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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1995 COMMISSION FILE NO. 1-5276
PROLER INTERNATIONAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 74-1051251
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4265 SAN FELIPE, SUITE 900 77027
HOUSTON, TEXAS (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
COMPANY'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 627-3737
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, $1.00 par value per share New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [x] No ________
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the registrant 60 days prior to the date of filing.
Based on last sale on April 21, 1995: $ 33,135,000
Indicate the shares outstanding of each of the registrant's classes of
common stock, as of the close of the latest practicable date.
COMMON STOCK, $1.00 PAR VALUE 4,714,158
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(TITLE OF CLASS) (NUMBER OF SHARES OUTSTANDING)
DOCUMENTS INCORPORATED BY REFERENCE:
Proxy statement for the Company's 1995 Annual Meeting of Stockholders is
incorporated by reference into Part III of this report.
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P A R T I
ITEM 1. BUSINESS.
(A) CURRENT DEVELOPMENTS
Proler International Corp. (the "Company") reported net income of $303,000
in fiscal 1995 as compared to net losses reported for the previous four years,
including net losses of $2.3 million and $9.9 million in fiscal 1994 and 1993,
respectively. For the fourth quarter of fiscal 1995, the Company reported net
income of $2.4 million as compared to a net loss of $3.3 million in the fourth
quarter of the prior year. The results in the 1995 fourth quarter reflect a
significant improvement in the operating results of the Company's joint
operations.
The Company is primarily engaged, through its wholly-owned subsidiaries and
50 percent or less-owned joint operations, in buying, processing and selling
ferrous and other scrap metals. The Company's principal scrap processing
business is conducted through its joint operations, which primarily make export
sales. The Company's wholly-owned subsidiary, Proler Recycling, Inc. ("Proler
Recycling") operates three plants which collectively sell precipitation iron,
low residual steel and tin in the domestic market. As discussed elsewhere
herein, Proler Recycling has commenced an expansion program to identify and
enter new metals recovery businesses.
The Company accounts for the joint operations under the equity method of
accounting. In general, the joint operations are structured so that policy
decisions require the unanimous consent of the participants. As a result, the
Company's control over the joint operations is limited and must be exercised in
concert with its partners in those operations. During fiscal 1995, the Company
reported equity earnings from the joint operations of $3.0 million as compared
to earnings of $2.8 million in fiscal 1994 and a loss of $5.7 million in fiscal
1993.
In December, 1994, the Company amended its credit facilities with a bank,
resulting in greater flexibility to capitalize on new business opportunities,
and as of January 31, 1995, had consolidated working capital of $5.0 million and
no outstanding bank debt. In addition, the year-end investment in joint
operations was $34.8 million, of which $23.4 million represents the Company's
share of combined working capital of such joint operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity, Financing and Capital Resources."
The Company's five year business plan, as described in the 1993 Annual
Report on Form 10-K, has the goals of restructuring, selling or otherwise
disposing of certain underperforming and unproductive assets, and supplementing
its core commodity metals business by investing in technologies that profit from
processing and recycling waste and secondary materials. The Company continues
to believe that if it is successful in implementing this business plan, it will
be able to make a transition from its participation in the highly cyclical scrap
processing business
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primarily through joint operations over which it exercises limited control, to a
recycling company engaged in environmental services, energy supply and metals
recovery with majority control over its significant assets. The Company is also
seeking to enter into complementary lines of business, including specialty
chemicals and industrial energy facilities.
In implementing its business plan, during the past three years the Company
has sold the assets of its Chicago, Houston, Kansas City and Vinton scrap
processing facilities, as well as its joint venture interest in Maru Shipping
Company, Inc. Certain real estate holdings and other nonoperating assets are
being marketed for sale. With the sales of the domestic scrap operations, the
Company's focus is on improving the performance of Proler Recycling's three
plants from which the Company's remaining consolidated revenues are derived.
These plants are located in Coolidge, Arizona; Lathrop, California; and Seattle,
Washington. Revenues from these plants totaled $13.9 million, $13.7 million and
$13.3 million in fiscal 1995, 1994 and 1993, respectively. As noted above, the
Company is also expanding into new and related lines of business.
In fiscal 1995, Proler Recycling began construction of new plant facilities
in Coolidge which are estimated to cost approximately $5 million. The new
facilities, combined with the existing plant operations, are designed to recover
copper, tin and other metals and chemicals derived from the production process
of electronic printed circuit boards. The new plant is expected to be fully
operational in the summer of 1995. Proler Recycling has also begun the
marketing of specialty chemicals to a variety of industries.
During fiscal 1995, the Company expended approximately $1.3 million in the
continued development and testing of the gasification technology of its wholly-
owned subsidiary, Proler Environmental Services, Inc. ("Proler Environmental").
This gasification technology uses a thermal conversion process to recycle
hydrocarbon and cellulose-based wastes to produce a synthesis gas suitable for
sale to industrial users and utilities. The technology has been developed by
Proler Environmental as a joint project with a major Mexican steel company and
is the subject of a pending patent application. The Company has successfully
tested the process at its 50 ton per day demonstration plant in Houston, Texas,
on automobile shredder residue, tires, cardboard/paper sludge, municipal solid
waste and other industrial wastes. The Company is currently assessing the
opportunities for and feasibility of various commercial applications of the
gasification process, and is having discussions with several companies which may
lead to the construction of one or more gasification plants. In the event an
agreement for the construction of such a gasification plant is consummated, the
Company estimates that completion of such a plant would take approximately 18 to
24 months given the lead time required for construction, permitting and other
matters. Management believes that the Company's participation in gasification
projects could eventually become a significant part of its future operations.
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(B) GENERAL DEVELOPMENT OF BUSINESS
The Company was incorporated in Texas in 1947 as the successor to a scrap
business originally founded by the late Ben and Rose Proler in 1925, and changed
its state of incorporation to Delaware in 1966. As noted above, the Company is
primarily engaged in buying, processing and selling ferrous and other scrap
metals. The Company developed a process (the "Proler Process") which converts
bulky and impure scrap into a high purity steel scrap ("Prolerized Scrap")
possessing the additional desirable characteristics of homogeneity, high
density, uniform size and consistent quality. The Company also processes low-
grade ferrous scrap into premium quality scrap for use as a raw material in the
production of iron and low residual steel, and into precipitation iron for use
in the production of copper. Additionally, the Company recovers and sells
certain non-ferrous metals, including zinc, copper, aluminum, brass and tin.
Historically, as Prolerized Scrap operations expanded geographically, the
Company followed a policy of entering into either corporate or unincorporated
joint operations ("joint operations") with scrap operators in various areas. By
so doing, the Company was able to capitalize upon its co-venturer's established
relationships with suppliers of raw materials, reduce its capital commitments
with respect to each plant, and make use of existing regional sales
organizations.
The Company granted each joint operation an exclusive royalty-free license
to use the Proler Process (including any improvements, refinements and additions
thereto) and the trademark "Prolerized" within a designated area of operations.
Under the Company's joint operation agreements, the transferability of each co-
venturer's interest is restricted, and the unincorporated joint operations
require unanimous approval of the partners on all policy decisions.
With the sale of the Company's domestic operations described above, the
Company's Prolerized Scrap business is conducted through the joint operations,
which are involved in selling primarily to foreign markets. Proler Recycling's
plants collectively produce precipitation iron and low residual steel and
recover tin, all of which is sold to domestic markets. Proler Recycling is
currently constructing new plant facilities to recover copper, tin and other
metals and chemicals derived from the production process of electronic printed
circuit boards.
The following table lists the principal facilities operated by the Company
and its joint operations during fiscal 1995 and the type of material processed
by location:
CONSOLIDATED FACILITIES TYPE OF MATERIAL PROCESSED
----------------------- --------------------------
Kansas City, Kansas (1) Prolerized and non-ferrous
Vinton, Texas (1) Prolerized and non-ferrous
Coolidge, Arizona Precipitation iron, tin, copper, specialty chemicals
Lathrop, California Precipitation iron
Seattle, Washington Low residual ferrous, tin
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JOINT OPERATION FACILITIES TYPE OF MATERIAL PROCESSED
-------------------------- --------------------------
Los Angeles, California Prolerized, other ferrous, and non-ferrous
Everett, Massachusetts Prolerized, other ferrous, and non-ferrous
Worcester, Massachusetts Prolerized and non-ferrous
Jersey City, New Jersey Prolerized and non-ferrous
Queens, New York Prolerized
Newark, New Jersey Other ferrous
Providence, Rhode Island Other ferrous
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(1) Sold in fiscal 1995
In addition to the above, the Company's joint operations have seven locations
(five in California, one in Maine and one in New Hampshire) where scrap metal is
bought, processed and transported to one of the above joint operation facilities
for subsequent sale.
The following table shows selected financial information for the Company's
share of its joint operations, the Company-operated scrap operations, and Proler
Recycling plants (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------
1995 1994 1993
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<S> <C> <C> <C>
Share of Joint Operations
- -------------------------
Net sales.............................. $124,103 $142,197 $92,419
======== ======== =======
Gross profit (loss).................... $ 6,257 $ 6,037 $ (337)
======== ======== =======
Gross tons shipped..................... 988 1,212 950
======== ======== =======
Company Operated Scrap Operations (1)
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Net sales.............................. $ 4,667 $ 29,983 $50,578
======== ======== =======
Gross profit (loss).................... $ (151) $ 1,193 $ (201)
======== ======== =======
Gross tons shipped..................... 30 220 378
======== ======== =======
Proler Recycling Plants
- -----------------------
Net sales.............................. $ 13,941 $ 13,723 $13,264
======== ======== =======
Gross profit........................... $ 670 $ 1,708 $ 850
======== ======== =======
Gross tons shipped..................... 100 105 104
======== ======== =======
</TABLE>
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(1) Company operated scrap operations include the Houston, Vinton and Kansas
City facilities which have all been sold.
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(C) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company considers itself to be engaged in a single industry segment, the
processing of metals for recycling and activities incidental thereto. The
following table presents financial information about the Company's consolidated
sales, gross profit from operations, net operating losses (defined as reported
operating losses less earnings (loss) from joint operations) and identifiable
assets for the last three fiscal years, excluding the Company's joint operations
(dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
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<S> <C> <C> <C>
Consolidated net sales to unaffiliated
customers(1)....................... $18,610 $43,706 $63,842
Gross profit from operations............ 519 2,901 649
Net operating loss...................... 4,894 2,149 7,080
Identifiable assets..................... 28,588 36,471 33,467
</TABLE>
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(1) Consolidated net sales include $24,400 in fiscal 1993 attributable to the
Houston facility which was sold in July, 1992. Kansas City and Vinton
sales included in consolidated net sales were $4,700, $29,100, and $20,900
in fiscal 1995, 1994 and 1993, respectively. These two plants were sold in
the first quarter of fiscal 1995.
(D) NARRATIVE DESCRIPTION OF BUSINESS
PRINCIPAL PRODUCTS. The following table shows the percentages of the
Company's total sales(1) accounted for by its major product lines during each of
the last three fiscal years:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
PRODUCT LINE 1995 1994 1993
- ------------ ----- ----- -----
<S> <C> <C> <C>
Prolerized Scrap................... 42% 50% 46%
Other Ferrous Scrap................ 44 39 35
Precipitation Iron................. 9 6 8
Non-Ferrous Scrap.................. 5 4 8
Other.............................. -- 1 3
</TABLE>
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(1) The term "total sales" as used in this Report refers to net sales of the
Company and its consolidated subsidiaries combined with the Company's share
of the net sales of each joint operation in which it owns an interest. The
Company's share of the earnings of the joint
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operations is accounted for in the Company's Consolidated Statements of
Operations using the equity method of accounting. Net sales refers to
gross sales less shipping and selling expenses.
The total volume shipped for each of the fiscal years ended January 31, 1995,
1994 and 1993 was approximately 1,118,000, 1,537,000, and 1,432,000 tons,
respectively. The decline in tonnage shipped in fiscal 1995 (primarily
Prolerized Scrap and Other Ferrous Scrap) is due to the sale of the Kansas City
and Vinton plants, as well as a reduction of sales at the joint operations due
to reduced foreign demand during the year. The term "total volume shipped" as
used in this Report refers to gross tons (2,240 pounds) shipped by the Company
and its consolidated subsidiaries combined with the Company's share of tons
shipped of each joint operation in which it owns an interest.
The Company's Prolerized Scrap plants, precipitation iron plants and low
residual steel plant, as well as its other ferrous scrap and non-ferrous scrap
operations, have adequate capacity to meet any foreseeable increase in demand
for its products.
The product mix sold by the Company is determined primarily by the type of
scrap available for purchase by the Company and the demand for such scrap in the
Company's selling markets.
The Company does not determine contribution to gross profits by its various
product lines, which necessarily would involve a number of arbitrary cost
allocations. However, it can generally be stated that, while gross profit
margins vary between the product lines and from year to year, gross profit
margins historically have been higher on Prolerized Scrap than on precipitation
iron and other ferrous scrap. See Item 7 - "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PROLERIZED SCRAP. The scrap industry supplies one of the basic raw materials
used in the production of iron and steel. The furnaces which are used to
produce iron and steel are charged with iron and scrap steel ("ferrous scrap")
or with pig iron, which is produced from smelting iron ore in a blast furnace,
or with a combination of ferrous scrap and pig iron or iron substitutes. The
proportion of ferrous scrap used to make iron and steel varies, depending upon
the type of furnace used, the specifications of the end product desired, the
relative costs of ferrous scrap, pig iron or iron substitutes to the steel
makers, and other considerations. In recent years mini-mills, which
predominantly operate electric furnaces and primarily use ferrous scrap as a raw
material, have become increasing users of ferrous scrap.
Proler Process. In this process, scrap automobiles and other ferrous scrap
are conveyed into a specially designed hammer mill that fragmentizes the scrap
into small pieces which are cleaned and separated into their ferrous and non-
ferrous metal components and automobile shredder residue. The ferrous
components are processed into small, fist-sized pieces of Prolerized Scrap,
which is either inventoried for later shipment or shipped directly via rail,
truck, barge or
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ocean-going vessel to iron and steel mills or foundries. The non-ferrous metal
components are sold to a variety of customers. Automobile shredder residue is
disposed of in landfills or used as interim landfill cover with further
processing.
Plants and Joint Operations. The Company completed the disposition of its
domestic Prolerized Scrap plants as follows: the Houston plant was sold in July
1992; the Kansas City plant was sold in February, 1994 and the Vinton plant was
sold in April, 1994. See Item 7 -"Management's Discussion and Analysis of
Financial Condition and Results of Operations".
The Company, through its joint operations, operates five Prolerized Scrap
plants in the United States. The locations are as follows: Los Angeles,
California; Everett and Worcester, Massachusetts; Jersey City, New Jersey; and
Queens, New York. The Company and its partner sold substantially all of the
assets of its 50 percent owned Chicago, Illinois plant in October, 1993. See
Note 5 to the Consolidated Financial Statements.
Sales. Prolerized Scrap produced at the Company's Houston, Vinton and Kansas
City plants was sold to domestic steel producers. Most of the Prolerized Scrap
produced at the Los Angeles, Everett, Jersey City, Queens, and Worcester plants
is sold to foreign customers. Approximately 80% and 71% of the Company's total
sales, including the Company's share of joint operation sales, were to foreign
customers during fiscal 1995 and 1994, respectively.
Sources of Supply. Raw material for the Proler Process, consisting primarily
of scrap automobiles, is purchased on a day-to-day basis from a large number of
suppliers, including automobile salvage yards, scrap dealers and truckers.
Certain of the joint operations make significant purchases from a few large
suppliers. While the joint operations are not dependent on any single source of
supply, the loss of a large supplier could cause prices paid for raw materials
from other suppliers to increase and at some locations could also cause a
reduction in the volume of raw materials available. Accordingly, the loss of a
large supplier could have a material adverse effect on the business of the joint
operation affected.
OTHER FERROUS SCRAP. The Company, through its joint operations, operates
four other ferrous scrap plants in Los Angeles, Everett, Newark and Providence.
These plants prepare to customers' specifications various grades of ferrous
scrap other than Prolerized Scrap, primarily heavy melting and premium grades,
for sale to steel producers and foundries. Processing of this type of scrap
consists principally of cleaning, sorting and crushing or cutting the scrap into
pieces of proper size which are then inventoried for future shipment or shipped
directly via rail, truck, barge or ship. The major sources of this type of
scrap are industrial manufacturing plants, railroads and scrap dealers.
Competition to buy this scrap is significant, with the price paid being the most
significant competitive factor.
LOW RESIDUAL STEEL AND PRECIPITATION IRON. Low residual scrap steel is used
by steel mills in making high quality steel. Precipitation iron is used in the
copper mining industry in one of the processes by which copper is extracted from
low grade ore.
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The Company produces both low residual scrap steel and precipitation iron
from tin plated steel can clippings, reject cans from can manufacturers and
recycled tin cans. This process, which incorporates many of the techniques used
in the Proler Process, converts these raw materials into a loosely shredded,
relatively pure ferrous scrap suitable for use as feedstock for detinning
operations or as precipitation iron in the production of copper. This material
can also be baled into low residual bundles consumed by the steel industry to
produce various forms of quality steel.
Plants and Sales. The Company presently owns and operates two precipitation
iron plants located in Coolidge, Arizona, and Lathrop, California. Low residual
steel is produced at the Seattle plant. Substantially all of the Company's
sales of precipitation iron are made under contracts with three major domestic
copper producers calling for the sale of a minimum number of tons per month at
prices which are determined in relation to certain prevailing scrap prices.
Precipitation iron is shipped to customers via truck and rail. The development
of processes for producing copper from low grade ore which does not require the
use of precipitation iron has reduced demand for sales of precipitation iron.
The sales of low residual scrap steel are made to a variety of steel mills and
foundries located throughout the country.
Sources of Supply. The Company's principal supply of raw material for the
production of precipitation iron and low residual scrap is from scrap generated
in the manufacture of metal cans and containers. Most of this scrap is
purchased directly from container manufacturers. The Company also acquires used
cans from municipal waste processors and various scrap dealers. The Company is
not dependent upon any single source of supply.
The following table shows the gross tons of precipitation iron and low
residual scrap steel sold in the Proler Recycling plants:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Precipitation iron........... 71,808 76,967 76,992
Low residual scrap steel..... 28,100 27,900 28,505
</TABLE>
NON-FERROUS SCRAP. The non-ferrous metals recovered by several of the
Prolerized Scrap plants are processed at facilities in Los Angeles, Jersey City,
Everett and Worcester and were previously produced at Vinton and Kansas City.
The non-ferrous metal scrap is cleaned and mechanically segregated according to
its principal metallic components and shipped to a variety of customers via
truck and ship.
NON-FERROUS METAL RECOVERY. The Company's Coolidge and Seattle locations
also include operations from which tin metal is recovered from the recycling of
industrial waste
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solutions and precipitates. The volume of tin pounds sold during fiscal 1995,
1994, and 1993 was 397,900, 361,300 and 427,800, respectively.
In August, 1994, the Company began construction of a new plant at its
Coolidge location which will substantially increase its ability to recycle
metal-bearing materials. The new plant is designed to recover copper, tin and
other metals and chemicals derived from the production process of electronic
printed circuit boards. The new plant will be commissioned in phases and is
expected to be fully operational in the summer of 1995.
OTHER. The Company is involved in the manufacture and supply of replacement
parts for the large automobile shredders in which the Company either owns a
current interest or used to own an interest. Additionally, the Company has
recently begun distributing a specialty chemical solution used for water
treatment and soil stabilization. The Company anticipates that these types of
sales will allow access to the metal-bearing waste streams these chemicals are
used to treat. Sales of these chemicals were immaterial in fiscal 1995 and any
significant activity increases in fiscal 1996 are dependent upon the
establishment of a long-term supply source.
RAW MATERIALS AND INVENTORY. See "Sources of Supply" above under:
"Prolerized Scrap", "Low Residual Steel and Precipitation Iron", and the general
discussion under "Other Ferrous Scrap", "Non-Ferrous Scrap" and "Other".
TRADEMARKS. The Company owns several registered trademarks. While the
Company regards these trademarks to be of value, it does not consider its
business dependent upon them.
WORKING CAPITAL. The Company's working capital requirements are currently
met principally from distributions from joint operations, and, to the extent
necessary, borrowings under its credit facility. As of January 31, 1995, the
Company had $5.0 million of net working capital and no outstanding bank debt.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity, Financing and Capital Resources."
