in a Material Adverse
Effect.
(c) No ERISA Event has occurred or is reasonably expected to occur;
no Pension Plan has any Unfunded Pension Liability; neither the Borrowers nor
any ERISA Affiliate has incurred, or reasonably expects to incur, any liability
under Title IV of ERISA with respect to any Pension Plan (other than benefits
due under such Pension Plan and other than premiums due and not delinquent under
Section 4007 of ERISA); neither the Borrowers nor any ERISA Affiliate has
incurred, or reasonably expects to incur, any liability (and no event has
occurred which, with the giving of notice under Section 4219 of ERISA, would
result in such liability) under Section 4201 or 4243 of ERISA with respect to a
Multi-employer Plan; and neither the Borrowers nor any ERISA Affiliate has
engaged in a transaction that could be subject to Section 4069 or 4212(c) of
ERISA.
8.22 Taxes. IMS and its Subsidiaries have filed all federal and all
-----
other material tax returns and reports required to be filed, and have paid all
federal and other taxes, assessments, fees and other governmental charges levied
or imposed upon them or their properties, income or assets otherwise due and
payable unless such unpaid taxes and assessments would constitute a Permitted
Lien.
8.23 Regulated Entities. None of the Borrowers, any Person controlling
------------------
the Borrowers, or any Subsidiary, is an "Investment Company" within the meaning
of the Investment Company Act of 1940. The Borrowers are not subject to
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regulation under the Public Utility Holding Company Act of 1935, the Federal
Power Act, the Interstate Commerce Act, any state public utilities code or law,
or any other federal or state statute or regulation limiting its ability to
incur indebtedness.
8.24 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
-----------------------------------
to be used for working capital and other general corporate purposes. Neither IMS
nor any Subsidiary is engaged in the business of purchasing or selling Margin
Stock or extending credit for the purpose of purchasing or carrying Margin
Stock.
8.25 Copyrights, Patents, Trademarks and Licenses, etc. The Borrowers
----------------------------------------------------
own or are licensed or otherwise have the right to use all of the patents,
trademarks, service marks, trade names, copyrights, contractual franchises,
licenses, rights of way, authorizations and other rights that are necessary for
the operation of their businesses, without conflict with the rights of any other
Person, except any conflict which could not reasonably be expected to have a
Material Adverse Effect. To the best knowledge of the Borrowers, no slogan or
other advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by the Borrowers or
any Subsidiary infringes upon any rights held by any other Person. No claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the Borrowers,
proposed, which, in either case, could reasonably be expected to have a Material
Adverse Effect.
8.26 No Material Adverse Change. No material adverse change has occurred
--------------------------
in the Borrowers' property, business, operations, or conditions (financial or
otherwise) since the date of the Financial Statements delivered to the Lenders
for Borrower's Fiscal Year ended December 31, 1998, other than the non-renewal
of certain contracts with customers, which non-renewals have been previously
disclosed in writing to the Agent. On the basis of a comprehensive review and
assessment undertaken by IMS of Borrowers' computers and computer applications
and inquiry made of Borrowers' material suppliers, vendors and customers
Borrowers reasonably believe that the "Year 2000 problem" (that is, the risk
that computers and computer applications used by any Person may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999) will not result in a Material
Adverse Effect.
8.27 Full Disclosure. None of the representations or warranties made by
---------------
IMS or any Subsidiary in the Loan Documents as of the date such representations
and warranties are made or deemed made, and none of the statements contained in
any exhibit, report, statement or certificate furnished by or on behalf of IMS
or any Subsidiary in connection with the Loan Documents (including the offering
and disclosure materials delivered by or on behalf of IMS to the Lenders prior
to the Closing Date), contains any untrue statement of a material fact or omits
any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they are
made, not misleading as of the time when made or delivered.
8.28 Material Agreements. Except as set forth in the next sentence,
--------------------
Schedule 8.28 hereto sets forth all agreements and contracts to which IMS or any
of its Subsidiaries is a party or is bound as of the date hereof, which create
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revenue to the Borrowers or cost or liability to the Borrowers in excess of
$1,500,000. All contracts with customers are available to the Agent and the
Lenders upon request.
8.29 Bank Accounts. Schedule 8.29 contains a complete and accurate list
-------------
of all bank accounts maintained by the Borrowers with any bank or other
financial institution.
8.30 Governmental Authorization. No approval, consent, exemption,
---------------------------
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or other Person is necessary or required in connection
with the execution, delivery or performance by, or enforcement against, IMS or
any of its Subsidiaries of this Agreement or any other Loan Document other than
any filings with Governmental Authorities to perfect to Agent's Lien on any
Collateral.
8.31 Envirosource Letters of Credit. The Letters of Credit issued for
-------------------------------
the account of Envirosource that are Letters of Credit hereunder are set forth
on Schedule 8.31 hereto. IMS and its business account for not less than ninety
percent (90%) of the face amount of the Letters of Credit with respect to the
matters covered thereby.
8.32 No Liability for Senior Notes. Neither IMS nor any of its
---------------------------------
Subsidiaries has any liability on or with respect to the Senior Notes or the
Senior Notes Indentures.
ARTICLE 9
AFFIRMATIVE AND NEGATIVE COVENANTS
----------------------------------
The Borrowers covenant to the Agent and each Lender that so
long as any of the Obligations remain outstanding or this Agreement is in
effect:
9.1 Taxes and Other Obligations. IMS shall, and shall cause each of its
---------------------------
Subsidiaries to, (a) file when due all tax returns and other reports which it is
required to file; (b) pay, or provide for the payment, when due, of all taxes,
fees, assessments and other governmental charges against it or upon its
property, income and franchises, make all required withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
provide to the Agent and the Lenders, upon request, satisfactory evidence of its
timely compliance with the foregoing; and (c) pay when due all material Debt
owed by it (other than Debt for Borrowed Money as to which the failure to pay
would not constitute an Event of Default under Section 11.1(d) and all accounts
payable which shall be paid in accordance with industry norms) and all claims of
materialmen, mechanics, carriers, warehousemen, landlords, processors and other
like Persons, and all other indebtedness owed by it and perform and discharge in
a timely manner all other obligations undertaken by it; provided, however, so
-------- -------
long as the applicable Borrower has notified the Agent in writing, neither IMS
nor any of its Subsidiaries need pay any tax, fee, assessment, or governmental
charge, or claim of materialmen, mechanics, carriers, warehousemen, landlords
and other like Persons that (i) it is contesting in good faith by appropriate
proceedings diligently pursued, (ii) IMS or its Subsidiary, as the case may be,
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has established proper reserves for as provided in GAAP, and (iii) no Lien
(other than a Permitted Lien) results from such non-payment.
9.2 Corporate Existence and Good Standing. IMS shall, and shall cause
--------------------------------------
each of its Subsidiaries to, maintain its corporate existence and its
qualification and good standing in all jurisdictions in which the failure to
maintain such existence and qualification or good standing could reasonably be
expected to have a Material Adverse Effect.
9.3 Compliance with Law and Agreements; Maintenance of Licenses. IMS
--------------------------------------------------------------
shall comply, and shall cause each Subsidiary to comply, in all respects with
all Requirements of Law of any Governmental Authority having jurisdiction over
it or its business (including the Federal Fair Labor Standards Act), except
where the failure to comply could not reasonably be expected to have a Material
Adverse Effect. IMS shall, and shall cause each of its Subsidiaries to, obtain
and maintain all licenses, permits, franchises, and governmental authorizations
necessary to own its property and to conduct its business as conducted on the
Closing Date except where the failure to do so could not reasonably be expected
to have a Material Adverse Effect. The Borrowers shall not modify, amend or
alter their respective certificate or article of incorporation other than in a
manner which does not adversely affect the rights of the Lenders or the Agent.
9.4 Maintenance of Property. IMS shall, and shall cause each of its
-------------------------
Subsidiaries to, maintain all of its property necessary and useful in the
conduct of its business, in good operating condition and repair, ordinary wear
and tear excepted.
9.5 Insurance. IMS shall maintain, and shall cause each of its
---------
Subsidiaries to maintain, with financially sound and reputable insurers having a
rating of at least AVII or better by Best Rating Guide, insurance against loss
or damage by fire with extended coverage; theft, burglary, pilferage and loss in
transit; public liability and third party property damage; larceny, embezzlement
or other criminal liability; business interruption; public liability and third
party property damage; and such other hazards or of such other types as is
customary for Persons engaged in the same or similar business, as the Agent, in
its discretion, shall specify, in amounts, and under policies acceptable to the
Agent and the Majority Lenders. Without limiting the foregoing, IMS shall also
maintain, and shall cause each of its Subsidiaries to maintain, flood insurance,
in the event the area in which any Real Estate covered by the Mortgages (if any)
and any of the Equipment located on such Real Estate is designated as "flood
prone" or a "flood risk area," (hereinafter "SFHA") as defined by the Flood
Disaster Protection Act of 1973, in an amount to be reasonably determined by the
Agent, and shall comply with the additional requirements of the National Flood
Insurance Program as set forth in said Act. The Borrowers shall also maintain
flood insurance for its Equipment which is, at any time, located in a SFHA.
(b) The Borrowers shall cause the Agent, for the ratable benefit of
the Agent and the Lenders, to be named as secured party or mortgagee and sole
loss payee or additional insured, in a manner acceptable to the Agent. Each
policy of insurance shall contain a clause or endorsement requiring the insurer
to give not less than thirty (30) days' prior written notice to the Agent in the
event of cancellation of the policy for any reason whatsoever and a clause or
endorsement stating that the interest of the Agent shall not be impaired or
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invalidated by any act or neglect of the Borrowers or any of their Subsidiaries
or the owner of any Real Estate for purposes more hazardous than are permitted
by such policy. All premiums for such insurance shall be paid by the Borrowers
when due, and certificates of insurance and, upon request of the Agent,
photocopies of the policies, shall be delivered to the Agent. If the Borrowers
fail to procure such insurance or to pay the premiums therefor when due, the
Agent may, and at the direction of the Majority Lenders shall, do so from the
proceeds of Revolving Loans.
(c) The Borrowers shall promptly notify the Agent and the Lenders
of any material loss, damage, or destruction to the Collateral, whether or not
covered by insurance. The Agent is hereby authorized to collect all insurance
proceeds in respect of Collateral directly and to apply or remit them as
follows:
(i) With respect to insurance proceeds relating to Collateral
other than Fixed Assets, after deducting from such proceeds the reasonable
expenses, if any, incurred by the Agent in the collection or handling thereof,
the Agent shall apply such proceeds, ratably, to the reduction of the
Obligations in the order provided for in Section 4.8.
-----------
(ii) With respect to insurance proceeds relating to Collateral
consisting of Fixed Assets, after deducting from such proceeds the reasonable
expenses, if any, incurred by the Agent in the collection or handling thereof,
the Agent shall apply such proceeds, ratably, to the reduction of the
Obligations, or at the option of the Majority Lenders, may permit or require the
Borrowers to use such money, or any part thereof, to replace, repair, restore or
rebuild the relevant Fixed Assets in a diligent and expeditious manner with
materials and workmanship of substantially the same quality as existed before
the loss, damage or destruction; provided, however, that so long as there does
-------- -------
not then exist any Default or Event of Default, the Borrowers shall be permitted
to use insurance proceeds relating to Collateral consisting of Fixed Assets in
an aggregate amount not to exceed $250,000 with respect to any occurrence, to
replace, repair, restore or rebuild the relevant Fixed Assets, in the manner set
forth in this sentence; and provided, further, that the Borrowers first (i) to
-------- -------
the extent applicable, provides the Agent and the Majority Lenders with plans
and specifications for any such repair or restoration which shall be reasonably
satisfactory to the Agent and the Majority Lenders and (ii) demonstrates to the
reasonable satisfaction of the Agent and the Majority Lenders that the funds
available to it will be sufficient to complete such project in the manner
provided therein.
9.6 Intentionally Omitted
9.7 Environmental Laws. (a) IMS shall, and shall cause each of its
-------------------
Subsidiaries to, conduct its business in compliance with all Environmental Laws
applicable to it, including those relating to the generation, handling, use,
storage, and disposal of any Contaminant. IMS shall, and shall cause each of its
Subsidiaries to, take prompt and appropriate action to respond to any
non-compliance with Environmental Laws and shall regularly report to the Agent
on such response.
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(b) Without limiting the generality of the foregoing, the Borrowers
shall submit to the Agent and the Lenders annually, commencing on the first
Anniversary Date, and on each Anniversary Date thereafter, an update of the
status of each environmental compliance or liability issue. The Agent or any
Lender may request copies of technical reports prepared by the Borrowers and its
communications with any Governmental Authority to determine whether IMS or any
of its Subsidiaries is proceeding reasonably to correct, cure or contest in good
faith any alleged non-compliance or environmental liability. The Borrowers
shall, at the Agent's or the Majority Lenders' request and at the Borrowers'
expense, (i) retain an independent environmental engineer acceptable to the
Agent to evaluate the site, including tests if appropriate, where the
non-compliance or alleged non-compliance with Environmental Laws has occurred
and prepare and deliver to the Agent, in sufficient quantity for distribution by
the Agent to the Lenders, a report setting forth the results of such evaluation,
a proposed plan for responding to any environmental problems described therein,
and an estimate of the costs thereof, and (ii) provide to the Agent and the
Lenders a supplemental report of such engineer whenever the scope of the
environmental problems, or the response thereto or the estimated costs thereof,
shall change in any material respect.
9.8 Compliance with ERISA. IMS shall, and shall cause each of its ERISA
---------------------
Affiliates to: (a) maintain each Plan in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law; (b) cause each Plan which is qualified under Section 401(a) of the Code to
maintain such qualification; (c) make all required contributions to any Plan
subject to Section 412 of the Code; (d) not engage in a prohibited transaction
or violation of the fiduciary responsibility rules with respect to any Plan; and
(e) not engage in a transaction that could be subject to Section 4069 or 4212(c)
of ERISA.
9.9 Mergers, Consolidations or Sales. Neither IMS nor any of its
-----------------------------------
Subsidiaries shall enter into any transaction of merger, reorganization, or
consolidation, or transfer, sell, assign, lease, or otherwise dispose of all or
any part of its property, or wind up, liquidate or dissolve, or agree to do any
of the foregoing, except (i) for sales of Inventory in the ordinary course of
its business, (ii) for sales or other dispositions of Equipment in the ordinary
course of business that are obsolete, surplus or no longer useable by either
Borrower in its business as permitted by Section 6.11, (iii) for spot rentals
-------------
and other leases of equipment to Account Debtors, in each case, in the ordinary
course of business to the extent permitted under Section 6.11, (iv) for sales of
equipment subject to purchase options but only to the extent permitted under
Section 6.11, (v) for sale leaseback transactions permitted under Section 9.20,
(vi) for sales, leases, assignments or other transfers of equipment and other
tangible property, contracts, intangibles or similar assets to Envirosource or
Parent, provided that (A) IMS determines in good faith that such disposition is
necessary or appropriate to accomplish a reasonable business objective of
Envirosource and its Subsidiaries and such disposition is not disadvantageous to
the Lenders in any material respect and (B) the aggregate amount of all such
dispositions to Envirosource and Parent shall not exceed $1,000,000, (vii) for
transfers of Equipment between Borrowers and (viii) for the merger of Services
and/or IMS AB into IMS. The inclusion of proceeds in the definition of
Collateral shall not be deemed to constitute the Agent's or any Lender's consent
to any sale or other disposition of the Collateral except as expressly permitted
herein.
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9.10 Distributions; Capital Change; Restricted Investments. Neither IMS
------------------------------------------------------
nor any of its Subsidiaries shall (i) directly or indirectly declare or make, or
incur any liability to make, any Distribution, except Distributions to IMS by
its Subsidiaries, (ii) make any change in its capital structure which could have
a Material Adverse Effect or (iii) make any Restricted Investment other than the
incurrence of trade credit in the ordinary course of business and loans and
advances to Parent and/or Envirosource to the extent that such loans and
advances are evidenced by intercompany notes which are subject to the Agent's
Liens; provided that so long as no Event of Default has occurred and is
continuing, (a) IMS and its Subsidiaries may declare and pay dividends to Parent
or Envirosource, (b) IMS may make loans to employees in the ordinary course of
business not to exceed an aggregate of $500,000 outstanding at any time, (c) IMS
may deposit trust funds in the ordinary course of its business in connection
with the closure of certain properties, such deposits not to exceed $1,000,000
in the aggregate at any time and (d) IMS may maintain its existing investment in
its Subsidiaries and may invest up to $25,000,000 in the aggregate in cash and
property in IMS AB after the Closing Date.
9.11 Transactions Affecting Collateral or Obligations. Neither IMS nor
-------------------------------------------------
any of its Subsidiaries shall enter into any transaction which would be
reasonably expected to have a Material Adverse Effect.
9.12 Guaranties. Neither IMS nor any of its Subsidiaries shall make,
----------
issue, or become liable on any Guaranty, except Guaranties of the Obligations in
favor of the Agent and Guaranties by IMS of obligations of IMS AB and Services
in the ordinary course of business.
9.13 Debt. Neither IMS nor any of its Subsidiaries shall incur or
----
maintain any Debt, other than: (a) the Obligations; (b) trade payables and
contractual obligations to suppliers and customers arising in the ordinary
course of business; (c) other Debt existing on the Closing Date and reflected in
the Financial Statements attached hereto as Exhibit D; (d) Debt described on
---------
Schedule 8.9; (e) Debt secured by Purchase Money Liens; (f) Debt borrowed from
- ------------
Affiliates after the Closing Date; (g) insurance premium financing; (h) Debt in
respect of Guaranties permitted under Section 9.12; and (i) unsecured Debt for
Borrowed Money in an amount not to exceed $5,000,000 in the aggregate
outstanding at any time.
9.14 Prepayment. Neither IMS nor any of its Subsidiaries shall
----------
voluntarily prepay any Debt, except (a) the Obligations in accordance with the
terms of this Agreement, (b) trade Debt to take advantage of trade discounts in
the ordinary course of business and (c) prepayment of Intercompany Accounts.
9.15 Transactions with Affiliates. Except as set forth below, and except
----------------------------
as expressly permitted pursuant to Sections 9.9(vi), 9.9(vii), 9.9(viii), 9.10,
9.12 and 9.13, neither IMS nor any of its Subsidiaries shall, sell, transfer,
distribute, or pay any money or property, including, but not limited to, any
fees or expenses of any nature (including, but not limited to, any fees or
expenses for management services), to any Affiliate, or lend or advance money or
property to any Affiliate, or invest in (by capital contribution or otherwise)
or purchase or repurchase any stock or indebtedness, or any property, of any
Affiliate, or become liable on any Guaranty of the indebtedness, dividends, or
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other obligations of any Affiliate. Notwithstanding the foregoing, while no
Event of Default has occurred and is continuing, IMS and its Subsidiaries may
engage in transactions with (a) Affiliates in the ordinary course of business
consistent with past practices, in amounts and upon terms fully disclosed to the
Agent and the Lenders (other than transactions having a value of less than
$75,000 which need not be so disclosed), and no less favorable to IMS and its
Subsidiaries than would be obtained in a comparable arm's-length transaction
with a third party who is not an Affiliate and (b) Limited upon the terms and
conditions set forth on Schedule 9.15.
-------------
9.16 Investment Banking and Finder's Fees. Neither IMS nor any of its
-------------------------------------
Subsidiaries shall pay or agree to pay, or reimburse any other party with
respect to, any investment banking or similar or related fee, underwriter's fee,
finder's fee, or broker's fee to any Person in connection with this Agreement.
The Borrowers shall defend and indemnify the Agent and the Lenders against and
hold them harmless from all claims of any Person that the Agent, the Lenders or
the Borrowers are obligated to pay for any such fees, and all costs and expenses
(including attorneys' fees) incurred by the Agent and/or any Lender in
connection therewith.
9.17 Reserved.
--------
9.18 Business Conducted. IMS shall not and shall not permit any of its
-------------------
Subsidiaries to, engage directly or indirectly, in any line of business other
than the businesses in which the Borrowers are engaged on the Closing Date and
businesses reasonably related thereto. IMS AB will conduct only the business
related to the contract between IMS and IPSCO, Inc. for IPSCO's mill located in
Mobile, Alabama, and business related thereto, which contract is to be assigned
to IMS AB.
9.19 Liens. Neither IMS nor any of its Subsidiaries shall create, incur,
-----
assume, or permit to exist any Lien on any property now owned or hereafter
acquired by any of them, except Permitted Liens.
9.20 Sale and Leaseback Transactions. Neither IMS nor any of its
----------------------------------
Subsidiaries shall, directly or indirectly, enter into any arrangement with any
Person providing for IMS or such Subsidiary to lease or rent property that IMS
or such Subsidiary has sold or will sell or otherwise transfer to such Person
unless any such transaction is permitted under all other applicable provisions
hereof and occurs within 180 days after the later of the date IMS or such
Subsidiary (a) acquired such property subject to any such transaction and (b)
placed such property in service, the net cash proceeds with respect to any such
transaction are applied to the Obligations, the applicable Borrower notifies the
Agent of each such transaction and upon the occurrence of any such transaction,
no such property shall constitute Eligible Equipment.
9.21 New Subsidiaries. The Borrowers shall not, directly or indirectly,
----------------
organize, create, acquire or permit to exist any Subsidiary other than those
listed on Schedule 8.5.
9.22 Fiscal Year. The Borrowers shall not change their Fiscal Year.
-----------
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9.23 Capital Expenditures. (a) Neither IMS nor any of its Subsidiaries
---------------------
shall make or incur any Capital Expenditure if, after giving effect thereto, the
aggregate amount of all Capital Expenditures by IMS and its Subsidiaries on a
consolidated basis would exceed $25,000,000 for any Fiscal Year of Borrowers
plus, commencing with Borrower's Fiscal Year ending December 31, 2001, up to
$10,000,000 of any unutilized Capital Expenditure amount from the immediately
preceding Fiscal Year.
(b) Borrowers shall continue to make Capital Expenditures to
maintain their Equipment in good working order, and shall make Capital
Expenditures of not less than $12,000,000 during each Fiscal Year.
9.24 Operating Lease Obligations. Neither IMS nor any of its
-------------------------------
Subsidiaries shall enter into, or suffer to exist, any lease of real or personal
property as lessee or sublessee (other than a Capital Lease), if, after giving
effect thereto, the aggregate amount of Rentals (as hereinafter defined) payable
by IMS and its Subsidiaries on a consolidated basis in any Fiscal Year in
respect of such lease and all other such leases would exceed $18,000,000 (such
amount being referred to herein as "Permitted Rentals"). The term "Rentals"
means all payments due from the lessee or sublessee under a lease, including,
without limitation, basic rent, percentage rent, property taxes, utility or
maintenance costs, and insurance premiums.