SIGNIFICANT CUSTOMERS. As discussed in Note 10 to the consolidated
financial statements and Note 7 to the combined financial statements of the
Company's joint operations, the Company and its joint operations have
significant customers.
BACKLOG. The Company and some of its customers routinely enter into scrap
contracts which require delivery of scrap over a period of time. Sales are
generally made on a month-to-month or individual order basis. At any point in
time, the Company may have unfilled commitments with respect to these contracts
which will be filled in the normal course of business. At January 31, 1995 the
Company had no significant unfulfilled orders.
GOVERNMENT BUSINESS. The Company does not contract with the U.S. Government
and does not have any contracts subject to renegotiation.
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COMPETITION. All facets of the business in which the Company is engaged are
highly competitive and are characterized by cyclical fluctuations in
profitability depending upon the availability and price of raw scrap and the
demand and prices for scrap in the iron and steel industries and in the copper
and other non-ferrous metals industries. In addition, the level of profitability
of the Company's operations is affected by work stoppages or other events
involving the relatively few customers in the industries to which the Company
sells its products. Competitive forces facing the Company are further
complicated by the fact that a number of the Company's principal customers also
conduct scrap supply operations, which provide an internal source of supply. As
a result, particularly when the end users' output decreases, much of their
requirements for scrap may be filled by related party sources.
In purchasing its raw scrap and in selling its products, the Company
competes with a large number of other scrap dealers and brokers, some of which
have greater financial and other resources than the Company, and many of which
are small firms operating locally. Competition in the business of the Company
involves geographical location of plant, reliability of service and product
quality. Prolerized Scrap is sold in competition with other forms of ferrous
scrap. While it is a premium, high grade scrap, there are competing processes
which also produce a high quality grade of scrap.
Research has been and is currently being conducted by others to develop
methods for producing copper from low grade ore which would not require the use
of precipitation iron, and several such processes have been developed and are
technically feasible. Technological changes in the production of copper could
further affect future demand for the Company's products.
Foreign sales are subject to additional factors such as foreign exchange
regulations, availability of ships and local laws governing the conduct of
business in the countries where such sales are made.
RESEARCH. The Company continuously updates and improves its operating
facilities and processes as technological advances are made.
The Company's wholly-owned subsidiary, Proler Environmental, has developed
and tested a gasification technology which uses thermal conversion to recycle
hydrocarbon and cellulose-based wastes to produce a synthesis gas suitable for
sale to industrial users and utilities. The residual produced by this process
also has potential commercial uses, or may be disposed of in landfills. This
technology was developed by Proler Environmental as a joint project with a major
Mexican steel company and is the subject of a pending patent application. The
Company has successfully tested the process at its 50 ton per day demonstration
plant in Houston, Texas on automobile shredder residue, tires, cardboard/paper
sludge, municipal solid waste and other industrial wastes.
The Company is currently assessing the opportunities for and feasibility of
various commercial applications of the gasification process, and is having
discussions with several
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companies, which may lead to the construction of one or more gasification
plants. The commercial potential of this process will depend on a number of
factors, including the amount of capital investment required for site
acquisition and construction, which is expected to be significant; the ability
to charge tipping fees for waste materials sufficient to earn an adequate return
on investment; the availability of long-term sources of suitable waste
materials; the ability to economically dispose of the residual or convert it to
usable purposes; and local demand for the synthesis gas produced by the process.
Management initially estimates that costs for a gasification plant could range
from $10 million to $30 million depending on size and other factors. Such a
plant could be constructed as a stand-alone facility or in tandem with a
cogeneration plant or integrated into a manufacturing operation to continuously
recycle processed wastes into reusable feedstock and energy. In the event an
agreement for the construction of such a gasification plant is consummated, the
Company estimates that completion of such a plant would take approximately 18 to
24 months, given the lead time required for construction, permitting and other
matters. Management believes that the Company's participation in gasification
projects could eventually become a significant part of its future operations.
During fiscal 1995, 1994 and 1993 Proler Environmental expended approximately
$0.2 million, $1.3 million and $1.1 million, respectively, in connection with
the acquisition and development of equipment. Proler Environmental also
incurred $1.1 million and $0.2 million of research and development expenses
during fiscal 1995 and 1994, respectively, exclusive of overhead incurred by the
parent company.
Proler Recycling is exploring methods of recovering metals from a variety of
industrial wastes and secondary materials. It plans to continue to identify and
enter new businesses for metals recovery, particularly in the areas of tin and
copper recovery. The Company expended approximately $0.6 million, $0.4 million
and $0.2 million on research activities during fiscal 1995, 1994 and 1993,
respectively. Additionally, the Company expended approximately $3.2 million
and $0.4 million on capital projects associated with these operations in fiscal
1995 and 1994, respectively. Due to these successful research activities, the
Company intends to expand its operations related to the recycling of metal-
bearing wastes during fiscal 1996, and has budgeted capital expenditures for new
plant and equipment (exclusive of any potential acquisitions) of $6 million for
this purpose.
ENVIRONMENTAL MATTERS. Certain materials resulting from the operations of
the Company and its joint operations must be handled consistent with various
federal and state environmental laws and regulations. As with any business that
produces significant amounts of industrial wastes, the Company could face
substantial additional costs if past or present disposal practices would no
longer be deemed acceptable by the United States Environmental Protection Agency
("EPA") or state regulatory agencies. The Company and its joint operations can
also be required from time to time to clean-up sites now or formerly used in
their operations. See further discussion herein and in "Item 3 - Legal
Proceedings", "Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations", Note 8 to the consolidated financial
statements and Note 6 to the combined financial statements.
11
<PAGE>
A principal source of metals reclaimed by the Prolerized Scrap plants is the
shredding of automobiles. Presently automobile shredder residue ("ASR")
produced in these operations constitutes approximately 20% of the scrap weight
of each automobile shredded, and is likely to increase as car manufacturers
continue to replace metal parts. The EPA and states such as Massachusetts and
California have their own testing protocols to determine whether a waste is
hazardous and must be managed as such. To date, however, tests of ASR generated
by the Company and its joint operations indicate that levels of lead, cadmium
and other contaminants covered by the regulations have generally been within
acceptable levels under EPA and applicable state regulations.
The EPA has recognized, based on its study of potential contamination of
shredder residue at seven shredder sites, that well-managed shredder operations
conducted in an environmentally sound manner provide environmental benefits.
The Company and its joint operations have implemented supplier education
efforts, source control, inspection and testing programs to identify and reduce
the sources of lead and certain other heavy metals in ASR. Incoming material is
inspected to ensure that the most probable sources of such materials are removed
from automobiles before arriving at the plants. Fuel tanks, exhaust systems,
leaded wheel weights and batteries are removed prior to shredding. The Company
and its joint operations have also taken certain steps to eliminate from the
materials they process capacitors contained in obsolete household appliances
("white goods"), which are often shredded along with automobiles. Such
capacitors are considered by the Institute of Scrap Recycling Industries to be a
likely source of polychlorinated biphenyls ("PCB's") in ASR. The Company
continues to evaluate additional methods of reducing levels of heavy metals,
PCB's and other contaminants in ASR. Should laws and regulations covering
hazardous wastes or toxic substances apply to the handling of ASR as a result of
the levels of heavy metals, PCBs and other contaminants, the Company could incur
substantial expense in such handling of ASR. Even absent such a determination,
the Company and its joint operations incur significant expenditures to dispose
of ASR. It should be noted, however, that in certain plant locations landfill
fees have decreased significantly in recent years. See "Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the Company,
and the Port of Los Angeles (the "Port") are in the final stages of negotiating
a renewal of HNP's lease, the original term of which expired on August 30, 1994.
In December, 1992, HNP signed a Memorandum of Understanding with the Port
relating to the lease renewal and in fiscal 1994 and 1995 provided letters of
credit totaling $9.78 million ($4.89 million each from the Company and HNP's
other owner) to secure HNP's remediation obligations under the lease. The Port
is developing an Environmental Impact Report in connection with the lease
renewal. Under the current lease, HNP would be responsible for remediating
certain environmental conditions on the property caused by HNP, the extent and
cost of which are uncertain. Currently, HNP estimates that it will incur capital
expenditures of a minimum of $4.0 million to $5.0 million in connection with
environmental control facilities at the Terminal Island location over the next
five-year period.
12
<PAGE>
HNP has accrued approximately $0.4 million to cover the costs of anticipated
remediation at this site.
Prior to 1988, the Company operated a metals reclamation and shredding
facility on a 13-acre property leased from an unrelated third party in
Copperton, Utah. The Company has learned that the EPA has identified this
property as an "Other Potential Source Area" within the boundaries of the
Kennecott South Zone, an approximate 37-square mile site which has been proposed
for listing on the National Priorities List. The Company incurred approximately
$550,000 to remediate this site in late 1993 and early 1994, which amount was
expensed in fiscal 1994. Management is unable to determine at this time the
Company's exposure, if any, to claims or actions stemming from the EPA's
proposal.
The Company anticipates making $0.8 million in capital expenditures for
environmental control facilities during fiscal 1995, including those in
connection with the Terminal Island facility. Changes in environmental laws and
regulations and their interpretation might require the Company or its joint
operations to install additional environmental control equipment and to
implement additional compliance procedures.
EMPLOYEES. As of January 31, 1995, the Company and its consolidated
subsidiaries employed 95 people. At the same date, the joint operations had 387
employees.
(E) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company sells to domestic markets and the joint operations primarily
sell to international markets. The table below summarizes for the last three
fiscal years the Company's export sales to customers by geographical area,
inclusive of its share of the export sales of each joint operation in which it
owns an interest (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
---------- --------- --------
<S> <C> <C> <C>
Far and Near East....... $104,852 $122,086 $79,712
Europe.................. 3,450 -- 1,854
Canada.................. 3,268 4,961 104
Mexico.................. 1,737 -- 795
South America........... 1,122 3,044 1,751
Other Export Customers.. -- 2,003 299
-------- -------- -------
Total Export Sales...... $114,429 $132,094 $84,515
======== ======== =======
</TABLE>
13
<PAGE>
Item 2. Properties.
The Company's executive offices at 4265 San Felipe, Suite 900 in
Houston, Texas occupy 8,500 square feet of leased space. The Company owns
approximately 167 acres of land on the Houston, Texas ship channel, a portion of
which is utilized as the site for Proler Environmental's activities and a
portion of which is for sale, and a nearby 36-acre tract of land previously used
in connection with operations at its Houston plant.
The five remaining Prolerized Scrap plants are each owned by a joint
operation in which the Company or a consolidated subsidiary has an interest. In
addition to a Prolerized Scrap plant, these sites include extensive facilities
for sorting, handling and processing scrap. The approximate size of each site
used by the Company's joint operations and the expiration date of any lease for
each are listed separately below:
<TABLE>
<CAPTION>
EXPIRATION DATE
LOCATION SIZE OF LEASE
- -------------------------- --------- --------------------
<S> <C> <C>
Los Angeles, California... 4 acres 02/14/99
Los Angeles, California... 22 acres Under negotiation(1)
Everett, Massachusetts.... 29 acres Property owned(1)
Jersey City, New Jersey... 55 acres Property owned(1)
Newark, New Jersey........ 16 acres Under negotiation
Queens, New York.......... 5 acres Property owned(1)
Worcester, Massachusetts.. 21 acres Property owned(1)
Providence, Rhode Island.. 16 acres 12/31/99
Providence, Rhode Island.. 6 acres 12/31/99
- ----------
</TABLE>
(1) Prolerized Scrap Plant Operation.
The Company has been notified that a portion of the Worcester,
Massachusetts property owned by one of its joint operations may be taken by
eminent domain in order to extend a state highway.
The Company owns both of its precipitation iron plants. The plants at
Coolidge, Arizona and Lathrop, California are on approximately 80 acres and 15
acres of land, respectively. The Company's Seattle, Washington low residual
ferrous plant is located on approximately two acres of leased land.
In addition to the above, the Company owns approximately 171 acres in
various parts of the country which are not used in current operations. The
Company also holds the 13-acre tract of land on which the Copperton, Utah plant
was located under a lease which expires
14
<PAGE>
September 30, 1995. In addition, the joint operations own or lease industrial
properties which are being used for feeder yards or will be used for expansion
of facilities.
The management of the Company believes that all of the plants operated by
the Company or by its joint operations are equipped and maintained to adequately
support the present operations at such plants, and are served by transportation
and other facilities generally adequate to permit efficient operation.
ITEM 3. LEGAL PROCEEDINGS.
The Company is subject to certain litigation and claims arising in the
ordinary course of business. In the opinion of management, the disposition of
these claims and lawsuits will not have a material adverse effect on the
Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during the
quarter ended January 31, 1995.
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name and age of each executive officer
of the Company, all positions and offices held by each person named and the
period during which each person named has served as an officer of the Company.
Unless otherwise stated below, each person has held such positions and offices
for more than the past five years:
15
<PAGE>
<TABLE>
<CAPTION>
SERVED
AS AN
OFFICER OF
NAME AGE POSITION AND OFFICES HELD COMPANY SINCE
---- ---- --------------------------------------- -------------
<S> <C> <C> <C>
Herman Proler 67 Chairman of the Board of Directors,
Chief Executive Officer, Director (1) 1948
Steven F. Gilliland 43 President, Chief Operating Officer,
Director (2) 1995
Michael F. Loy 49 Vice President-Finance, Chief Financial
Officer and Secretary (3) 1992
Dennis L. Caputo 48 Vice President-Environmental
and Safety Compliance (4) 1989
Norman Bishop 64 Vice President-Technical (5) 1993
Ian Linton 35 Vice President-Western Operations (6) 1991
David A. Juengel 35 Vice President, Treasurer and
Assistant Secretary (7) 1991
</TABLE>
- ------------
(1) Mr. Proler has been Chairman of the Board and Chief Executive Officer since
1985.
(2) Mr. Gilliland was elected President, Chief Operating Officer and Director
on February 8, 1995. Mr. Gilliland was employed by CRSS Inc. and its
predecessors in various executive positions from 1980 to 1990 and again
from 1992 to 1995 when he served as Senior Vice President. From 1990 to
1992, he served as Senior Vice President and Chief Operating Officer of
Transco Power Company.
(3) Mr. Loy joined the Company on August 1, 1992 as Vice President-Finance and
Chief Financial Officer and on December 8, 1992 was elected to the
additional position of Secretary of the Company. Prior to joining the
Company, Mr. Loy served from 1989 to 1992 as Director and President of MFL
Consulting Group, Inc. From 1987 to 1989, he served as Director, Vice
President and Chief Financial Officer of Cabot Energy Corporation.
(4) Mr. Caputo joined the Company on June 8, 1989, as Vice President-
Environmental and Safety Compliance. Prior to June 8, 1989, Mr. Caputo was
a principal with ENSR Consulting and Engineering.
(5) Mr. Bishop joined the Company on February 13, 1989 and served as Vice
President of Proler Environmental. He was elected Vice President-Technical
of the Company on April 12, 1993. Prior to February 13, 1989, Mr. Bishop
was Vice President of Zia Technology, Inc. for seven years.
16
<PAGE>
(6) Mr. Linton joined the Company on May 20, 1991. He was elected Vice
President-Refining on June 12, 1991 and was promoted to Vice President-
Western Operations on December 8, 1992. Prior to his employment with the
Company, Mr. Linton was employed as Group Manager of Capper Pass & Son
Limited, North Humberside, England.
(7) Mr. Juengel joined the Company on September 23, 1988 as Tax Manager. He
was elected Assistant Vice President of Finance and Accounting on September
11, 1991 and was promoted to Vice President, Treasurer and Assistant
Secretary on December 8, 1992. Prior to his employment with the Company,
Mr. Juengel was employed as a Tax Manager by Ernst & Young and Coopers &
Lybrand.
The term of office of each of the above officers extends until the
next annual meeting of directors or until his successor has been duly elected
and qualified.
P A R T I I
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND STOCKHOLDER MATTERS
The table below summarizes the high and low sales prices reported on
the New York Stock Exchange for shares of the Company's common stock. There
have been no cash dividends declared for the last two fiscal years.
HIGH AND LOW SALES PRICES OF COMMON STOCK BY FISCAL QUARTERS/(1)/
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
--------------------------------
1995 1994
--------------- ---------------
HIGH LOW HIGH LOW
------ ----- ------ ------
<S> <C> <C> <C> <C>
First quarter........ $14 3/4 $7 1/2 $10 1/4 $ 6 5/8
Second quarter....... 9 5/8 7 5/8 10 7
Third quarter........ 10 1/4 6 7/8 13 3/8 7 1/4
Fourth quarter....... 7 5/8 5 5/8 14 1/2 11 5/8
</TABLE>
- ----------------
(1) The Company's common stock is traded on the New York Stock Exchange. As of
April 21, 1995, there were 397 holders of record of the Company's common
stock.
The Company's Board of Directors suspended the payment of dividends on
the Company's Common Stock in fiscal 1992. Also, the Company's credit agreement
with a bank limits the payment of cash dividends. See Note 4 to the
consolidated financial statements.
17
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The table below sets forth a summary of selected consolidated
financial information of the Company and its subsidiaries for the periods
indicated:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(Dollars in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
Net sales (1).................... $18,610 $43,706 $63,842 $ 110,890 $107,994
======= ======= ======= ========= ========
Earnings (loss) from joint
operations.................... $ 2,974 $ 2,768 $ 5,660 $ (3,327) $ 5,990
======= ======= ======= ========= ========
Net income (loss)................ $ 303 $(2,262) $(9,909) $ (16,328) $(11,532)
======= ======= ======= ========= ========
Net income (loss)
per share...................... $ .06 $ (.48) $ (2.10) $ (3.47) $ (2.45)
======= ======= ======= ========= ========
Investment in joint operations,
at equity..................... $34,776 $26,273 $40,138 $ 61,298 $ 59,919
======= ======= ======= ========= ========
Total assets..................... $65,439 $66,583 $77,799 $ 119,173 $149,536
======= ======= ======= ========= ========
Long-term debt................... $ -- $ -- $ 5,000 $ -- $ --
======= ======= ======= ========= ========
Cash dividends per
share.......................... $ -- $ -- $ -- $ .325 $ .52
======= ======= ======= ========= ========
</TABLE>
- ----------
(1) The Company sold its Houston plant in mid-fiscal 1993 and its Kansas City
and Vinton plants in the first quarter of fiscal 1995 as part of its
Business Plan. Such plant sales account for the majority of the revenue
decline since fiscal 1992.
The Company's consolidated financial statements included elsewhere herein
present the Company's share of the joint operations using the equity method of
accounting in accordance with generally accepted accounting principles. The
following table presents a proforma condensed combined balance sheet and
statement of operations of the Company assuming its proportionate share of the
Joint Operations is combined with the Company. Management believes this
presentation is informative of the Company's financial condition and results of
operations given that a significant portion of the Company's business is
conducted through the joint operations.
18
<PAGE>
PROFORMA CONDENSED COMBINED BALANCE SHEET
AS OF JANUARY 31, 1995
<TABLE>
<CAPTION>
PROPORTIONATE
SHARE OF COMBINED
COMPANY JOINT OPERATIONS COMPANY
---------------- -------------------- ----------------
(in thousands)
<S> <C> <C> <C>
Current assets $ 9,342 $27,516 $36,858
Investments in joint operations 34,776 -- --
Property and other assets, net 21,321 11,609 32,930
------- ------- -------
$65,439 $39,125 $69,788
======= ======= =======
Current liabilities $ 4,317 $ 4,132 $ 8,449
Other liabilities 2,642 217 2,859
Stockholders' and partners' equity 58,480 34,776 58,480
------- ------- -------
$65,439 $39,125 $69,788
======= ======= =======
</TABLE>
PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1995
<TABLE>
<CAPTION>
PROPORTIONATE
SHARE OF COMBINED
COMPANY JOINT OPERATIONS COMPANY
----------- ----------------- --------------
(in thousands)
<S> <C> <C> <C>
Net sales $18,610 $124,103 $142,713
Cost of sales 18,091 117,846 135,937
------- -------- --------
Gross profit 519 6,257 6,776
Earnings from joint operations 2,974 -- --
Selling, general and administrative
expense (3,723) (3,940) (7,663)
Research and development expense (1,690) -- (1,690)
------- -------- --------
Operating income (loss) (1,920) 2,317 (2,577)
Gain on sale of assets 2,894 -- 2,894
Other income (expense) (510) 657 147
------- -------- --------
Income before income taxes 464 2,974 464
Provision for income taxes (161) -- (161)
------- -------- --------
Net income $ 303 $ 2,974 $ 303
======= ======== ========
</TABLE>
19
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
The Company reported net income of $303,000 in fiscal 1995 as compared to
net losses of $2.3 million and $9.9 million in fiscal 1994 and 1993,
respectively. Included in the fiscal 1995 results is a gain on the sale of
assets of $2.9 million. For the fourth quarter of fiscal 1995, the Company
reported net income of $2.4 million as compared to a net loss of $3.3 million in
the fourth quarter of the prior year. Included in the fourth quarter of fiscal
1995 results are certain cost reductions and other income of approximately $1.6
million which the Company does not anticipate in the first quarter of fiscal
1996. Such amount includes a reduction of $1.0 million, net to the Company, in
the joint operations' cost of sales determined under the LIFO method of
accounting based on actual year-end quantities and costs.