9.25 EBITDA. IMS and its Subsidiaries will not permit EBITDA on a
------
consolidated basis to fall below the following amounts for the four fiscal
quarter period ending on the following dates:
Date Minimum EBITDA
---- --------------
09/30/99 52,000,000
12/31/99 53,000,000
03/31/00 52,000,000
06/30/00 48,500,000
09/30/00 44,500,000
12/31/00 44,500,000
03/31/01 43,500,000
06/30/01 44,000,000
09/30/01 44,000,000
12/31/01 46,000,000
03/31/02 47,000,000
06/30/02 48,000,000
09/30/02 49,000,000
12/31/02 and each fiscal quarter thereafter 50,000,000
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9.26 Fixed Charge Coverage Ratios. IMS and its Subsidiaries will
-------------------------------
maintain a Fixed Charge Coverage Ratio on a consolidated basis for each period
of four consecutive fiscal quarters ended at the end of the fiscal quarter set
forth below of not less than the ratio set forth below opposite such fiscal
quarter:
Fiscal Quarter End Ratio
------------------ -----
09/30/99 .80
12/31/99 .93
03/31/00 .90
06/30/00 .85
09/30/00 .80
12/31/00 .80
03/31/01 .80
06/30/01 .83
09/30/01 .86
12/31/01 and each fiscal quarter thereafter 1.00
9.27 Use of Proceeds. IMS shall not, and shall not suffer or permit any
---------------
Subsidiary to, use any portion of the Loan proceeds, directly or indirectly, (i)
to purchase or carry Margin Stock, (ii) to repay or otherwise refinance
indebtedness of the Borrowers or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to acquire any security in any transaction that is subject
to Section 13 or 14 of the Exchange Act.
9.28 Intentionally Omitted.
---------------------
9.29 Conduct of Business by Limited. IMS shall continue to enter into
------------------------------
all contracts with customers located in Canada and Limited shall solely act as
IMS's subcontractor.
9.30 Minimum Availability. The Borrowers shall at all times maintain
--------------------
Availability of not less than $8,000,000.
9.31 Further Assurances. The Borrowers shall execute and deliver, or
-------------------
cause to be executed and delivered, to the Agent and/or the Lenders such
documents and agreements, and shall take or cause to be taken such actions, as
the Agent or any Lender may, from time to time, reasonably request to carry out
the terms and conditions of this Agreement and the other Loan Documents.
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ARTICLE 10
CONDITIONS OF LENDING
---------------------
10.1 Conditions Precedent to Making of Loans on the Closing Date. The
------------------------------------------------------------
obligation of the Lenders to make the initial Revolving Loans on the Closing
Date, and the obligation of the Agent to cause the Letter of Credit Issuer to
issue any Letter of Credit on the Closing Date are subject to the following
conditions precedent having been satisfied in a manner reasonably satisfactory
to the Agent and each Lender:
(a) This Agreement and the other Loan Documents shall have been
executed by each party thereto and the Borrower shall have performed and
complied with all covenants, agreements and conditions contained herein and the
other Loan Documents which are required to be performed or complied with by the
Borrowers before or on such Closing Date.
(b) Upon making the Revolving Loans on the Closing Date (including
such Revolving Loans made to finance fees or otherwise as reimbursement for
fees, costs and expenses then payable under this Agreement), causing the
issuance or continuation of Letters of Credit and after giving effect to the
payment of all accounts payable and other amounts more than 30 days past due and
the amount of interest payable by Envirosource on December 15, 1999 on the
Senior Notes, the Borrowers would have Availability in an amount no less than
$12,400,000.
(c) All representations and warranties made hereunder and in the
other Loan Documents shall be true and correct as of the Closing Date as if made
on such date.
(d) No Default or Event of Default shall exist on the Closing Date,
or would exist after giving effect to the Loans to be made, the Letters of
Credit to be issued and the Credit Support to be in place on such date.
(e) The Agent and the Lenders shall have received such opinions of
counsel for IMS and its Subsidiaries as the Agent or any Lender shall request,
each such opinion to be in a form, scope, and substance satisfactory to the
Agent, the Lenders, and their respective counsel.
(f) IMS's EBITDA on a consolidated basis for the first eight
months of 1999 shall be not less than $30,000,000.
(g) The Agent shall have received:
(i) acknowledgment copies of proper financing statements, duly
filed on or before the Closing Date under the UCC of all jurisdictions that the
Agent may deem necessary or desirable in order to perfect the Agent's Lien; and
(ii) duly executed UCC-3 Termination Statements and such other
instruments, in form and substance satisfactory to the Agent, as shall be
necessary to terminate and satisfy all Liens on the property of IMS and its
Subsidiaries except Permitted Liens.
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(h) The Borrowers shall have paid all fees and expenses of the
Agent and the Attorney Costs incurred in connection with any of the Loan
Documents and the transactions contemplated thereby to the extent invoiced.
(i) The Agent shall have received evidence, in form, scope, and
substance, reasonably satisfactory to the Agent, of all insurance coverage as
required by this Agreement.
(j) The Agent and the Lenders shall have had an opportunity, if
they so choose, to examine the books of account and other records and files of
the Borrowers and to make copies thereof, and to conduct a pre-closing audit
which shall include, without limitation, verification of Accounts, Equipment and
the Borrowing Base, and the results of such examination and audit shall have
been satisfactory to the Agent and the Lenders in all respects.
(k) All proceedings taken in connection with the execution of this
Agreement, all other Loan Documents and all documents and papers relating
thereto shall be satisfactory in form, scope, and substance to the Agent and the
Lenders.
The acceptance by the Borrowers of any Loans made or Letters of
Credit issued on the Closing Date shall be deemed to be a representation and
warranty made by the Borrower to the effect that all of the conditions precedent
to the making of such Loans or the issuance of such Letters of Credit have been
satisfied, with the same effect as delivery to the Agent and the Lenders of a
certificate signed by a Responsible Officer of the Borrowers, dated the Closing
Date, to such effect.
Execution and delivery to the Agent by a Lender of a counterpart of
this Agreement shall be deemed confirmation by such Lender that (i) all
conditions precedent in this Section 10.1 have been fulfilled to the
satisfaction of such Lender, (ii) the decision of such Lender to execute and
deliver to the Agent an executed counterpart of this Agreement was made by such
Lender independently and without reliance on the Agent or any other Lender as to
the satisfaction of any condition precedent set forth in this Section 10.1, and
(iii) all documents sent to such Lender for approval consent, or satisfaction
were acceptable to such Lender.
10.2 Conditions Precedent to Each Loan. The obligation of the Lenders to
---------------------------------
make each Loan, including the initial Revolving Loans on the Closing Date, and
the obligation of the Agent to cause the Letter of Credit Issuer to issue any
Letter of Credit shall be subject to the further conditions precedent that on
and as of the date of any such extension of credit:
(a) the following statements shall be true, and the acceptance by
the Borrowers of any extension of credit shall be deemed to be a statement to
the effect set forth in clauses (i) and (ii), with the same effect as the
delivery to the Agent and the Lenders of a certificate signed by a Responsible
Officer, dated the date of such extension of credit, stating that:
(i) The representations and warranties contained in this
Agreement and the other Loan Documents are correct in all material respects on
and as of the date of such extension of credit as though made on and as of such
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date, other than any such representation or warranty which relates to a
specified prior date and except to the extent the Agent and the Lenders have
been notified by any Borrower that any representation or warranty is not correct
and the Majority Lenders have explicitly waived in writing compliance with such
representation or warranty; and
(ii) No event has occurred and is continuing, or would result
from such extension of credit, which constitutes a Default or an Event of
Default; and
(iii) No Material Adverse Effect has occurred; and
(b) The amount of the Borrowing Base shall be sufficient to make
such Revolving Loans or issue such Letters of Credit without exceeding the
Availability, provided, however, that the foregoing conditions precedent are not
conditions to each Lender participating in or reimbursing the Bank or the Agent
for such Lenders' Pro Rata Share of any Non-Ratable Loan or Agent Advance made
in accordance with the provisions of Sections 2.2(h), (i) and (j).
ARTICLE 11
DEFAULT; REMEDIES
-----------------
11.1 Events of Default. It shall constitute an event of default ("Event
-----------------
of Default") if any one or more of the following shall occur for any reason:
(a) any failure by the Borrowers to pay the principal of or
interest or premium on any of the Obligations or any fee or other amount owing
hereunder when due, whether upon demand or otherwise;
(b) any representation or warranty made or deemed made by the
Borrowers in this Agreement or by IMS or any of its Subsidiaries in any of the
other Loan Documents, any Financial Statement, or any certificate furnished by
IMS or any of its Subsidiaries at any time to the Agent or any Lender shall
prove to be untrue in any material respect as of the date on which made, deemed
made, or furnished;
(c) (i) any default shall occur in the observance or performance of
any of the covenants and agreements contained in Article 6 (other than Section
6.7), Article 7 or Article 9 (other than Section 9.1) of this Agreement, or (ii)
any default shall occur in the observance or performance of Section 6.7 and such
default shall continue unremedied for 3 Business Days or (iii) any default shall
occur in the observance or performance of Section 9.1 or any of the other
covenants and agreements contained in this Agreement (other than as specified in
clause (a) or (c)(i) or (ii)), any other Loan Documents, or any other agreement
entered into at any time to which IMS or any Subsidiary and the Agent or any
Lender are party (including in respect of any Bank Products), and such default
shall continue unremedied for 15 days after the occurrence thereof or (iv) if
any such agreement or document shall terminate (other than in accordance with
its terms or the terms hereof or with the written consent of the Agent and the
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Majority Lenders) or become void or unenforceable, without the written consent
of the Agent and the Majority Lenders;
(d) default shall occur with respect to any Debt For Borrowed
Money (other than the Obligations) in an outstanding principal amount which
exceeds $1,500,000, or under any agreement or instrument under or pursuant to
which any such Debt For Borrowed Money may have been issued, created, assumed,
or guaranteed by Envirosource, Parent, IMS or any of IMS's Subsidiaries, and
such default shall continue for more than the period of grace, if any, therein
specified, if the effect thereof (with or without the giving of notice or
further lapse of time or both) is to accelerate, or to permit the holders of any
such Debt For Borrowed Money to accelerate, the maturity of any such Debt For
Borrowed Money; or any such Debt For Borrowed Money shall be declared due and
payable or be required to be prepaid (other than by a regularly scheduled
required prepayment) prior to the stated maturity thereof;
(e) Envirosource, IU, IMS or any of IMS's Subsidiaries shall (i)
file a voluntary petition in bankruptcy or file a voluntary petition or an
answer or otherwise commence any action or proceeding seeking reorganization,
arrangement or readjustment of its debts or for any other relief under the
federal Bankruptcy Code, as amended, or under any other bankruptcy or insolvency
act or law, state or federal, now or hereafter existing, or consent to, approve
of, or acquiesce in, any such petition, action or proceeding; (ii) apply for or
acquiesce in the appointment of a receiver, assignee, liquidator, sequestrator,
custodian, monitor, trustee or similar officer for it or for all or any part of
its property; (iii) make an assignment for the benefit of creditors; or (iv) be
unable generally to pay its debts as they become due;
(f) an involuntary petition or proposal shall be filed or an action
or proceeding otherwise commenced seeking reorganization, arrangement,
consolidation or readjustment of the debts of Envirosource, IU, IMS or any of
IMS's Subsidiaries or for any other relief under the federal Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency act or law, state or
federal, now or hereafter existing and either (i) such petition, proposal,
action or proceeding shall not have been dismissed within a period of sixty (60)
days after its commencement or (ii) an order for relief against Envirosource,
IU, IMS or such Subsidiary shall have been entered in such proceeding;
(g) a receiver, assignee, liquidator, sequestrator, custodian,
monitor, trustee or similar officer for Envirosource, IMS or any of IMS's
Subsidiaries or IU or for all or any part of its property shall be appointed or
a warrant of attachment, execution or similar process shall be issued against
any part of the property of Envirosource, IU, IMS or any of IMS's Subsidiaries;
(h) Envirosource, IU, IMS or any of IMS's Subsidiaries shall file a
certificate of dissolution under applicable state law or shall be liquidated,
dissolved or wound-up or shall commence or have commenced against it any action
or proceeding for dissolution, winding-up or liquidation, or shall take any
corporate action in furtherance thereof;
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(i) all or any material part of the property of IMS and its
Subsidiaries (taken as a whole) shall be nationalized, expropriated or
condemned, seized or otherwise appropriated, or custody or control of such
property or of IMS or such Subsidiary shall be assumed by any Governmental
Authority or any court of competent jurisdiction at the instance of any
Governmental Authority, except where contested in good faith by proper
proceedings diligently pursued where a stay of enforcement is in effect;
(j) any guaranty of the Obligations shall be terminated, revoked or
declared void or invalid;
(k) one or more judgments, orders, decrees or arbitration awards is
entered against Envirosource, Parent, IMS or any of IMS's Subsidiaries involving
in the aggregate liability as to any single or related or unrelated series of
transactions, incidents or conditions, of $1,500,000 or more, and the same shall
remain unsatisfied, unvacated and unstayed pending appeal for a period of 30
days after the entry thereof;
(l) any loss, theft, damage or destruction of any item or items of
Collateral or other property of IMS or any Subsidiary occurs which could
reasonably be expected to cause a Material Adverse Effect and is not adequately
covered by insurance;
(m) Intentionally Omitted.
(n) there is filed against Envirosource or any of its Subsidiaries
any criminal action, suit or proceeding under any federal or state racketeering
statute (including the Racketeer Influenced and Corrupt Organization Act of
1970), which action, suit or proceeding (i) is not dismissed within one hundred
twenty (120) days, and (ii) could reasonably be expected to result in the
confiscation or forfeiture of any material portion of the Collateral;
(o) for any reason other than the failure of the Agent to take any
action available to it to maintain perfection of the Agent's Liens, pursuant to
the Loan Documents, any Loan Document ceases to be in full force and effect or
any Lien with respect to any material portion of the Collateral intended to be
secured thereby ceases to be, or is not, valid, perfected and prior to all other
Liens (other than Permitted Liens) or is terminated, revoked or declared void;
(p) an ERISA Event shall occur with respect to a Pension Plan or
Multi-employer Plan which has resulted or could reasonably be expected to result
in liability of the Borrower under Title IV of ERISA to the Pension Plan,
Multi-employer Plan or the PBGC in an aggregate amount in excess of $500,000;
(ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans
at any time exceeds $500,000; or (iii) the Borrowers or any ERISA Affiliate
shall fail to pay when due, after the expiration of any applicable grace period,
any installment payment with respect to its withdrawal liability under Section
4201 of ERISA under a Multi-employer Plan in an aggregate amount in excess of
$500,000;
(q) there occurs a Change of Control; or
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(r) an Event of Default under and as defined in either of the
Senior Notes Indentures occurs.
10.2 Remedies. (a) If an Event of Default exists, the Agent may, in its
--------
discretion, and shall, at the direction of the Majority Lenders, do one or more
of the following at any time or times and in any order, without notice to or
demand on the Borrowers: (i) reduce the Maximum Revolver Amount, or the advance
rates against Eligible Accounts and/or Eligible Equipment used in computing the
Borrowing Base, or reduce one or more of the other elements used in computing
the Borrowing Base; (ii) restrict the amount of or refuse to make Revolving
Loans; and (iii) restrict or refuse to provide Letters of Credit or Credit
Support. If an Event of Default exists, the Agent shall, at the direction of the
Majority Lenders, do one or more of the following, in addition to the actions
described in the preceding sentence, at any time or times and in any order,
without notice to or demand on the Borrowers: (A) terminate the Commitments and
this Agreement; (B) declare any or all Obligations to be immediately due and
payable; provided, however, that upon the occurrence of any Event of Default
-------- -------
described in Sections 11.1(e), 11.1(f), 11.1(g), or 11.1(h) with respect to the
---------------- ------- ------- -------
Borrowers, the Commitments shall automatically and immediately expire and all
Obligations shall automatically become immediately due and payable without
notice or demand of any kind; and (C) pursue its other rights and remedies under
the Loan Documents and applicable law.
(b) If an Event of Default has occurred and is continuing: (i) the
Agent shall have for the benefit of the Lenders, in addition to all other rights
of the Agent and the Lenders, the rights and remedies of a secured party under
the UCC; (ii) the Agent may, at any time, take possession of the Collateral and
keep it on the Borrowers' premises, at no cost to the Agent or any Lender, or
remove any part of it to such other place or places as the Agent may desire, or
the Borrowers shall, upon the Agent's demand, at the Borrowers' cost, assemble
the Collateral and make it available to the Agent at a place reasonably
convenient to the Agent; and (iii) the Agent may sell and deliver any Collateral
at public or private sales, for cash, upon credit or otherwise, at such prices
and upon such terms as the Agent deems advisable, in its sole discretion, and
may, if the Agent deems it reasonable, postpone or adjourn any sale of the
Collateral by an announcement at the time and place of sale or of such postponed
or adjourned sale without giving a new notice of sale. Without in any way
requiring notice to be given in the following manner, each Borrower agrees that
any notice by the Agent of sale, disposition or other intended action hereunder
or in connection herewith, whether required by the UCC or otherwise, shall
constitute reasonable notice to such Borrower if such notice is mailed by
registered or certified mail, return receipt requested, postage prepaid, or is
delivered personally against receipt, at least five (5) Business Days prior to
such action to the Borrowers' address specified in or pursuant to Section 15.8.
If any Collateral is sold on terms other than payment in full at the time of
sale, no credit shall be given against the Obligations until the Agent or the
Lenders receive payment, and if the buyer defaults in payment, the Agent may
resell the Collateral without further notice to the Borrowers. In the event the
Agent seeks to take possession of all or any portion of the Collateral by
judicial process, each Borrower irrevocably waives: (A) the posting of any bond,
surety or security with respect thereto which might otherwise be required; (B)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (C) any requirement that the Agent retain possession
and not dispose of any Collateral until after trial or final judgment. Each
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Borrower agrees that the Agent has no obligation to preserve rights to the
Collateral or marshal any Collateral for the benefit of any Person. The Agent is
hereby granted a license or other right to use, without charge, upon the
occurrence and during the continuance of an Event of Default, the Borrower's
labels, patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production of,
advertising or selling any Collateral, and the Borrowers rights under all
licenses and all franchise agreements shall inure to the Agent's benefit for
such purpose. The proceeds of sale shall be applied first to all expenses of
sale, including attorneys' fees, and then to the Obligations. The Agent will
return any excess to the Borrowers and the Borrowers shall remain liable for any
deficiency.
(c) If an Event of Default occurs and is continuing, each Borrower
hereby waives all rights to notice and hearing prior to the exercise by the
Agent of the Agent's rights to repossess the Collateral without judicial process
or to reply, attach or levy upon the Collateral without notice or hearing.
ARTICLE 12
TERM AND TERMINATION
--------------------
12.1 Term and Termination. The term of this Agreement shall end on the
---------------------
Stated Termination Date. The Agent upon direction from the Majority Lenders may
terminate this Agreement without notice upon the occurrence of an Event of
Default. Upon the effective date of termination of this Agreement for any reason
whatsoever, all Obligations (including all unpaid principal, accrued interest
and any early termination or prepayment fees or penalties) shall become
immediately due and payable and the Borrowers shall immediately arrange for the
cancellation and return of Letters of Credit then outstanding. Notwithstanding
the termination of this Agreement, until all Obligations are indefeasibly paid
and performed in full in cash, the Borrowers shall remain bound by the terms of
this Agreement and shall not be relieved of any of its Obligations hereunder,
and the Agent and the Lenders shall retain all their rights and remedies
hereunder (including the Agent's Liens in and all rights and remedies with
respect to all then existing and after-arising Collateral).
ARTICLE 13
AMENDMENTS; WAIVER; PARTICIPATIONS; ASSIGNMENTS; SUCCESSORS
-----------------------------------------------------------
13.1 Amendments and Waivers. No amendment or waiver of any provision of
----------------------
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Borrower therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Lenders (or by the Agent at the written
request of the Majority Lenders) and the Borrowers and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no such waiver, amendment, or
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consent shall, unless in writing and signed by all the Lenders and the Borrowers
and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Lender;
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Lenders (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified
herein on any Loan, or any fees or other amounts payable hereunder or under any
other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Lenders or any of
them to take any action hereunder;
(e) increase any of the percentages set forth in the definition of
the Borrowing Base;
(f) amend this Section or any provision of the Agreement providing
for consent or other action by all Lenders;
(g) release Collateral other than as permitted by Section 14.12;
-------------
(h) change the definitions of "Majority Lenders" or "Required
Lenders"; or
(i) increase the Maximum Revolver Amount;
provided, however, the Agent may, in its sole discretion and notwithstanding the
- -------- -------
limitations contained in clauses (e) and (i) above, Section 2.2 and any other
terms of the Agreement, make Revolving Loans (including Agent Advances) in an
amount not to exceed 10% of the Borrowing Base for a period not in excess of
thirty days in each instance and, provided further, that no amendment, waiver or
consent shall, unless in writing and signed by the Agent, affect the rights or
duties of the Agent under this Agreement or any other Loan Document.
13.2 Assignments; Participations.
---------------------------
(a) Any Lender may, with the written consent of the Agent (which
consent shall not be unreasonably withheld), assign and delegate to one or more
Eligible Assignees (provided that no written consent of the Agent shall be
required in connection with any assignment and delegation by a Lender to an
Affiliate of such Lender) (each an "Assignee") all, or any ratable part of all,
--------
of the Loans, the Commitments and the other rights and obligations of such
Lender hereunder, in a minimum amount of $5,000,000 (provided that, unless an
assignor Lender has assigned and delegated all of its Loans and Commitments, no
such assignment and/or delegation shall be permitted unless, after giving effect
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thereto, such assignor Lender retains a Commitment in a minimum amount of
$5,000,000); provided, however, that the Borrowers and the Agent may continue to
-------- -------
deal solely and directly with such Lender in connection with the interest so
assigned to an Assignee until (i) written notice of such assignment, together
with payment instructions, addresses and related information with respect to the
Assignee, shall have been given to the Borrowers and the Agent by such Lender
and the Assignee; (ii) such Lender and its Assignee shall have delivered to the
Borrowers and the Agent an Assignment and Acceptance in the form of Exhibit E
---------
("Assignment and Acceptance"); and (iii) the assignor Lender or Assignee has
---------------------------
paid to the Agent a processing fee in the amount of $3,000.
(b) From and after the date that the Agent notifies the assignor
Lender that it has received an executed Assignment and Acceptance and payment of
the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations, including, but not
limited to, the obligation to participate in Letters of Credit and Credit
Support have been assigned to it pursuant to such Assignment and Acceptance,
shall have the rights and obligations of a Lender under the Loan Documents, and
(ii) the assignor Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under this Agreement (and in the case of an Assignment and
Acceptance covering all or the remaining portion of an assigning Lender's rights
and obligations under this Agreement, such Lender shall cease to be a party
hereto).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the Assignee thereunder confirm to and agree
with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other Loan Document furnished
pursuant hereto or the attachment, perfection, or priority of any Lien granted
by the Borrowers to the Agent or any Lender in the Collateral; (ii) such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers or the
performance or observance by the Borrowers of any of its obligations under this
Agreement or any other Loan Document furnished pursuant hereto; (iii) such
Assignee confirms that it has received a copy of this Agreement, together with
such other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into such Assignment and Acceptance;
(iv) such Assignee will, independently and without reliance upon the Agent, such
assigning Lender or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement; (v) such
Assignee appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under this Agreement as are delegated to the
Agent by the terms hereof, together with such powers, including the
discretionary rights and incidental power, as are reasonably incidental thereto;
and (vi) such Assignee agrees that it will perform in accordance with their
terms all of the obligations which by the terms of this Agreement are required
to be performed by it as a Lender.
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(d) Immediately upon each Assignee's making its processing fee
payment under the Assignment and Acceptance, this Agreement shall be deemed to
be amended to the extent, but only to the extent, necessary to reflect the
addition of the Assignee and the resulting adjustment of the Commitments arising
therefrom. The Commitment allocated to each Assignee shall reduce such
Commitments of the assigning Lender pro tanto.
(e) Any Lender may at any time sell to one or more commercial
banks, financial institutions, or other Persons not Affiliates of the Borrowers
(a "Participant") participating interests in any Loans, the Commitment of that
-----------
Lender and the other interests of that Lender (the "originating Lender")
hereunder and under the other Loan Documents; provided, however, that (i) the
-------- -------
originating Lender's obligations under this Agreement shall remain unchanged,
(ii) the originating Lender shall remain solely responsible for the performance
of such obligations, (iii) the Borrowers and the Agent shall continue to deal
solely and directly with the originating Lender in connection with the
originating Lender's rights and obligations under this Agreement and the other
Loan Documents, and (iv) no Lender shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document, and all amounts payable by the Borrowers hereunder shall be determined
as if such Lender had not sold such participation; except that, if amounts
outstanding under this Agreement are due and unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement to the same extent
and subject to the same limitation as if the amount of its participating
interest were owing directly to it as a Lender under this Agreement.
(f) Notwithstanding any other provision in this Agreement, any
Lender may at any time create a security interest in, or pledge, all or any
portion of its rights under and interest in this Agreement in favor of any
Federal Reserve Bank in accordance with Regulation A of the FRB or U.S. Treasury
Regulation 31 CFR ss.203.14, and such Federal Reserve Bank may enforce such
pledge or security interest in any manner permitted under applicable law.
ARTICLE 14
THE AGENT
---------
14.1 Appointment and Authorization. Each Lender hereby designates and
------------------------------
appoints Bank as its Agent under this Agreement and the other Loan Documents and
each Lender hereby irrevocably authorizes the Agent to take such action on its
behalf under the provisions of this Agreement and each other Loan Document and
to exercise such powers and perform such duties as are expressly delegated to it
by the terms of this Agreement or any other Loan Document, together with such
powers as are reasonably incidental thereto. The Agent agrees to act as such on
the express conditions contained in this Article 14. The provisions of this
----------
Article 14 are solely for the benefit of the Agent and the Lenders and the
- -----------
Borrowers shall have no rights as a third party beneficiary of any of the
provisions contained herein. Notwithstanding any provision to the contrary
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contained elsewhere in this Agreement or in any other Loan Document, the Agent
shall not have any duties or responsibilities, except those expressly set forth
herein, nor shall the Agent have or be deemed to have any fiduciary relationship
with any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Agreement or any other Loan
Document or otherwise exist against the Agent. Without limiting the generality
of the foregoing sentence, the use of the term "agent" in this Agreement with
reference to the Agent is not intended to connote any fiduciary or other implied
(or express) obligations arising under agency doctrine of any applicable law.
Instead, such term is used merely as a matter of market custom, and is intended
to create or reflect only an administrative relationship between independent
contracting parties. Except as expressly otherwise provided in this Agreement,
the Agent shall have and may use its sole discretion with respect to exercising
or refraining from exercising any discretionary rights or taking or refraining
from taking any actions which the Agent is expressly entitled to take or assert
under this Agreement and the other Loan Documents, including (a) the
determination of the applicability of ineligibility criteria with respect to the
calculation of the Borrowing Base, (b) the making of Agent Advances pursuant to
Section 2.2(i), and (c) the exercise of remedies pursuant to Section 11.2, and
- --------------
any action so taken or not taken shall be deemed consented to by the Lenders.
14.2 Delegation of Duties. The Agent may execute any of its duties under
--------------------
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects as
long as such selection was made without gross negligence or willful misconduct.
14.3 Liability of Agent. None of the Agent Related Persons shall (i) be
------------------
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (ii) be responsible in any manner to any of the Lenders for any recital,
statement, representation or warranty made by IMS or any Subsidiary or Affiliate
of IMS, or any officer thereof, contained in this Agreement or in any other Loan
Document, or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or any other Loan Document, or the validity, effectiveness,
genuineness, enforceability or sufficiency of this Agreement or any other Loan
Document, or for any failure of the Borrowers or any other party to any Loan
Document to perform its obligations hereunder or thereunder. No Agent Related
Person shall be under any obligation to any Lender to ascertain or to inquire as
to the observance or performance of any of the agreements contained in, or
conditions of, this Agreement or any other Loan Document, or to inspect the
properties, books or records of IMS or any of IMS's Subsidiaries or Affiliates.
14.4 Reliance by Agent. The Agent shall be entitled to rely, and shall
-----------------
be fully protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, facsimile, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to the
Borrowers), independent accountants and other experts selected by the Agent. The
Agent shall be fully justified in failing or refusing to take any action under
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this Agreement or any other Loan Document unless it shall first receive such
advice or concurrence of the Majority Lenders as it deems appropriate and, if it
so requests, it shall first be indemnified to its satisfaction by the Lenders
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action. The Agent shall in all cases be
fully protected in acting, or in refraining from acting, under this Agreement or
any other Loan Document in accordance with a request or consent of the Majority
Lenders (or all Lenders if so required by Section 13.2) and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.
14.5 Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Default or Event of Default, unless the Agent
shall have received written notice from a Lender or either Borrower referring to
this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default." The Agent will notify the Lenders of its
receipt of any such notice. The Agent shall take such action with respect to
such Default or Event of Default as may be requested by the Majority Lenders in
accordance with Section 11; provided, however, that unless and until the Agent
---------- -------- -------
has received any such request, the Agent may (but shall not be obligated to)
take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable.
14.6 Credit Decision. Each Lender acknowledges that none of the Agent
---------------
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Borrowers and their Affiliates, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Lender. Each Lender represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such documents and information as it has deemed appropriate,
made its own appraisal of and investigation into the business, prospects,
operations, property, financial and other condition and creditworthiness of the
Borrowers and their Affiliates, and all applicable bank regulatory laws relating
to the transactions contemplated hereby, and made its own decision to enter into
this Agreement and to extend credit to the Borrowers. Each Lender also
represents that it will, independently and without reliance upon any
Agent-Related Person and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement and
the other Loan Documents, and to make such investigations as it deems necessary
to inform itself as to the business, prospects, operations, property, financial
and other condition and creditworthiness of the Borrowers. Except for notices,
reports and other documents expressly herein required to be furnished to the
Lenders by the Agent, the Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
prospects, operations, property, financial and other condition or
creditworthiness of the Borrowers which may come into the possession of any of
the Agent Related Persons.
14.7 Indemnification. Whether or not the transactions contemplated
---------------
hereby are consummated, the Lenders shall indemnify upon demand the Agent
Related Persons (to the extent not reimbursed by or on behalf of the Borrowers
and without limiting the obligation of the Borrowers to do so), pro rata, from
and against any and all Indemnified Liabilities as such term is defined in
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Section 15.11; provided, however, that no Lender shall be liable for the payment
-------- -------
to the Agent Related Persons of any portion of such Indemnified Liabilities
resulting solely from such Person's gross negligence or willful misconduct.
Without limitation of the foregoing, each Lender shall reimburse the Agent upon
demand for its ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Agreement, any other
Loan Document, or any document contemplated by or referred to herein, to the
extent that the Agent is not reimbursed for such expenses by or on behalf of the
Borrowers. The undertaking in this Section shall survive the payment of all
Obligations hereunder and the resignation or replacement of the Agent.
14.8 Agent in Individual Capacity. The Bank and its Affiliates may make
----------------------------
loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory, underwriting or other business with IMS and its Subsidiaries
and Affiliates as though the Bank were not the Agent hereunder and without
notice to or consent of the Lenders. The Lenders acknowledge that, pursuant to
such activities, the Bank or its Affiliates may receive information regarding
the Borrowers or their Affiliates (including information that may be subject to
confidentiality obligations in favor of the Borrowers or such Affiliate) and
acknowledge that the Agent and the Bank shall be under no obligation to provide
such information to them. With respect to its Loans, the Bank shall have the
same rights and powers under this Agreement as any other Lender and may exercise
the same as though it were not the Agent, and the terms "Lender" and "Lenders"
include the Bank in its individual capacity.
14.9 Successor Agent. The Agent may resign as Agent upon 30 days' notice
---------------
to the Lenders and the Borrowers, such resignation to be effective upon the
acceptance of a successor agent to its appointment as Agent. In the event the
Bank sells all of its Commitment and Revolving Loans as part of a sale, transfer
or other disposition by the Bank of substantially all of its loan portfolio, the
Bank shall resign as Agent and such purchaser or transferee shall become the
successor Agent hereunder. If the Agent resigns under this Agreement, subject to
the proviso in the preceding sentence, the Majority Lenders shall appoint from
among the Lenders a successor agent for the Lenders. If no successor agent is
appointed prior to the effective date of the resignation of the Agent, the Agent
may appoint, after consulting with the Lenders and the Borrowers, a successor
agent from among the Lenders. Upon the acceptance of its appointment as
successor agent hereunder, such successor agent shall succeed to all the rights,
powers and duties of the retiring Agent and the term "Agent" shall mean such
successor agent and the retiring Agent's appointment, powers and duties as Agent
shall be terminated. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Section 14 shall inure to its benefit as to any actions
----------
taken or omitted to be taken by it while it was Agent under this Agreement.
14.10 Withholding Tax. (a) If any Lender is a "foreign corporation,
----------------
partnership or trust" within the meaning of the Code and such Lender claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Lender agrees with and in favor of the Agent and the
Borrowers, to deliver to the Agent and the Borrowers:
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(i) if such Lender claims an exemption from, or a reduction
of, withholding tax under a United States tax treaty, properly completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar year
and before the payment of any interest in each third succeeding calendar year
during which interest may be paid under this Agreement;
(ii) if such Lender claims that interest paid under this
Agreement is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Lender, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Lender and in each succeeding
taxable year of such Lender during which interest may be paid under this
Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the
Code or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Lender agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Lender claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Lender sells, assigns, grants a participation in, or otherwise transfers
all or part of the Obligations of the Borrowers to such Lender, such Lender
agrees to notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrowers to such Lender. To the extent
of such percentage amount, the Agent will treat such Lender's IRS Form 1001 as
no longer valid.
(c) If any Lender claiming exemption from United States withholding
tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of the
Borrowers to such Lender, such Lender agrees to undertake sole responsibility
for complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Lender is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Lender
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Lender not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered, was not properly executed, or because such
Lender failed to notify the Agent of a change in circumstances which rendered
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the exemption from, or reduction of, withholding tax ineffective, or for any
other reason) such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs and expenses
(including Attorney Costs). The obligation of the Lenders under this subsection
shall survive the payment of all Obligations and the resignation or replacement
of the Agent.
14.11 Reserved
14.12 Collateral Matters.
------------------
(a) The Lenders hereby irrevocably authorize the Agent, at its
option and in its sole discretion, to release any Agent's Lien upon any
Collateral (i) upon the termination of the Commitments and payment and
satisfaction in full by Borrowers of all Loans and reimbursement obligations in
respect of Letters of Credit and Credit Support, and the termination of all
outstanding Letters of Credit (whether or not any of such obligations are due)
and all other Obligations; (ii) constituting property being sold or disposed of
if each Borrower certifies to the Agent that the sale or disposition is made in
compliance with Section 9.9 (and the Agent may rely conclusively on any such
-----------
certificate, without further inquiry); (iii) constituting property in which the
Borrowers owned no interest at the time the Lien was granted or at any time
thereafter; or (iv) constituting property leased to a Borrower under a lease
which has expired or been terminated in a transaction permitted under this
Agreement. Except as provided above, the Agent will not release any of the
Agent's Liens without the prior written authorization of the Lenders; provided
--------
that the Agent may, in its discretion, release the Agent's Liens on Collateral
valued in the aggregate not in excess of $5,000,000 during any one year period
without the prior written authorization of the Lenders. Upon request by the
Agent or the Borrowers at any time, the Lenders will confirm in writing the
Agent's authority to release any Agent's Liens upon particular types or items of
Collateral pursuant to this Section 14.12.
-------------
(b) Upon receipt by the Agent of any authorization required
pursuant to Section 14.12(a) from the Lenders of the Agent's authority to
-----------------
release any Agent's Liens upon particular types or items of Collateral, and upon
at least five (5) Business Days' prior written request by the Borrowers, the
Agent shall (and is hereby irrevocably authorized by the Lenders to) execute
such documents as may be necessary to evidence the release of the Agent's Liens
upon such Collateral; provided, however, that (i) the Agent shall not be
-------- -------
required to execute any such document on terms which, in the Agent's opinion,
would expose the Agent to liability or create any obligation or entail any
consequence other than the release of such Liens without recourse or warranty,
and (ii) such release shall not in any manner discharge, affect or impair the
Obligations or any Liens (other than those expressly being released) upon (or
obligations of the Borrowers in respect of) all interests retained by the
Borrowers, including the proceeds of any sale, all of which shall continue to
constitute part of the Collateral.
(c) The Agent shall have no obligation whatsoever to any of the
Lenders to assure that the Collateral exists or is owned by a Borrower or is
cared for, protected or insured or has been encumbered, or that the Agent's
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Liens have been properly or sufficiently or lawfully created, perfected,
protected or enforced or are entitled to any particular priority, or to exercise
at all or in any particular manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights, authorities and powers
granted or available to the Agent pursuant to any of the Loan Documents, it
being understood and agreed that in respect of the Collateral, or any act,
omission or event related thereto, the Agent may act in any manner it may deem
appropriate, in its sole discretion given the Agent's own interest in the
Collateral in its capacity as one of the Lenders and that the Agent shall have
no other duty or liability whatsoever to any Lender as to any of the foregoing.
14.13 Restrictions on Actions by Lenders; Sharing of Payments. (a) Each
--------------------------------------------------------
of the Lenders agrees that it shall not, without the express consent of all
Lenders, and that it shall, during the continuance of an Event of Default, to
the extent it is lawfully entitled to do so, upon the request of all Lenders,
set off against the Obligations, any amounts owing by such Lender to any
Borrower or any accounts of any Borrower now or hereafter maintained with such
Lender. Each of the Lenders further agrees that it shall not, unless
specifically requested to do so by the Agent, take or cause to be taken any
action to enforce its rights under this Agreement or against the Borrowers,
including the commencement of any legal or equitable proceedings, to foreclose
any Lien on, or otherwise enforce any security interest in, any of the
Collateral.
(b) If at any time or times any Lender shall receive (i) by
payment, foreclosure, setoff or otherwise, any proceeds of Collateral or any
payments with respect to the Obligations of the Borrowers to such Lender arising
under, or relating to, this Agreement or the other Loan Documents, except for
any such proceeds or payments received by such Lender from the Agent pursuant to
the terms of this Agreement, or (ii) payments from the Agent in excess of such
Lender's ratable portion of all such distributions by the Agent, such Lender
shall promptly (1) turn the same over to the Agent, in kind, and with such
endorsements as may be required to negotiate the same to the Agent, or in same
day funds, as applicable, for the account of all of the Lenders and for
application to the Obligations in accordance with the applicable provisions of
this Agreement, or (2) purchase, without recourse or warranty, an undivided
interest and participation in the Obligations owed to the other Lenders so that
such excess payment received shall be applied ratably as among the Lenders in
accordance with their Pro Rata Shares; provided, however, that if all or part of
-------- -------
such excess payment received by the purchasing party is thereafter recovered
from it, those purchases of participations shall be rescinded in whole or in
part, as applicable, and the applicable portion of the purchase price paid
therefor shall be returned to such purchasing party, but without interest except
to the extent that such purchasing party is required to pay interest in
connection with the recovery of the excess payment.
14.14 Agency for Perfection. Each Lender hereby appoints each other
----------------------
Lender as agent for the purpose of perfecting the Lenders' security interest in
assets which, in accordance with Article 9 of the UCC can be perfected only by
possession. Should any Lender (other than the Agent) obtain possession of any
such Collateral, such Lender shall notify the Agent thereof, and, promptly upon
the Agent's request therefor shall deliver such Collateral to the Agent or in
accordance with the Agent's instructions.
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14.15 Payments by Agent to Lenders. All payments to be made by the Agent
----------------------------
to the Lenders shall be made by bank wire transfer or internal transfer of
immediately available funds to each Lender pursuant to wire transfer
instructions delivered in writing to the Agent on or prior to the Closing Date
(or if such Lender is an Assignee, on the applicable Assignment and Acceptance),
or pursuant to such other wire transfer instructions as each party may designate
for itself by written notice to the Agent. Concurrently with each such payment,
the Agent shall identify whether such payment (or any portion thereof)
represents principal, premium or interest on the Revolving Loans or otherwise.
14.16 Concerning the Collateral and the Related Loan Documents. Each
----------------------------------------------------------
Lender authorizes and directs the Agent to enter into this Agreement and the
other Loan Documents, for the ratable benefit and obligation of the Agent and
the Lenders. Each Lender agrees that any action taken by the Agent, Majority
Lenders or Required Lenders, as applicable, in accordance with the terms of this
Agreement or the other Loan Documents, and the exercise by the Agent, the
Majority Lenders, or the Required Lenders, as applicable, of their respective
powers set forth therein or herein, together with such other powers that are
reasonably incidental thereto, shall be binding upon all of the Lenders.
14.17 Field Audit and Examination Reports; Disclaimer by Lenders. By
-------------------------------------------------------------
signing this Agreement, each Lender:
(a) is deemed to have requested that the Agent furnish such Lender,
promptly after it becomes available, a copy of each field audit or examination
report (each a "Report" and collectively, "Reports") prepared or commissioned by
the Agent;
(b) expressly agrees and acknowledges that neither the Bank nor the
Agent (i) makes any representation or warranty as to the accuracy of any Report,
or (ii) shall be liable for any information contained in any Report;
(c) expressly agrees and acknowledges that the Reports are not
comprehensive audits or examinations, that the Agent or the Bank or other party
performing any audit or examination will inspect only specific information
regarding the Borrower and will rely significantly upon the Borrower's books and
records, as well as on representations of the Borrower's personnel;
(d) agrees to keep all Reports confidential and strictly for its
internal use, and not to distribute except to its participants, or use any
Report in any other manner; and
(e) without limiting the generality of any other indemnification
provision contained in this Agreement, agrees: (i) to hold the Agent and any
such other Lender preparing or commissioning a Report harmless from any action
the indemnifying Lender may take or conclusion the indemnifying Lender may reach
or draw from any Report in connection with any loans or other credit
accommodations that the indemnifying Lender has made or may make to the
Borrower, or the indemnifying Lender's participation in, or the indemnifying
Lender's purchase of, a loan or loans of the Borrower; and (ii) to pay and
protect, and indemnify, defend and hold the Agent and any such other Lender
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preparing a Report harmless from and against, the claims, actions, proceedings,
damages, costs, expenses and other amounts (including Attorney Costs) incurred
by the Agent and any such other Lender preparing or commissioning a Report as
the direct or indirect result of any third parties who might obtain all or part
of any Report through the indemnifying Lender.
14.18 Relation Among Lenders. The Lenders are not partners or
-------------------------
co-venturers, and no Lender shall be liable for the acts or omissions of, or
(except as otherwise set forth herein in case of the Agent) authorized to act
for, any other Lender.
ARTICLE 15
MISCELLANEOUS
-------------
15.1. No Waivers; Cumulative Remedies. No failure by the Agent or any
---------------------------------
Lender to exercise any right, remedy, or option under this Agreement or any
present or future supplement thereto, or in any other agreement between or among
the Borrowers and the Agent and/or any Lender, or delay by the Agent or any
Lender in exercising the same, will operate as a waiver thereof. No waiver by
the Agent or any Lender will be effective unless it is in writing, and then only
to the extent specifically stated. No waiver by the Agent or the Lenders on any
occasion shall affect or diminish the Agent's and each Lender's rights
thereafter to require strict performance by the Borrowers of any provision of
this Agreement. The Agent and the Lenders may proceed directly to collect the
Obligations without any prior recourse to the Collateral. The Agent's and each
Lender's rights under this Agreement will be cumulative and not exclusive of any
other right or remedy which the Agent or any Lender may have.
15.2. Severability. The illegality or unenforceability of any provision
------------
of this Agreement or any Loan Document or any instrument or agreement required
hereunder shall not in any way affect or impair the legality or enforceability
of the remaining provisions of this Agreement or any instrument or agreement
required hereunder.
15.3. Governing Law; Choice of Forum; Service of Process; Jury Trial
-----------------------------------------------------------------
Waiver. THIS AGREEMENT SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF
- ------
THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED
TO THE CONFLICT OF LAWS PROVISIONS PROVIDED THAT PERFECTION ISSUES WITH RESPECT
TO ARTICLE 9 OF THE UCC MAY GIVE EFFECT TO APPLICABLE CHOICE OR CONFLICT OF LAW
RULES SET FORTH IN ARTICLE 9 OF THE UCC) OF THE STATE OF NEW YORK; PROVIDED THAT
THE AGENT, THE LENDERS AND THE BORROWERS SHALL RETAIN ALL RIGHTS ARISING UNDER
FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK
OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION
AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS, THE AGENT AND THE LENDERS
CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
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JURISDICTION OF THOSE COURTS. EACH OF THE BORROWERS, THE AGENT AND THE LENDERS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. NOTWITHSTANDING THE FOREGOING:
(1) THE AGENT AND THE LENDERS SHALL HAVE THE RIGHT TO BRING ANY ACTION OR
PROCEEDING AGAINST THE BORROWERS OR THEIR PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION THE AGENT OR THE LENDERS DEEM NECESSARY OR APPROPRIATE IN ORDER TO
REALIZE ON THE COLLATERAL OR OTHER SECURITY FOR THE OBLIGATIONS AND (2) EACH OF
THE PARTIES HERETO ACKNOWLEDGES THAT ANY APPEALS FROM THE COURTS DESCRIBED IN
THE IMMEDIATELY PRECEDING SENTENCE MAY HAVE TO BE HEARD BY A COURT LOCATED
OUTSIDE THOSE JURISDICTIONS.
(c) EACH OF THE BORROWERS HEREBY WAIVES PERSONAL SERVICE OF ANY AND
ALL PROCESS UPON IT AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY
REGISTERED MAIL (RETURN RECEIPT REQUESTED) DIRECTED TO SUCH BORROWER AT ITS
ADDRESS SET FORTH IN SECTION 15.8 AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE (5) DAYS AFTER THE SAME SHALL HAVE BEEN SO DEPOSITED IN THE U.S.