The Company is primarily engaged, through its subsidiaries and its joint
operations, in buying, processing for recycling and selling ferrous and other
scrap metals. While the Company sells products from its consolidated operations
primarily to domestic markets, the joint operations primarily export scrap to
foreign markets. The Company's and its joint operations' business is
characterized by cyclical fluctuations in profitability depending upon the
availability and price of raw scrap and the demand and prices for processed
scrap by the domestic and foreign iron and steel industries and the non-ferrous
metals industries.
The Company's unincorporated joint operations are structured so that the
participants advance and withdraw funds equally, and policy decisions require
the unanimous consent of the participants. The Company makes advances to the
joint operations on a regular basis, primarily for the purchase of inventory and
for operating costs. The Company receives periodic distributions from its joint
operations, primarily for the sales proceeds of shipments. During fiscal 1995,
the Company's advances to joint operations exceeded distributions by $5.7
million.
Raw material for the Proler Process, consisting primarily of scrap
automobiles, is purchased on a day-to-day basis from a large number of small
suppliers, including automobile salvage yards, scrap dealers and truckers. In
order to maintain its sources of supply, the Company and its joint operations
purchase raw materials from their suppliers even during periods when they face
lower demand and lower prices for the products they sell. The principal supply
of raw material for the production of precipitation iron and low residual steel
is from scrap generated in the manufacture of metal cans and containers
primarily purchased directly from container manufacturers. The Company also
acquires used cans from municipal waste processors and various scrap dealers.
The Company does not determine contribution to gross profits by its various
product lines, which necessarily would involve a number of arbitrary cost
allocations. However, it can generally be stated that, while gross profit
margins vary between the product lines and from year-
20
<PAGE>
to-year, gross profit margins historically have been higher on Prolerized Scrap
than on precipitation iron and other ferrous scrap.
As described in "Item 1 - Current Developments", the Company has developed
a five-year business plan intended to enable the Company to make a transition
from its current participation in the highly cyclical scrap business primarily
through its joint operations, to a recycling company engaged in environmental
services, energy supply and metals recovery with majority control of its
significant assets. With the divestitures of the domestic scrap operations, the
Company's principal scrap processing business is conducted through its joint
operations, with the Company's remaining revenues derived from the Proler
Recycling plants.
LIQUIDITY, FINANCING AND CAPITAL RESOURCES
With the sale of its domestic scrap processing plants, the Company
currently meets its working capital requirements principally from distributions
from the joint operations and, to the extent necessary, borrowings under the
credit facility described below. As of January 31, 1995, the Company had
working capital of $5.0 million, a decline from the $12.3 million reported as of
January 31, 1994. Between the same periods, the Company's share of combined
working capital in the joint ventures increased from $14.8 million to $23.4
million, substantially accounting for the decline in consolidated working
capital. The Company is liquidating its interests in HPI and HPNJ and
anticipates that such liquidation will be completed in the near future. The
Company would receive certain distributions upon completion of such liquidation.
Certain real estate and other non-operating assets are also currently for sale.
In December, 1994, the Company amended its credit agreement with a bank,
which provides for a $15 million revolving line of credit and a $7 million
letter of credit facility as more fully described in Note 4 to the consolidated
financial statements. The revolver and letter of credit facility terminate on
June 30, 1996 and December 31, 1996, respectively. The Company's ability to
borrow against assets of the joint operations may be limited by the Company's
inability to grant a direct security interest in those assets to the bank and by
certain limitations on the Company's ability to pledge its interests in the
joint operations.
As of January 31, 1995, no borrowings were outstanding under the revolver
and $6.2 million of letters of credit were outstanding under the letter of
credit facility, including $4.89 million issued in connection with a lease at a
joint operation's Los Angeles facility as discussed below. During the first
quarter of fiscal 1996, the Company made significant advances to its joint
operations, primarily for inventory purchases, and borrowed approximately $2.7
million under its credit facility. As noted above, the Company regularly makes
advances to the joint operations and receives periodic distributions, primarily
from the sales proceeds of shipments. The joint operations' current inventory
levels approximate their current sales orders. The joint operations also
purchase inventory to maintain sources of supply, even in periods of lower
demand and lower sales prices. Given these factors and the cyclical nature of
the scrap markets,
21
<PAGE>
the Company's liquidity could be adversly affected if lower sales, coupled with
continued inventory purchases, result in accumulation of excess inventories at
the joint operations.
The Company's capital expenditures of $3.9 million in fiscal 1995 were
primarily for new plant construction at the Company's Coolidge location. Total
construction costs of this plant are estimated at $5.0 million. The plant will
be commissioned in phases and is expected to be fully operational in the summer
of 1995. The Company's share of joint operations' capital expenditures for
fiscal 1995 was $2.4 million, most of which was expended for replacement and
improvement of plant and equipment. In addition, during fiscal 1995 and 1994,
the Company provided a standby letter of credit totaling $4.89 million to
assure compliance with environmental covenants in a joint operation's lease for
the Los Angeles facility as more fully discussed in Note 8 to the consolidated
financial statements, and Note 6 to the combined financial statements.
As discussed in Item 1 - "Current Developments" and "Research", the Company
is continuing to develop and test industrial waste processing and recovery
technologies. Proler Recycling has budgeted capital expenditures (exclusive of
any potential acquisitions) of $6 million in fiscal 1996. Also, Proler
Environmental expects to incur significant capital expenditures in the
commercial application of its gasification process; however, the amount and
timing of such expenditures are uncertain, and in any event should not be
significant in fiscal 1996. Management believes that external financing
sources, coupled with internally generated funds, will be sufficient to fund
such future capital outlays.
The Company is engaged in ongoing proceedings and communications with
regulatory authorities concerning environmental matters, and ongoing litigation
regarding non-environmental matters. An adverse outcome in these legal
proceedings, or any significant additional expenditures that may be required in
order for the Company or its joint operations to operate in accordance with
environmental laws and regulations, or to clean up sites now or formerly used by
them, could affect the Company's financial position.
FISCAL 1995 COMPARED TO FISCAL 1994
Consolidated net sales of $18.6 million in fiscal 1995 were 57% lower than
consolidated net sales of $43.7 million in fiscal 1994. Consolidated cost of
sales of $18.1 million in fiscal 1995 were 56% lower than consolidated cost of
sales of $40.8 million in fiscal 1994. The decreases in both sales and cost of
sales were principally due to the sale of the Company's Kansas City and Vinton
plants during the first quarter of fiscal 1995. The Company recorded net sales
and cost of sales of $29.1 million and $28.5 million, respectively, during
fiscal 1994 attributable to operations at these two plants. Fiscal 1995
included $4.7 million and $4.6 million in sales and cost of sales, respectively,
attributable to the sold plants. Additionally, fiscal year 1994 included
approximately $900,000 of parts and equipment net sales proceeds whereas the
gain on such sales in fiscal 1995 was insignificant.
22
<PAGE>
Excluding the Kansas City and Vinton plants and the parts and equipment
sales from the results of operations, the following table highlights the
operating information of the Proler Recycling plants (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
------------------------------
1995 1994 % CHANGE
--------- -------- ---------
<S> <C> <C> <C>
Sales volumes (gross tons) 100,000 107,000 (7)%
Net sales $ 13,941 $ 13,723 2 %
Cost of sales $ 13,271 $ 12,015 10 %
Gross profit $ 670 $ 1,708 (61)%
</TABLE>
The increase in cost of sales during fiscal 1995 is due partially to non-
recurring disposal charges and costs associated with the development of a new
recycling program involving waste streams from the printed circuit board
industry. Additionally, the Company experienced increases in the purchase price
of scrap material used in the manufacture of precipitation iron and low residual
steel. Corresponding sales price increases were less than the cost increases
due to the majority of the Company's precipitation iron sales being under fixed-
price contracts. These contracts have recently been renegotiated whereby the
sales prices are determined monthly in relation to certain prevailing scrap
prices.
Earnings from joint operations were $3.0 million in fiscal 1995 compared to
$2.8 million in fiscal 1994. The joint operations primarily make export sales
and the sales prices realized during most of the year have been less than those
in the domestic market. The joint operations compete to buy scrap in the
domestic market where higher sales prices have resulted in higher buying costs.
In the fourth quarter, despite such higher buying costs, the joint operations
reported an increase in gross profit, primarily due to a significant increase in
nonferrous sales and the LIFO inventory cost reduction discussed in "General"
above.
The following table highlights the more significant operating statistics
and percentage changes between fiscal 1995 and 1994 of the joint operations on a
100% basis (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 %CHANGE
---------- ---------- -------
<S> <C> <C> <C>
Sales volumes (gross tons) 2,105,000 2,607,000 (19)%
Net sales $ 267,063 $ 307,455 (13)%
Cost of sales $ 253,756 $ 294,360 (14)%
Gross profit $ 13,307 $ 13,095 2 %
</TABLE>
Average sales prices increased in fiscal 1995 to $127 per ton compared to $118
per ton in fiscal 1994. Costs of sales per ton increased to $121 in fiscal 1995
from $113 in fiscal 1994. Tonnage
23
<PAGE>
shipped in fiscal 1995 decreased from fiscal 1994 volumes due to reduced foreign
demand. Cost of sales per ton would have been approximately $1 higher in fiscal
1995 and approximately $5 lower in fiscal 1994 using replacement costs.
In fiscal 1995, the Company recorded equity income of $2.4 million, net to
its interest in the joint operations, attributable to the sale of inventory
which had no cost basis. In fiscal 1994, the Company recorded $1.5 million in
similar sales of inventory which had no cost basis. The production and
accounting process utilized by the joint operations to record inventory
quantities (particularly shredded scrap) relies on significant estimates which
can be affected by weight imprecisions, moisture and other factors. Such
factors historically have a tendency to understate actual scrap quantities. In
periods such as fiscal 1994 and fiscal 1995 when certain inventories are
substantially depleted, unrecorded quantities which have no cost basis are
realized. Partially offsetting these sales, the Company has recorded equity
losses of $2.3 million and $0.6 million in fiscal 1995 and 1994, respectively,
attributable to its interests in HPI and HPNJ. The Company is liquidating its
investment in this joint operation and anticipates completing such liquidation
in the near future.
Research and development expenses of $1.7 million in fiscal 1995 increased
$1.1 million compared to fiscal 1994. The Company has intensified its efforts
towards the research and development of technologies involving the processing
and recycling of waste materials.
Selling, general and administrative expenses decreased 16% in fiscal 1995
compared to fiscal 1994 primarily due to a reduction in legal and professional
fees.
Interest expense decreased 46% in fiscal 1995 as compared to fiscal 1994
due to the decrease in outstanding bank indebtedness between the years.
Interest income increased in fiscal 1995 compared to fiscal 1994 due to higher
average cash balances during fiscal 1995.
Other income (expense), net (which includes real estate costs of $0.8
million and $2.1 million in fiscal 1995 and 1994, respectively) decreased
approximately $1.4 million in fiscal 1995 as compared to fiscal 1994 primarily
due to $1.1 million of reduced site restoration costs in the current year.
Also included in fiscal 1995 is approximately $0.3 million in income
attributable to an expired option on the sale of one of the Company's properties
located in Missouri.
Income taxes decreased by approximately $0.4 million in fiscal 1995
compared to fiscal 1994 primarily due to decreased tax liabilities at the
corporate joint operations. The fiscal 1994 income tax provision included the
Company's share of taxes related to the sale of Prolerized Chicago Corp.'s
assets.
FISCAL 1994 COMPARED TO FISCAL 1993
Consolidated net sales in fiscal 1994 of $43.7 million were 32% lower than
consolidated net sales of $63.8 million in fiscal 1993. Consolidated cost of
sales in fiscal 1994 of $40.8
24
<PAGE>
million were 35% lower than consolidated cost of sales of $63.2 million in
fiscal 1993. The decreases in both consolidated net sales and cost of sales
were principally due to the sale of the Company's Houston plant in July, 1992.
See Note 5 to the consolidated financial statements. The Company recorded net
sales of $24.4 million and cost of sales of $22.6 million attributable to the
Houston plant in fiscal 1993. In fiscal 1994, the Company recorded net sales of
$21.0 million and $8.1 million attributable to its Kansas City and Vinton
plants, respectively.
Excluding the Houston plant from fiscal 1993 results, the following table
highlights the more significant operating statistics and percentage changes
between fiscal years 1994 and 1993 of the remaining Company-operated plants
(dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1994 1993 %CHANGE
-------- -------- -----------
<S> <C> <C> <C>
Sales volumes (gross tons).. 324,600 294,100 10%
Net sales................... $ 43,706 $ 39,394 11%
Cost of sales............... $ 40,805 $ 40,593 1%
Gross profit (loss)......... $ 2,901 $ (1,199) --
</TABLE>
The overall improvement in profit margins in fiscal 1994 was due to price
and volume increases. The average shredded scrap prices during fiscal 1994 were
20% higher as compared to average prices during fiscal 1993. The 10% increase
in volumes during these comparative periods was primarily attributable to
increased volumes at the Company's Kansas City and Vinton plants. The Company's
Kansas City plant had lower sales volumes during fiscal 1993 due to the loss of
a principal customer. The development of new customers during the latter half
of fiscal 1993 and into fiscal 1994 resulted in an increase in volumes sold at
that location during fiscal 1994. The increase in volumes sold at the Vinton
plant was a result of increased emphasis in procurement activities and less
plant downtime.
In recent years, the Company had encountered increased costs of ASR
disposal. These costs have continued to represent a significant expenditure for
the Company and its joint operations. In fiscal 1994, however, the overall per
ton disposal cost decreased as compared to fiscal 1993. The Company and its
joint operations are continuing to evaluate and further test methods of reducing
these costs.
Earnings from joint operations increased to $2.8 million compared to a
fiscal 1993 loss of $5.7 million. The improvement was primarily a result of
increased export sales prices and tonnages sold. The average sales price per
ton of scrap was $118 in fiscal 1994 as compared to $98 in fiscal 1993. Tonnage
shipped in fiscal 1994 increased 28% or by approximately 585,000 tons as
compared to fiscal 1993. The average cost of sales per ton of scrap sold for
the year ended January 31, 1994 was $113 compared to $99 for fiscal 1993. Cost
of sales per ton would
25
<PAGE>
have been approximately $5 lower in fiscal 1994 using replacement cost. The
Company's share of the joint operations' general and administrative expenses
decreased by approximately $1.4 million primarily because of lower environmental
remediation expense and lower legal and professional fees. Also included within
earnings from joint operations was the Company's share of a $1.0 million gain
recorded in October, 1993 resulting from the sale of assets of the Company's 50
percent-owned Prolerized Chicago Corporation joint operation. See Note 5 to the
consolidated financial statements. As anticipated, fourth quarter fiscal 1994
tonnage shipped by the joint operations decreased from volumes shipped in the
third quarter. These reduced volumes combined with higher inventory buying
prices, higher repair and maintenance expenses and a litigation settlement
resulted in a fourth quarter loss from joint operations of $1.2 million.
Selling, general and administrative expenses of $4.4 million in fiscal 1994
decreased $3.1 million or 41% compared to fiscal 1993. The decrease was
primarily attributable to the decrease in administrative personnel associated
with the Company's Houston plant which was sold in July, 1992.
Interest expense decreased 54% in fiscal 1994 compared to fiscal 1993 due
to the decrease in outstanding bank indebtedness between the years. The
Company's interest income in fiscal 1994 decreased 15% compared to fiscal 1993
due to the reduction in interest rates offset by higher cash balances.
Other income (expense), net included $2.1 million and $0.5 million in real
estate costs in fiscal 1994 and 1993, respectively. Included in such amount in
fiscal 1994 are costs of approximately $1.1 million associated with the site
restoration of leased and owned property. Fiscal 1993 other income (expense)
included income of approximately $0.7 million attributable to the settlement of
a lawsuit.
Income taxes for fiscal 1994 increased $3.4 million in comparison to fiscal
1993 resulting in a provision for fiscal 1994 of $0.6 million. The change was
principally the result of a $2.7 million decrease in the deferred tax benefit
for fiscal 1994 primarily due to asset sales and a $0.7 million increase in
taxes at the joint operations.
Effective February 1, 1993, the Company changed its method of accounting
for income taxes as more fully described in Note 6 to consolidated financial
statements. The cumulative effect on prior years of this change decreased the
fiscal 1994 net loss by $118,000.
ENVIRONMENTAL MATTERS AND OTHER CONTINGENCIES
The Company's operations are subject to environmental laws and regulations,
and the Company is involved in ongoing proceedings and communications with
regulatory authorities concerning environmental matters. It is possible that,
as a result of these proceedings and communications, the Company may in the
future incur additional costs to assure compliance with
26
<PAGE>
environmental laws and regulations, or it may be required to modify or curtail
operations. In the past, the Company has incurred significant environmental
costs in connection with the clean-up and handling of materials at sites
operated by the Company. See Note 8 to the consolidated financial statements
and Note 6 to the combined financial statements.
NEW ACCOUNTING STANDARDS
In March, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 will be effective for fiscal years beginning after December 15,
1995. The adoption of SFAS No. 121 is not expected to have a material impact on
the Company's financial position or results of operations.
INFLATION
The effect of inflation on the Company has been less during the past
several years than in preceding periods as the inflation rate in general has
declined.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this item begins on page 30 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There is no matter required to be disclosed in response to this item.
P A R T I I I
In accordance with paragraph (3), of General Instruction G to Form 10-K,
Part III of this Report is omitted because the Company will file with the
Securities and Exchange Commission not later than 120 days after the end of the
fiscal year ended January 31, 1995, a definitive proxy statement pursuant to
Regulation 14A involving the election of directors, which proxy statement is
incorporated herein by reference.
27
<PAGE>
P A R T I V
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) & (2) - Financial Statements and Financial Statement Schedules:
Reference is made to the index on page 30 of this Report.
(3) - Exhibits: Reference is made to the list on pages 68 - 71 of the
exhibits filed with this Report.
(b) No reports on Form 8-K have been filed during the quarter ended January 31,
1995
28
<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.
PROLER INTERNATIONAL CORP.
(COMPANY)
May 1, 1995 /S/ HERMAN PROLER
HERMAN PROLER,
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER
(PRINCIPAL EXECUTIVE OFFICER)
May 1, 1995 /S/ MICHAEL F. LOY
MICHAEL F. LOY
VICE PRESIDENT - FINANCE
(PRINCIPAL FINANCIAL AND
ACCOUNTING 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 AND ON THE DATES INDICATED.
May 1, 1995 /S/ HERMAN PROLER
HERMAN PROLER, DIRECTOR
May 1, 1995 /S/ HARVEY ALTER
HARVEY ALTER, DIRECTOR
May 1, 1995 /S/ STEVEN F. GILLILAND
STEVEN F. GILLILAND, DIRECTOR
May 1, 1995 /S/ RICHARD B. MAYOR
RICHARD B. MAYOR, DIRECTOR
May 1, 1995 /S/ JOHN J. MCKENNA
JOHN J. MCKENNA, DIRECTOR
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES:
Report of Independent Accountants............................................. 31
Consolidated Financial Statements:
Balance Sheets at January 31, 1995 and 1994................................. 32
Statements of Operations for the three years ended January 31, 1995......... 33
Statements of Stockholders' Equity for the three years ended January 31,
1995...................................................................... 34
Statements of Cash Flows for the three years ended January 31, 1995......... 35
Notes to Consolidated Financial Statements.................................. 36-53
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS:
Reports of Independent Accountants............................................ 54-56
Combined Financial Statements:
Balance Sheets at January 31, 1995 and 1994................................. 57
Statements of Operations for the three years ended January 31, 1995......... 58
Statements of Stockholders' and Partners' Equity for the three years ended
January 31, 1995......................................................... 59
Statements of Cash Flows for the three years ended January 31, 1995......... 60
Notes to Combined Financial Statements...................................... 61-67
</TABLE>
The financial statement schedules have been omitted because they are not
required, not applicable or the required information is presented in the
financial statements or notes thereto.
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Proler International Corp.
We have audited the consolidated balance sheets of Proler International Corp.
and subsidiaries as of January 31, 1995 and 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended January 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits 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 audits provide 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 Proler
International Corp. and subsidiaries as of January 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 6 to the consolidated financial statements, the
Company changed its method of accounting for income taxes in fiscal 1994.
COOPERS & LYBRAND L.L.P.
Houston, Texas
April 28, 1995
31
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
-------- --------
(in thousands)
ASSETS
--------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................ $ 3,829 $ 7,307
Accounts receivable, trade............................... 2,012 6,443
Other receivables........................................ 171 165
Inventories.............................................. 1,752 1,910
Maintenance parts........................................ 906 1,150
Prepaid expenses......................................... 672 775
------- -------
Total current assets.................................... 9,342 17,750
Investments in joint operations, at equity................. 34,776 26,273
Property, plant and equipment, net......................... 19,245 18,671
Other assets............................................... 2,076 3,889
------- -------
Total assets........................................ $65,439 $66,583
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable, trade.................................. $ 2,094 $ 2,267
Accrued liabilities...................................... 2,223 3,171
------- -------
Total current liabilities............................. 4,317 5,438
Deferred compensation...................................... 2,642 2,989
Commitments and contingencies
Stockholders' equity:
Common stock, par value $1 per share; authorized
15,000,000 shares; issued and outstanding, 5,351,460
shares................................................ 5,351 5,351
Capital in excess of par value........................... 192 192
Retained earnings........................................ 59,025 58,731
------- -------
64,568 64,274
Less 637,302 and 640,500 shares of
treasury stock, respectively, at cost................ (6,088) (6,118)
------- -------
Total stockholders' equity............................ 58,480 58,156
------- -------
Total liabilities and stockholders' equity.......... $65,439 $66,583
======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
32
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED JANUARY 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
(in thousands except per share data)
<S> <C> <C> <C>
Net sales......................................... $18,610 $43,706 $ 63,842
Cost of sales..................................... 18,091 40,805 63,193
------- ------- --------
Gross profit.................................. 519 2,901 649
Earnings (loss) from joint operations............. 2,974 2,768 (5,660)
Selling, general and administrative expense....... (3,723) (4,413) (7,482)
Research and development expense.................. (1,690) (637) (247)
------- ------- --------
Operating income (loss)....................... (1,920) 619 (12,740)
------- ------- --------
Gain on sale of assets, net....................... 2,894 -- 1,560
------- ------- --------
Other income (expense):
Interest expense.............................. (453) (835) (1,810)
Interest income............................... 293 162 191
Other, net.................................... (350) (1,758) 33
------- ------- --------
(510) (2,431) (1,586)
------- ------- --------
Income (loss) before income taxes and accounting
change......................................... 464 (1,812) (12,766)
Provision (benefit) for income taxes.............. 161 568 (2,857)
------- ------- --------
Income (loss) before accounting change............ 303 (2,380) (9,909)
Cumulative effect of change in accounting for
income taxes................................... -- 118 --
------- ------- --------
Net income (loss)................................. $ 303 $(2,262) $ (9,909)
======= ======= ========
Weighted average shares outstanding............... 4,711 4,711 4,708
======= ======= ========
Per share:
Income (loss) before accounting change......... $.06 $(.51) $(2.10)
Cumulative effect of change in
accounting for income taxes................... -- .03 --
------- ------- --------
Net income (loss).............................. $.06 $(.48) $(2.10)
======= ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JANUARY 31, 1995
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CAPITAL
IN EXCESS
COMMON OF PAR RETAINED TREASURY STOCKHOLDERS'
STOCK VALUE EARNINGS STOCK EQUITY
------ --------- -------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1992 $5,347 $178 $70,902 $(6,118) $70,309
Net loss -- -- (9,909) -- (9,909)
Issued 4,080 shares under stock grant 4 14 -- -- 18
------ ---- ------- ------- -------
Balance at January 31, 1993 5,351 192 60,993 (6,118) 60,418
Net loss -- -- (2,262) -- (2,262)
------ ---- ------- ------- -------
Balance at January 31, 1994 5,351 192 58,731 (6,118) 58,156
Net income -- -- 303 -- 303
Issued 3,198 shares under incentive
compensation plan -- -- (9) 30 21
------ ---- ------- ------- -------
Balance at January 31, 1995 $5,351 $192 $59,025 $(6,088) $58,480
====== ==== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JANUARY 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................................... $ 303 $ (2,262) $ (9,909)
Adjustments to reconcile net income (loss) to cash:
Depreciation......................................... 905 849 2,184
Gain on sale of assets............................... (2,894) -- (1,560)
Provision for bad debts.............................. 40 -- 192
Earnings from joint operations and advances,
net of distributions................................ (8,603) -- --
Deferred federal income taxes........................ -- -- (2,660)
Cumulative effect of accounting change............... -- (118) --
Other................................................ (511) -- 18
Changes in assets and liabilities, net of effects of
assets sold:
(Increase) decrease in receivables................... 4,331 (1,667) 9,377
(Increase) decrease in inventories and
maintenance parts.................................. (107) 433 8,339
Decrease in prepaid expenses and
other assets....................................... 115 63 302
Increase (decrease) in current liabilities........... (1,121) 1,504 (3,873)
Increase (decrease) in other liabilities............. (347) (340) 50
------- -------- --------
Net cash provided by (used in) operating activities.. (7,889) (1,538) 2,460
------- -------- --------
Cash flows from investing activities:
Capital expenditures.................................. (3,859) (2,628) (2,626)
Proceeds from sales of assets......................... 8,170 551 8,700
Proceeds from sale of joint operation................. -- -- 3,828
Distributions from joint operations, net of earnings
(loss) and advances................................ -- 12,883 13,831
Dividends received from joint operations.............. 100 982 3,501
------- -------- --------
Net cash provided by investing activities............ 4,411 11,788 27,234
------- -------- --------
Cash flows from financing activities:
Bank repayments...................................... -- (10,000) (25,000)
------- -------- --------
Net cash used in financing activities.............. -- (10,000) (25,000)
------- -------- --------
Net increase (decrease) in cash and cash equivalents... (3,478) 250 4,694
Cash and cash equivalents at beginning of year......... 7,307 7,057 2,363
------- -------- --------
Cash and cash equivalents at end of year............... $ 3,829 $ 7,307 $ 7,057
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Investments in Joint Operations
The consolidated financial statements include the accounts of Proler
International Corp. ("the Company") and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
Certain amounts included in the prior year financial statements have been
reclassified to be consistent with the current year presentation with no effect
on net earnings (loss) or equity. Such reclassifications include real estate
costs of approximately $1,560,000 and $540,000 for fiscal 1994 and 1993,
respectively, which are presented as other expense in the Consolidated
Statements of Operations.
The consolidated financial statements also include, on the equity method, the
Company's share of several joint operations with interests ranging from 33-1/3%
to 50% (see Note 3). Included in the Company's consolidated retained earnings
at January 31, 1995 and 1994 is approximately $29,770,000 and $28,857,000,
respectively, relating to undistributed earnings of the joint operations.
Inventories
The Company's inventories are stated at the lower of cost or market using the
first-in, first-out (FIFO) method. Two of the 50%-owned joint operations
account for inventories using the last-in, first-out (LIFO) method while the
others follow FIFO. Approximately 70% and 62% of the joint operations' combined
inventory is accounted for using LIFO at January 31, 1995 and 1994,
respectively. Such LIFO inventories are carried at $24,220,000 and $16,927,000
at January 31, 1995 and 1994, respectively, and the excess of replacement cost
over LIFO value was approximately $19,092,000 and $21,187,000 at January 31,
1995 and 1994, respectively.
Federal Income Taxes
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return which includes the Company's share of earnings or losses from
unincorporated joint operations. The corporate joint operations file separate
federal income tax returns. Investment tax credits are accounted for using the
flow-through method.
Certain of the joint operations are organized as partnerships and others as
corporations. The Company's share of the earnings (loss) of all joint
operations is included in the consolidated
36
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
statements of operations before income taxes and the provision (benefit) for
income taxes includes amounts applicable to its share of earnings (loss) from
joint operations.
Effective February 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as more fully
described in Note 6 to consolidated financial statements. Deferred federal
income taxes are recorded based upon differences between the tax and financial
reporting bases of the Company's assets and liabilities.
Per Share Information
Per share information has been computed based on the weighted average number
of common shares outstanding during the periods presented. The weighted average
number of common shares outstanding for the years ended January 31, 1995, 1994
and 1993 does not include the effect of stock options as they were
insignificant.
Property, Plant and Equipment
The Company primarily uses the straight-line method of providing depreciation
over the estimated useful lives of the assets for financial reporting purposes.
Estimated useful lives used in computing depreciation fall within the following
ranges:
<TABLE>
<CAPTION>
YEARS
----------
<S> <C>
Machinery and equipment........... 3 to 15
Automobiles, trucks and trailers.. 3 to 5
Buildings and yard improvements... 4 to 33
Furniture and fixtures............ 5 to 10
</TABLE>
When assets are retired or otherwise disposed, the cost and related
accumulated depreciation are removed from the accounts and the resulting gains
or losses are reflected in operations.
Research and Development Expense
Research and development costs are charged to expense as incurred.
37
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. Cash paid for income taxes and interest was
approximately $29,000 and $178,000, $30,000 and $487,000, and $166,000 and
$1,791,000, in fiscal 1995, 1994 and 1993, respectively.
Concentrations of Credit
The Company sells its products primarily in North America and the joint
operations sell their products primarily in the Far and Near East. The Company
and the joint operations perform ongoing credit evaluations of their customers
and require letters of credit on foreign sales. Reserves for potential credit
losses are maintained and such losses have been within management's
expectations.
The Company invests its excess cash in deposits with major banks and in
money market securities of companies from a variety of industries. These
securities typically mature within ninety days. The Company has not experienced
any losses on its money market investments.
New Accounting Standards
In March, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 will be effective for fiscal years beginning after December 15,
1995. The adoption of SFAS No. 121 is not expected to have a material impact on
the Company's financial position or results of operations.
38
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
2. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS
The following are the details of certain balance sheet accounts (dollars in
thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1994
-------- ---------
<S> <C> <C>
Inventories
Processed scrap............................................ $ 1,057 $ 1,089
Unprocessed scrap and other................................ 695 821
-------- --------
$ 1,752 $ 1,910
======== ========
Property, Plant and Equipment, at cost
Land....................................................... $ 633 $ 791
Machinery and equipment.................................... 12,245 17,131
Gasification demonstration plant........................... 3,661 3,594
Buildings and yard improvements............................ 5,163 6,479
Furniture and fixtures..................................... 265 272
Construction in progress................................... 3,441 121
Assets held for sale....................................... 9,639 9,973
-------- --------
35,047 38,361
Less accumulated depreciation.............................. (15,802) (19,690)
-------- --------
$ 19,245 $ 18,671
======== ========
Other Assets
Cost in excess of net assets acquired...................... $ -- $ 2,269
Deferred compensation...................................... 718 915
Cash surrender value, less loans of $1,801 and $1,624 in
1995 and 1994, respectively............................... 1,244 897
Other...................................................... 114 257
-------- --------
2,076 4,338
Less accumulated amortization.............................. -- (449)
-------- --------
$ 2,076 $ 3,889
======== ========
</TABLE>
39
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
JANUARY 31,
------------------------
1995 1994
---------- -----------
<S> <C> <C>
Accrued Liabilities
Payroll..................................................... $ 496 $ 650
Deferred compensation, current portion...................... 500 406
Insurance................................................... 589 314
Environmental and litigation................................ 346 1,069
Other....................................................... 292 732
-------- --------
$ 2,223 $ 3,171
======== ========
</TABLE>
3. INVESTMENTS IN JOINT OPERATIONS
The Company has historically conducted a significant portion of its business
through joint operations. Certain of these joint operations are organized as
partnerships and others as corporations. The agreements governing such
operations generally provide that all decisions will be made unanimously by the
partners/shareholders. In the more significant joint operations, the Company's
partner is Hugo Neu Corporation (formerly Hugo Neu & Sons, Inc.) or one of its
subsidiaries.
The principal joint operations included in the summary of financial
information and the Company's percentage interest owned are as follows:
<TABLE>
<CAPTION>
<S> <C>
Hugo Neu-Proler Company................ 50%
Prolerized New England Company......... 50%
Prolerized Chicago Corporation (a)..... 50%
HPNJ (b)............................... 50%
HPI (b)................................ 49%
Prolerized Schiabo-Neu Company......... 331/3%
</TABLE>
---------
(a) Sold in October, 1993
(b) See Note 5.
40
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
A summary of the financial position of the combined joint operations (100%
basis) is as follows (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1995 1994
----------- --------
<S> <C> <C>
Current assets, primarily inventory.. $50,740 $48,593
Property, plant and equipment, net... 25,985 26,416
Other................................ 415 252
------- -------
$77,140 $75,261
======= =======
Current liabilities.................. $ 8,882 $ 9,708
Other liabilities.................... 436 639
Stockholders' and partners' equity... 67,822 64,914
------- -------
$77,140 $75,261
======= =======
</TABLE>
The Company's investment in the joint operations and its percentage interest
in the above assets and liabilities as of January 31, 1995 and 1994 is set forth
below (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1994
---------- --------
<S> <C> <C>
Current assets, primarily inventory...... $23,889 $23,432
Property, plant and equipment, net....... 11,402 11,626
Other assets............................. 207 126
Less: Liabilities....................... (4,349) (4,948)
Adjustment to conform reporting periods.. 3,627 (3,963)
------- -------
Net investment........................... $34,776 $26,273
======= =======
</TABLE>
A summary of the results of operations of the combined joint operations is as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Combined 100% Basis:
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Net sales.......................... $267,063 $307,455 $198,575
======== ======== ========
Gross profit (loss)................ $ 13,307 $ 13,095 $ (1,012)
======== ======== ========
Earnings (loss).................... $ 7,129 $ 5,304 $(11,582)
======== ======== ========
</TABLE>
41
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Company Percentage Interest:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Net sales.......................... $124,103 $142,197 $ 92,419
======== ======== ========
Gross profit (loss)................ $ 6,257 $ 6,037 $ (337)
======== ======== ========
Earnings (loss).................... $ 2,974 $ 2,768 $ (5,660)
======== ======== ========
</TABLE>
4. BANK DEBT
In December 1994, the Company executed a second amended and restated credit
agreement with a bank which provides for a $15 million revolving line of credit
and up to $7 million of letters of credit. The agreement is collateralized by
substantially all of the Company's assets, including its rights to cash
distributions from certain joint operations. As of January 31, 1995, no
borrowings were outstanding on the revolving line of credit and $6.2 million of
letters of credit were outstanding.
The revolving line of credit terminates on June 30, 1996. Amounts available
under the agreement are computed in accordance with a borrowing base formula and
are generally limited by values assigned to accounts receivable and inventory.
A commitment fee of 1/2 percent per annum is charged on the unused portion of
the revolving line of credit. Borrowings under the line of credit facility bear
interest at either the bank's prime rate or a Eurodollar rate, at the Company's
option.
Under the terms of the credit agreement, the Company must maintain, among
other things, a minimum net worth of $52 million, specified ratios of current
assets to current liabilities and specified levels of earnings before interest,
taxes, depreciation and amortization as computed in accordance with the
agreement. In addition, the Company is limited as to incurring additional
indebtedness, incurring capital expenditures in excess of certain amounts, and
paying cash dividends in excess of $2.5 million over a rolling four quarter
period.
5. SALES OF ASSETS
In June, 1992, the Company sold its 255 shares of capital stock in Maru
Shipping Company, Inc. ("Maru"), a 50% owned joint operation, to Hugo Neu
Corporation, the other joint interest owner, for a purchase price of $3.8
million in cash. The purchase price, combined
42
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
with a $3.5 million cash dividend received in May, 1992, approximated the
carrying cost of the Company's investment in Maru as of January 31, 1992.
In July, 1992, the Company sold the assets associated with its ferrous and
non-ferrous scrap processing plant located in Houston, Texas to an unrelated
third party for $8.8 million and recorded a gain on sale of $1.6 million. The
Company recorded net sales of $24.4 million attributable to operations at this
plant in fiscal 1993 and a gross profit of $1.8 million.
In October, 1993, substantially all of the assets of Prolerized Chicago
Corporation, a 50%-owned joint operation, were sold to an unrelated third party
for an aggregate consideration of approximately $2.4 million. The Company
recognized a pre-tax gain of approximately $0.5 million attributable to its
interest in this sales transaction. Such amount is included in earnings (loss)
from joint operations. The Company's share of this joint operation's pre-tax
earnings was $442,000 and $149,000 in fiscal 1994 and 1993, respectively.
Effective February 28, 1994, Prolerized Steel Corporation, a wholly-owned
subsidiary of the Company, sold the assets of its scrap metal processing
facility located in Kansas City, Kansas to an unrelated third party for
approximately $5.1 million. Also, on April 29, 1994, the assets of the
Company's Vinton, Texas scrap processing facility were sold to an unrelated
third party for approximately $2.6 million. The Company recorded gains on these
two sales totaling $2.9 million. The Company reported net sales of $4.7
million, $29.1 million and $20.9 million and gross profit of $0.1 million, $0.6
million and $0.1 million attributable to the operations at the Kansas City and
Vinton plants in fiscal 1995, 1994, and 1993, respectively.
The Company is liquidating its investment in HPI and HPNJ and anticipates
completing such liquidation in the near future. The Company's share of HPI's
and HPNJ's pre-tax loss was $2.3 million, $0.6 million and $2.0 million in
fiscal 1995, 1994 and 1993, respectively.
6. INCOME TAXES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes" effective
February 1, 1993 and the cumulative effect of this change was a decrease in net
loss of $118,000 or $.03 per share for fiscal 1994. Prior years' financial
statements have not been restated to apply the provisions of SFAS No. 109. This
statement changed the criteria for the recognition and measurement of deferred
tax assets or liabilities, including net operating loss carryforwards. The
provision (benefit) for income taxes is comprised of the following (dollars in
thousands):
43
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
--------------------------------
1995 1994 1993
-------- --------- -----------
<S> <C> <C> <C>
Current:
Federal.............................. $ 144 $ 291 $ (367)
State................................ 17 277 170
Deferred:
Federal.............................. -- -- (2,660)
----- ----- -------
Provision (benefit) for income taxes.. $ 161 $ 568 $(2,857)
===== ===== =======
</TABLE>
The difference between the effective rates reflected in the provision
(benefit) for income taxes and the amounts which would be determined by applying
the statutory federal tax rate to earnings (loss) before income taxes are
analyzed below (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
----------------------------------
1995 1994 1993
--------- ---------- -----------
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory rate.... $ 158 $ (616) $(4,340)
Increases (reductions) resulting from:
Effect of undistributed earnings of corporate joint
operations.......................................... 125 (167) 274
Effect of liquidating distribution of corporate joint
operations.......................................... 18 258 --
Federal income taxes of corporate joint operations
and foreign sales corporations...................... 157 357 (19)
State income taxes, net................................ 12 202 112
Earnings of foreign sales corporations................. (485) (518) (2)
Goodwill recognized on sale of assets.................. 604 -- --
Net operating loss carryforward for financial
reporting purposes not currently utilizable......... -- 1,039 1,107
Net operating loss carryforward for financial
reporting purposes currently utilizable............. (449) -- --
Other, net............................................. 21 13 11
----- ------ -------
Provision (benefit) for income taxes...................... $ 161 $ 568 $(2,857)
===== ====== =======
</TABLE>
44
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Deferred taxes are recorded based upon differences between the financial
statement and tax bases of assets and liabilities and available tax credit
carryforwards. Temporary differences and carryforwards which give rise to these
deferred tax assets and liabilities at January 31, 1995 and 1994 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
Deferred tax assets:
Deferred compensation $ 824 $ 843
Reserves not currently
deductible for tax 523 940
Net operating loss and
other tax carryforwards 6,267 6,720
Other 264 226
------ -------
7,878 8,729
------ -------
Deferred tax liabilities:
Deferred gain on
involuntary conversion
of a property 899 899
Depreciation 1,225 1,476
------ -------
2,124 2,375
------ -------
Net deferred tax asset 5,754 6,354
Valuation allowance (5,754) (6,354)
------ -------
$ -- $ --
====== =======
</TABLE>
Deferred income taxes are provided for differences in the recognition of
revenue and expenses for tax and financial statement purposes and their effect
was as follows (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Earnings (loss) and distributions from
corporate joint operations........... $ -- $ 4 $ (71)
Depreciation.......................... 251 (11) (604)
Deferred compensation................. (19) 22 (127)
Deferred gain on sale of
Houston plant........................ -- -- (550)
Deferred income on sale of
Maru Shipping Company, Inc........... -- -- (1,156)
Accrued liabilities................... (417) 329 519
Net operating loss carryforward for
financial reporting purposes
utilized currently................. 147 (276) (523)
Other, net............................ 38 (68) (148)
----- ------ -------
Provision (benefit) for deferred
federal income taxes.................. $ -- $ -- $(2,660)
====== ====== =======
</TABLE>
45
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company has net operating loss carryforwards at January 31, 1995 for
regular tax and alternative minimum tax reporting purposes which amounted to
approximately $15.5 million and $8.1 million, respectively. The net operating
loss carryforwards expire at various dates through 2010. The Company also has
alternative minimum tax credit and investment tax credit carryforwards of
approximately $0.8 million and $0.3 million, respectively, which expire at
various dates.