MAILS. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF AGENT OR THE LENDERS
TO SERVE LEGAL PROCESS BY ANY OTHER MANNER PERMITTED BY LAW.
15.4. WAIVER OF JURY TRIAL. THE BORROWERS, THE LENDERS AND THE AGENT
--------------------
EACH IRREVOCABLY WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM
OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT,
THE OTHER LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN
ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR
ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
THE BORROWERS, THE LENDERS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
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15.5. Survival of Representations and Warranties. All of the
------------------------------------------------
representations and warranties of each Borrower contained in this Agreement
shall survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Agent or the Lenders or their
respective agents.
15.6. Other Security and Guaranties. The Agent, may, without notice or
-----------------------------
demand and without affecting each Borrower's obligations hereunder, from time to
time: (a) take from any Person and hold collateral (other than the Collateral)
for the payment of all or any part of the Obligations and exchange, enforce or
release such collateral or any part thereof; and (b) accept and hold any
endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations, or any other Person in any way obligated to pay all or
any part of the Obligations.
15.7. Fees and Expenses. Each Borrower agrees to pay to the Agent, for
-----------------
its benefit, on demand, all reasonable costs and expenses that Agent pays or
incurs in connection with the negotiation, preparation, syndication,
consummation, administration, enforcement, and termination of this Agreement or
any of the other Loan Documents, including: (a) Attorney Costs; (b) costs and
expenses (including reasonable attorneys' and paralegals' fees and
disbursements) for any amendment, supplement, waiver, consent, or subsequent
closing in connection with the Loan Documents and the transactions contemplated
thereby; (c) costs and expenses of lien and title searches and title insurance;
(d) taxes, fees and other charges for recording the Mortgage (if any), filing
financing statements and continuations, and other actions to perfect, protect,
and continue the Agent's Liens (including reasonable costs and expenses paid or
incurred by the Agent in connection with the consummation of Agreement); (e)
sums paid or incurred to pay any amount or take any action required of the
Borrowers under the Loan Documents that the Borrowers fail to pay or take; (f)
costs of appraisals, inspections, and verifications of the Collateral, including
travel, lodging, and meals for inspections of the Collateral and the Borrower's
operations by the Agent plus the Agent's then customary charge for field
examinations and audits and the preparation of reports thereof (such charge is
currently $750 per day (or portion thereof) for each agent or employee of the
Agent with respect to each field examination or audit); (g) costs and expenses
of forwarding loan proceeds, collecting checks and other items of payment, and
establishing and maintaining Payment Accounts and lock boxes; (h) costs and
expenses of preserving and protecting the Collateral; and (i) costs and expenses
(including reasonable attorneys' and paralegals' fees and disbursements) paid or
incurred to obtain payment of the Obligations, enforce the Agent's Liens, sell
or otherwise realize upon the Collateral, and otherwise enforce the provisions
of the Loan Documents, or to defend any claims made or threatened against the
Agent or any Lender arising out of the transactions contemplated hereby
(including preparations for and consultations concerning any such matters). The
foregoing shall not be construed to limit any other provisions of the Loan
Documents regarding costs and expenses to be paid by the Borrowers. All of the
foregoing costs and expenses shall be charged to the Borrowers Loan Accounts as
Revolving Loans as described in Section 4.7.
-----------
15.8 Notices. Except as otherwise provided herein, all notices, demands
-------
and requests that any party is required or elects to give to any other shall be
in writing, or by a telecommunications device capable of creating a written
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record, and any such notice shall become effective (a) upon personal delivery
thereof, including, but not limited to, delivery by overnight mail and courier
service, (b) four (4) days after it shall have been mailed by United States
mail, first class, certified or registered, with postage prepaid, or (c) in the
case of notice by such a telecommunications device, when properly transmitted,
in each case addressed to the party to be notified as follows:
If to the Agent or to the Bank:
Bank of America, N.A.
40 East 52nd Street
2nd Floor
New York, NY 10022
Attention: Regional Manager
Telecopy No. (212) 836-5169
with copies to:
Bank of America, N.A.
335 Madison Avenue
New York, NY 10017
Attention: Girolamo M. Saccone, Esq.
If to the Borrowers:
International Mill Service, Inc.
1155 Business Center Drive
Horsham, PA 19044-345,
and
IMS Alabama, Inc.
1155 Business Center Drive
Horsham, PA 19044-3454
or to such other address as each party may designate for itself by like notice.
Failure or delay in delivering copies of any notice, demand, request, consent,
approval, declaration or other communication to the persons designated above to
receive copies shall not adversely affect the effectiveness of such notice,
demand, request, consent, approval, declaration or other communication.
15.9 Waiver of Notices. Unless otherwise expressly provided herein, each
-----------------
Borrower waives presentment, and notice of demand or dishonor and protest as to
any instrument, notice of intent to accelerate the Obligations and notice of
acceleration of the Obligations, as well as any and all other notices to which
it might otherwise be entitled. No notice to or demand on the Borrowers which
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the Agent or any Lender may elect to give shall entitle the Borrowers to any or
further notice or demand in the same, similar or other circumstances.
15.10 Binding Effect. The provisions of this Agreement shall be binding
--------------
upon and inure to the benefit of the respective representatives, successors, and
assigns of the parties hereto; provided, however, that no interest herein may be
assigned by the Borrowers without prior written consent of the Agent and each
Lender. The rights and benefits of the Agent and the Lenders hereunder shall, if
such Persons so agree, inure to any party acquiring any interest in the
Obligations or any part thereof.
15.11 Indemnity of the Agent and the Lenders by the Borrowers.
-------------------------------------------------------
(a) Each Borrower agrees to defend, indemnify and hold the
Agent-Related Persons, and each Lender and each of its respective officers,
directors, employees, counsel, agents and attorneysinfact (each, an "Indemnified
-----------
Person") harmless from and against any and all liabilities, obligations, losses,
- ------
damages, penalties, actions, judgments, suits, costs, charges, expenses and
disbursements (including Attorney Costs) of any kind or nature whatsoever which
may at any time (including at any time following repayment of the Loans and the
termination, resignation or replacement of the Agent or replacement of any
Lender) be imposed on, incurred by or asserted against any such Person in any
way relating to or arising out of this Agreement or any document contemplated by
or referred to herein, or the transactions contemplated hereby, or any action
taken or omitted by any such Person under or in connection with any of the
foregoing, including with respect to any investigation, litigation or proceeding
(including any Insolvency Proceeding or appellate proceeding) related to or
arising out of this Agreement, any other Loan Document, or the Loans or the use
of the proceeds thereof, whether or not any Indemnified Person is a party
thereto (all the foregoing, collectively, the "Indemnified Liabilities");
------------------------
provided, that Borrowers shall have no obligation hereunder to any Indemnified
Person with respect to Indemnified Liabilities resulting solely from the gross
negligence or willful misconduct of such Indemnified Person. The agreements in
this Section shall survive payment of all other Obligations.
(b) Each Borrower agrees to indemnify, defend and hold harmless the
Agent and the Lenders from any loss or liability directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a hazardous substance
relating to the Borrowers operations, business or property. This indemnity will
apply whether the hazardous substance is on, under or about the Borrowers
property or operations or property leased to the Borrowers. The indemnity
includes but is not limited to attorneys' fees. The indemnity extends to the
Agent and the Lenders, their parents, affiliates, subsidiaries and all of their
directors, officers, employees, agents, successors, attorneys and assigns.
"Hazardous substances" means any substance, material or waste that is or becomes
designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant"
or a similar designation or regulation under any federal, state or local law
(whether under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including petroleum or natural gas. This
indemnity will survive repayment of all other Obligations.
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15.12 Joint and Several Liability. Each Borrower shall be liable for all
---------------------------
amounts due to the Agent and/or any Lender under this Agreement, regardless of
which Borrower actually receives Loans or other extensions of credit hereunder
or the amount of such Loans received or the manner in which the Agent and/or
such Lender accounts for such Loans or other extensions of credit on its books
and records. Each Borrower's Obligations with respect to Loans made to it, and
the Borrower's Obligations arising as a result of the joint and several
liability of the Borrowers hereunder, with respect to Loans made to the other
Borrower hereunder, shall be separate and distinct obligations, but all such
Obligations shall be primary obligations of each Borrower.
Each Borrower's Obligations arising as a result of the joint and
several liability of the Borrowers hereunder with respect to Loans or other
extensions of credit made to the other Borrower hereunder shall, to the fullest
extent permitted by law, be unconditional irrespective of (i) the validity or
enforceability, avoidance or subordination of the Obligations of the other
Borrower or of any promissory note or other document evidencing all or any part
of the Obligations of the other Borrower, (ii) the absence of any attempt to
collect the Obligations from the other Borrower, any other guarantor, or any
other security therefor, or the absence of any other action to enforce the same,
(iii) the waiver, consent, extension, forbearance or granting of any indulgence
by the Agent and/or any Lender with respect to any provision of any instrument
evidencing the Obligations of the other Borrower, or any part thereof, or any
other agreement now or hereafter executed by the other Borrower and delivered to
the Agent and/or any Lender, (iv) the failure by the Agent and/or any Lender to
take any steps to perfect and maintain its security interest in, or to preserve
its rights to, any security or collateral for the Obligations of the other
Borrower, (v) the Agent's and/or any Lender's election, in any proceeding
instituted under the Bankruptcy Code, of the application of Section 1111(b)(2)
of the Bankruptcy Code, (vi) any borrowing or grant of a security interest by
the other Borrower, as debtor-in-possession under Section 364 of the Bankruptcy
Code, (vii) the disallowance of all or any portion of the Agent's and/or any
Lender's claim(s) for the repayment of the Obligations of the other Borrower
under Section 502 of the Bankruptcy Code, or (viii) any other circumstances
which might constitute a legal or equitable discharge or defense of a guarantor
or of the other Borrower. With respect to each Borrower's Obligations arising as
a result of the joint and several liability of the Borrowers hereunder with
respect to Loans or other extensions of credit made to the other Borrower
hereunder, such Borrower waives, until the Obligations shall have been paid in
full and the Loan Agreement shall have been terminated, any right to enforce any
right of subrogation or any remedy which the Agent and/or any Lender now has or
may hereafter have against the Borrower, any endorser or any guarantor of all or
any part of the Obligations, and any benefit of, and any right to participate
in, any security or collateral given to the Agent and/or any Lender to secure
payment of the Obligations or any other liability of the other Borrower to the
Agent and/or any Lender.
Upon the occurrence and during the continuance of any Event of
Default, the Agent may proceed directly and at once, without notice, against
each Borrower to collect and recover the full amount, or any portion of the
Obligations, without first proceeding against the other Borrower or any other
Person, or against any security or collateral for the Obligations. Each Borrower
consents and agrees that the Agent shall be under no obligation to marshal any
assets in favor of such Borrower or against or in payment of any or all of the
Obligations.
104
<PAGE>
15.13 Limitation of Liability. NO CLAIM MAY BE MADE BY THE BORROWERS,
-----------------------
ANY LENDER OR OTHER PERSON AGAINST THE AGENT, ANY LENDER, OR THE AFFILIATES,
DIRECTORS, OFFICERS, OFFICERS, EMPLOYEES, OR AGENTS OF ANY OF THEM FOR ANY
SPECIAL, INDIRECT, CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM FOR
BREACH OF CONTRACT OR ANY OTHER THEORY OF LIABILITY ARISING OUT OF OR RELATED TO
THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR
ANY ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH, AND THE BORROWERS
AND EACH LENDER HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR
SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED TO
EXIST IN ITS FAVOR.
15.14 Final Agreement. This Agreement and the other Loan Documents are
----------------
intended by the Borrowers, the Agent and the Lenders to be the final, complete,
and exclusive expression of the agreement between them. This Agreement
supersedes any and all prior oral or written agreements relating to the subject
matter hereof. No modification, rescission, waiver, release, or amendment of any
provision of this Agreement or any other Loan Document shall be made, except by
a written agreement signed by the Borrowers and a duly authorized officer of
each of the Agent and the requisite Lenders.
15.15 Counterparts. This Agreement may be executed in any number of
------------
counterparts, and by the Agent, each Lender and the Borrowers in separate
counterparts, each of which shall be an original, but all of which shall
together constitute one and the same agreement; signature pages may be detached
from multiple separate counterparts and attached to a single counterpart so that
all signature pages are physically attached to the same document.
15.16 Captions. The captions contained in this Agreement are for
--------
convenience of reference only, are without substantive meaning and should not be
construed to modify, enlarge, or restrict any provision.
15.17 Right of Setoff. In addition to any rights and remedies of the
---------------
Lenders provided by law, if an Event of Default exists or the Loans have been
accelerated, each Lender is authorized at any time and from time to time,
without prior notice to the Borrowers, any such notice being waived by the
Borrowers to the fullest extent permitted by law, to set off and apply any and
all deposits (general or special, time or demand, provisional or final) at any
time held by, and other indebtedness at any time owing by, such Lender to or for
the credit or the account of either Borrower against any and all Obligations
owing to such Lender, now or hereafter existing, irrespective of whether or not
the Agent or such Lender shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each
Lender agrees promptly to notify the Borrowers and the Agent after any such
setoff and application made by such Lender; provided, however, that the failure
to give such notice shall not affect the validity of such setoff and
application. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL EXERCISE ANY RIGHT
OF SET-OFF, BANKER'S LIEN, OR THE LIKE AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY
105
<PAGE>
OF THE BORROWER HELD OR MAINTAINED BY SUCH LENDER WITHOUT THE PRIOR WRITTEN
UNANIMOUS CONSENT OF THE LENDERS.
15.18 Replacement of Affected Lenders. If any Lender (other than the
---------------------------------
Agent) (x) is owed a material amount of increased costs under Section 5.3 or
ceases to be obligated to make Libor Rate Loans as a result of the operation of
Section 5.2, (y) refuses to consent to certain proposed changes, waivers,
discharges or terminations with respect to this Agreement which have been
approved by the Majority Lenders as provided in Section 13.1 or (z) is a
Defaulting Lender, then the Borrowers shall have the right, if no Default or
Event of Default then exists or will exist immediately after giving effect to
the respective replacement, to replace such Lender (the "Replaced Lender") with
one or more Eligible Assignees (collectively, the "Replacement Lender")
acceptable to the Agent; provided that:
--------
(i) at the time of any replacement pursuant to this Section
15.17, the Replacement Lender shall enter into one or more assignment agreements
pursuant to Section 13.2 hereof pursuant to which the Replacement Lender shall
acquire all of the Commitments and outstanding Loans and participations in
Letters of Credit, of the Replaced Lender and, in connection therewith, shall
pay to (x) the Replaced Lender in respect thereof an amount equal to the sum of
(A) the principal of, and all accrued interest on, all outstanding Loans of the
Replaced Lender, (B) an amount equal to all unpaid reimbursement obligations
that have been funded by (and not reimbursed to) such Replaced Lender, together
with all then unpaid interest with respect thereto at such time, and (C) all
accrued, but theretofore unpaid, fees owing to the Replaced Lender, (y) the
Letter of Credit Issuer an amount equal to such Replaced Lender's Pro Rata Share
of any unpaid reimbursement obligations under any Letter of Credit to the extent
such amount was not theretofore funded by such Replaced Lender and (z) the
Agent, the processing fee set forth in Section 13.2(a);
(ii) all obligations of the Borrowers owing to the Replaced
Lender (other than those specifically described in preceding clause (i) in
respect of which the assignment purchase price has been, or is concurrently
being, paid) shall be paid by the Borrower in full to such Replaced Lender
concurrently with such replacement; and
(iii) upon the execution of the respective assignment
documentation pursuant to preceding clause (i) and the payment of amounts
referred to in preceding clauses (i) and (ii), the Replacement Lender shall
become a Lender hereunder and the Replaced Lender shall cease to constitute a
Lender hereunder, except with respect to indemnification provisions of this
Agreement and the other Loan Documents, which shall survive as to such Replaced
Lender.
106
<PAGE>
ARTICLE 16
GUARANTY
--------
Each Borrower unconditionally guarantees, as a primary obligor and
not merely as a surety, the due and punctual payment of all amounts now or
hereafter owing by Envirosource to the Bank under or in respect of the Letters
of Credit listed on Schedule 8.31 hereto and all renewals, extensions and
amendments thereto, including without limitation, all reimbursement obligations
under or with respect to such Letters of Credit (the "Envirosource L/C
Obligations") when and as due, whether at maturity, by acceleration, by notice
or prepayment or otherwise. Each Borrower further agrees that the Envirosource
L/C Obligations may be extended and renewed, in whole or in part, without notice
to or further assent from it, and that it will remain bound upon its guarantee
notwithstanding any extension or renewal of any Envirosource L/C Obligations.
To the fullest extent permitted by law, each Borrower waives
presentment to, demand of payment from and protest to Envirosource or any other
Person of any of the Obligations, and also waives notice of acceptance of its
guarantee and notice of protest for nonpayment. To the fullest extent permitted
by law, the obligations of each Borrower hereunder shall not be affected by (a)
the failure of the Agent or any Lender or the Letter of Credit Issuer to assert
any claim or demand or to enforce any right or remedy against Envirosource or
any other Person under the provisions of this Agreement or any of the other Loan
Documents or otherwise; (b) any rescission, waiver, amendment or modification of
any of the terms or provisions of this Agreement, any of the other Loan
Documents, any guarantee or any other agreement; (c) the release of any security
held by the Agent or any Lender or the Letter of Credit Issuer for the
Obligations or any of them; or (d) the failure of the Agent or any Lender or the
Letter of Credit Issuer to exercise any right or remedy against any other
Person.
Each Borrower further agrees that its guarantee constitutes a
guarantee of payment when due and not of collection, and waives any right to
require that any resort be had by the Agent or any Lender or the Letter of
Credit Issuer to any security (if any) held for payment of the Envirosource L/C
Obligations or to any balance of any deposit account or credit on the books of
the Agent or any Lender or the Letter of Credit Issuer in favor of any Borrower
or any other Person.
To the fullest extent permitted by law, the obligations of each
Borrower hereunder shall not be subject to any reduction, limitation, impairment
or termination for any reason, including, without limitation, any claim of
waiver, release, surrender, alteration or compromise, and shall not be subject
to any defense (other than payment and performance in full) or setoff,
counterclaim, recoupment or termination whatsoever by reason of the invalidity,
illegality or unenforceability of the Envirosource L/C Obligations or otherwise.
Without limiting the generality of the foregoing, to the fullest extent
permitted by law, the obligations of each Borrower hereunder shall not be
discharged or impaired or otherwise affected by the failure of the Agent or any
Lender to assert any claim or demand or to enforce any remedy under this
Agreement or under any other Loan Document, any guarantee or any other
agreement, by any waiver or modification of any provision thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
Envirosource L/C Obligations, or by any other act or omission which may or might
in any manner or to any extent vary the risk of the Borrowers or otherwise
107
<PAGE>
operate as a discharge of a Borrower as a matter of law or equity.
Each Borrower further agrees that its guarantee shall continue to
be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of principal or of interest on any Envirosource L/C Obligation
is rescinded or must otherwise be returned by the Agent or any Lender or the
Letter of Credit Issuer upon the bankruptcy or reorganization of Envirosource or
any of its Subsidiaries.
Each Borrower hereby waives and releases, until the Obligations
shall have been paid in full and the Loan Agreement shall have been terminated,
all rights of subrogation against each Person and its property and all rights of
indemnification, contribution and reimbursement from each Person and its
property, in each case in connection with this guarantee and any payments made
hereunder, and regardless of whether such rights arise by operation of law,
pursuant to contract or otherwise.
The Envirosource L/C Obligations constitute part of the Obligations
and are secured by the Collateral.
[SIGNATURE PAGE FOLLOWS]
108
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written. "BORROWER" AND "GUARANTOR"
INTERNATIONAL MILL SERVICES, INC.
By /s/JOHN C. HEENAN
-----------------
Title: Senior Vice President / CFO
"BORROWER"AND "GUARANTOR"
IMS ALABAMA, INC.
By /s/JOHN C. HEENAN
-----------------
Title: Senior Vice President / CFO
"AGENT"
Bank of America, N.A., as the Agent
By /s/PATRICK J. WILSON
--------------------
Senior, Vice President
Commitment: $40,000,000 "LENDERS"
Pro Rata Share: 100%
Bank of America, N.A., as a Lender
By /s/PATRICK J. WILSON
--------------------
Senior, Vice President
July 30, 1999
Mr. James C. Hull
3575 Byron Drive
Doylestown, PA 18901-6515
Dear Jim:
In connection with your termination of employment with Envirosource, Inc. and
its subsidiaries ("Envirosource" or the "Company") effective August 1. 1999, the
following salary and benefits will be made available to you:
1. Severance and Unused Vacation Pay. You are eligible to receive the
---------------------------------
following severance benefits:
(a) 13 unused personal and vacation days; and
------
(b) subject to your agreeing to the provisions of Section 5 of
this letter, 12 months severance pay, and the continuation of
medical and dental benefits through the last day of the month
in which your severance pay ends.
All such payments will be made to you in semi-monthly installments in
the same manner as you have been receiving your pay, at your salary
rate in effect as of July 31, 1999, less all applicable taxes and
appropriate deductions. You may take your unused personal and vacation
days in a lump sum, if you so choose.
In addition, subject to your agreeing to the provisions of Section 5,
the Company will retain you as a Consultant as set forth in Section 6.
2. Group Medical and Dental Benefits. The Company will continue to pay for
---------------------------------
your current group medical and dental benefits through the last day of
August 1999. If you agree to the provisions of Section 5 of this
letter, the Company will continue to pay for these benefits through the
last day of the month in which your severance pay ends, if this is
later. The employee contribution, if applicable, toward the cost of the
coverage will continue to be deducted from your pay during this period.
You will be entitled to convert your group health insurance coverage
under the provisions of COBRA, if you so desire, for the statutory
period provided under COBRA. A COBRA letter and the appropriate forms
will be sent to you from The Loomis Company.
<PAGE>
3. Other Employee Benefits. Except as specifically set forth in this
-------------------------
letter, all other benefits provided to you by the Company will cease as
of July 31, 1999. Additional information, including the notices and
procedures relating to your right to convert your group life insurance
to an individual policy and the disposition of your 401(k) Savings Plan
Account, Profit Sharing Plan or Retirement Account and Stock Options
(if applicable) will be forwarded in a separate letter.
4. Return of Envirosource Property; Envirosource Information. You shall
-----------------------------------------------------------
return any Company property and credit cards immediately. After the
date hereof, without prior written consent of Envirosource, you may not
use for your own benefit, or disclose to any person or entity, any
confidential information concerning the business, affairs, customers or
clients of Envirosource or any affiliate, including, without
limitation, any such information created or developed by you, unless
such information has been previously published not in violation of this
paragraph 4, or unless such information is subpoenaed by any lawful
authority and is required to be turned over to that lawful authority.
You may not take from Envirosource premises any written documents or
records that may be proprietary or confidential to Envirosource or any
affiliate, including financial records and forecasts, customer lists,
or operating agreements or documents, without the prior written consent
of the President of Envirosource.