7. STOCKHOLDERS' EQUITY
In June, 1975, the Company authorized 500,000 shares of $1 par value
preferred stock of which 50,000 shares have been designated as Series A Junior
Participating Preferred Stock. No shares have been issued under this
authorization.
Stockholder Rights Plan. In September 1988 the Company adopted a
stockholder rights plan and declared a dividend distribution of one preferred
stock purchase right on each outstanding share of the Company's common stock.
Pursuant to the terms of the rights plan, the number of rights associated with
each share of common stock was proportionately adjusted to reflect the three-
for-one split of the Company's common stock on July 17, 1989, so that from and
after that date each share of common stock entitles the holder to one-third of
one preferred stock purchase right. The rights may become exercisable if a
person or group acquires 20% or more of the Company's common stock or announces
an offer to acquire 30% or more of the common stock. Each right initially will
entitle stockholders to buy one one-hundredth of a share of the Company's Series
A Junior Participating Preferred Stock, $1 par value per share, at a price of
$200.
If the Company is acquired in a merger or other business combination at any
time after the rights become exercisable and the Company is not the surviving
corporation or its common stock is changed or exchanged or 50% or more of the
Company's assets or earning power is sold or transferred, each such right will
entitle its holder to purchase common shares of the acquiring company having a
market value of twice the exercise price of each right (i.e., at a 50%
discount). If a 20% or greater holder acquires the Company and the Company is
the surviving corporation and its common stock is not changed or exchanged, or
such holder engages in one or more "self-dealing" transactions as set forth in
the Rights Agreement or increases its beneficial ownership of the Company by
more than one percent in a transaction involving the Company, each right will
entitle its holder, other than the acquiror, to purchase common stock of the
Company (or under certain circumstances to receive cash, preferred stock, or
other securities of the Company), at a similar 50% discount from market value at
that time.
46
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Prior to acquisition by a person or group of beneficial ownership of 20% or
more of the Company's common stock, the rights are redeemable for one cent per
right at the option of the Board of Directors. In addition, the rights may be
redeemed by stockholder action at one cent per right when certain procedures are
complied with in connection with an acquisition proposal.
1988 Stock Option Plan. The Company has a stock option plan whereby key
employees may be granted options to purchase up to 280,000 shares of the
Company's common stock at a price, determined by a committee of the Board of
Directors, which cannot be less than 50% of the fair market value of the common
stock on the date of grant. No options have been granted at less than 100% of
the fair market value of the common stock on the date of the grant. At January
31, 1995, 94,844 options were exercisable and a total of 151,155 options
remained available for grant under the plan. In February, 1995 options for
65,000 shares were granted to the president of the Company. A summary of
activity relating to stock options is as follows:
<TABLE>
<CAPTION>
STOCK OPTIONS
--------------
<S> <C>
Outstanding, January 31, 1992 ($13.00 to $23.00 per share).. 134,175
Granted ($5.375 per share)............................... 12,000
Exercised................................................ --
Cancelled (1)............................................ (34,310)
-------
Outstanding, January 31, 1993 ($5.375 to $23.00 per share).. 111,865
Granted ($8.00 to $10.875 per share)..................... 53,000
Exercised................................................ --
Cancelled (1)............................................ (18,020)
-------
Outstanding, January 31, 1994 ($5.375 to $23.00 per share).. 146,845
Granted.................................................. --
Exercised................................................ --
Cancelled (1)............................................ (18,000)
-------
Outstanding, January 31, 1995 ($5.375 to $23.00 per share).. 128,845
=======
</TABLE>
(1) These cancelled options of former employees are available for reissuance
under the stock option plan.
1994 Non-Employee Director Stock Option Plan. The Company has a stock
option plan whereby an aggregate of 30,000 shares of the Company's common stock
may be granted to non-employee directors of the Company. The options are
exercisable six months after the date of grant at an exercise price equivalent
to the fair market value of the underlying common stock as
47
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
of the date of grant. In fiscal 1995 options for 6,000 shares were granted. At
January 31, 1995, all of the options granted were exercisable at $8.375 per
share.
1993 Incentive Compensation Plan. The Company has a plan whereby key
employees have the opportunity to earn annual bonus awards based on their
achievement of performance goals approved by the Compensation Committee of the
Board of Directors. Under the plan, a portion of each award (twenty-five
percent for fiscal 1994 and none for 1995) may be payable in restricted shares
of common stock. One-third of the shares of stock awarded vests each year on
the anniversary of the last day of the fiscal year to which the award pertains.
The issuance of the shares is contingent upon the employee remaining employed by
the Company on each vesting date, subject to the exceptions provided in the
Plan. Cash awards of $226,000 and $219,000 were awarded to seven employees in
fiscal 1995 and fiscal 1994, respectively. In addition, 9,590 shares were
awarded in fiscal 1994. The Company issued 3,198 shares from treasury stock on
January 31, 1995 for payment of one-third of the fiscal 1994 stock award.
Stock Grant Agreement. The Company had a stock grant agreement with one
of its former officers. Through January 31, 1993, this officer received 20,400
shares of the Company's common stock, the total provided in the agreement.
8. COMMITMENTS AND CONTINGENCIES
Commitments. As a joint venturer, the Company and one of its subsidiaries
are jointly and severally liable for the liabilities of the Company's
unincorporated joint operations.
The joint operations lease certain tracts of real estate and improvements
under cancelable and non-cancelable agreements. Total rent expense was
approximately $2,600,000, $2,800,000, and $2,900,000 in 1995, 1994, and 1993,
respectively, related to these lease agreements. The Company and its joint
operations' minimum rental commitments (100% basis) under non-cancelable leases
as of January 31, 1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year Ending
January 31,
------------
<S> <C>
1996......... $ 706
1997......... 724
1998......... 746
1999......... 637
2000......... 62
------
$2,875
======
</TABLE>
48
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Certain of these leases provide for additional rentals based on
increases of the fair market value of the property leased and call for payment
of property taxes by the lessee. In addition, most leases contain renewal
clauses.
The Company and its subsidiaries lease certain tracts of real estate
under cancelable agreements. Total rent expense was approximately $172,000,
$133,000, and $93,000 in fiscal 1995, 1994, and 1993 respectively.
Contingencies. Certain materials resulting from the Company's
operations must be handled consistent with federal and state environmental laws
and regulations. Compliance with such laws and regulations were an area of
concern to the Company as questions were being raised as to whether automobile
shredder residue, ("ASR" or "fluff") contains excessive concentrations of
certain heavy metals, polychlorinated biphenyls ("PCB's") and other
contaminants. A 1988 United States Environmental Protection Agency ("EPA")
study released in 1990 concerning potential contamination in ASR indicated that
the potential risk depends on the constituent make up of the fluff and the
management practices at the sites where the fluff is generated. Pending further
study, the EPA recognized that shredding operations that are well managed and
conducted in an environmentally sound manner provide valuable environmental
benefits. The Company has successfully implemented source control programs to
identify and to reduce the sources of lead and certain other heavy metals in
ASR. To date, tests of ASR generated by the Company and its joint operations
indicate that levels of PCB's, lead, cadmium, and other contaminants are
generally within acceptable levels under EPA and state procedures. The Company
continues to evaluate additional methods of further reducing contaminants in
ASR. As with any business that produces significant amounts of industrial
wastes, the Company could face substantial additional costs if past disposal
practices would no longer be deemed acceptable by the EPA or state regulatory
agencies, although it does not currently expect this result.
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of the
Company, and the Port of Los Angeles (the "Port") are in the final stages of
negotiating a renewal of HNP's lease, the original term of which expired on
August 30, 1994. In December, 1992, HNP signed a Memorandum of Understanding
with the Port relating to the lease renewal and in fiscal 1994 and 1995 provided
letters of credit totaling $9.78 million ($4.89 million each from the Company
and HNP's other owner) to secure HNP's remediation obligations under the lease.
The Port is developing an Environmental Impact Report in connection with the
lease renewal. Under the current lease, HNP would be responsible for
remediating certain environmental conditions on the property caused by HNP, the
extent and cost of which are uncertain. Currently, HNP estimates that it will
incur capital expenditures of a minimum of $4.0 million to $5.0 million in
connection with environmental control facilities at the Terminal Island location
over the next five-year
49
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
period. HNP has accrued approximately $0.4 million to cover the costs of
anticipated remediation at this site.
As reported earlier, the EPA contacted the Company in August 1989
regarding testing for possible contamination at a site in Tampa, Florida
previously operated by MRI Corporation, a wholly-owned subsidiary of the
Company. The Company and the EPA took split soil and groundwater samples from
the site for analysis. The Company has learned that in late 1990, an EPA
consultant issued a report recommending that further consideration be given to
possibly ranking this site using the EPA's hazardous ranking package. Based on
that recommendation, the EPA took additional samples at the site in 1992 and has
taken no further action since that time. The Company had previously conducted
extensive clean-up operations at the Tampa site when it was closed in 1988. The
financial implications of the Company's current investigation or any agency
action are uncertain at this time and the Company is continuing to evaluate
whether any further corrective action is necessary or appropriate.
MRI Corporation has been notified by the EPA that it may be a
potentially responsible party ("PRP") with respect to three sites in
Hillsborough County, Florida. In addition, in October 1992, Hillsborough County
filed an action seeking contribution, response cost recovery, and damages from
PRP's at one of these sites and named the Company, among others, as a defendant
in this action. Based on information provided to the Company, management
believes that MRI Corporation's involvement is de minimis and amounts ultimately
payable, if any, will not have a material adverse effect on the Company's
financial position or results of operations.
The Company is also subject to certain other litigation and claims
arising in the ordinary course of business. In the opinion of management, the
disposition of these claims and lawsuits will not have a material adverse effect
on the Company's financial position or results of operations.
9. RELATED PARTY TRANSACTIONS
Certain joint operations sell recycled metal overseas through foreign
sales corporations. To facilitate these sales, two of the other joint
operations' partners act as agents and are paid commission expenses which
totaled approximately $1,377,000, $1,651,000, and $1,087,000 for the years ended
January 31, 1995, 1994 and 1993, respectively, net to the Company.
The Company received funds in excess of costs for various items sold
to the joint operations which amounted to approximately $97,000, $308,000, and
$106,000 for the years ended January 31, 1995, 1994 and 1993, respectively.
50
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
During 1995, 1994 and 1993, the Company recorded legal and
professional fees of approximately $400,000, $459,000, and $1,263,000,
respectively, for services rendered by firms of which two of the Company's
directors have an ownership interest.
10. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company is engaged principally in the processing of ferrous and
non-ferrous metals for recycling. Excluding the Company's share of the joint
operations, sales to unaffiliated customers which exceeded 10% of total
consolidated net sales were made to five, two and two customers in fiscal 1995,
1994 and 1993, respectively. Sales to these customers were: 1995 - 19%, 17%,
16%, 12% and 11%; 1994 - 15% and 27%; and 1993 -18% and 11% of total sales.
The table below summarizes for the last three fiscal years the
Company's export sales (including its share of the export sales of each joint
operation in which it owns an interest) to customers by geographical area
(dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
--------- -------- ----------
<S> <C> <C> <C>
Far and Near East....... $104,852 $122,086 $79,712
Europe.................. 3,450 -- 1,854
Canada.................. 3,268 4,961 104
Mexico.................. 1,737 -- 795
South America........... 1,122 3,044 1,751
Other Export Customers.. -- 2,003 299
-------- -------- -------
Total Export Sales...... $114,429 $132,094 $84,515
======== ======== =======
</TABLE>
11. EMPLOYEE BENEFIT PLANS
Tax Deferred Savings and Retirement Plan and Trust
The Company has a Tax Deferred Savings and Retirement Plan and Trust (401K)
Plan for the employees of the Company and its wholly-owned subsidiaries.
Eligible employees may contribute up to 15% of their compensation to this plan
and their contributions are matched by the Company at an amount equal to 50% of
each employee's contribution up to $1,000, 25% of each employee's contribution
from $1,001 to $2,000 and 10% of each employee's contribution in excess of
$2,000 up to the statutory limit. The Company contributed approximately
$41,000,
51
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
$55,000, and $51,000 to this plan for the years ended January 31, 1995, 1994,
and 1993, respectively.
Deferred Compensation Plans
The Company has deferred compensation plans (the "Plans") covering selected
key executives. The Company accrues the estimated present value of the future
payments to be made to each of the plans' participants. The Plans exclude prior
service, and benefits are equal to a percentage of each participant's annual
salary.
Net periodic deferred compensation costs for the years ended January 31, 1995,
1994 and 1993 included the following components (dollars in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
--------- ---------- --------
<S> <C> <C> <C>
Service cost-benefits earned during the period.. $ 47 $ 151 $ 147
Interest cost on projected benefit obligation... 213 221 212
Net amortization and deferral................... 95 95 95
----- ----- -----
Net periodic deferred compensation costs........ $ 355 $ 467 $ 454
===== ===== =====
</TABLE>
The unfunded obligations for plan benefits and the amount recognized
in the Company's balance sheets at January 31, 1995 and 1994 are reconciled as
follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Actuarial present value of benefit obligations:
Projected benefit obligation........................ $3,142 $3,487
Unrecognized prior service cost..................... (580) (653)
Unrecognized net gain (loss)........................ 12 (181)
Unrecognized transition obligation.................. (150) (173)
Adjustment required to recognize minimum liability.. 718 915
------ ------
Deferred compensation liability..................... $3,142 $3,395
====== ======
</TABLE>
The assumed discount rate used to compute the present value of benefit
obligations was 8.0% and 6.5% for fiscal 1995 and 1994, respectively. The
vested portion of the projected benefit obligation as of January 31, 1995 and
1994 was $2,938,000 and $3,304,000, respectively.
52
<PAGE>
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
12. UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is a summary of quarterly financial results for fiscal 1995 and
1994 (dollars in thousands except per share data). Gross profit (loss) excludes
research and development expense and real estate costs which have been
reclassified as other expense.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1994 1994 1994 1995
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $ 7,823 $3,581 $ 3,699 $3,507
======= ====== ======= ======
Gross profit (loss)..................... $ 425 $ 242 $ (161) $ 13
======= ====== ======= ======
Earnings (loss) from joint operations... $ (995) $1,646 $ (488) $2,811
======= ====== ======= ======
Gain on sale of assets, net............. $ 2,894 $ -- $ -- $ --
======= ====== ======= ======
Net income (loss)....................... $ 424 $ 145 $(2,647) $2,381
======= ====== ======= ======
Net income (loss) per share............. $ .09 $ .03 $ (.56) $ .50
======= ====== ======= ======
THREE MONTHS ENDED
----------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1993 1993 1993 1994
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............................... $ 8,169 $10,031 $12,386 $13,120
======= ======= ======= =======
Gross profit............................ $ 659 $ 559 $ 802 $ 881
======= ======= ======= =======
Earnings (loss) from joint operations... $ (94) $ 1,172 $ 2,881 $(1,191)
======= ======= ======= =======
Income (loss) before accounting change.. $(1,258) $ 74 $ 2,104 $(3,300)
Cumulative effect of accounting change.. 118 -- -- --
------- ------- ------- -------
Net income (loss)....................... $(1,140) $ 74 $ 2,104 $(3,300)
======= ======= ======= =======
Income (loss) before accounting
change per share....................... $ (.27) $ .02 $ .45 $ (.71)
Cumulative effect of accounting change
per share.............................. .03 -- -- --
------- ------- ------- -------
Net income (loss) per share............. $ (.24) $ .02 $ .45 $ (.71)
======= ======= ======= =======
</TABLE>
53
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Proler International Corp.
We have audited the combined balance sheets of Proler International Corp.'s
Joint Operations as of January 31, 1995 and 1994, and the related combined
statements of operations, stockholders' and partners' equity, and cash flows for
each of the three years in the period ended January 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits. We did not audit the financial statements of certain joint
operations which statements reflect total assets of approximately 24% and 19% of
the related combined assets as of January 31, 1995 and 1994, respectively, and
net sales of approximately 21% , 22%, and 20% of the related combined total net
sales for the years ended January 31, 1995, 1994 and 1993, respectively. Those
statements were audited by another auditor whose reports have been furnished to
us, and our opinion, insofar as it relates to the amounts included for such
joint operations, is based solely upon the reports of the other auditor.
We conducted our audits 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 audits and the reports of the other auditor provide a
reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of the other auditor,
the financial statements referred to above present fairly, in all material
respects, the combined financial position of Proler International Corp.'s Joint
Operations as of January 31, 1995 and 1994, and the combined results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Houston, Texas
April 28, 1995
54
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Prolerized Schiabo-Neu Company
We have audited the accompanying consolidated balance sheets of the
Prolerized Schiabo-Neu Company and its wholly-owned subsidiary, Prolerized
Schiabo Neu Foreign Sales Corporation, as of December 31, 1994 and 1993, and the
related consolidated statements of income, equity balances, and cash flows for
each of the three years in the period ended December 31, 1994, (not presented
separately herein). These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits 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 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
the Prolerized Schiabo-Neu Company and its wholly-owned subsidiary, Prolerized
Schiabo Neu Foreign Sales Corporation as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
LA GUARDIA & PETRELLA, L.L.C.
March 22, 1995
Bridge Plaza Building
Fort Lee, New Jersey
55
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Dover Barge Company
We have audited the accompanying balance sheets of Dover Barge Company as
of January 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended January 31, 1995, (not presented separately herein). 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 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Dover Barge Company at
January 31, 1995 and 1994, and the results of its operations and cash flows for
each of the three years in the period ended January 31, 1995, in conformity with
generally accepted accounting principles.
LA GUARDIA & PETRELLA, L.L.C.
February 21, 1995
Bridge Plaza Building
Fort Lee, New Jersey
56
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
COMBINED BALANCE SHEETS
JANUARY 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------- ------------
ASSETS (in thousands)
------
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................... $ 1,933 $ 2,164
Accounts receivable:
Trade...................................................... 5,443 5,627
Affiliates................................................. 5,683 12,512
Other...................................................... 1,991 304
Inventories.................................................. 34,623 27,196
Prepaid expenses and other................................... 1,067 790
------- -------
Total current assets....................................... 50,740 48,593
Property, plant and equipment, net............................ 25,985 26,416
Deferred charges and other assets............................. 415 252
------- -------
Total assets.............................................. $77,140 $75,261
======= =======
LIABILITIES AND STOCKHOLDERS' AND PARTNERS' EQUITY
--------------------------------------------------
Current liabilities:
Accounts payable:
Trade....................................................... $ 4,633 $ 4,774
Affiliates.................................................. 38 149
Accrued liabilities.......................................... 4,211 4,785
------- -------
Total current liabilities................................... 8,882 9,708
Other liabilities............................................. 436 639
Commitments and contingencies
Stockholders' and partners' equity............................ 67,822 64,914
------- -------
Total liabilities and stockholders' and partners' equity.. $77,140 $75,261
======= =======
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
57
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE YEARS ENDED JANUARY 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Net sales.................................... $267,063 $307,455 $198,575
Cost of sales................................ 253,756 294,360 199,587
-------- -------- --------
Gross profit (loss)........................ 13,307 13,095 (1,012)
Selling, general and administrative expense.. 8,366 8,658 11,407
-------- -------- --------
Operating income (loss).................... 4,941 4,437 (12,419)
-------- -------- --------
Gain on sale of assets, net.................. -- 1,003 --
-------- -------- --------
Other income (expense):
Interest income............................ 30 94 73
Interest expense........................... (280) (84) (35)
Litigation settlement costs, net of
insurance recoveries..................... -- (1,400) --
Other, net................................. 2,438 1,254 799
-------- -------- --------
Total other............................. 2,188 (136) 837
-------- -------- --------
Earnings (loss)....................... $ 7,129 $ 5,304 $(11,582)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
58
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
COMBINED STATEMENTS OF STOCKHOLDERS' AND PARTNERS' EQUITY
FOR THE THREE YEARS ENDED JANUARY 31, 1995
<TABLE>
<CAPTION>
RETAINED
EARNINGS AND
COMMON PARTNERSHIP
STOCK CAPITAL TOTAL
------- --------- -------------
(in thousands)
<S> <C> <C> <C>
Balances at January 31, 1992.... $ 422 $136,064 $136,486
Liquidation of joint operation.. (255) (14,338) (14,593)
Loss............................ -- (11,582) (11,582)
Distributions, net of advances.. -- (11,772) (11,772)
----- -------- --------
Balances at January 31, 1993.... 167 98,372 98,539
Earnings........................ -- 5,304 5,304
Distributions, net of advances.. -- (38,929) (38,929)
----- -------- --------
Balances at January 31, 1994.... 167 64,747 64,914
Earnings........................ -- 7,129 7,129
Distributions, net of advances.. -- (4,221) (4,221)
----- -------- --------
Balances at January 31, 1995.... $ 167 $ 67,655 $ 67,822
===== ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
59
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED JANUARY 31, 1995
<TABLE>
<CAPTION>
1995 1994 1993
-------- --------- ---------
(in thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Earnings (loss).................................. $ 7,129 $ 5,304 $(11,582)
Adjustments to reconcile earnings
(loss) to cash:
Depreciation................................ 5,335 5,132 5,232
Gain on sale of assets...................... -- (1,003) --
Litigation settlement costs................. -- 1,400 --
Changes in assets and liabilities:
(Increase) decrease in receivables.......... 5,326 (6,846) 1,651
(Increase) decrease in inventories.......... (7,427) 36,834 14,585
(Increase) decrease in prepaid
expenses and other assets................. (440) 622 6,959
Increase (decrease) in current liabilities.. (826) 1,708 (2,115)
Increase (decrease) in other liabilities.... (203) 387 214
------- -------- --------
Net cash provided by operating activities........ 8,894 43,538 14,944
------- -------- --------
Cash flows from investing activities:
Purchases and transfers of property,
plant and equipment........................... (5,588) (4,123) (3,731)
Proceeds from sales of property, plant
and equipment................................. 684 1,822 2,967
Liquidation of joint operation................... -- -- (14,593)
Distributions, net of advances................... (4,221) (38,929) (11,772)
------- -------- --------
Net cash used in investing activities............ (9,125) (41,230) (27,129)
------- -------- --------
Cash flows from financing activities:
Net affiliate borrowings (repayments)............ -- (2,100) 2,100
------- -------- --------
Net cash provided by (used in) financing
activities................................... -- (2,100) 2,100
------- -------- --------
Net increase (decrease) in cash and
cash equivalents.............................. (231) 208 (10,085)
Cash and cash equivalents at beginning of year...... 2,164 1,956 12,041
------- -------- --------
Cash and cash equivalents at end of year............ $ 1,933 $ 2,164 $ 1,956
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the combined financial
statements.
60
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies of Proler International Corp.'s
("Proler") joint operations are outlined below.
Joint Operations
The combined financial statements include all joint operations
(collectively the "Company") of Proler as presented below. All significant
balances and transactions between the combined joint operations have been
eliminated in combination.
<TABLE>
<CAPTION>
INTEREST OF
PROLER
FORM OF INTERNATIONAL
COMMENCED BUSINESS CORP. AND INTERESTS
JOINT OPERATION OPERATION ORGANIZATION SUBSIDIARIES OF OTHERS
- ------------------------------------ --------- ------------- ------------- --------------------------
<S> <C> <C> <C> <C>
Hugo Neu-Proler Company............. 1962 Partnership 50% Hugo Neu Corporation
-50%
Prolerized Chicago Corporation (1).. 1963 Corporation 50% M.S. Kaplan
Company-50%
Maru Shipping Company, Inc. (1)..... 1964 Corporation 50% Hugo Neu Corporation
-50%
Prolerized New England
Company (3)........................ 1966 Partnership 50% Hugo Neu Steel
Products, Inc.-50%(2)
Prolerized Schiabo-Neu Company...... 1967 Partnership 331/3% Hugo Neu Corporation
-331/3%
Schiavone-Bonomo
Corp.-331/3%
Dover Barge Company................. 1967 Corporation 331/3% Hugo Neu Corporation
-331/3%
Schiavone-Bonomo
Corp.-331/3%
Worcester Recycling, Inc. (3)....... 1972 Corporation 50% Hugo Neu Steel
Products, Inc.-50%(2)
Pacific Bulk Loading, Inc. ......... 1972 Corporation 50% Hugo Neu Corporation
-50%
H. Finkelman, Inc.(3)............... 1977 Corporation 50% Hugo Neu Steel
Products, Inc.-50%(2)
Alameda Street Metal Corp. ......... 1985 Corporation 50% Hugo Neu Corporation
-50%
HPI (1)............................. 1989 Partnership 49% Hugo Neu Corporation
-49%
Intercontinent Chartering
Corporation-2%
HPNJ (1)............................ 1989 Partnership 50% Hugo Neu Corporation
-50%
</TABLE>
- ---------
(1) See Note 4 to the combined financial statements.
(2) A subsidiary of Hugo Neu Corporation.
(3) Proleride Transport Systems, Inc., a wholly-owned subsidiary of Proler
International Corp., is the Partner in this venture.
61
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
Amounts are included as of December 31, and the years then ended for all joint
operations except for Dover Barge Company which is as of January 31, and for the
years then ended.
Approximately $31,149,000 and $30,236,000 of stockholders' and partners'
equity at January 31, 1995 and 1994, respectively, and approximately $2,974,000,
$2,768,000 and $(5,660,000) of earnings (loss) for the years ended January 31,
1995, 1994 and 1993, respectively, are attributable to Proler International
Corp. and one of its subsidiaries based upon their ownership interest. The
remaining equity and net earnings are attributable to the other owners and
partners.
Inventories
Inventories are stated at the lower of cost or market, cost being determined
using the last-in, first-out (LIFO) and the first-in, first-out (FIFO) methods,
for the joint operations as follows (dollars in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1995 1994
------- -------
<S> <C> <C>
First-in, first out:
Processed.......... $ 9,778 $ 9,134
Unprocessed........ 625 1,135
------- -------
10,403 10,269
------- -------
Last-in, first out:
Processed.......... 23,010 15,766
Unprocessed........ 1,210 1,161
------- -------
24,220 16,927
------- -------
$34,623 $27,196
======= =======
</TABLE>
The excess of replacement cost over LIFO value was approximately $19,092,000
and $21,187,000 at January 31, 1995 and 1994, respectively.
Income Taxes
Some of the joint operations are organized as partnerships and others as
corporations. There is no provision for income taxes reflected in the combined
statements of operations.
62
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
Property, Plant and Equipment
Depreciation is computed using the straight-line method for the majority of
the joint operations' assets. Lives used in computing depreciation fall within
the following ranges:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Machinery and equipment.......... 3 to 14
Buildings and yard improvements.. 4 to 25
Furniture and fixtures........... 5 to 10
</TABLE>
When assets are retired or otherwise disposed, the costs and related
accumulated depreciation are removed from the accounts and any gains or losses
are reflected in earnings (loss).
Combined Statements of Cash Flows
For the purposes of the Combined Statements of Cash Flows, the Company
considers all highly liquid investments with original maturities of three months
or less to be cash equivalents. Cash paid for income taxes was approximately
$478,000, $500,000 and $241,000 for fiscal 1995, 1994 and 1993, respectively.
Concentrations of Credit
The Company sells its products primarily to steel mills in the Far and
Near East. The Company performs ongoing credit evaluations of its customers and
requires letters of credit on all foreign sales. The Company maintains reserves
for potential credit losses and such losses have been within management's
expectations.
The Company invests its excess cash in deposits with major banks and in
money market securities of companies from a variety of industries. These
securities typically mature within ninety days. The Company has not experienced
any losses on its money market investments.
New Accounting Standards
In March, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 121 ("SFAS No. 121"), "Accounting for the
Impairment of Long-
63
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 will be
effective for fiscal years beginning after December 15, 1995. The adoption of
SFAS No. 121 is not expected to have a material impact on the Company's
financial position or results of operations.
2. RELATED PARTY TRANSACTIONS
Certain joint operations sell recycled metal overseas through foreign
sales corporations. To facilitate these sales, two of the joint operations'
partners other than Proler act as agents and are paid commissions of 1% of the
gross contract sales price.
Commission expenses totaled approximately $2,933,000, $3,540,000, and
$2,315,000 for the years ended January 31, 1995, 1994 and 1993, respectively.
3. DETAILS OF CERTAIN BALANCE SHEET ACCOUNTS (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------------
1995 1994
----------- ------------
<S> <C> <C>
Property, Plant and Equipment, at cost
Land.................................... $ 5,065 $ 5,065
Machinery and equipment................. 63,630 62,262
Buildings and yard improvements......... 20,950 19,852
Furniture and fixtures.................. 1,033 1,026
Construction in process................. 222 171
-------- --------
90,900 88,376
Less accumulated depreciation.......... (64,915) (61,960)
-------- --------
$ 25,985 $ 26,416
======== ========
Accrued Liabilities
Environmental accruals.................. $ 615 $ 972
Benefit plan contributions.............. 670 402
Taxes................................... 792 590
Litigation settlement costs............. 400 1,400
Salaries and wages...................... 431 147
Other................................... 1,303 1,274
-------- --------
$ 4,211 $ 4,785
======== ========
</TABLE>
64
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
4. SALES OF ASSETS
In June, 1992, Proler International Corp. sold its 255 shares of capital
stock in Maru Shipping Company, Inc. ("Maru") to Hugo Neu Corporation, Maru's
other 50% joint interest owner. The purchase price approximated Proler's net
investment as of January 31, 1992.
In October, 1993, substantially all of the assets of Prolerized Chicago
Corporation were sold to an unrelated third party for an aggregate consideration
of approximately $2.4 million. The sale resulted in a gain of approximately $1.0
million. Net sales were $5.3 million and $1.4 million and cost of sales were
$5.2 million and $2.0 million in fiscal 1994 and 1993, respectively.
Proler is liquidating its investment in HPI and HPNJ and anticipates
completing such liquidation in the near future. Net sales were $33.2 million,
$35.2 million and $20.0 million and cost of sales were $36.6 million, $35.5
million and $23.3 million in fiscal 1995, 1994 and 1993, respectively.
5. EMPLOYEE BENEFIT PLANS
Six of the joint operations of the Company have adopted the employee defined
contribution plan of Hugo Neu Corporation. Contributions by the joint
operations to the trustee of the plan amounted to approximately $634,000,
$639,000 and $571,000 for fiscal 1995, 1994 and 1993 respectively.
In addition to the above plan, the processing and yard employees of several
of the joint operations are covered under union-administered plans.
6. COMMITMENTS AND CONTINGENCIES
Commitments. The joint operations lease certain tracts of real estate and
improvements under cancelable and non-cancelable agreements. Total rental
expense was approximately $2,600,000, $2,800,000 and $2,900,000 in fiscal years
1995, 1994, and 1993, respectively. Minimum rental commitments under non-
cancelable leases as of January 31, 1995 are as follows (dollars in thousands):
65
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31,
-----------
<S> <C>
1996.................. $ 523
1997.................. 531
1998.................. 540
1999.................. 528
2000.................. 30
------
$2,152
======
</TABLE>
Certain of these leases provide for additional rentals based on increases
of the fair market value of the property leased and call for payment of property
taxes by the lessee. In addition, most leases contain renewal clauses.
Contingencies. Certain materials resulting from the Company's operations
must be handled consistent with federal and state environmental laws and
regulations. Compliance with such laws and regulations were an area of concern
to the Company as questions were being raised as to whether automobile shredder
residue, ("ASR" or "fluff") contains excessive concentrations of certain heavy
metals, polychlorinated biphenyls ("PCB's") and other contaminants. A 1988
Environmental Protection Agency ("EPA") study released in 1990 concerning
potential contamination in ASR indicated that the potential risk depends on the
constituent make up of the fluff and the management practices at the sites where
the fluff is generated. Pending further study, the EPA recognized that
shredding operations that are well managed and conducted in an environmentally
sound manner provide valuable environmental benefits. The Company has
successfully implemented source control programs to identify and to reduce the
sources of lead and certain other heavy metals in ASR. To date, tests of ASR
generated by the Company indicate that levels of PCB's, lead, cadmium, and other
contaminants are generally within acceptable levels under EPA and state
procedures. The Company continues to evaluate additional methods of further
reducing contaminants in ASR. As with any business that produces significant
amounts of industrial wastes, the Company could face substantial additional
costs if past disposal practices would no longer be deemed acceptable by the EPA
or state regulatory agencies, although it does not currently expect this result.
Hugo Neu-Proler Company ("HNP"), a 50% owned joint operation of Proler,
and the Port of Los Angeles (the "Port") are in the final stages of negotiating
a renewal of HNP's lease, the original term of which expired on August 30,
1994. In December, 1992, HNP signed a Memorandum of Understanding with the Port
relating to the lease renewal and in fiscal 1995 and
66
<PAGE>
PROLER INTERNATIONAL CORP.'S JOINT OPERATIONS
NOTES TO COMBINED FINANCIAL STATEMENTS, Continued
1994 provided letters of credit totaling $9.78 million ($4.89 million each from
Proler and HNP's other owner) to secure HNP's remediation obligations under the
lease. The Port is developing an Environmental Impact Report in connection
with the lease renewal. Under the current lease, HNP would be responsible for
remediating certain environmental conditions on the property caused by HNP, the
extent and cost of which are uncertain. Currently, HNP estimates that it will
incur capital expenditures of a minimum of $4.0 million to $5.0 million in
connection with environmental control facilities at the Terminal Island location
over the next five-year period. HNP has accrued approximately $0.4 million to
cover the costs of anticipated remediation at this site.
The Company is also subject to certain other litigation and claims
arising in the ordinary course of business. In the opinion of management, the
disposition of these claims and lawsuits will not have a material adverse effect
on the Company's financial position or results of operations.
7. SIGNIFICANT CUSTOMERS AND GEOGRAPHIC INFORMATION
The Company is principally engaged in the processing of ferrous and non-
ferrous metals for recycling. Sales to unaffiliated customers which exceeded
10% of total consolidated net sales were made to two customers in fiscal 1995
and two customers in fiscal 1994. Sales to these customers were: 12% and 11% in
fiscal 1995 and 15% and 11% in fiscal 1994 of total sales.
The table below summarizes the export sales to customers by geographic
area (dollars in thousands).
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Far and Near East....... $223,157 $263,661 $170,925
Europe.................. 7,335 -- 3,709
Canada.................. 6,535 10,009 220
Mexico.................. 5,212 -- 1,590
South America........... 2,441 6,572 3,502
Other Export Customers.. -- 4,005 598
-------- -------- --------
Total Export Sales.... $244,680 $284,247 $180,544
======== ======== ========
</TABLE>
67
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
3.1 Certificate of Incorporation of Proler International Corp. as
amended to date. (Filed as Exhibit III.1 to the Company's Form
10-K for the fiscal year ended January 31, 1990 and incorporated
herein by reference.)
3.2 By-laws of Proler International Corp. as amended to date. (Filed
as Exhibit III.2 to the Company's Form 10-K for the fiscal year
ended January 31, 1993 and incorporated herein by reference.)
4.1 Rights Agreement dated as of September 26, 1988 between Proler
International Corp. and Texas Commerce Bank National
Association. (Filed as Exhibit 4.1 to the Company's Form 10-Q
for the fiscal quarter ended October 31, 1988 and incorporated
herein by reference.)
10.1 Joint Venture Agreement dated January 5, 1962, between Hugo Neu
Corporation and Proler Steel Corporation, related to Hugo Neu-
Proler Company. (Filed as Exhibit 13.1 to the Company's
Registration Statement No. 2-24928 and incorporated herein by
reference.)
10.2 Amendments to Joint Venture Agreement dated January 5, 1962.
(Filed as Exhibit 13.1(a) to the Company's Registration
Statement No. 2-40782 and incorporated herein by reference.)
10.3 Joint Venture Agreement dated October 13, 1965, between Hugo
Neu-Steel Products, Inc. and Proleride Transport Systems, Inc.,
related to Prolerized New England Company. (Filed as Exhibit
13.15 to the Company's Registration Statement No. 2-24928 and
incorporated herein by reference.)
10.4 Amendments to Joint Venture Agreement dated October 13, 1965.
(Filed as Exhibit 13.2(a) to the Company's Registration
Statement No. 2-40782 and incorporated herein by reference.)
10.5 Guaranty Agreement dated October 13, 1965, relating to
Prolerized New England Company. (Filed as Exhibit 13.2(b) to the
Company's Registration Statement No. 2-40782 and incorporated
herein by reference.)
10.6 Joint Venture Agreement dated June 27, 1966, between Proler
Steel Corporation, Hugo Neu Corporation and Schiavone-Bonomo
Corporation related to Prolerized Schiabo-Neu Company. (Filed as
Exhibit 13.22 to the
68
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
Company's Registration Statement No. 2-24928 and incorporated
herein by reference.)
10.7 Amendments to Joint Venture Agreement dated June 27, 1966.
(Filed as Exhibit 13.4(a) to the Company's Registration
Statement No. 2-40782 and incorporated herein by reference.)
10.8 Lease Agreement dated August 1, 1974 between The City of Los
Angeles and Hugo Neu & Sons, Inc. and Proler Steel Corporation.
(Filed as Exhibit X.12 to Company's Form 10-K for the fiscal
year ended January 31, 1981 and incorporated herein by
reference.)
10.9 Split Dollar Agreement between Proler International Corp. and
Elaine Proler, effective as of September 12, 1980. (Filed as
Exhibit X.15 to Company's Form 10-K for the year ended January
31, 1982 and incorporated herein by reference.)*
10.10 Proler International Corp. Medical Reimbursement Plan as amended
and restated effective February 1, 1991. (Filed as Exhibit X.12
to the Company's Form 10-K for the fiscal year ended January 31,
1992 and incorporated herein by reference.)*
10.11 Order No. 5472 dated November 6, 1985, approved the first
amendment to permit No. 266 to Hugo Neu-Proler Company and
resets compensation to be paid under the lease agreement dated
August 1, 1974 for the period commencing August 31, 1984 through
August 30, 1989. (Filed as Exhibit X.15 to Company's Form 10-K
for the year ended January 31, 1986 and incorporated herein by
reference.)
10.12 Amendment to Joint Venture Agreement dated August 2, 1962.
(Filed as Exhibit 13.5 to the Company's Registration No. 2-24928
and incorporated herein by reference.)
10.13 Proler International Corp. Deferred Compensation Agreement for
Herman Proler dated December 22, 1987, as amended December 21,
1989. (Filed as Exhibit X.19 to the Company's Form 10-K for the
fiscal year ended January 31, 1990 and incorporated herein by
reference.)*
69
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.14 Proler International Corp. Executive Deferred Compensation Plan
dated December 31, 1989. (Filed as Exhibit X.20 to the Company's
Form 10-K for the fiscal year ended January 31, 1990 and
incorporated herein by reference.)*
10.15 HPI Joint Venture Agreement between Hugo Neu & Sons Inc., the
Company and Intercontinent Chartering Corporation dated May 25,
1989 (Filed as Exhibit X.21 to the Company's Form 10-K for the
fiscal year ended January 31, 1991 and incorporated herein by
reference.)