5. Release. In consideration of the additional benefits provided to you
-------
under Sections 1(b) and 2 hereof, you and your heirs, executors,
administrators, successors and assigns now and forever, release and
discharge Envirosource and its parents, subsidiaries, affiliates, its
and their officers, directors, shareholders, employees and agents, and
its and their respective successors and assigns, heirs and executors,
and administrators (hereinafter referred to collectively as
"Affiliates") from any and all claims, demands, rights, or causes of
action of whatever kind or nature in law or in equity, direct or
indirect, known or unknown, matured or not matured, and whether or not
related to your employment with Envirosource, that each of you ever
had, now has, or hereafter can, shall, or may have against Envirosource
or its Affiliates, arising out of any matter, arrangement, cause or
thing whatsoever from the date of your birth to the date of this
agreement and particularly, but without limitation of the foregoing
general terms, any and all claims arising from or relating in any way
to your employment at Envirosource or the termination of such
employment.
For valuable consideration, you and your heirs, executors,
administrators, successors, and assigns now and forever, release and
discharge Envirosource and its Affiliates specifically from any and all
claims arising from or relating in any way to your employment at
Envirosource or the termination of such employment, including, but not
limited to, any rights or claims arising under the Age Discrimination
in Employment Act, Title VII of the Civil Rights Act of 1964, as
amended, the Pennsylvania Human Relations Act, up to and including the
date of execution of this agreement, and any and all other federal,
state, or local laws, excepting only those obligations and rights which
you may have as set forth under the terms of this agreement.
2
<PAGE>
You acknowledge that the terms of this Release are contractual and not
merely a recital. You acknowledge that you have been advised to consult
with counsel of your choice concerning this Release and that you shall
have twenty-one (21) days from the date of your receipt of this
document in which to consider whether to sign this Release. You
acknowledge that you intend this Release to be a full and final
settlement and release of all claims against Envirosource and its
Affiliates and that you are executing this letter, including this
Release, of your own volition and not relying upon any promise or
representation made by Envirosource other than the promises contained
herein. You have also been advised that you are entitled to revoke this
waiver and Release provision within seven (7) days after executing this
agreement and the waiver would not become effective or enforceable
until this seven-day revocation period has expired. The Company will
reimburse you upon receipt of proper documentation, for legal fees you
may incur up to $200 in connection with a legal review of this letter.
Anything in the foregoing to the contrary notwithstanding, this Release
shall not operate to release any indemnification and/or liability
insurance rights you may have as an officer or director of Envirosource
or any of its subsidiaries. Further, subject to your agreeing to the
provisions of this Section 5, the Company releases you to the fullest
extent permitted by law from any and all claims arising from or
relating in any way to your employment at the Company.
6. Consulting. Unless otherwise agreed to on a project basis, you have
----------
agreed to consult with the Company on an as needed basis at the rate of
$150.00 per hour. Such consulting is to be (1) mutually agreed, (2)
upon reasonable notice, (3) during normal business hours. If travel is
involved, travel time will be charged at one-half the hourly rate and
travel expenses will be reimbursed consistent with the Company's normal
employee travel expense reimbursement policy.
Please let us know immediately if you change your address. If you have any
questions or require additional assistance, please contact me at the Horsham
office.
Yours very truly,
/s/John P. Carroll
John P. Carroll
Vice President- Human Resources
Enclosures
Accepted and agreed:
By: /s/James C. Hull
----------------
Date: July 30, 1999
-------------
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into as of January 3, 2000 between
Envirosource, Inc., a Delaware corporation having its principal executive office
at Horsham, Pennsylvania (the "Company"), and John P. Carroll (the "Employee").
RECITALS
WHEREAS, the Company desires to employ the Employee in an executive
capacity and the Employee desires to be in the Company's employ;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Employee hereby agree as follows:
1. Employment and Term.
-------------------
1.1 The Company agrees to employ, or cause one of its subsidiaries to
employ, the Employee, and the Employee agrees to accept such employment. The
authority, duties and responsibilities of the Employee shall include those
described in this Agreement, and such other or additional duties of an executive
nature as may from time to time be assigned to the Employee by the President of
the Company or by the Board of Directors. While employed hereunder, the Employee
shall devote substantially all of his business time and attention to the affairs
of the Company and use his best efforts to perform faithfully and efficiently
his duties and responsibilities; provided that the Employee may (i) serve on
civic or charitable boards or committees, (ii) manage personal investments, or
(iii) with the prior approval of the President of the Company, serve on
corporate boards, so long as such activities do not significantly interfere with
the performance of the Employee's obligations under this Agreement.
1.2 Unless sooner terminated pursuant to other provisions hereof, the
Employee's period of employment under this Agreement shall be three years (the
"Employment Period"), initially commencing on January 3, 2000 and terminating on
January 2, 2003. The Company may renew this Agreement, with the consent of the
Employee, by giving written notice to the Employee at least 30 days prior to the
end of the then effective Employment Period. If the Employee gives written
notice of his consent to the Company within 20 days following receipt of the
Company's notice of its intention to renew, this Agreement shall be renewed on
the terms in effect as of the renewal date.
2. Compensation and Benefits.
-------------------------
2.1 Base Salary. As initial compensation for his services provided
-----------
hereunder, the Company shall pay to the Employee an initial annual base salary
<PAGE>
equal to the Employee's annual base salary in effect as of the date hereof (the
"Base Salary"). The Compensation Committee of the Board of Directors shall
annually during the term of this Agreement review the Employee's Base Salary
and, in its discretion if deemed appropriate, increase the same. If the
Employee's Base Salary is increased, it shall not thereafter be reduced below
the new Base Salary level. The Base Salary shall be payable in equal
semi-monthly installments or in accordance with the Company's established
policy, subject to such payroll and withholding deductions as may be required by
law and other deductions, as directed by the Employee, applied generally to
employees of the Company for insurance and other employee benefit plans.
2.2 Bonus. In addition to the Base Salary, the Employee shall be
-----
eligible for an annual incentive bonus, under the Company's Management Incentive
Compensation Plan or otherwise, based on the achievement of certain financial
and individual performance targets to be set by the Compensation Committee of
the Board of Directors on an annual basis. If such targets are met, the
Employee's annual incentive bonus will be equal to such percentage of his Base
Salary as the Compensation Committee of the Board of Directors shall designate
on an annual basis; provided however, that if a Change in Control occurs, the
----------------
Compensation Committee of the Board of Directors shall not designate a
percentage of less than 30% thereafter. If such targets are exceeded, the
Employee's annual incentive bonus will be higher than the designated percentage,
calculated in accordance with a formula to be set by the Compensation Committee
of the Board of Directors. The annual incentive bonus shall be paid no later
than March 31st of the year following the year in which it is earned. For
example, the annual incentive bonus for the year 2000, if any, shall be paid no
later than March 31, 2001.
2.3 Incentive, Savings and Retirement Plans. The Employee shall be
------------------------------------------
eligible to participate in and shall receive all benefits under all executive
incentive, savings and retirement plans and programs maintained by the Company
for the benefit of its executive officers and/or employees. The Employee shall
be eligible to be considered for option grants under the Company's stock option
plans, but the determination of whether the Employee shall receive grants, and
the amount and terms of any such grants that may be awarded, shall be in the
sole discretion of the Compensation Committee of the Board of Directors.
2.4 Other Benefit Plans. The Employee and/or the Employee's dependents,
-------------------
as the case may be, shall be eligible to participate in and shall receive all
benefits under each insurance and other benefit plan of the Company maintained
for the benefit of its employees, including vacation.
2.5 Reimbursement of Expenses. Subject to the Company's policy
---------------------------
regarding the reimbursement of reasonable travel and business expenses as in
effect from time to time during the Employment Period, the Company shall
reimburse the Employee for such expenses from time to time, at the Employee's
request upon presentation of expense statements and such other supporting
information as the Company may customarily require of it executives.
2
<PAGE>
3. Termination.
-----------
3.1 Death. This Agreement shall terminate automatically upon the death
-----
of the Employee. Notwithstanding the termination of this Agreement by virtue of
the death of Employee, should Employee be living and employed by Company on
December 31st of any year, his estate shall be paid the incentive bonus due to
Employee in accordance with the terms and time periods provided for in Section
2.2 hereof.
3.2 Disability. The Company may terminate this Agreement, upon written
----------
notice to the Employee delivered in accordance with Sections 3.7 and 9.2 hereof,
upon the Disability of the Employee.
3.3 Cause. The Company may terminate this Agreement for Cause, upon
-----
written notice to the Employee delivered in accordance with Sections 3.7 and 9.2
hereof. For purposes of this Agreement, "Cause" means (a) the conviction of, or
plea of guilty or nolo contendere by, the Employee of a felony or other serious
crime, (b) the Employee's grossly negligent or willful refusal to perform his
duties and responsibilities as contemplated in this Agreement, but only after
Employee has received written notice from the Company setting forth with
particularity Employee's performance deficiency and Employee has failed to cure
such deficiency to the Company's reasonable satisfaction within 30 days of
receipt of such notice, (c) the Employee's engaging in activities which would
constitute a breach of any term of this Agreement, but only after Employee has
received written notice from the Company setting forth with particularity
Employee's breach and Employee has failed to cure such breach to the Company's
reasonable satisfaction within five days of receipt of such notice, or (d)
Employee's engaging in fraud or other illegal conduct to the material detriment
of the Company.
3.4 Without Cause. The Company may terminate this Agreement Without
-------------
Cause, upon written notice to the Employee delivered in accordance with Sections
3.7 and 9.2 hereof. For purposes of this Agreement, the Employee will be deemed
to have been terminated "Without Cause" if the Employee is terminated by the
Company for any reason other than Cause, Disability, death or non-renewal.
3.5 Termination by Employee. (a) The Employee may terminate this
-----------------------
Agreement, upon written notice to the Company inaccordance with Sections 3.7 and
9.2 hereof.
(b) If such notice is delivered within six months of a Change in
Control, then the Company shall pay to the Employee the amounts set forth in
Section 4.3 hereof if:
(i) the Employee has not been offered a position similar
to his position at the time of the Change in Control
with similar responsibilities and equal or greater
compensation than he was being paid at the time of
the Change in Control; or
3
<PAGE>
(ii) the Employee has been asked to move his principal
office beyond 35 miles from the Employee's then-
current principal office location; or
(iii) the successor to the Company or the purchaser of its
assets has not assumed the obligations of the Company
under this Agreement at the time of the Change in
Control.
3.6 Release. If the Employee's employment shall terminate during the
-------
Employment Period, or if the Company does not propose to renew this Agreement
pursuant to Section 1.2 hereof, the Employee agrees, upon payment to the
Employee of all amounts due under Sections 4.2, 4.3 or 4.4 hereof, as
applicable, to execute a release of claims in the form attached hereto as
Exhibit A.
- ---------
3.7 Notice of Termination. Any termination of this Agreement (i) by the
---------------------
Company for Cause, Without Cause or as a result of the Employee's Disability or
(ii) by the Employee for any reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (a) indicates the specific termination provision in this Agreement relied
upon, (b) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the provision
so indicated and (c) specifies the termination date, if such date is other than
the date of receipt of such notice.
4. Obligations of Company upon Termination.
---------------------------------------
4.1 By the Company for Cause or by Employee other than in connection
-------------------------------------------------------------------
with a Change in Control. If this Agreement shall be terminated either by the
- ------------------------
Company for Cause or by the Employee for any reason other than pursuant to
Section 3.5(b) hereof, the Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the aggregate of the
Employee's Base Salary (as in effect on the Date of Termination) through the
Date of Termination, if not theretofore paid, and, in the case of compensation
previously deferred by the Employee, all amounts of such compensation previously
deferred and not yet paid by the Company.
4.2 By the Company Without Cause. If this Agreement shall be
----------------------------
terminated by the Company Without Cause:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the sum of (A) the
aggregate of the Employee's Base Salary (as in effect on the Date of
Termination) through the Date of Termination, if not theretofore paid,
and, in the case of compensation previously deferred by the Employee,
all amounts of such compensation previously deferred and not yet paid
by the Company, (B) a severance payment equal to one year of Base
Salary (as in effect on the Date of Termination) plus the amount of the
target bonus that would be payable to the Employee for the year in
which the termination occurs (such target bonus amount to be payable
4
<PAGE>
regardless of the Company's actual results for such year); and (C) if
the same has not been previously paid to the Employee, the incentive
bonus, if any, earned by the Employee as provided in Section 2.2 of
this Agreement for the year preceding the year of termination
(Notwithstanding the foregoing, unless the Company shall have
terminated this Agreement Without Cause within six months of a Change
in Control, the amount provided in clause (B) may be paid, at the
Company's option, over a twelve-month period commencing on the Date of
Termination in 24 equal semi-monthly installments, rather than in a
lump sum.); and
(ii) for the 12-month period following the Date of
Termination, the Employee and the Employee's dependents shall continue
to be eligible to participate in the medical benefit plans and
arrangements of the Company, on the same terms and conditions
(including the amount of Employee's required contributory premium
payments) in effect for the Employee and the Employee's dependents
immediately prior to the Date of Termination; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
International or a comparable outplacement services company; provided
--------
however, that the Company shall not be required to spend more than
-------
$15,000 for such services.
The Company's obligations under this Section 4.2 shall terminate if the
Employee violates his obligations under Sections 6, 7 or 8 hereof, and the
Company shall have no obligation to make any remaining payments to the Employee
after the date of any such violation. The parties agree that the benefits
provided in this Section 4.2 are the sole and exclusive remedies available to
the Employee in the event of termination Without Cause.
4.3 By Employee upon Change in Control. If this Agreement shall
----------------------------------
be terminated by the Employee pursuant to Section 3.5(b) hereof:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the sum of (A) the
aggregate of the Employee's Base Salary (as in effect on the Date of
Termination) through the Date of Termination, if not theretofore paid,
and, in the case of compensation previously deferred by the Employee,
all amounts of such compensation previously deferred and not yet paid
by the Company, (B) a severance payment equal to one year of Base
Salary (as in effect on the Date of Termination) plus the amount of the
target bonus that would be payable to the Employee for the year in
which the termination occurs (such target bonus amount to be payable
regardless of the Company's actual results for such year); and (C) if
the same has not been previously paid to the Employee, the incentive
bonus, if any, earned by the Employee as provided in Section 2.2 of
this Agreement for the year preceding the year of termination; and
5
<PAGE>
(ii) for the 12-month period following the Date of
Termination, the Employee and the Employee's dependents shall continue
to be eligible to participate in the medical benefit plans and
arrangements of the Company, on the same terms and conditions
(including the amount of Employee's required contributory premium
payments) in effect for the Employee and the Employee's dependents
immediately prior to the Date of Termination; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
International or a comparable outplacement services company; provided
--------
however, that the Company shall not be required to spend more than
------
$15,000 for such services.
The Company's obligations under this Section 4.3 shall
terminate if the Employee violates his obligations under Sections 6, 7
or 8 hereof, and the Company shall have no obligation to make any
remaining payments to the Employee after the date of any such
violation.
4.4 Non-renewal by the Company. If the Company does not propose
--------------------------
to renew this Agreement in accordance with Section 1.2 hereof:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the date of the expiration of this Agreement
(the "Expiration Date"), the sum of (A) the aggregate of the Employee's
Base Salary (as in effect on the Expiration Date) through the
Expiration Date, if not theretofore paid, and, in the case of
compensation previously deferred by the Employee, all amounts of such
compensation previously deferred and not yet paid by the Company, (B) a
severance payment equal to one year of Base Salary (as in effect on the
Expiration Date); and (C) if the same has not been previously paid to
the Employee, the incentive bonus, if any, earned by the Employee as
provided in Section 2.2 of this Agreement for the year preceding the
year in which the Expiration Date occurs (Notwithstanding the
foregoing, unless the Expiration Date occurs within six months of a
Change in Control, the amount provided in clause (B) may be paid, at
the Company's option, over a twelve-month period commencing on the
Expiration Date in 24 equal semi-monthly installments, rather than in a
lump sum.); and
(ii) for the 12-month period following the Expiration Date,
the Employee and the Employee's dependents shall continue to be
eligible to participate in the medical benefit plans and arrangements
of the Company, on the same terms and conditions (including the amount
of Employee's required contributory premium payments) in effect for the
Employee and the Employee's dependents immediately prior to the
Expiration Date; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
6
<PAGE>
International or a comparable outplacement services company; provided
however, that the Company shall not be required to spend more than
$15,000 for such services.
The Company's obligations under this Section 4.4 shall terminate if the
Employee violates his obligations under Sections 6, 7 or 8 hereof, and the
Company shall have no obligation to make any remaining payments to the Employee
after the date of any such violation. The parties agree that the benefits
provided in this Section 4.4 are the sole and exclusive remedies available to
the Employee in the event the Company does not propose to renew this Agreement
pursuant to Section 1.2 hereof.
5. General Duties of the Employee.
------------------------------
5.1 The Employee agrees and acknowledges that he owes a duty of
loyalty, fidelity and allegiance to act at all times in the best interests of
the Company, to not knowingly become involved in a conflict of interest and to
not knowingly do any act or knowingly make any statement, oral or written, which
would injure the Company's business, its interests or its reputation unless
required to do so in any legal proceeding by a competent court with proper
jurisdiction.
5.2 The Employee agrees to comply at all times during the Employment
Period with all applicable policies, rules and regulations of the Company,
including, without limitation, the Company's policy regarding trading in the
Common Stock, as is in effect from time to time during the Employment Period.
6. Employee's Confidentiality Obligation.
-------------------------------------
6.1 The Employee hereby acknowledges, understands and agrees that all
Confidential Information is the exclusive and confidential property of the
Company and its Affiliates which shall at all times be regarded, treated and
protected as such in accordance with this Section 6. The Employee acknowledges
that all such Confidential Information is in the nature of a trade secret.
6.2 For purposes of this Agreement, "Confidential Information" means
information, which is used in the business of the Company or its Affiliates and
(a) is proprietary to, about or created by the Company or its Affiliates, (b)
gives the Company or its Affiliates some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company or its Affiliates, (c) is designated
as Confidential Information by the Company or its Affiliates, is known by the
Employee to be considered confidential by the Company or its Affiliates, or from
all the relevant circumstances should reasonably be assumed by the Employee to
be confidential and proprietary to the Company or its Affiliates or (d) is not
generally known by non-Company personnel.
6.3 As a consequence of the Employee's acquisition or anticipated
acquisition of Confidential Information, the Employee shall occupy a position of
trust and confidence with respect to the affairs and business of the Company and
its Affiliates. In view of the foregoing and of the consideration to be provided
7
<PAGE>
to the Employee, the Employee agrees that it is reasonable and necessary that
the Employee make each of the following covenants:
(a) At any time during the Employment Period and thereafter,
the Employee shall not disclose Confidential Information to any person or
entity, either inside or outside of the Company, other than as necessary in
carrying out his duties and responsibilities as set forth in Section 5 hereof,
without first obtaining the Company's prior written consent (unless such
disclosure is compelled pursuant to court orders or subpoena, and at which time
the Employee shall give notice of such proceedings to the Company and provide
the Company with an opportunity to resolve such disclosure in a manner
reasonably acceptable to the Company).
(b) At any time during the Employment Period and thereafter,
the Employee shall not use, copy or transfer Confidential Information other than
as necessary in carrying out his duties and responsibilities as set forth in
Section 5 hereof, without first obtaining the Company's prior written consent.
(c) On the Date of Termination, the Employee shall promptly
deliver to the Company (or its designee) all written materials, records and
documents made by the Employee or which came into his possession prior to or
during the Employment Period concerning the business or affairs of the Company
or its Affiliates, including, without limitation, all materials containing
Confidential Information.
7. Employee's Nonsolicitation Obligation. The Employee agrees that he
---------------------------------------
shall not, during the Employment Period and for one year following the Date of
Termination, directly or indirectly, on behalf of the Employee or any other
person, (i) solicit for employment by other than the Company any person known by
the Employee to be employed by the Company or its Affiliates at the Date of
Termination or within the six-month period prior thereto; or (ii) induce,
attempt to induce or knowingly encourage any Customer (as defined below) to
divert any business or income from the Company or any of its Affiliates or to
stop or alter the manner in which they are then doing business with the Company
or any of its Affiliates. The term "Customer" small mean any individual or
business firm that was or is a customer or client of, or whose business was
actively solicited by, the Company or any of its Affiliates at any time,
regardless of whether such customer was generated, in whole or in part, by the
Employee's efforts.
8. Employee's Noncompetition Obligation. The Employee agrees that he
--------------------------------------
shall not, for a period of one year following the Date of Termination, directly
or indirectly: (a) own or control any debt, equity or other interest in (except
as a passive investor of less than 1% of the capital stock or publicly traded
notes or debentures of a publicly held company), or (b) (1) act as a director,
officer, manager, employee, participant or consultant to or accept or solicit
any office to act as any of the foregoing or (2) be obligated to or connected in
any advisory, business or ownership capacity, in each case with respect to any
business engaged in by the Company or any of its subsidiaries at the Date of
Termination or which is being actively pursued by the Company or any of its
8
<PAGE>
subsidiaries at that time. Notwithstanding the foregoing, if the Company is
obligated to make payments to the Employee under any of Sections 4.2, 4.3 or
4.4, the Employee's obligations under this Section 8 shall terminate immediately
if the Company fails to timely perform its obligations under Section 4.2, 4.3 or
4.4, as applicable. The Employee's noncompetition obligation as set forth in
this Section 8 shall supercede and replace any noncompetition agreement the
Employee may have entered into with the Company or any of its subsidiaries prior
to the date of this Agreement.
9. Miscellaneous.
-------------
9.1 Certain Definitions. As used in this Agreement, the following
-------------------
terms have the meanings set forth below:
"Affiliate" is used in this Agreement to define a relationship
to a person or entity and means a person or entity who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such person or entity.
"Base Salary" shall have the meaning assigned thereto in
Section 2.1 hereof.
"Cause" shall have the meaning assigned thereto in Section 3.3
hereof.
"Change in Control" of the Company shall be deemed to have
occurred if (a) the Company merges or consolidates with any other corporation
(other than a wholly-owned direct or indirect subsidiary of the Company) and is
not the surviving corporation (or survives as a subsidiary of another
corporation) and, after such merger or consolidation, the Company's shareholders
immediately prior to such merger or consolidation do not own Voting Stock
representing a majority of the outstanding shares of Voting Stock of the
surviving corporation or do not otherwise have the right to elect a majority of
the board of directors of the surviving corporation, (b) the Company sells or
agrees to sell all or substantially all of its assets to any other person or
entity and, after such sale, the Company's shareholders immediately prior to
such sale do not own Voting Stock representing a majority of the outstanding
shares of Voting Stock of such person or entity or do not otherwise have the
right to elect a majority of the board of directors of such person or entity,
(c) any third person or entity (other than a person or entity, or an Affiliate
thereof, that is a shareholder of the Company on the Effective Date, a trustee
or committee of any qualified employee benefit plan of the Company) together
with its Affiliates shall become, directly or indirectly, the beneficial owner
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder) of at least 50% of the
Voting Stock of the Company or (d) the individuals who constitute the Board of
Directors of the Company as of the Effective Date (the "Incumbent Board") shall
cease for any reason to constitute at least a majority of the Board of
Directors; provided, that any person becoming a director whose election or
nomination for election was approved by a majority of the members of the
Incumbent Board shall be considered, for the purposes of this Agreement, a
member of the Incumbent Board.