10.16 HPNJ Joint Venture Agreement between Hugo Neu & Sons Inc. and
the Company dated May 25, 1989 (Filed as Exhibit X.22 to the
Company's Form 10-K for the fiscal year ended January 31, 1991
and incorporated herein by reference.)
10.17 Proler International Corp. 1988 Stock Option Agreement (Filed as
Exhibit X.23 to the Company's Form 10-K for the fiscal year
ended January 31, 1991 and incorporated herein by reference.)
10.18 Amendment to the Proler International Corp. 1988 Stock Option
Plan dated June 17, 1994. (Filed as Exhibit 10.25 to the
Company's Form 10Q for the Quarter ended July 31, 1994 and
incorporated herein by reference.)
10.19 Second Amended and Restated Credit Agreement Among Proler
International Corp., Prolerized Steel Corporation, Proleride
Transport Systems, Inc., Proler Recycling, Inc. and Proler
Environmental Services, Inc., and Texas Commerce Bank National
Association, dated effective as of December 20, 1994.
10.20 Security Agreement dated August 31, 1992 by and among the
Company, Prolerized Steel Corporation, Proleride Transport
Systems, Inc., Proler Environmental Services, Inc. and Texas
Commerce Bank National Association. (Filed as Exhibit X.25 to
the Company's Form 10-K for the fiscal year ended January 31,
1993 and incorporated herein by reference.)
10.21 Proler International Corp. Deferred Compensation Agreement for
Norman Bishop dated effective April 16, 1993. (Filed as Exhibit
X to the Company's Form 10Q for the Quarter ended April 30, 1993
and incorporated herein by reference).*
70
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
10.22 Proler International Corp. 1993 Incentive Compensation Plan.
(Filed as Exhibit 10.24 to the Company's Form 10-K for the
fiscal year ended January 31, 1994 and incorporated herein by
reference.)
10.23 Proler International Corp. Deferred Compensation Agreement for
Steve Gilliland dated effective February 6, 1995.*
21 Subsidiaries of Proler International Corp.
23 Consents of Accountants
27 Financial Data Schedule
- -------------------
* Indicates an agreement with management.
71
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
EXHIBIT 10.19
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
AMONG
PROLER INTERNATIONAL CORP.,
AS BORROWER
AND
PROLERIZED STEEL CORPORATION,
PROLERIDE TRANSPORT SYSTEMS, INC.,
PROLER ENVIRONMENTAL SERVICES, INC.,
PROLER RECYCLING, INC.,
AS GUARANTORS
AND
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
DATED EFFECTIVE AS OF DECEMBER 20, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
<TABLE>
<C> <S> <C>
ARTICLE I DEFINITIONS; ACCOUNTING TERMS;
AND MISCELLANEOUS............................ 1
Section 1.01 Certain Defined Terms........................ 1
Section 1.02 Accounting Terms............................. 15
Section 1.03 Types of Advances............................ 15
ARTICLE II COMMITMENT AND TERMS OF
CREDIT....................................... 15
Section 2.01 The Commitment; Letters of Credit;
Existing Letters of Credit.................. 15
Section 2.02 The Notes.................................... 16
Section 2.03 Making the Advances.......................... 17
Section 2.04 Conversions and Continuances................. 17
Section 2.05 Interest Rate and Interest Payment
Dates....................................... 17
Section 2.06 Interest Periods............................. 19
Section 2.07 Interest Rate Not Ascertainable.............. 20
Section 2.08 Principal Payments of Advances............... 20
Section 2.09 Computations; Payments on Non-
Business Days............................... 20
Section 2.10 Set-Off, Counterclaims and Taxes............. 20
Section 2.11 The Borrower Unconditionally
Liable...................................... 21
Section 2.12 Change in Legality........................... 21
Section 2.13 Reserve Requirements; Change in
Circumstances............................... 21
Section 2.14 Eurodollar Advance Prepayment and
Default Penalties........................... 23
Section 2.15 Use of Letters of Credit and
Proceeds of Advances........................ 24
Section 2.16 Voluntary Prepayments........................ 24
Section 2.17 Mandatory Prepayments........................ 24
Section 2.18 Reduction of the Commitment.................. 24
Section 2.19 Fees......................................... 25
Section 2.20 Letters of Credit and Existing Letters
of Credit................................... 25
Section 2.21 Ratification................................. 28
ARTICLE III GUARANTY..................................... 28
Section 3.01 Guaranty..................................... 28
Section 3.02 Continuing Guaranty.......................... 29
Section 3.03 Effect of Debtor Relief Laws................. 30
Section 3.04 Waiver of Subrogation........................ 30
Section 3.05 Subordination................................ 30
Section 3.06 Waiver....................................... 31
Section 3.07 Full Force and Effect........................ 31
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE IV CONDITIONS PRECEDENT......................... 31
Section 4.01 Conditions Precedent to the Initial
Credit Event................................ 31
Section 4.02 Conditions Precedent to All Credit
Events...................................... 34
ARTICLE V REPRESENTATIONS AND
WARRANTIES................................... 35
Section 5.01 Organization................................. 35
Section 5.02 Authority.................................... 35
Section 5.03 No Conflict.................................. 35
Section 5.04 Consents..................................... 35
Section 5.05 Financial Condition; No Material
Adverse Change.............................. 36
Section 5.06 Litigation; Material Adverse Effect.......... 36
Section 5.07 Indebtedness................................. 36
Section 5.08 No Margin Stock.............................. 37
Section 5.09 Accuracy and Completeness of
Information................................. 37
Section 5.10 ERISA........................................ 37
Section 5.11 Government Regulation........................ 37
Section 5.12 Property..................................... 37
Section 5.13 Payment of Taxes............................. 38
Section 5.14 Insurance.................................... 38
Section 5.15 Subsidiaries; Joint Ventures................. 38
Section 5.16 Patents...................................... 38
Section 5.17 Compliance with Statutes..................... 38
Section 5.18 Labor Relations; Collective
Bargaining Agreements....................... 39
Section 5.19 Liabilities.................................. 40
Section 5.20 Solvency..................................... 40
Section 5.21 Default...................................... 40
ARTICLE VI AFFIRMATIVE COVENANTS........................ 41
Section 6.01 Reporting Requirements....................... 41
Section 6.02 Existence.................................... 43
Section 6.03 Maintenance of Properties;
Insurance................................... 43
Section 6.04 Notice of Litigation......................... 44
Section 6.05 Taxes; Claims................................ 44
Section 6.06 Notice of Default............................ 44
Section 6.07 Inspections.................................. 44
Section 6.08 Compliance with Laws; Notices................ 45
Section 6.09 Books and Records; Accounting
Systems and Principles...................... 45
Section 6.10 Ownership of Credit Parties.................. 46
Section 6.11 Further Assurances........................... 46
Section 6.12 Performance of Loan Documents................ 46
Section 6.13 Activities of Joint Venture.................. 46
ARTICLE VII NEGATIVE COVENANTS........................... 46
Section 7.01 Liens........................................ 46
Section 7.02 Indebtedness................................. 48
Section 7.03 Financial Covenants.......................... 48
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
Section 7.04 Consolidation, Mergers and Acquisitions;
Fundamental Changes......................... 48
Section 7.05 Transactions with Affiliates................. 48
Section 7.06 Use of Proceeds.............................. 48
Section 7.07 Compliance with ERISA........................ 48
Section 7.08 Limitation on Negative Pledge
Clauses..................................... 48
Section 7.09 Investments.................................. 51
Section 7.10 Sale and Leaseback........................... 51
Section 7.11 Capital Expenditures......................... 52
Section 7.12 Limitation on Restrictions
Affecting Subsidiaries...................... 52
Section 7.13 Restricted Payments.......................... 52
Section 7.14 Other Business............................... 52
Section 7.15 Joint Venture Agreements..................... 52
Section 7.16 No Transfers to Affiliates................... 52
ARTICLE VIII DEFAULT AND REMEDIES......................... 53
Section 8.01 Events of Default............................ 53
Section 8.02 Set-Off in Event of Default.................. 55
ARTICLE IX MISCELLANEOUS................................ 56
Section 9.01 Amendments................................... 56
Section 9.02 Notices...................................... 56
Section 9.03 Costs, Expenses and Taxes.................... 57
Section 9.04 Binding Effect; Successors and
Assigns..................................... 58
Section 9.05 Independent of Covenants..................... 58
Section 9.06 Survival of Representations and
Warranties.................................. 58
Section 9.07 Separability................................. 58
Section 9.08 No Waiver; Remedies.......................... 58
Section 9.09 Counterparts................................. 58
Section 9.10 Governing Law................................ 58
Section 9.11 Limitation on Interest....................... 59
Section 9.12 Indemnification.............................. 60
Section 9.13 Notice and Defense of Claims................. 62
Section 9.14 Limitation by Law............................ 63
Section 9.15 Interpretation............................... 63
Section 9.16 Waiver of Texas Deceptive Trade
Practices Act............................... 64
Section 9.17 Releases..................................... 65
Section 9.18 Final Agreement of the Parties............... 65
Section 9.19 Effect of Agreement.......................... 65
</TABLE>
iii
<PAGE>
Exhibits:
Exhibit 1.01-A Form of Borrowing Base Certificate
Exhibit 1.01-B Form of Outstanding Letters of Credit and Acceptance
Exhibit 1.01-C Form of Consent of Joint Venture
Exhibit 1.01-D Description of the Deeds of Trust
Exhibit 2.02-A Form of Note A
Exhibit 2.03 Form of Borrowing Request
Exhibit 2.20 Form of Letter of Credit Request
Exhibit 5.06 Litigation
Exhibit 5.07 Indebtedness
Exhibit 5.15 Existing Corporations and Joint Ventures
Exhibit 5.18 Existing Collective Bargaining Agreements
Exhibit 7.01(b) Permitted Liens
Exhibit 7.09 Permitted Investments
iv
<PAGE>
SECOND AMENDED AND RESTATED
CREDIT AGREEMENT
This SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated effective as
of December 20, 1994, is entered into by and among PROLER INTERNATIONAL CORP., a
Delaware corporation (the "Borrower"), PROLERIZED STEEL CORPORATION, a Texas
corporation, PROLERIDE TRANSPORT SYSTEMS, INC., a Texas corporation, PROLER
ENVIRONMENTAL SERVICES, INC., a Delaware corporation and PROLER RECYCLING, INC.,
a Delaware corporation (collectively, the "Guarantors" and together with the
Borrower collectively, the "Credit Parties"), and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association (the "Bank").
PRELIMINARY STATEMENT
The Borrower and the Bank entered into a First Amended and Restated
Credit Agreement, joined in by all of the Guarantors dated as of August 31, 1993
(as amended by a First Amendment dated October 31, 1994 and a Second Amendment
dated November 30, 1994, the "1993 Agreement") whereby the Bank agreed to make
available to the Borrower a line of credit for general working capital purposes
up to $15,000,000.00 and to issue letters of credit for the account of Borrower
up to $7,000,000.00. The Borrower has requested the Bank to modify and extend
the 1993 Agreement and amend certain other provisions of the 1993 Agreement.
Accordingly, the Borrower, the Guarantors and the Bank have agreed to amend and
restate the 1993 Agreement in its entirety and to modify the Notes and Security
Documents.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants set forth herein, the Borrower, the Guarantors and the Bank hereby
agree as follows:
ARTICLE I
DEFINITIONS, ACCOUNTING TERMS AND MISCELLANEOUS
Section 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Advances" is defined in Section 2.01(a).
"Affiliate" means, when used with respect to any Person, any other
Person which controls or is controlled by or is under common control with
such Person. As used in this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of
the management or policies of such Person (whether through ownership of
securities or partnership or ownership interests or otherwise).
<PAGE>
"Agreement" means this Second Amended and Restated Credit Agreement,
as the same may from time to time be amended, supplemented, modified or
restated.
"Application" means an application, in such form as the Bank may
specify from time to time, requesting the Bank to open a Letter of Credit.
"Appraisal" means, collectively, an appraisal of each of the
Mortgaged Properties in form and substance satisfactory to the Bank.
"Assurance" means, as to any Person, all obligations, contingent or
otherwise, of such Person guaranteeing or in effect guaranteeing in any
manner, whether directly or indirectly, any Indebtedness of any other
Person (the "primary obligor") including, without limitation, obligations
of such Person, direct or indirect, (a) to purchase or pay (or advance or
supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advance or supply funds for the purchase of) any direct or
indirect security therefor, (b) to purchase property, securities or
services for the purpose of assuring the owner of such Indebtedness of the
payment of such Indebtedness, (c) to maintain working capital, equity
capital or other financial statement condition of the primary obligor so
as to enable the primary obligor to pay such Indebtedness or otherwise to
protect the owner thereof against loss in respect thereof; provided that
such obligations are entered into by such Person directly with the primary
obligee or (d) entered into for the purpose of assuring in any manner the
owner of such Indebtedness of the payment of such Indebtedness or to
protect such owner against loss in respect thereof; provided that the term
Assurance shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Authorized Officer" means the Chief Executive Officer, Chief
Financial Officer, Controller, Chief Operating Officer or Treasurer of the
Borrower or such other officer approved by the Bank for the task
indicated.
"Bank" is defined in the introduction to this Agreement.
"Board" means the Board of Governors of the Federal Reserve System of
the United States.
"Board of Directors" means the Board of Directors of the Borrower.
"Borrower" is defined in the introduction to this Agreement.
"Borrowing Base" means, at any date of determination for Advances
(other than for purposes of issuing a Letter of Credit or an Existing
Letter of Credit), an amount equal to the sum of (a) 50% of the Market
Value of all Eligible Proler Inventory or Eligible Joint Venture Inventory
consisting of Processed Scrap, plus (b) $25.00 per Gross Ton of all other
Eligible Proler Inventory or Eligible Joint Venture Inventory, plus (c)
50% of the Eligible Joint Venture Receivables, plus (d) 80% of the
Eligible Proler Receivables; provided,
2
<PAGE>
that the Borrowing Base calculation shall be reduced by an additional 33%
in respect of any assets of Hugo Neu Proler Company or Prolerized New
England Company or any other Joint Venture which becomes a Joint Venture
in accordance with the definition thereof after the Effective Date and the
Joint Venture Agreement with respect to which requires the consent of the
venture partner for the collateral assignment of the right to receive
distributions from the Joint Venture, unless and until a fully executed
original of a consent by the venture partner of the relevant Joint Venture
substantially in the form of Exhibit 1.01(C) hereto is delivered to the
Bank (the "Consent") and an appropriate amendment to this Agreement, the
Security Agreement, the UCC-1 financing statements and such other
documents as the Bank may reasonably request, granting to the Bank a lien
and security interest, consistent with the relevant Consent, in the right
to distributions of cash and profits by said Joint Venture of the
appropriate Credit Party is delivered to the Bank.
For issuance (but not funding) of a Letter of Credit or an Existing
Letter of Credit, the Borrowing Base shall be an amount equal to 60% of
the market value, as set forth in the Appraisals, of all of the Mortgaged
Properties; provided, that if such Borrowing Base for issuance of Letters
of Credit is fully utilized, and to the extent there is availability under
the Borrowing Base with respect to Advances, said availability may be
utilized to support the issuance of Letters of Credit up to the L/C Limit.
"Borrowing Base Certificate" means a certificate in the form of
Exhibit 1.01-A hereto, duly completed and executed by an Authorized
Officer and accompanied by an accounts receivable aging schedule and a
description by type and amount of the inventory included in the Borrowing
Base, in each case in form and substance satisfactory to the Bank.
"Borrowing Base Deficiency" means, at any time, (a) with respect to
Advances, the amount, if any, by which (i) the aggregate principal amount
of all Advances then outstanding exceeds (ii) the Borrowing Base for
Advances and (b) with respect to Letters of Credit and Existing Letters of
Credit, the amount, if any, by which (i) the sum of the undrawn amount of
all outstanding Letters of Credit and Existing Letters of Credit exceeds
(ii) the Borrowing Base for Letters of Credit.
"Borrowing Date" means, when used with respect to any Advance or
Letter of Credit, the date upon which the proceeds of such Advance are
made available to the Borrower, or the date upon which any Letter of
Credit is issued.
"Borrowing Request" is defined in Section 2.03.
"Business Day" means a day of the year on which national banking
associations are not authorized or required to close in Houston, Texas.
"Capital Lease", as applied to any Person, means any lease of any
property (whether real, personal or mixed) in respect of which such
Person's obligations as lessee under such lease or rental agreement
constitute obligations which
3
<PAGE>
shall have been or should be, in accordance with GAAP, capitalized on the
balance sheet of such Person.
"Claim" is defined in Section 9.17.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Commercial Letter of Credit" is defined in Section 2.20(a).
"Commitment" means $15,000,000 from and including the Effective Date
to June 30, 1996; provided that during the Commitment Period, the Bank
shall also issue Letters of Credit up to the amount of the L/C Limit
pursuant to the terms hereof and such issuance shall not constitute a
reduction of the Commitment.
"Commitment Fee" is defined in Section 2.19(a).
"Commitment Period" is defined in Section 2.01(a).
"Commonly Controlled Entity" means, with respect to any Person, any
Person which is a member of a controlled group of corporations and trades
or businesses (whether or not incorporated) (as such term is used in (S)
414(b) or (s)414(c) of the Code) of which such Person is also a member.
"Communications" is defined in Section 9.02.
"Consent" is defined in the definition of Borrowing Base.
"Consolidated Capital Expenditures" means, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as
liabilities and including in all events all amounts expended or
capitalized under Capital Leases but excluding any amount representing
capitalized interest) by the Borrower and its Subsidiaries during such
period that are required to be included in property, plant or equipment
reflected in the consolidated balance sheet of the Borrower and its
Subsidiaries.
"Consolidated Current Assets" means, at any time, the current assets
of the Borrower and its Subsidiaries determined on a consolidated basis.
"Consolidated Current Liabilities" means, at any time, the current
liabilities of the Borrower and its Subsidiaries determined on a
consolidated basis.
"Consolidated Net Income" means, for any period, the consolidated net
income (or loss) of the Borrower and its Subsidiaries for such period
taken as a single accounting period computed in accordance with GAAP.
"Consolidated Net Worth" means, at any date of determination thereof,
the consolidated net worth of the Borrower and its Subsidiaries on the
Effective
4
<PAGE>
Date computed in accordance with GAAP plus cumulative Consolidated Net
Income for the period (taken as one accounting period) from the Effective
Date to such date.
"Credit Event" means and includes the making of an Advance and the
issuance of a Letter of Credit.
"Credit Parties" is defined in the introduction to this Agreement.
"Debtor Relief Laws" means the Bankruptcy Code of the United States
and all other applicable state or federal dissolution, liquidation,
conservatorship, bankruptcy, moratorium, readjustment of debt, compromise,
rearrangement, receivership, insolvency, reorganization or similar debtor
relief laws from time to time in effect affecting the rights of creditors
generally.
"Deeds of Trust" means those certain Deeds of Trust covering the
Mortgaged Properties executed by the appropriate Credit Parties dated as
of August 31, 1992 and described on Exhibit 1.01-D hereto.
"Default" means an event which with the giving of notice or the lapse
of time or both could, unless cured or waived, become an Event of Default.
"Default Rate" is defined in Section 2.05(e).
"EBITDA" means, for any period, the Consolidated Net Income for such
period, before interest income, interest expense, depreciation,
amortization and provision for taxes and without giving effect to any
extraordinary gains or gains from sales of assets (other than sales of
inventory in the ordinary course of business).
"Effective Date" means the time and Business Day on which the
conditions set forth in Article IV are satisfied or waived pursuant to
Section 9.01.
"Eligible Inventory" means, with respect to any Person at the time
any determination thereof is to be made, Inventory of such Person
consisting of Processed Scrap or Unprocessed Scrap which meets each of the
following criteria at such time:
(a) such Person shall have good title to such Inventory;
(b) the Bank shall have been granted a perfected first priority
security interest in such Inventory except for Eligible Joint Venture
Inventory, it being agreed that the Bank shall not have a security
interest therein; and
(c) such Inventory shall be within the United States or the
Virgin Islands.
5
<PAGE>
"Eligible Joint Venture Inventory" means, as to each Joint Venture,
the Eligible Inventory of such Joint Venture multiplied by the aggregate
percentage that all Credit Parties own in the equity or, if different, the
right to the profits of such Joint Venture pursuant to the applicable
Joint Venture Agreement; provided, that the total of all items making up a
part of the Borrowing Base that consist either of Eligible Joint Venture
Inventory or Eligible Joint Venture Receivables shall not exceed, for any
Joint Venture, the maximum amount allowed to be distributed to the Bank in
any Consent executed in respect of such Joint Venture.