"Common Stock" means the Company's common stock, par value
$0.05 per share.
"Confidential Information" shall have the meaning assigned
thereto in Section 6.2 hereof.
"Date of Termination" means the earliest to occur of (a) the
date of the Employee's death, (b) the date on which the Employee terminates his
employment with the Company for any reason or (c) the date of receipt of the
9
<PAGE>
Notice of Termination, or such later date as may be prescribed in the Notice of
Termination in accordance with Section 3.7 hereof.
"Disability" means an illness or other disability which
prevents the Employee from discharging his responsibilities under this Agreement
for a period 180 consecutive calendar days, or an aggregate of 180 calendar days
in any calendar year, during the Employment Period, all as determined in good
faith by the Board of Directors of the Company (or a committee thereof).
"Effective Date" means January 3, 2000.
"Employment Period" shall have the meaning assigned thereto in
Section 1.2 hereof.
"Expiration Date" shall have the meaning assigned thereto in
Section 4.4 hereof.
"Notice of Termination" shall have the meaning assigned
thereto in Section 3.7 hereof.
"Voting Stock" means all outstanding shares of capital stock
of the Company entitled to vote generally in an election of directors; provided,
however, that if the Company has shares of Voting Stock entitled to more or less
than one vote per share, each reference to a proportion of the issued and
outstanding shares of Voting Stock shall be deemed to refer to the proportion of
the aggregate votes entitled to be cast by the issued and outstanding shares of
Voting Stock.
"Without Cause" shall have the meaning assigned thereto in
Section 3.4 hereof.
9.2 Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and, if given by telegram, telecopy or telex, shall be deemed to have been
validly served, given or delivered when sent, if given by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three business days after deposit in the United States mail, as
registered or certified mail, with proper postage prepaid and addressed to the
party or parties to be notified, at the following addresses:
If to the Company to:
Envirosource, Inc.
1155 Business Center Drive
Horsham, PA 19044
Attention: President
Telephone: (215) 956-5400
Facsimile: (215) 956-5415
10
<PAGE>
If to the Employee to:
John P. Carroll
501 Rolling Glen Drive
Horsham, PA 19044
Telephone: (215) 646-4905
or to such other names, addresses, telephone and fax numbers as the Company or
the Employee, as the case may be, shall designate by notice to the other party
hereto in the manner specified in this Section 9.2.
9.3 Waiver of Breach. The waiver by any party hereto of a breach of any
----------------
provision of this Agreement shall neither operate nor be construed as a waiver
of the breach of any other provision or of any subsequent breach by any party.
9.4 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the Company, its successors, legal representatives and assigns, and
upon the Employee, his heirs, executors, administrators, representatives and
assigns; provided, however, that (i) the Employee agrees that his rights and
obligations hereunder are personal to him and may not be assigned without the
express written consent of the Company, and (ii) the Company may not assign its
rights and obligations hereunder without Employee's express written consent
except to the acquiring entity in connection with the transfer, exchange or sale
of all or substantially all of the Company's assets.
9.5 Entire Agreement; No Oral Amendments. This Agreement constitutes
-------------------------------------
the entire agreement between the Employee and the Company with respect to the
subject matter of this Agreement. This Agreement may not be modified in any
respect by any oral statement, representation or agreement made by any employee,
officer, or representative of the Company or by any written agreement unless
signed by an officer of the Company who is expressly authorized by the Company
to execute such document.
9.6 Enforceability. If any provision of this Agreement or application
--------------
thereof to anyone or under any circumstances shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
11
<PAGE>
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
9.7 Jurisdiction. The laws of the Commonwealth of Pennsylvania shall
------------
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof.
9.8 Injunctive Relief. The Company and the Employee agree that a breach
-----------------
of any term of this Agreement by the Employee would cause irreparable damage to
the Company and that, in the event of such breach, the Company shall have, in
addition to any and all remedies of law, the right to any injunction, specific
performance and other equitable relief to prevent or to redress the violation of
the Employee's duties or responsibilities hereunder.
9.9 Employee's Representation. Employee shall be, and he represents
--------------------------
that he is, free to enter into this Agreement and is not and will not become to
a party to agreement which would prohibit the Employee from accepting employment
with the Company or from performing his duties and obligations to the Company
hereunder.
9.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and both of which
together shall be deemed one Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY":
ENVIROSOURCE, INC.
By:/s/John T. DiLacqua
------------------------
Its: President
"EMPLOYEE":
/s/John P. Carroll
---------------------------
John P. Carroll
12
<PAGE>
EXHIBIT A
GENERAL RELEASE
---------------
1. I, John P. Carroll, for and in consideration of the
benefits to be received by me pursuant to the provisions of that certain
Employment Agreement by and between me and Envirosource, Inc. ("Envirosource")
entered into as of January 3, 2000 (the "Agreement"), and in connection with the
termination of my employment with Envirosource effective , do
------------------
hereby REMISE, RELEASE, AND FOREVER DISCHARGE Envirosource and its subsidiaries
and affiliates, their officers, directors, shareholders, partners, employees and
agents, their respective successors and assigns, heirs, executors and
administrators (hereinafter collectively referred to as "ENSO"), acting in any
capacity whatsoever, of and from any and all manner of actions and causes of
actions, suits, debts, claims and demands whatsoever in law or in equity, which
I ever had, now have, or hereafter may have, or which my heirs, executors or
administrators hereafter may have, by reason of any matter, cause or thing
whatsoever from the beginning of my employment with ENSO to the date of these
presents and particularly, but without limitation of the foregoing general
terms, any claims arising from or relating in any way to my employment
relationship and the termination of my employment relationship with ENSO,
including but not limited to, any claims which have been asserted, could have
been asserted, or could be asserted now or in the future under any federal,
state or local laws, including any claims under the Age Discrimination in
Employment Act, 29 U.S.C.ss.621 et seq., Title VII of the Civil Rights Act of
-- ---
1964, 42 U.S.C.ss.2000e et seq., the Pennsylvania Human Relations Act, 43
-- ---
P.S.ss.951 et seq., or the human relations laws of any other State
-- ---
any contracts between ENSO and me and any common law claims now or hereafter
recognized and all claims for counsel fees and costs.
2. I further agree and covenant that neither I, nor any
person, organization or other entity on my behalf, will file, charge, claim, sue
or cause or permit to be filed, charged, or claimed, any action for personal
equitable, monetary or other similar relief against Envirosource, involving any
matter occurring at any time in the past up to the date of this General Release,
or involving any continuing effects of any actions or practices which may have
arisen or occurred prior to the date of this General Release, including any
charge of discrimination under Title VII, the ADEA, the Pennsylvania Human
Relations Act or the human relations laws of any other State. In addition, I
also agree and covenant that should I, or any other person, organization or
entity on my behalf, file, charge, claim, sue or cause or permit to be filed,
charged, or claimed, any action for damages, including injunctive, declaratory,
monetary or other relief, despite my agreement not to do so hereunder, then I
will pay all of the costs and expenses of ENSO (including reasonable attorneys'
fees) incurred in the defense of any such action or undertaking.
3. I agree, covenant and promise that I will not in any way
communicate the terms of this General Release to any person other than my
immediate family and my attorney.
<PAGE>
4. I hereby certify that I have read the terms of this General
Release, that I have been advised by Envirosource to discuss it with my
attorney, and that I understand its terms and effects. I acknowledge, further,
that I am executing this General Release of my own volition with a full
understanding of its terms and effects and with the intention of releasing all
claims recited herein in exchange for the consideration described in the
Agreement, which I acknowledge is adequate and satisfactory to me. None of the
above-named parties, nor their agents, representatives, or attorneys have made
any representations to me concerning the terms or effects of this General
Release other than those contained herein.
6. I hereby acknowledge that I have been informed that I have
the right to consider this General Release for a period of 21 days prior to
execution. I also understand that I have the right to revoke this General
Release for a period of seven days following execution by giving written notice
to Envirosource at 1155 Business Center Drive, Horsham, PA 19044.
Intending to be legally bound hereby, I execute the foregoing
General Release this day of , .
----- ------------- ----------
- ------------------------ --------------------------
Witness John P. Carroll
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into as of January 3, 2000 between
Envirosource, Inc., a Delaware corporation having its principal executive office
at Horsham, Pennsylvania (the "Company"), and John C. Heenan (the "Employee").
RECITALS
WHEREAS, the Company desires to employ the Employee in an executive
capacity and the Employee desires to be in the Company's employ;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Employee hereby agree as follows:
1. Employment and Term.
-------------------
1.1 The Company agrees to employ, or cause one of its subsidiaries to
employ, the Employee, and the Employee agrees to accept such employment. The
authority, duties and responsibilities of the Employee shall include those
described in this Agreement, and such other or additional duties of an executive
nature as may from time to time be assigned to the Employee by the President of
the Company or by the Board of Directors. While employed hereunder, the Employee
shall devote substantially all of his business time and attention to the affairs
of the Company and use his best efforts to perform faithfully and efficiently
his duties and responsibilities; provided that the Employee may (i) serve on
civic or charitable boards or committees, (ii) manage personal investments, or
(iii) with the prior approval of the President of the Company, serve on
corporate boards, so long as such activities do not significantly interfere with
the performance of the Employee's obligations under this Agreement.
1.2 Unless sooner terminated pursuant to other provisions hereof, the
Employee's period of employment under this Agreement shall be three years (the
"Employment Period"), initially commencing on January 3, 2000 and terminating on
January 2, 2003. The Company may renew this Agreement, with the consent of the
Employee, by giving written notice to the Employee at least 30 days prior to the
end of the then effective Employment Period. If the Employee gives written
notice of his consent to the Company within 20 days following receipt of the
Company's notice of its intention to renew, this Agreement shall be renewed on
the terms in effect as of the renewal date.
2. Compensation and Benefits.
-------------------------
2.1 Base Salary. As initial compensation for his services provided
-----------
hereunder, the Company shall pay to the Employee an initial annual base salary
<PAGE>
equal to the Employee's annual base salary in effect as of the date hereof (the
"Base Salary"). The Compensation Committee of the Board of Directors shall
annually during the term of this Agreement review the Employee's Base Salary
and, in its discretion if deemed appropriate, increase the same. If the
Employee's Base Salary is increased, it shall not thereafter be reduced below
the new Base Salary level. The Base Salary shall be payable in equal
semi-monthly installments or in accordance with the Company's established
policy, subject to such payroll and withholding deductions as may be required by
law and other deductions, as directed by the Employee, applied generally to
employees of the Company for insurance and other employee benefit plans.
2.2 Bonus. In addition to the Base Salary, the Employee shall be
-----
eligible for an annual incentive bonus, under the Company's Management Incentive
Compensation Plan or otherwise, based on the achievement of certain financial
and individual performance targets to be set by the Compensation Committee of
the Board of Directors on an annual basis. If such targets are met, the
Employee's annual incentive bonus will be equal to such percentage of his Base
Salary as the Compensation Committee of the Board of Directors shall designate
on an annual basis; provided however, that if a Change in Control occurs, the
----------------
Compensation Committee of the Board of Directors shall not designate a
percentage of less than 30% thereafter. If such targets are exceeded, the
Employee's annual incentive bonus will be higher than the designated percentage,
calculated in accordance with a formula to be set by the Compensation Committee
of the Board of Directors. The annual incentive bonus shall be paid no later
than March 31st of the year following the year in which it is earned. For
example, the annual incentive bonus for the year 2000, if any, shall be paid no
later than March 31, 2001.
2.3 Incentive, Savings and Retirement Plans. The Employee shall be
------------------------------------------
eligible to participate in and shall receive all benefits under all executive
incentive, savings and retirement plans and programs maintained by the Company
for the benefit of its executive officers and/or employees. The Employee shall
be eligible to be considered for option grants under the Company's stock option
plans, but the determination of whether the Employee shall receive grants, and
the amount and terms of any such grants that may be awarded, shall be in the
sole discretion of the Compensation Committee of the Board of Directors.
2.4 Other Benefit Plans. The Employee and/or the Employee's dependents,
-------------------
as the case may be, shall be eligible to participate in and shall receive all
benefits under each insurance and other benefit plan of the Company maintained
for the benefit of its employees, including vacation.
2.5 Reimbursement of Expenses. Subject to the Company's policy
---------------------------
regarding the reimbursement of reasonable travel and business expenses as in
effect from time to time during the Employment Period, the Company shall
reimburse the Employee for such expenses from time to time, at the Employee's
request upon presentation of expense statements and such other supporting
information as the Company may customarily require of it executives.
2
<PAGE>
3. Termination.
-----------
3.1 Death. This Agreement shall terminate automatically upon the death
-----
of the Employee. Notwithstanding the termination of this Agreement by virtue of
the death of Employee, should Employee be living and employed by Company on
December 31st of any year, his estate shall be paid the incentive bonus due to
Employee in accordance with the terms and time periods provided for in Section
2.2 hereof.
3.2 Disability. The Company may terminate this Agreement, upon written
----------
notice to the Employee delivered in accordance with Sections 3.7 and 9.2 hereof,
upon the Disability of the Employee.
3.3 Cause. The Company may terminate this Agreement for Cause, upon
-----
written notice to the Employee delivered in accordance with Sections 3.7 and 9.2
hereof. For purposes of this Agreement, "Cause" means (a) the conviction of, or
plea of guilty or nolo contendere by, the Employee of a felony or other serious
crime, (b) the Employee's grossly negligent or willful refusal to perform his
duties and responsibilities as contemplated in this Agreement, but only after
Employee has received written notice from the Company setting forth with
particularity Employee's performance deficiency and Employee has failed to cure
such deficiency to the Company's reasonable satisfaction within 30 days of
receipt of such notice, (c) the Employee's engaging in activities which would
constitute a breach of any term of this Agreement, but only after Employee has
received written notice from the Company setting forth with particularity
Employee's breach and Employee has failed to cure such breach to the Company's
reasonable satisfaction within five days of receipt of such notice, or (d)
Employee's engaging in fraud or other illegal conduct to the material detriment
of the Company.
3.4 Without Cause. The Company may terminate this Agreement Without
-------------
Cause, upon written notice to the Employee delivered in accordance with Sections
3.7 and 9.2 hereof. For purposes of this Agreement, the Employee will be deemed
to have been terminated "Without Cause" if the Employee is terminated by the
Company for any reason other than Cause, Disability, death or non-renewal.
3.5 Termination by Employee. (a) The Employee may terminate this
-----------------------
Agreement, upon written notice to the Company inaccordance with Sections 3.7 and
9.2 hereof.
(b) If such notice is delivered within six months of a Change in
Control, then the Company shall pay to the Employee the amounts set forth in
Section 4.3 hereof if:
(i) the Employee has not been offered a position similar
to his position at the time of the Change in Control
with similar responsibilities and equal or greater
compensation than he was being paid at the time of
the Change in Control; or
3
<PAGE>
(ii) the Employee has been asked to move his principal
office beyond 35 miles from the Employee's then-
current principal office location; or
(iii) the successor to the Company or the purchaser of its
assets has not assumed the obligations of the Company
under this Agreement at the time of the Change in
Control.
3.6 Release. If the Employee's employment shall terminate during the
-------
Employment Period, or if the Company does not propose to renew this Agreement
pursuant to Section 1.2 hereof, the Employee agrees, upon payment to the
Employee of all amounts due under Sections 4.2, 4.3 or 4.4 hereof, as
applicable, to execute a release of claims in the form attached hereto as
Exhibit A.
- ---------
3.7 Notice of Termination. Any termination of this Agreement (i) by the
---------------------
Company for Cause, Without Cause or as a result of the Employee's Disability or
(ii) by the Employee for any reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (a) indicates the specific termination provision in this Agreement relied
upon, (b) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the provision
so indicated and (c) specifies the termination date, if such date is other than
the date of receipt of such notice.
4. Obligations of Company upon Termination.
---------------------------------------
4.1 By the Company for Cause or by Employee other than in connection
-------------------------------------------------------------------
with a Change in Control. If this Agreement shall be terminated either by the
- ------------------------
Company for Cause or by the Employee for any reason other than pursuant to
Section 3.5(b) hereof, the Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the aggregate of the
Employee's Base Salary (as in effect on the Date of Termination) through the
Date of Termination, if not theretofore paid, and, in the case of compensation
previously deferred by the Employee, all amounts of such compensation previously
deferred and not yet paid by the Company.
4.2 By the Company Without Cause. If this Agreement shall be
----------------------------
terminated by the Company Without Cause:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the sum of (A) the
aggregate of the Employee's Base Salary (as in effect on the Date of
Termination) through the Date of Termination, if not theretofore paid,
and, in the case of compensation previously deferred by the Employee,
all amounts of such compensation previously deferred and not yet paid
by the Company, (B) a severance payment equal to one year of Base
Salary (as in effect on the Date of Termination) plus the amount of the
target bonus that would be payable to the Employee for the year in
which the termination occurs (such target bonus amount to be payable
4
<PAGE>
regardless of the Company's actual results for such year); and (C) if
the same has not been previously paid to the Employee, the incentive
bonus, if any, earned by the Employee as provided in Section 2.2 of
this Agreement for the year preceding the year of termination
(Notwithstanding the foregoing, unless the Company shall have
terminated this Agreement Without Cause within six months of a Change
in Control, the amount provided in clause (B) may be paid, at the
Company's option, over a twelve-month period commencing on the Date of
Termination in 24 equal semi-monthly installments, rather than in a
lump sum.); and
(ii) for the 12-month period following the Date of
Termination, the Employee and the Employee's dependents shall continue
to be eligible to participate in the medical benefit plans and
arrangements of the Company, on the same terms and conditions
(including the amount of Employee's required contributory premium
payments) in effect for the Employee and the Employee's dependents
immediately prior to the Date of Termination; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
International or a comparable outplacement services company; provided
--------
however, that the Company shall not be required to spend more than
-------
$15,000 for such services.
The Company's obligations under this Section 4.2 shall terminate if the
Employee violates his obligations under Sections 6, 7 or 8 hereof, and the
Company shall have no obligation to make any remaining payments to the Employee
after the date of any such violation. The parties agree that the benefits
provided in this Section 4.2 are the sole and exclusive remedies available to
the Employee in the event of termination Without Cause.
4.3 By Employee upon Change in Control. If this Agreement shall
----------------------------------
be terminated by the Employee pursuant to Section 3.5(b) hereof:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the sum of (A) the
aggregate of the Employee's Base Salary (as in effect on the Date of
Termination) through the Date of Termination, if not theretofore paid,
and, in the case of compensation previously deferred by the Employee,
all amounts of such compensation previously deferred and not yet paid
by the Company, (B) a severance payment equal to one year of Base
Salary (as in effect on the Date of Termination) plus the amount of the
target bonus that would be payable to the Employee for the year in
which the termination occurs (such target bonus amount to be payable
regardless of the Company's actual results for such year); and (C) if
the same has not been previously paid to the Employee, the incentive
bonus, if any, earned by the Employee as provided in Section 2.2 of
this Agreement for the year preceding the year of termination; and
5
<PAGE>
(ii) for the 12-month period following the Date of
Termination, the Employee and the Employee's dependents shall continue
to be eligible to participate in the medical benefit plans and
arrangements of the Company, on the same terms and conditions
(including the amount of Employee's required contributory premium
payments) in effect for the Employee and the Employee's dependents
immediately prior to the Date of Termination; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
International or a comparable outplacement services company; provided
--------
however, that the Company shall not be required to spend more than
------
$15,000 for such services.
The Company's obligations under this Section 4.3 shall
terminate if the Employee violates his obligations under Sections 6, 7
or 8 hereof, and the Company shall have no obligation to make any
remaining payments to the Employee after the date of any such
violation.
4.4 Non-renewal by the Company. If the Company does not propose
--------------------------
to renew this Agreement in accordance with Section 1.2 hereof:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the date of the expiration of this Agreement
(the "Expiration Date"), the sum of (A) the aggregate of the Employee's
Base Salary (as in effect on the Expiration Date) through the
Expiration Date, if not theretofore paid, and, in the case of
compensation previously deferred by the Employee, all amounts of such
compensation previously deferred and not yet paid by the Company, (B) a
severance payment equal to one year of Base Salary (as in effect on the
Expiration Date); and (C) if the same has not been previously paid to
the Employee, the incentive bonus, if any, earned by the Employee as
provided in Section 2.2 of this Agreement for the year preceding the
year in which the Expiration Date occurs (Notwithstanding the
foregoing, unless the Expiration Date occurs within six months of a
Change in Control, the amount provided in clause (B) may be paid, at
the Company's option, over a twelve-month period commencing on the
Expiration Date in 24 equal semi-monthly installments, rather than in a
lump sum.); and
(ii) for the 12-month period following the Expiration Date,
the Employee and the Employee's dependents shall continue to be
eligible to participate in the medical benefit plans and arrangements
of the Company, on the same terms and conditions (including the amount
of Employee's required contributory premium payments) in effect for the
Employee and the Employee's dependents immediately prior to the
Expiration Date; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
6
<PAGE>
International or a comparable outplacement services company; provided
however, that the Company shall not be required to spend more than
$15,000 for such services.
The Company's obligations under this Section 4.4 shall terminate if the
Employee violates his obligations under Sections 6, 7 or 8 hereof, and the
Company shall have no obligation to make any remaining payments to the Employee
after the date of any such violation. The parties agree that the benefits
provided in this Section 4.4 are the sole and exclusive remedies available to
the Employee in the event the Company does not propose to renew this Agreement
pursuant to Section 1.2 hereof.
5. General Duties of the Employee.
------------------------------
5.1 The Employee agrees and acknowledges that he owes a duty of
loyalty, fidelity and allegiance to act at all times in the best interests of
the Company, to not knowingly become involved in a conflict of interest and to
not knowingly do any act or knowingly make any statement, oral or written, which
would injure the Company's business, its interests or its reputation unless
required to do so in any legal proceeding by a competent court with proper
jurisdiction.
5.2 The Employee agrees to comply at all times during the Employment
Period with all applicable policies, rules and regulations of the Company,
including, without limitation, the Company's policy regarding trading in the
Common Stock, as is in effect from time to time during the Employment Period.
6. Employee's Confidentiality Obligation.
-------------------------------------
6.1 The Employee hereby acknowledges, understands and agrees that all
Confidential Information is the exclusive and confidential property of the
Company and its Affiliates which shall at all times be regarded, treated and
protected as such in accordance with this Section 6. The Employee acknowledges
that all such Confidential Information is in the nature of a trade secret.
6.2 For purposes of this Agreement, "Confidential Information" means
information, which is used in the business of the Company or its Affiliates and
(a) is proprietary to, about or created by the Company or its Affiliates, (b)
gives the Company or its Affiliates some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company or its Affiliates, (c) is designated
as Confidential Information by the Company or its Affiliates, is known by the
Employee to be considered confidential by the Company or its Affiliates, or from
all the relevant circumstances should reasonably be assumed by the Employee to
be confidential and proprietary to the Company or its Affiliates or (d) is not
generally known by non-Company personnel.
6.3 As a consequence of the Employee's acquisition or anticipated
acquisition of Confidential Information, the Employee shall occupy a position of
trust and confidence with respect to the affairs and business of the Company and
its Affiliates. In view of the foregoing and of the consideration to be provided
to the Employee, the Employee agrees that it is reasonable and necessary that
the Employee make each of the following covenants:
(a) At any time during the Employment Period and thereafter,
the Employee shall not disclose Confidential Information to any person or
7
<PAGE>
entity, either inside or outside of the Company, other than as necessary in
carrying out his duties and responsibilities as set forth in Section 5 hereof,
without first obtaining the Company's prior written consent (unless such
disclosure is compelled pursuant to court orders or subpoena, and at which time
the Employee shall give notice of such proceedings to the Company and provide
the Company with an opportunity to resolve such disclosure in a manner
reasonably acceptable to the Company).
(b) At any time during the Employment Period and thereafter,
the Employee shall not use, copy or transfer Confidential Information other than
as necessary in carrying out his duties and responsibilities as set forth in
Section 5 hereof, without first obtaining the Company's prior written consent.
(c) On the Date of Termination, the Employee shall promptly
deliver to the Company (or its designee) all written materials, records and
documents made by the Employee or which came into his possession prior to or
during the Employment Period concerning the business or affairs of the Company
or its Affiliates, including, without limitation, all materials containing
Confidential Information.
7. Employee's Nonsolicitation Obligation. The Employee agrees that he
---------------------------------------
shall not, during the Employment Period and for one year following the Date of
Termination, directly or indirectly, on behalf of the Employee or any other
person, (i) solicit for employment by other than the Company any person known by
the Employee to be employed by the Company or its Affiliates at the Date of
Termination or within the six-month period prior thereto; or (ii) induce,
attempt to induce or knowingly encourage any Customer (as defined below) to
divert any business or income from the Company or any of its Affiliates or to
stop or alter the manner in which they are then doing business with the Company
or any of its Affiliates. The term "Customer" small mean any individual or
business firm that was or is a customer or client of, or whose business was
actively solicited by, the Company or any of its Affiliates at any time,
regardless of whether such customer was generated, in whole or in part, by the
Employee's efforts.
8. Employee's Noncompetition Obligation. The Employee agrees that he
--------------------------------------
shall not, for a period of one year following the Date of Termination, directly
or indirectly: (a) own or control any debt, equity or other interest in (except
as a passive investor of less than 1% of the capital stock or publicly traded
notes or debentures of a publicly held company), or (b) (1) act as a director,
officer, manager, employee, participant or consultant to or accept or solicit
any office to act as any of the foregoing or (2) be obligated to or connected in
any advisory, business or ownership capacity, in each case with respect to any
business engaged in by the Company or any of its subsidiaries at the Date of
Termination or which is being actively pursued by the Company or any of its
8
<PAGE>
subsidiaries at that time. Notwithstanding the foregoing, if the Company is
obligated to make payments to the Employee under any of Sections 4.2, 4.3 or
4.4, the Employee's obligations under this Section 8 shall terminate immediately
if the Company fails to timely perform its obligations under Section 4.2, 4.3 or
4.4, as applicable. The Employee's noncompetition obligation as set forth in
this Section 8 shall supercede and replace any noncompetition agreement the
Employee may have entered into with the Company or any of its subsidiaries prior
to the date of this Agreement.
9. Miscellaneous.
-------------
9.1 Certain Definitions. As used in this Agreement, the following
-------------------
terms have the meanings set forth below:
"Affiliate" is used in this Agreement to define a relationship
to a person or entity and means a person or entity who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such person or entity.
"Base Salary" shall have the meaning assigned thereto in
Section 2.1 hereof.
"Cause" shall have the meaning assigned thereto in Section 3.3
hereof.
"Change in Control" of the Company shall be deemed to have
occurred if (a) the Company merges or consolidates with any other corporation
(other than a wholly-owned direct or indirect subsidiary of the Company) and is
not the surviving corporation (or survives as a subsidiary of another
corporation) and, after such merger or consolidation, the Company's shareholders
immediately prior to such merger or consolidation do not own Voting Stock
representing a majority of the outstanding shares of Voting Stock of the
surviving corporation or do not otherwise have the right to elect a majority of
the board of directors of the surviving corporation, (b) the Company sells or
agrees to sell all or substantially all of its assets to any other person or
entity and, after such sale, the Company's shareholders immediately prior to
such sale do not own Voting Stock representing a majority of the outstanding
shares of Voting Stock of such person or entity or do not otherwise have the
right to elect a majority of the board of directors of such person or entity,
(c) any third person or entity (other than a person or entity, or an Affiliate
thereof, that is a shareholder of the Company on the Effective Date, a trustee
or committee of any qualified employee benefit plan of the Company) together
with its Affiliates shall become, directly or indirectly, the beneficial owner
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder) of at least 50% of the
Voting Stock of the Company or (d) the individuals who constitute the Board of
Directors of the Company as of the Effective Date (the "Incumbent Board") shall
cease for any reason to constitute at least a majority of the Board of
Directors; provided, that any person becoming a director whose election or
nomination for election was approved by a majority of the members of the
Incumbent Board shall be considered, for the purposes of this Agreement, a
member of the Incumbent Board.
"Common Stock" means the Company's common stock, par value
$0.05 per share.
"Confidential Information" shall have the meaning assigned
thereto in Section 6.2 hereof.
"Date of Termination" means the earliest to occur of (a) the
date of the Employee's death, (b) the date on which the Employee terminates his
employment with the Company for any reason or (c) the date of receipt of the
9
<PAGE>
Notice of Termination, or such later date as may be prescribed in the Notice of
Termination in accordance with Section 3.7 hereof.
"Disability" means an illness or other disability which
prevents the Employee from discharging his responsibilities under this Agreement
for a period 180 consecutive calendar days, or an aggregate of 180 calendar days
in any calendar year, during the Employment Period, all as determined in good
faith by the Board of Directors of the Company (or a committee thereof).
"Effective Date" means January 3, 2000.
"Employment Period" shall have the meaning assigned thereto in
Section 1.2 hereof.
"Expiration Date" shall have the meaning assigned thereto in
Section 4.4 hereof.
"Notice of Termination" shall have the meaning assigned
thereto in Section 3.7 hereof.
"Voting Stock" means all outstanding shares of capital stock
of the Company entitled to vote generally in an election of directors; provided,
however, that if the Company has shares of Voting Stock entitled to more or less
than one vote per share, each reference to a proportion of the issued and
outstanding shares of Voting Stock shall be deemed to refer to the proportion of
the aggregate votes entitled to be cast by the issued and outstanding shares of
Voting Stock.
"Without Cause" shall have the meaning assigned thereto in
Section 3.4 hereof.
9.2 Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and, if given by telegram, telecopy or telex, shall be deemed to have been
validly served, given or delivered when sent, if given by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three business days after deposit in the United States mail, as
registered or certified mail, with proper postage prepaid and addressed to the
party or parties to be notified, at the following addresses:
If to the Company to:
Envirosource, Inc.
1155 Business Center Drive
Horsham, PA 19044
Attention: President
Telephone: (215) 956-5400
Facsimile: (215) 956-5415
10
<PAGE>
If to the Employee to:
John C. Heenan
138 Highspire Road
Richboro, PA 18954
Telephone: (215) 355-9339
or to such other names, addresses, telephone and fax numbers as the Company or
the Employee, as the case may be, shall designate by notice to the other party
hereto in the manner specified in this Section 9.2.
9.3 Waiver of Breach. The waiver by any party hereto of a breach of any
----------------
provision of this Agreement shall neither operate nor be construed as a waiver
of the breach of any other provision or of any subsequent breach by any party.
9.4 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the Company, its successors, legal representatives and assigns, and
upon the Employee, his heirs, executors, administrators, representatives and
assigns; provided, however, that (i) the Employee agrees that his rights and
obligations hereunder are personal to him and may not be assigned without the
express written consent of the Company, and (ii) the Company may not assign its
rights and obligations hereunder without Employee's express written consent
except to the acquiring entity in connection with the transfer, exchange or sale
of all or substantially all of the Company's assets.
9.5 Entire Agreement; No Oral Amendments. This Agreement constitutes
-------------------------------------
the entire agreement between the Employee and the Company with respect to the
subject matter of this Agreement. This Agreement may not be modified in any
respect by any oral statement, representation or agreement made by any employee,
officer, or representative of the Company or by any written agreement unless
signed by an officer of the Company who is expressly authorized by the Company
to execute such document.
9.6 Enforceability. If any provision of this Agreement or application
--------------
thereof to anyone or under any circumstances shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
11
<PAGE>
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
9.7 Jurisdiction. The laws of the Commonwealth of Pennsylvania shall
------------
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof.
9.8 Injunctive Relief. The Company and the Employee agree that a breach
-----------------
of any term of this Agreement by the Employee would cause irreparable damage to
the Company and that, in the event of such breach, the Company shall have, in
addition to any and all remedies of law, the right to any injunction, specific
performance and other equitable relief to prevent or to redress the violation of
the Employee's duties or responsibilities hereunder.
9.9 Employee's Representation. Employee shall be, and he represents
--------------------------
that he is, free to enter into this Agreement and is not and will not become to
a party to agreement which would prohibit the Employee from accepting employment
with the Company or from performing his duties and obligations to the Company
hereunder.
9.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and both of which
together shall be deemed one Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY":
ENVIROSOURCE, INC.
By:/s/John T. DiLacqua
------------------------
Its: President
"EMPLOYEE":
/s/John C. Heenan
---------------------------
John C. Heenan
12
<PAGE>
EXHIBIT A
GENERAL RELEASE
---------------
1. I, John C. Heenan, for and in consideration of the
benefits to be received by me pursuant to the provisions of that certain
Employment Agreement by and between me and Envirosource, Inc. ("Envirosource")
entered into as of January 3, 2000 (the "Agreement"), and in connection with the
termination of my employment with Envirosource effective , do
------------------
hereby REMISE, RELEASE, AND FOREVER DISCHARGE Envirosource and its subsidiaries
and affiliates, their officers, directors, shareholders, partners, employees and
agents, their respective successors and assigns, heirs, executors and
administrators (hereinafter collectively referred to as "ENSO"), acting in any
capacity whatsoever, of and from any and all manner of actions and causes of
actions, suits, debts, claims and demands whatsoever in law or in equity, which
I ever had, now have, or hereafter may have, or which my heirs, executors or
administrators hereafter may have, by reason of any matter, cause or thing
whatsoever from the beginning of my employment with ENSO to the date of these
presents and particularly, but without limitation of the foregoing general
terms, any claims arising from or relating in any way to my employment
relationship and the termination of my employment relationship with ENSO,
including but not limited to, any claims which have been asserted, could have
been asserted, or could be asserted now or in the future under any federal,
state or local laws, including any claims under the Age Discrimination in
Employment Act, 29 U.S.C.ss.621 et seq., Title VII of the Civil Rights Act of
-- ---
1964, 42 U.S.C.ss.2000e et seq., the Pennsylvania Human Relations Act, 43
-- ---
P.S.ss.951 et seq., or the human relations laws of any other State
-- ---
any contracts between ENSO and me and any common law claims now or hereafter
recognized and all claims for counsel fees and costs.
2. I further agree and covenant that neither I, nor any
person, organization or other entity on my behalf, will file, charge, claim, sue
or cause or permit to be filed, charged, or claimed, any action for personal
equitable, monetary or other similar relief against Envirosource, involving any
matter occurring at any time in the past up to the date of this General Release,
or involving any continuing effects of any actions or practices which may have
arisen or occurred prior to the date of this General Release, including any
charge of discrimination under Title VII, the ADEA, the Pennsylvania Human
Relations Act or the human relations laws of any other State. In addition, I
also agree and covenant that should I, or any other person, organization or
entity on my behalf, file, charge, claim, sue or cause or permit to be filed,
charged, or claimed, any action for damages, including injunctive, declaratory,
monetary or other relief, despite my agreement not to do so hereunder, then I
will pay all of the costs and expenses of ENSO (including reasonable attorneys'
fees) incurred in the defense of any such action or undertaking.
3. I agree, covenant and promise that I will not in any way
communicate the terms of this General Release to any person other than my
immediate family and my attorney.
<PAGE>
4. I hereby certify that I have read the terms of this General
Release, that I have been advised by Envirosource to discuss it with my
attorney, and that I understand its terms and effects. I acknowledge, further,
that I am executing this General Release of my own volition with a full
understanding of its terms and effects and with the intention of releasing all
claims recited herein in exchange for the consideration described in the
Agreement, which I acknowledge is adequate and satisfactory to me. None of the
above-named parties, nor their agents, representatives, or attorneys have made
any representations to me concerning the terms or effects of this General
Release other than those contained herein.
6. I hereby acknowledge that I have been informed that I have
the right to consider this General Release for a period of 21 days prior to
execution. I also understand that I have the right to revoke this General
Release for a period of seven days following execution by giving written notice
to Envirosource at 1155 Business Center Drive, Horsham, PA 19044.
Intending to be legally bound hereby, I execute the foregoing
General Release this day of , .
----- ------------- ----------
- ------------------------ --------------------------
Witness John C. Heenan
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made and entered into as of January 3, 2000 between
Envirosource, Inc., a Delaware corporation having its principal executive office
at Horsham, Pennsylvania (the "Company"), and Leon Z. Heller (the "Employee").
RECITALS
WHEREAS, the Company desires to employ the Employee in an executive
capacity and the Employee desires to be in the Company's employ;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Employee hereby agree as follows:
1. Employment and Term.
-------------------
1.1 The Company agrees to employ, or cause one of its subsidiaries to
employ, the Employee, and the Employee agrees to accept such employment. The
authority, duties and responsibilities of the Employee shall include those
described in this Agreement, and such other or additional duties of an executive
nature as may from time to time be assigned to the Employee by the President of
the Company or by the Board of Directors. While employed hereunder, the Employee
shall devote substantially all of his business time and attention to the affairs
of the Company and use his best efforts to perform faithfully and efficiently
his duties and responsibilities; provided that the Employee may (i) serve on
civic or charitable boards or committees, (ii) manage personal investments, or
(iii) with the prior approval of the President of the Company, serve on
corporate boards, so long as such activities do not significantly interfere with
the performance of the Employee's obligations under this Agreement.
1.2 Unless sooner terminated pursuant to other provisions hereof, the
Employee's period of employment under this Agreement shall be three years (the
"Employment Period"), initially commencing on January 3, 2000 and terminating on
January 2, 2003. The Company may renew this Agreement, with the consent of the
Employee, by giving written notice to the Employee at least 30 days prior to the
end of the then effective Employment Period. If the Employee gives written
notice of his consent to the Company within 20 days following receipt of the
Company's notice of its intention to renew, this Agreement shall be renewed on
the terms in effect as of the renewal date.
2. Compensation and Benefits.
-------------------------
2.1 Base Salary. As initial compensation for his services provided
-----------
hereunder, the Company shall pay to the Employee an initial annual base salary
<PAGE>
equal to the Employee's annual base salary in effect as of the date hereof (the
"Base Salary"). The Compensation Committee of the Board of Directors shall
annually during the term of this Agreement review the Employee's Base Salary
and, in its discretion if deemed appropriate, increase the same. If the
Employee's Base Salary is increased, it shall not thereafter be reduced below
the new Base Salary level. The Base Salary shall be payable in equal
semi-monthly installments or in accordance with the Company's established
policy, subject to such payroll and withholding deductions as may be required by
law and other deductions, as directed by the Employee, applied generally to
employees of the Company for insurance and other employee benefit plans.
2.2 Bonus. In addition to the Base Salary, the Employee shall be
-----
eligible for an annual incentive bonus, under the Company's Management Incentive
Compensation Plan or otherwise, based on the achievement of certain financial
and individual performance targets to be set by the Compensation Committee of
the Board of Directors on an annual basis. If such targets are met, the
Employee's annual incentive bonus will be equal to such percentage of his Base
Salary as the Compensation Committee of the Board of Directors shall designate
on an annual basis; provided however, that if a Change in Control occurs, the
----------------
Compensation Committee of the Board of Directors shall not designate a
percentage of less than 30% thereafter. If such targets are exceeded, the
Employee's annual incentive bonus will be higher than the designated percentage,
calculated in accordance with a formula to be set by the Compensation Committee
of the Board of Directors. The annual incentive bonus shall be paid no later
than March 31st of the year following the year in which it is earned. For
example, the annual incentive bonus for the year 2000, if any, shall be paid no
later than March 31, 2001.
2.3 Incentive, Savings and Retirement Plans. The Employee shall be
------------------------------------------
eligible to participate in and shall receive all benefits under all executive
incentive, savings and retirement plans and programs maintained by the Company
for the benefit of its executive officers and/or employees. The Employee shall
be eligible to be considered for option grants under the Company's stock option
plans, but the determination of whether the Employee shall receive grants, and
the amount and terms of any such grants that may be awarded, shall be in the
sole discretion of the Compensation Committee of the Board of Directors.
2.4 Other Benefit Plans. The Employee and/or the Employee's dependents,
-------------------
as the case may be, shall be eligible to participate in and shall receive all
benefits under each insurance and other benefit plan of the Company maintained
for the benefit of its employees, including vacation.
2.5 Reimbursement of Expenses. Subject to the Company's policy
---------------------------
regarding the reimbursement of reasonable travel and business expenses as in
effect from time to time during the Employment Period, the Company shall
reimburse the Employee for such expenses from time to time, at the Employee's
request upon presentation of expense statements and such other supporting
information as the Company may customarily require of it executives.
2
<PAGE>
3. Termination.
-----------
3.1 Death. This Agreement shall terminate automatically upon the death
-----
of the Employee. Notwithstanding the termination of this Agreement by virtue of
the death of Employee, should Employee be living and employed by Company on
December 31st of any year, his estate shall be paid the incentive bonus due to
Employee in accordance with the terms and time periods provided for in Section
2.2 hereof.
3.2 Disability. The Company may terminate this Agreement, upon written
----------
notice to the Employee delivered in accordance with Sections 3.7 and 9.2 hereof,
upon the Disability of the Employee.
3.3 Cause. The Company may terminate this Agreement for Cause, upon
-----
written notice to the Employee delivered in accordance with Sections 3.7 and 9.2
hereof. For purposes of this Agreement, "Cause" means (a) the conviction of, or
plea of guilty or nolo contendere by, the Employee of a felony or other serious
crime, (b) the Employee's grossly negligent or willful refusal to perform his
duties and responsibilities as contemplated in this Agreement, but only after
Employee has received written notice from the Company setting forth with
particularity Employee's performance deficiency and Employee has failed to cure
such deficiency to the Company's reasonable satisfaction within 30 days of
receipt of such notice, (c) the Employee's engaging in activities which would
constitute a breach of any term of this Agreement, but only after Employee has
received written notice from the Company setting forth with particularity
Employee's breach and Employee has failed to cure such breach to the Company's
reasonable satisfaction within five days of receipt of such notice, or (d)
Employee's engaging in fraud or other illegal conduct to the material detriment
of the Company.
3.4 Without Cause. The Company may terminate this Agreement Without
-------------
Cause, upon written notice to the Employee delivered in accordance with Sections
3.7 and 9.2 hereof. For purposes of this Agreement, the Employee will be deemed
to have been terminated "Without Cause" if the Employee is terminated by the
Company for any reason other than Cause, Disability, death or non-renewal.
3.5 Termination by Employee. (a) The Employee may terminate this
-----------------------
Agreement, upon written notice to the Company inaccordance with Sections 3.7 and
9.2 hereof.
(b) If such notice is delivered within six months of a Change in
Control, then the Company shall pay to the Employee the amounts set forth in
Section 4.3 hereof if:
(i) the Employee has not been offered a position similar
to his position at the time of the Change in Control
with similar responsibilities and equal or greater
compensation than he was being paid at the time of
the Change in Control; or
3
<PAGE>
(ii) the Employee has been asked to move his principal
office beyond 35 miles from the Employee's then-
current principal office location; or
(iii) the successor to the Company or the purchaser of its
assets has not assumed the obligations of the Company
under this Agreement at the time of the Change in
Control.
3.6 Release. If the Employee's employment shall terminate during the
-------
Employment Period, or if the Company does not propose to renew this Agreement
pursuant to Section 1.2 hereof, the Employee agrees, upon payment to the
Employee of all amounts due under Sections 4.2, 4.3 or 4.4 hereof, as
applicable, to execute a release of claims in the form attached hereto as
Exhibit A.
- ---------
3.7 Notice of Termination. Any termination of this Agreement (i) by the
---------------------
Company for Cause, Without Cause or as a result of the Employee's Disability or
(ii) by the Employee for any reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with this Agreement.
For purposes of this Agreement, a "Notice of Termination" means a written notice
which (a) indicates the specific termination provision in this Agreement relied
upon, (b) sets forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the provision
so indicated and (c) specifies the termination date, if such date is other than
the date of receipt of such notice.
4. Obligations of Company upon Termination.
---------------------------------------
4.1 By the Company for Cause or by Employee other than in connection
-------------------------------------------------------------------
with a Change in Control. If this Agreement shall be terminated either by the
- ------------------------
Company for Cause or by the Employee for any reason other than pursuant to
Section 3.5(b) hereof, the Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the aggregate of the
Employee's Base Salary (as in effect on the Date of Termination) through the
Date of Termination, if not theretofore paid, and, in the case of compensation
previously deferred by the Employee, all amounts of such compensation previously
deferred and not yet paid by the Company.
4.2 By the Company Without Cause. If this Agreement shall be
----------------------------
terminated by the Company Without Cause:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the sum of (A) the
aggregate of the Employee's Base Salary (as in effect on the Date of
Termination) through the Date of Termination, if not theretofore paid,
and, in the case of compensation previously deferred by the Employee,
all amounts of such compensation previously deferred and not yet paid
by the Company, (B) a severance payment equal to one year of Base
Salary (as in effect on the Date of Termination) plus the amount of the
target bonus that would be payable to the Employee for the year in
which the termination occurs (such target bonus amount to be payable
4
<PAGE>
regardless of the Company's actual results for such year); and (C) if
the same has not been previously paid to the Employee, the incentive
bonus, if any, earned by the Employee as provided in Section 2.2 of
this Agreement for the year preceding the year of termination
(Notwithstanding the foregoing, unless the Company shall have
terminated this Agreement Without Cause within six months of a Change
in Control, the amount provided in clause (B) may be paid, at the
Company's option, over a twelve-month period commencing on the Date of
Termination in 24 equal semi-monthly installments, rather than in a
lump sum.); and
(ii) for the 12-month period following the Date of
Termination, the Employee and the Employee's dependents shall continue
to be eligible to participate in the medical benefit plans and
arrangements of the Company, on the same terms and conditions
(including the amount of Employee's required contributory premium
payments) in effect for the Employee and the Employee's dependents
immediately prior to the Date of Termination; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
International or a comparable outplacement services company; provided
--------
however, that the Company shall not be required to spend more than
-------
$15,000 for such services.
The Company's obligations under this Section 4.2 shall terminate if the
Employee violates his obligations under Sections 6, 7 or 8 hereof, and the
Company shall have no obligation to make any remaining payments to the Employee
after the date of any such violation. The parties agree that the benefits
provided in this Section 4.2 are the sole and exclusive remedies available to
the Employee in the event of termination Without Cause.
4.3 By Employee upon Change in Control. If this Agreement shall
----------------------------------
be terminated by the Employee pursuant to Section 3.5(b) hereof:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the Date of Termination, the sum of (A) the
aggregate of the Employee's Base Salary (as in effect on the Date of
Termination) through the Date of Termination, if not theretofore paid,
and, in the case of compensation previously deferred by the Employee,
all amounts of such compensation previously deferred and not yet paid
by the Company, (B) a severance payment equal to one year of Base
Salary (as in effect on the Date of Termination) plus the amount of the
target bonus that would be payable to the Employee for the year in
which the termination occurs (such target bonus amount to be payable
regardless of the Company's actual results for such year); and (C) if
the same has not been previously paid to the Employee, the incentive
bonus, if any, earned by the Employee as provided in Section 2.2 of
this Agreement for the year preceding the year of termination; and
5
<PAGE>
(ii) for the 12-month period following the Date of
Termination, the Employee and the Employee's dependents shall continue
to be eligible to participate in the medical benefit plans and
arrangements of the Company, on the same terms and conditions
(including the amount of Employee's required contributory premium
payments) in effect for the Employee and the Employee's dependents
immediately prior to the Date of Termination; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
International or a comparable outplacement services company; provided
--------
however, that the Company shall not be required to spend more than
------
$15,000 for such services.
The Company's obligations under this Section 4.3 shall
terminate if the Employee violates his obligations under Sections 6, 7
or 8 hereof, and the Company shall have no obligation to make any
remaining payments to the Employee after the date of any such
violation.
4.4 Non-renewal by the Company. If the Company does not propose
--------------------------
to renew this Agreement in accordance with Section 1.2 hereof:
(i) The Company shall pay to the Employee, in a lump sum in
cash within 30 days after the date of the expiration of this Agreement
(the "Expiration Date"), the sum of (A) the aggregate of the Employee's
Base Salary (as in effect on the Expiration Date) through the
Expiration Date, if not theretofore paid, and, in the case of
compensation previously deferred by the Employee, all amounts of such
compensation previously deferred and not yet paid by the Company, (B) a
severance payment equal to one year of Base Salary (as in effect on the
Expiration Date); and (C) if the same has not been previously paid to
the Employee, the incentive bonus, if any, earned by the Employee as
provided in Section 2.2 of this Agreement for the year preceding the
year in which the Expiration Date occurs (Notwithstanding the
foregoing, unless the Expiration Date occurs within six months of a
Change in Control, the amount provided in clause (B) may be paid, at
the Company's option, over a twelve-month period commencing on the
Expiration Date in 24 equal semi-monthly installments, rather than in a
lump sum.); and
(ii) for the 12-month period following the Expiration Date,
the Employee and the Employee's dependents shall continue to be
eligible to participate in the medical benefit plans and arrangements
of the Company, on the same terms and conditions (including the amount
of Employee's required contributory premium payments) in effect for the
Employee and the Employee's dependents immediately prior to the
Expiration Date; and
(iii) the Company will provide the Employee with
executive-level outplacement services through Manchester Partners
6
<PAGE>
International or a comparable outplacement services company; provided
however, that the Company shall not be required to spend more than
$15,000 for such services.
The Company's obligations under this Section 4.4 shall terminate if the
Employee violates his obligations under Sections 6, 7 or 8 hereof, and the
Company shall have no obligation to make any remaining payments to the Employee
after the date of any such violation. The parties agree that the benefits
provided in this Section 4.4 are the sole and exclusive remedies available to
the Employee in the event the Company does not propose to renew this Agreement
pursuant to Section 1.2 hereof.
5. General Duties of the Employee.
------------------------------
5.1 The Employee agrees and acknowledges that he owes a duty of
loyalty, fidelity and allegiance to act at all times in the best interests of
the Company, to not knowingly become involved in a conflict of interest and to
not knowingly do any act or knowingly make any statement, oral or written, which
would injure the Company's business, its interests or its reputation unless
required to do so in any legal proceeding by a competent court with proper
jurisdiction.
5.2 The Employee agrees to comply at all times during the Employment
Period with all applicable policies, rules and regulations of the Company,
including, without limitation, the Company's policy regarding trading in the
Common Stock, as is in effect from time to time during the Employment Period.
6. Employee's Confidentiality Obligation.
-------------------------------------
6.1 The Employee hereby acknowledges, understands and agrees that all
Confidential Information is the exclusive and confidential property of the
Company and its Affiliates which shall at all times be regarded, treated and
protected as such in accordance with this Section 6. The Employee acknowledges
that all such Confidential Information is in the nature of a trade secret.
6.2 For purposes of this Agreement, "Confidential Information" means
information, which is used in the business of the Company or its Affiliates and
(a) is proprietary to, about or created by the Company or its Affiliates, (b)
gives the Company or its Affiliates some competitive business advantage or the
opportunity of obtaining such advantage or the disclosure of which could be
detrimental to the interests of the Company or its Affiliates, (c) is designated
as Confidential Information by the Company or its Affiliates, is known by the
Employee to be considered confidential by the Company or its Affiliates, or from
all the relevant circumstances should reasonably be assumed by the Employee to
be confidential and proprietary to the Company or its Affiliates or (d) is not
generally known by non-Company personnel.
6.3 As a consequence of the Employee's acquisition or anticipated
acquisition of Confidential Information, the Employee shall occupy a position of
trust and confidence with respect to the affairs and business of the Company and
its Affiliates. In view of the foregoing and of the consideration to be provided
to the Employee, the Employee agrees that it is reasonable and necessary that
the Employee make each of the following covenants:
(a) At any time during the Employment Period and thereafter,
the Employee shall not disclose Confidential Information to any person or
entity, either inside or outside of the Company, other than as necessary in
7
<PAGE>
carrying out his duties and responsibilities as set forth in Section 5 hereof,
without first obtaining the Company's prior written consent (unless such
disclosure is compelled pursuant to court orders or subpoena, and at which time
the Employee shall give notice of such proceedings to the Company and provide
the Company with an opportunity to resolve such disclosure in a manner
reasonably acceptable to the Company).
(b) At any time during the Employment Period and thereafter,
the Employee shall not use, copy or transfer Confidential Information other than
as necessary in carrying out his duties and responsibilities as set forth in
Section 5 hereof, without first obtaining the Company's prior written consent.
(c) On the Date of Termination, the Employee shall promptly
deliver to the Company (or its designee) all written materials, records and
documents made by the Employee or which came into his possession prior to or
during the Employment Period concerning the business or affairs of the Company
or its Affiliates, including, without limitation, all materials containing
Confidential Information.
7. Employee's Nonsolicitation Obligation. The Employee agrees that he
---------------------------------------
shall not, during the Employment Period and for one year following the Date of
Termination, directly or indirectly, on behalf of the Employee or any other
person, (i) solicit for employment by other than the Company any person known by
the Employee to be employed by the Company or its Affiliates at the Date of
Termination or within the six-month period prior thereto; or (ii) induce,
attempt to induce or knowingly encourage any Customer (as defined below) to
divert any business or income from the Company or any of its Affiliates or to
stop or alter the manner in which they are then doing business with the Company
or any of its Affiliates. The term "Customer" small mean any individual or
business firm that was or is a customer or client of, or whose business was
actively solicited by, the Company or any of its Affiliates at any time,
regardless of whether such customer was generated, in whole or in part, by the
Employee's efforts.
8. Employee's Noncompetition Obligation. The Employee agrees that he
--------------------------------------
shall not, for a period of one year following the Date of Termination, directly
or indirectly: (a) own or control any debt, equity or other interest in (except
as a passive investor of less than 1% of the capital stock or publicly traded
notes or debentures of a publicly held company), or (b) (1) act as a director,
officer, manager, employee, participant or consultant to or accept or solicit
any office to act as any of the foregoing or (2) be obligated to or connected in
any advisory, business or ownership capacity, in each case with respect to any
business engaged in by the Company or any of its subsidiaries at the Date of
Termination or which is being actively pursued by the Company or any of its
subsidiaries at that time. Notwithstanding the foregoing, if the Company is
obligated to make payments to the Employee under any of Sections 4.2, 4.3 or
4.4, the Employee's obligations under this Section 8 shall terminate immediately
if the Company fails to timely perform its obligations under Section 4.2, 4.3 or
4.4, as applicable. The Employee's noncompetition obligation as set forth in
this Section 8 shall supercede and replace any noncompetition agreement the
Employee may have entered into with the Company or any of its subsidiaries prior
to the date of this Agreement.
8
<PAGE>
9. Miscellaneous.
-------------
9.1 Certain Definitions. As used in this Agreement, the following
-------------------
terms have the meanings set forth below:
"Affiliate" is used in this Agreement to define a relationship
to a person or entity and means a person or entity who, directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, such person or entity.
"Base Salary" shall have the meaning assigned thereto in
Section 2.1 hereof.
"Cause" shall have the meaning assigned thereto in Section 3.3
hereof.
"Change in Control" of the Company shall be deemed to have
occurred if (a) the Company merges or consolidates with any other corporation
(other than a wholly-owned direct or indirect subsidiary of the Company) and is
not the surviving corporation (or survives as a subsidiary of another
corporation) and, after such merger or consolidation, the Company's shareholders
immediately prior to such merger or consolidation do not own Voting Stock
representing a majority of the outstanding shares of Voting Stock of the
surviving corporation or do not otherwise have the right to elect a majority of
the board of directors of the surviving corporation, (b) the Company sells or
agrees to sell all or substantially all of its assets to any other person or
entity and, after such sale, the Company's shareholders immediately prior to
such sale do not own Voting Stock representing a majority of the outstanding
shares of Voting Stock of such person or entity or do not otherwise have the
right to elect a majority of the board of directors of such person or entity,
(c) any third person or entity (other than a person or entity, or an Affiliate
thereof, that is a shareholder of the Company on the Effective Date, a trustee
or committee of any qualified employee benefit plan of the Company) together
with its Affiliates shall become, directly or indirectly, the beneficial owner
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, and the regulations promulgated thereunder) of at least 50% of the
Voting Stock of the Company or (d) the individuals who constitute the Board of
Directors of the Company as of the Effective Date (the "Incumbent Board") shall
cease for any reason to constitute at least a majority of the Board of
Directors; provided, that any person becoming a director whose election or
nomination for election was approved by a majority of the members of the
Incumbent Board shall be considered, for the purposes of this Agreement, a
member of the Incumbent Board.
"Common Stock" means the Company's common stock, par value
$0.05 per share.
"Confidential Information" shall have the meaning assigned
thereto in Section 6.2 hereof.
"Date of Termination" means the earliest to occur of (a) the
date of the Employee's death, (b) the date on which the Employee terminates his
employment with the Company for any reason or (c) the date of receipt of the
9
<PAGE>
Notice of Termination, or such later date as may be prescribed in the Notice of
Termination in accordance with Section 3.7 hereof.
"Disability" means an illness or other disability which
prevents the Employee from discharging his responsibilities under this Agreement
for a period 180 consecutive calendar days, or an aggregate of 180 calendar days
in any calendar year, during the Employment Period, all as determined in good
faith by the Board of Directors of the Company (or a committee thereof).
"Effective Date" means January 3, 2000.
"Employment Period" shall have the meaning assigned thereto in
Section 1.2 hereof.
"Expiration Date" shall have the meaning assigned thereto in
Section 4.4 hereof.
"Notice of Termination" shall have the meaning assigned
thereto in Section 3.7 hereof.
"Voting Stock" means all outstanding shares of capital stock
of the Company entitled to vote generally in an election of directors; provided,
however, that if the Company has shares of Voting Stock entitled to more or less
than one vote per share, each reference to a proportion of the issued and
outstanding shares of Voting Stock shall be deemed to refer to the proportion of
the aggregate votes entitled to be cast by the issued and outstanding shares of
Voting Stock.
"Without Cause" shall have the meaning assigned thereto in
Section 3.4 hereof.
9.2 Notices. All notices and other communications required or permitted
-------
hereunder or necessary or convenient in connection herewith shall be in writing
and, if given by telegram, telecopy or telex, shall be deemed to have been
validly served, given or delivered when sent, if given by personal delivery,
shall be deemed to have been validly served, given or delivered upon actual
delivery and, if mailed, shall be deemed to have been validly served, given or
delivered three business days after deposit in the United States mail, as
registered or certified mail, with proper postage prepaid and addressed to the
party or parties to be notified, at the following addresses:
If to the Company to:
Envirosource, Inc.
1155 Business Center Drive
Horsham, PA 19044
Attention: President
Telephone: (215) 956-5400
Facsimile: (215) 956-5415
10
<PAGE>
If to the Employee to:
Leon Z. Heller
104 Bleddyn Road, #10
Ardmore, PA 19003
Telephone: (610) 649-5916
or to such other names, addresses, telephone and fax numbers as the Company or
the Employee, as the case may be, shall designate by notice to the other party
hereto in the manner specified in this Section 9.2.
9.3 Waiver of Breach. The waiver by any party hereto of a breach of any
----------------
provision of this Agreement shall neither operate nor be construed as a waiver
of the breach of any other provision or of any subsequent breach by any party.
9.4 Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the Company, its successors, legal representatives and assigns, and
upon the Employee, his heirs, executors, administrators, representatives and
assigns; provided, however, that (i) the Employee agrees that his rights and
obligations hereunder are personal to him and may not be assigned without the
express written consent of the Company, and (ii) the Company may not assign its
rights and obligations hereunder without Employee's express written consent
except to the acquiring entity in connection with the transfer, exchange or sale
of all or substantially all of the Company's assets.
9.5 Entire Agreement; No Oral Amendments. This Agreement constitutes
-------------------------------------
the entire agreement between the Employee and the Company with respect to the
subject matter of this Agreement. This Agreement may not be modified in any
respect by any oral statement, representation or agreement made by any employee,
officer, or representative of the Company or by any written agreement unless
signed by an officer of the Company who is expressly authorized by the Company
to execute such document.
9.6 Enforceability. If any provision of this Agreement or application
--------------
thereof to anyone or under any circumstances shall be determined to be invalid
or unenforceable, such invalidity or unenforceability shall not affect any other
11
<PAGE>
provisions or applications of this Agreement which can be given effect without
the invalid or unenforceable provision or application.
9.7 Jurisdiction. The laws of the Commonwealth of Pennsylvania shall
------------
govern the interpretation, validity and effect of this Agreement without regard
to the place of execution or the place for performance thereof.
9.8 Injunctive Relief. The Company and the Employee agree that a breach
-----------------
of any term of this Agreement by the Employee would cause irreparable damage to
the Company and that, in the event of such breach, the Company shall have, in
addition to any and all remedies of law, the right to any injunction, specific
performance and other equitable relief to prevent or to redress the violation of
the Employee's duties or responsibilities hereunder.
9.9 Employee's Representation. Employee shall be, and he represents
--------------------------
that he is, free to enter into this Agreement and is not and will not become to
a party to agreement which would prohibit the Employee from accepting employment
with the Company or from performing his duties and obligations to the Company
hereunder.
9.10 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original and both of which
together shall be deemed one Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY":
ENVIROSOURCE, INC.
By:/s/John T. DiLacqua
------------------------
Its: President
"EMPLOYEE":
/s/Leon Z. Heller
---------------------------
Leon Z. Heller
12
<PAGE>
EXHIBIT A
GENERAL RELEASE
---------------
1. I, Leon Z. Heller, for and in consideration of the
benefits to be received by me pursuant to the provisions of that certain
Employment Agreement by and between me and Envirosource, Inc. ("Envirosource")
entered into as of January 3, 2000 (the "Agreement"), and in connection with the
termination of my employment with Envirosource effective , do
------------------
hereby REMISE, RELEASE, AND FOREVER DISCHARGE Envirosource and its subsidiaries
and affiliates, their officers, directors, shareholders, partners, employees and
agents, their respective successors and assigns, heirs, executors and
administrators (hereinafter collectively referred to as "ENSO"), acting in any
capacity whatsoever, of and from any and all manner of actions and causes of
actions, suits, debts, claims and demands whatsoever in law or in equity, which
I ever had, now have, or hereafter may have, or which my heirs, executors or
administrators hereafter may have, by reason of any matter, cause or thing
whatsoever from the beginning of my employment with ENSO to the date of these
presents and particularly, but without limitation of the foregoing general
terms, any claims arising from or relating in any way to my employment
relationship and the termination of my employment relationship with ENSO,
including but not limited to, any claims which have been asserted, could have
been asserted, or could be asserted now or in the future under any federal,
state or local laws, including any claims under the Age Discrimination in
Employment Act, 29 U.S.C.ss.621 et seq., Title VII of the Civil Rights Act of
-- ---
1964, 42 U.S.C.ss.2000e et seq., the Pennsylvania Human Relations Act, 43
-- ---
P.S.ss.951 et seq., or the human relations laws of any other State
-- ---
any contracts between ENSO and me and any common law claims now or hereafter
recognized and all claims for counsel fees and costs.
2. I further agree and covenant that neither I, nor any
person, organization or other entity on my behalf, will file, charge, claim, sue
or cause or permit to be filed, charged, or claimed, any action for personal
equitable, monetary or other similar relief against Envirosource, involving any
matter occurring at any time in the past up to the date of this General Release,
or involving any continuing effects of any actions or practices which may have
arisen or occurred prior to the date of this General Release, including any
charge of discrimination under Title VII, the ADEA, the Pennsylvania Human
Relations Act or the human relations laws of any other State. In addition, I
also agree and covenant that should I, or any other person, organization or
entity on my behalf, file, charge, claim, sue or cause or permit to be filed,
charged, or claimed, any action for damages, including injunctive, declaratory,
monetary or other relief, despite my agreement not to do so hereunder, then I
will pay all of the costs and expenses of ENSO (including reasonable attorneys'
fees) incurred in the defense of any such action or undertaking.
3. I agree, covenant and promise that I will not in any way
communicate the terms of this General Release to any person other than my
immediate family and my attorney.
<PAGE>
4. I hereby certify that I have read the terms of this General
Release, that I have been advised by Envirosource to discuss it with my
attorney, and that I understand its terms and effects. I acknowledge, further,
that I am executing this General Release of my own volition with a full
understanding of its terms and effects and with the intention of releasing all
claims recited herein in exchange for the consideration described in the
Agreement, which I acknowledge is adequate and satisfactory to me. None of the
above-named parties, nor their agents, representatives, or attorneys have made
any representations to me concerning the terms or effects of this General
Release other than those contained herein.
6. I hereby acknowledge that I have been informed that I have
the right to consider this General Release for a period of 21 days prior to
execution. I also understand that I have the right to revoke this General
Release for a period of seven days following execution by giving written notice
to Envirosource at 1155 Business Center Drive, Horsham, PA 19044.
Intending to be legally bound hereby, I execute the foregoing
General Release this day of , .
----- ------------- ----------
- ------------------------ --------------------------
Witness Leon Z. Heller
ENVIROSOURCE, INC.
List of Subsidiaries
As of March 1, 2000
-------------------
State or other % of voting
jurisdiction securities
in which owned by
Name of Company organized immed. parent
- --------------------------------------------------------------------------------
Envirosource, Inc. Delaware
EnviroSource Corp. Wyoming 100
Envirosource Management Corp. Delaware 100
IU International Corporation Delaware 100
Envirosource Technologies, Inc. Delaware 100
ETDS, Inc. Delaware 100
Conversion Systems, Inc. Delaware 100
Envirosafe Services of Idaho, Inc. Delaware 100
Envirosafe Services of North America, Inc. Delaware 100
Envirosafe Services of Ohio, Inc. Ohio 100
Envirosafe Services of Texas, Inc. Delaware 100
Marcus Hook Processing, Inc. Delaware 100
International Mill Service, Inc. Pennsylvania 100
IMS Alabama, Inc. Delaware 100
International Mill Service Limited Canada 100
McGraw Construction Company, Inc. Ohio 100
IU North America Finance, Inc. Delaware 100
IU North America, Inc. Delaware 100
Nosroc Corp. Pennsylvania 100
Soncor Corp. Delaware 100
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 23, 2000, accompanying the consolidated
financial statements of Envirosource, Inc. and Subsidiaries included in this
Annual Report on Form 10-K for the year ended December 31, 1999. We hereby
consent to the incorporation by reference of said report in the Registration
Statements of Envirosource, Inc. and Subsidiaries on Form S-8 Registration
Statement Numbers 33-34566, 33-26633, 33-1549, 33-13728, 33-46925, and 33-53019.
/s/ Grant Thornton LLP
Philadelphia, Pennsylvania
March 27, 2000
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Post-Effective Amendment No. 1
to the Registration Statement (Form S-8 No. 33-34566) pertaining to the
Envirosource, Inc. Savings Plan, Registration Statement (Form S-8 No. 33-26633),
Post-Effective Amendment No. 1 to the Registration Statement (Form S-8 No.
33-1549), and Post Effective Amendment No. 1 to the Registration Statement (Form
S-8 No. 33-13728), each of which pertains to Envirosource, Inc.'s Incentive
Stock Option Plan, Registration Statement (Form S-8 No. 33-46925) pertaining to
the Envirosafe Services, Inc. Stock Option Plan, and the Registration Statement
(Form S-8 No. 33-53019) pertaining to the Envirosource, Inc. 1993 Stock Option
Plan of our report dated March 19, 1999 with respect to the consolidated
financial statements of Envirosource, Inc. included in this Annual Report (Form
10-K) for the year ended December 31, 1999.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated balance sheet of Envirosource, Inc. at
December 31, 1999, and from the consolidated statement of
operations of Envirosource, Inc. for the year ended December 31,
1999, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> Year
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,125
<SECURITIES> 0
<RECEIVABLES> 33,725
<ALLOWANCES> 896
<INVENTORY> 0
<CURRENT-ASSETS> 53,772
<PP&E> 254,478
<DEPRECIATION> 151,286
<TOTAL-ASSETS> 278,257
<CURRENT-LIABILITIES> 49,811
<BONDS> 278,666
0
0
<COMMON> 291
<OTHER-SE> (85,854)
<TOTAL-LIABILITY-AND-EQUITY> 278,257
<SALES> 0
<TOTAL-REVENUES> 211,975
<CGS> 0
<TOTAL-COSTS> 142,763
<OTHER-EXPENSES> 118,253
<LOSS-PROVISION> 36
<INTEREST-EXPENSE> 30,538
<INCOME-PRETAX> (94,799)
<INCOME-TAX> 952
<INCOME-CONTINUING> (95,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (95,751)
<EPS-BASIC> (16.47)
<EPS-DILUTED> (16.47)
</TABLE>