"Eligible Joint Venture Receivables" means, as to each Joint Venture,
the Eligible Receivables of such Joint Venture multiplied by the aggregate
percentage that all Credit Parties own in the equity or, if different, the
right to the profits of such Joint Venture pursuant to the applicable
Joint Venture Agreement; provided, that the total of all items making up a
part of the Borrowing Base that consist either of Eligible Joint Venture
Inventory or Eligible Joint Venture Receivables shall not exceed, for any
Joint Venture, the maximum amount allowed to be distributed to the Bank in
any Consent executed in respect of such Joint Venture.
"Eligible Proler Inventory" means all of the Eligible Inventory of
the Borrower and its Subsidiaries, excluding any Joint Venture.
"Eligible Proler Receivables" means all of the Eligible Receivables
of the Borrower and its Subsidiaries, excluding any Joint Venture.
"Eligible Receivable" means, with respect to any Person at the time
any determination thereof is to be made, a Receivable of such Person which
complies with each of the following criteria at such time:
(a) which remains unpaid less than 60 days from the date of
invoice thereof, it being agreed that funds due from account debtors
and collected by Hugo Neu Corporation are not deemed paid until funds
are received from Hugo Neu Corporation;
(b) which is due from an account debtor whose principal place
of business is located within the United States or the Virgin Islands
unless (i) such Receivable is backed 100% by a letter of credit
issued or confirmed by a bank having a long term debt rating of at
least BBB or better by Standard & Poor's Ratings Group or Baa or
better by Moody's Investors Services or (ii) such account debtor has
previously been approved in a writing (which approval has not been
withdrawn) by the Bank as an eligible foreign account debtor for
purposes of this Agreement;
(c) which is not due from a Subsidiary or an Affiliate of such
Person;
(d) which is payable in U. S. Dollars;
6
<PAGE>
(e) which is not due from an account debtor who is insolvent or
is the subject of any proceeding under any Debtor Relief Laws;
(f) as to which the Bank has a perfected first priority
security interest except for Eligible Joint Venture Receivables, it
being agreed that the Bank shall not have a security interest
therein; and
(g) as to which Receivable the account debtor shall have not
asserted a default on the part of such Person or otherwise indicated
a dispute or refusal to make payments on such Receivable.
"Environmental Claims" means any and all administrative, regulatory
or judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigations (other than internal
reports prepared by the Borrower or any of its Subsidiaries solely in the
ordinary course of such Person's business and not in response to any third
party action or request of any kind) or proceedings relating in any way to
any Environmental Law or any permit issued, or any approval given, under
any such Environmental Law (hereafter, "applicable claims"), including (a)
any and all applicable claims by governmental or regulatory authorities
for enforcement, cleanup, removal, response, remedial or other actions or
damages pursuant to any applicable Environmental Law and (b) any and all
applicable claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief
resulting from Hazardous Materials arising from alleged injury or threat
of injury to health, safety or the environment.
"Environmental Laws" means any and all laws, statutes, rules,
ordinances, codes, licenses, permits, regulations, orders, approvals
authorizations, judgments, decisions or determinations of any governmental
authority pertaining to health or the environment in effect in any and all
jurisdictions in which the property of the Borrower or any of its
Subsidiaries is located, including, the Clean Air Act, 42 U.S.C. (S)(S)
7401-7626, the Comprehensive Environmental, Response, Compensation, and
Liability Act, 42 U.S.C. (S)(S) 9601-9675, the Hazardous Materials
Transportation Act, 49 U.S.C. (S)(S) 1801-1813 the Occupational Safety and
Health Act, 29 U.S.C. (S)(S) 651-678, the Resource Conservation and
Recovery Act, 42 U.S.C. (S)(S) 6901-6992, the Safe Drinking Water Act, 42
U.S.C. (S)(S) 300f-300j, the Toxic Substances Control Act, 15 U.S.C.
(S)(S) 2601-2671, the Superfund Amendment and Reauthorization Act of 1986
and other environmental conservation and environmental protection laws, as
any of the same may be amended from time to time.
"Environmental Reports" means, collectively, a Phase I environmental
audit and report of each of the Mortgaged Properties in form and substance
satisfactory to the Bank.
"ERISA" means the United States Employee Retirement Income Security
Act of 1974, as amended from time to time.
"Eurocurrency Liabilities" has the meaning specified in Regulation D
in effect from time to time.
7
<PAGE>
"Eurodollar Lending Office" means the office designated by the Bank
from time to time as its Eurodollar Lending Office.
"Eurodollar Rate" means, with respect to any Eurodollar Rate Advance,
the rate (rounded to the nearest 1/16 of 1%) at which dollar deposits
approximately equal in principal amount to the entire portion of such
Advance and for a maturity equal to the applicable Interest Period are
offered in immediately available funds to the Bank by prime banks in
whatever Eurodollar interbank market may be selected by the Bank in its
sole and absolute discretion at the time of determination and in
accordance with the then usual practice in such market at approximately
10:00 a.m. (Houston, Texas time) two Business Days prior to the
commencement of such Interest Period.
"Eurodollar Rate Advance" means any Advance bearing interest at a
rate determined by reference to the Eurodollar Rate.
"Events of Default" is defined in Section 8.01.
"Existing Letters of Credit" means the letters of credit in the total
maximum amount of $6,215,394.00 heretofore issued by the Bank and listed
on Exhibit 1.01B hereto.
"Existing L/C Obligations" means, at any time, an amount equal to the
sum at such time of (a) the aggregate undrawn amount of the Existing
Letters of Credit plus (b) the aggregate amount of drawings under Existing
Letters of Credit which have not then been reimbursed pursuant to Section
2.20.
"Extended Termination Date" is defined in the term "Termination
Date."
"GAAP" means Generally Accepted Accounting Principles, consistently
applied.
"Government Securities" means readily marketable direct full faith
and credit obligations of the United States or obligations unconditionally
guaranteed by the full faith and credit of the United States.
"Gross Ton" means a unit of weight equal to 2,240 pounds.
"Guaranteed Obligations" is defined in Section 3.01.
"Guarantors" is defined in the introduction to this Agreement.
"Guaranty" means the guaranty contained in Article III.
"Hazardous Materials" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other
equipment that contain or
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contained electric fluid containing polychlorinated biphenyls, and radon
gas, (b) any chemicals, materials or substances defined as or included in
the definition of "hazardous substances," "hazardous waste," "hazardous
materials," "extremely hazardous waste," "restricted hazardous waste,"
"toxic substances," "toxic pollutants," "contaminants," or "pollutants,"
or words of similar import, under any applicable Environmental Law and (c)
any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority.
"Highest Lawful Rate" means, at any date, the maximum nonusurious
interest rate that may under applicable law then be contracted for,
charged, received, taken or reserved by the Bank in connection with the
Obligations.
"Indebtedness" of any Person means, without duplication: (a) any
obligation of such Person for borrowed money, including: (i) any
obligation of such Person evidenced by bonds, debentures, notes or other
similar debt instruments, (ii) any obligation of such Person in respect of
letters of credit and (iii) any obligation for borrowed money which is
non-recourse to the credit of such Person to the extent that it is secured
by any asset of such Person, (b) all obligations of such Person under
conditional sale or other title retention agreements relating to property
purchased by such Person, (c) any obligation of such Person for the
deferred purchase price of any property or services, except accounts
payable arising in the ordinary course of such Person's business that have
been outstanding less than ninety (90) days since the date of the related
invoice or, if longer, which are, in good faith, being disputed by the
obligor, and for which appropriate reserves have been set aside, (d) the
present value at ten percent (10%) per annum of all Capital Leases of such
Person, (e) Assurances of such Person, (f) any Indebtedness of another
Person to the extent secured by a Lien on any asset of such first Person,
whether or not such Indebtedness is assumed by such first Person and (g)
any Indirect Indebtedness of such Person.
"Indemnified Persons" is defined in Section 9.12.
"Indirect Indebtedness" of a Person means (a) the Indebtedness of a
partnership in which such Person is a general partner and (b) the amount
of any liability of such Person created by the Indebtedness of a joint
venture in which such Person is a joint venturer.
"Interest Period' has the meaning specified in Section 2.06.
"Inventory" means, with respect to any Person as of the date of any
determination thereof, all "inventory" (as defined in the Uniform
Commercial Code in effect in any jurisdiction) in which such Person may
now or hereafter have an interest wherever located, and shall also mean
and include all goods, merchandise, raw materials and other materials and
supplies, work in process, finished goods and any products made or
processed therefrom and all substances, if any, commingled therewith or
added thereto, and other tangible personal property presently existing or
hereafter acquired by such Person and
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held for sale or lease or furnished or to be furnished under contracts for
services or used or consumed in the business of such Person.
"Investment" means any investment so classified under GAAP made by
stock purchase, capital contribution, loan or advance or by purchase of
property or otherwise.
"Joint Venture Agreements" is defined in Section 5.15(b).
"Joint Ventures" means the joint ventures and corporations in
existence on the date hereof and set forth on Exhibit 5.15 hereof and each
other joint venture or other similar business entity in which the Borrower
or any of its wholly-owned Subsidiaries becomes a participant from and
after the Effective Date, in each case, for so long as any such joint
venture, corporation or other business entity shall remain in existence
and the Borrower or any of its Subsidiaries has an interest therein.
"L/C Fees" means the fees described in Sections 2.19(b) and 2.19(c).
"L/C Limit" means, subject to the limitations of the Borrowing Base
in respect of Letters of Credit, an amount equal to $7,000,000, as such
amount may be reduced or terminated pursuant to Section 2.18.
"L/C Obligations" means, at any time, an amount equal to the sum at
such time of (a) the aggregate undrawn amount of the Existing Letters of
Credit or Letters of Credit then outstanding plus (b) the aggregate amount
of drawings under Existing Letters of Credit or Letters of Credit which
have not then been reimbursed pursuant to Section 2.20(c).
"Letter of Credit Request" is defined in Section 2.20(b).
"Letters of Credit" is defined in Section 2.01(a).
"Lien" means, when used with respect to any Person, any mortgage,
lien, charge, pledge, security interest or encumbrance of any kind
(whether voluntary or involuntary, affirmative or negative, and whether
imposed or created by operation of law or otherwise) upon, or pledge of,
any of its property or assets, whether now owned or hereafter acquired, or
any conditional sale agreement, Capital Lease or other title retention
agreement.
"Loan Documents" means this Agreement, the Notes, the Applications,
the Security Documents and all other agreements, instruments and
documents, including security agreements, notes, warrants, guaranties,
mortgages, deeds of trust, subordination agreements, pledges, powers of
attorney, consents, assignments, collateral assignments, letter
agreements, contracts, notices, leases, amendments, financing statements,
letter of credit applications and reimbursement agreements and all other
writings heretofore, now or hereafter executed by or on behalf of any
Credit Party, any of their respective Affiliates or any other Person in
connection with or relating to this Agreement, the Letters
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of Credit and the Existing Letters of Credit together with all agreements,
instruments and documents in favor of the Bank to which any such Person is
a party referred to therein or contemplated thereby.
"Margin" means, in respect of Eurodollar Rate Advances, 2.75%.
"Market Value" means, at the time of determination, the weekly
shredded scrap price composite and the weekly steel scrap price composite
published in the most recent daily American Metal Market publication
available.
"Material Adverse Effect" means (a) a material adverse effect upon
the business, operations, properties, assets, business prospects or
financial condition of the Credit Parties, taken as a whole, or (b) the
material impairment of the ability of the Credit Parties, taken as a
whole, to perform timely their Obligations under the Loan Documents to
which they are a party.
"Mortgaged Properties" means the real properties described in the
Deeds of Trust which are still owned by the Borrower.
"Mortgagee Policies" is defined in Section 4.01(h).
"Note A" is defined in Section 2.02(a).
"Note B" means that certain Revolving Credit Note dated August 31,
1992 in the original principal amount of $10,000,000, executed by the
Borrower and made payable to the order of the Bank, as amended by the Note
and Deed of Trust Modification Agreement, together with all other
modifications, extensions, renewals and rearrangements thereof.
"Note and Deed of Trust Modification Agreement" means that certain
Promissory Note and Deed of Trust Modification and Extension Agreement
dated of even date herewith, executed by the appropriate Credit Parties
and in form and substance satisfactory to the Bank extending and modifying
Note B.
"Notes" and "Note" mean, collectively, (a) Note A and (b) Note B and
individually either of the Notes referred to in (a) and (b) above.
"Notice of Conversion" is defined in Section 2.04.
"Obligations" means all present and future obligations of every kind
or nature of any Credit Party at any time and from time to time owed to
the Bank under the Loan Documents (including the L/C Obligations and the
Existing L/C Obligations), whether due or to become due, matured or
unmatured, liquidated or unliquidated, or contingent or non-contingent,
including obligations of performance as well as obligations of payment,
and including, to the extent permitted by applicable Debtor Relief Laws,
interest that accrues after the commencement of any proceeding under any
Debtor Relief Law by or against any Credit Party.
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"Patent Security Agreement" means that certain Patent Security
Agreement dated as of August 31, 1992 by and between Proler Environmental
Services, Inc. and the Bank.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Perfection Certificate" is defined in the Security Agreement.
"Permitted Investments" means, when used in connection with any
Person, the Person's Investments in:
(a) Government Securities due within one year of the making of
the Investment;
(b) readily marketable direct obligations of any state of the
United States or any political subdivision of any such state given on
the date of such investment a credit rating of at least Aa by Moody's
Investors Service or AA by Standard & Poor's Ratings Group, in each
case, due within one year from the making of the Investment;
(c) certificates of deposit issued by or money market deposits
with the Bank or with any other bank or trust company organized under
the laws of the United States or any state thereof or Canada and
having combined capital, surplus and undivided profits of not less
than $500,000,000 (as of the date of its most recent financial
statements);
(d) commercial paper rated at least P-1 or A-1 by Moody's
Investors Service or Standard & Poor's Ratings Group, respectively;
or
(e) mutual funds regularly traded within the United States
whose investments are limited to those described in (a) through (d),
above.
"Permitted Liens" means (a) those liens, encumbrances and other
matters affecting title to any Mortgaged Property listed in the Mortgagee
Policies in respect thereof and found acceptable by the Bank in its sole
discretion, (b) as to any particular Mortgaged Property at any time, such
easements, encroachments, covenants, rights of way, minor defects,
irregularities or encumbrances on title which are not unusual with respect
to property similar in character to such Mortgaged Property and which do
not, in the reasonable opinion of the Bank, materially impair such
Mortgaged Property for the purpose for which it is held by the mortgagor
thereof, or the Lien held by the Bank, (c) municipal and zoning
ordinances, which are not violated by the existing improvements and the
present use made by the mortgagor thereof of the Premises (as defined in
the respective Deeds of Trust), (d) general real estate taxes and
assessments not yet delinquent, (e) Liens permitted under Section 7.01
except for subparagraph (f) thereof and to the extent and only for the
period affecting the respective Mortgaged Property or assets and (f) such
other items as the Bank may consent to.
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"Person" means an individual, corporation, partnership, limited
liability company, joint venture, trust or unincorporated organization, or
a government or any agency or political subdivision thereof.
"Plan" means any employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under
Section 412 of the Code and in respect of which the Borrower or a Commonly
Controlled Entity is an "employer" as defined in Section 3(5) of ERISA.
"Pledge Agreement" means the Pledge Agreement dated as of August 31,
1992 by and between the Borrower and the Bank.
"Prime Rate" means, as of any particular date, the prime rate per
annum most recently announced by the Bank as its prime rate of interest
per annum and thereafter entered in the minutes of the Bank's loan and
discount committee automatically fluctuating upward or downward, as the
case may be, on the day of each announcement without special notice to the
Borrower or any other Person. The Borrower acknowledges that the Prime
Rate may not be the Bank's best or lowest rate, or favored rate, and any
statement, representation or warranty in that regard or to that effect is
hereby expressly disclaimed by the Bank.
"Prime Rate Advance" means any Advance bearing interest at the Prime
Rate.
"Processed Scrap" means scrap metal which has been prepared, sheared,
cleaned and/or separated into its ferrous and non-ferrous components and
is available for sale in its present condition.
"Receivable" means, as to any Person as at any date of determination
thereof, the unpaid principal portion of the obligation of any customer of
such Person to pay to such Person in respect of any services performed by
such Person or Inventory purchased from and shipped or caused to be
shipped by such Person, net of any credits, rebates or offsets owed to
such customer by such Person. For purposes hereof, a credit or rebate paid
by check or draft of such Person shall be deemed to be outstanding until
such check or draft shall have been debited to the respective account of
such Person on which such check or draft was drafted or drawn.
"Regulation D" means Regulation D of the Board (respecting reserve
requirements), as the same is from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"Regulation G" means Regulation G of the Board (respecting margin
credit extended by Persons other than banks, brokers and dealers), as the
same is from time to time in effect, and all official rulings and
interpretations thereunder or thereof.
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"Regulation U" means Regulation U of the Board (respecting margin
credit extended by banks), as the same is from time to time in effect, and
all official rulings and interpretations thereunder or thereof.
"Regulation X" means Regulation X of the Board (respecting the
borrowers who obtain margin credit) as the same is from time to time in
effect, and all official rulings and interpretations thereunder or
thereof.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder.
"Reserve Percentage" means, for any Interest Period, the reserve
percentage applicable during such Interest Period under regulations issued
from time to time by the Board (or if more than one such percentage is so
applicable, the daily average for such percentages for those days in such
Interest Period during which any such percentage shall be so applicable)
for determining the maximum reserve requirement (including any marginal,
supplemental or emergency reserves) for the Bank in respect of liabilities
or assets consisting of or including Eurocurrency Liabilities.
"Restricted Payment" means, with respect to any Person:
(a) the declaration of any dividend on, or the incurrence of
any liability to make any other payment or distribution in respect
of, any shares of such Person (other than one payable solely in its
shares); or
(b) (i) any payment or distribution on account of the purchase,
redemption or other retirement of any shares of such Person, or of
any warrant, option or other right to acquire such shares, or any
other payment or distribution (other than pursuant to a dividend
theretofore declared or liability theretofore incurred as specified
in subsection (a)), made in respect thereof, either directly or
indirectly, or (ii) the purchase, redemption or other retirement of
shares of such Person in exchange for, or out of the net cash
proceeds received by such Person from a substantially concurrent sale
of, other shares of such Person.
"Security Agreement" means the Security Agreement dated as of August
31, 1992 by and between the Credit Parties and the Bank.
"Security Documents" means the Pledge Agreement, the Security
Agreement, the Patent Security Agreement, the Trademark Security
Agreement, the Deeds of Trust and the Note and Deed of Trust Modification
Agreement.
"Standby Letter of Credit" is defined in Section 2.20(a).
"Subsidiary" of any Person means and includes (a) any corporation or
limited liability company more than 50% of whose stock is at the time
owned by such Person directly or indirectly through its Subsidiaries and
(b) any
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partnership, association or other entity in which such Person, directly or
indirectly through Subsidiaries, has more than a 50% equity interest at
the time, but specifically excluding any Joint Ventures.
"Termination Date" means June 30, 1996 or the earlier termination in
whole of the Commitment of the Bank or its obligation to issue Letters of
Credit pursuant to Section 2.18 or Section 8.01; provided, however, if on
June 30, 1996 any Existing Letter of Credit or Letter of Credit
outstanding on such date contains an expiration date later than such date,
the Termination Date shall be extended to the latest expiration date of
any such Letter of Credit but not later than December 31, 1996 (such date
being the "Extended Termination Date") solely for the purpose of funding
drawings under Section 2.20(c) hereof, paid by the Banks pursuant to any
such Existing Letter of Credit or Letter of Credit.
"Uniform Customs" means the Uniform Customs and Practice for
Documentary Credits (1993 Revision), International Chamber of Commerce
Publication No. 500, as the same may be revised from time to time.
"United States" and "U.S." each means the United States of America.
"Unprocessed Scrap" means scrap metal which has been purchased but
has not been processed for sale in its present condition.
"Unutilized Commitment" means, at any time, (a) an amount equal to
the Commitment minus the outstanding Advances plus (b) the L/C Limit minus
the sum of all outstanding Letters of Credit and Existing Letters of
Credit not yet drawn upon.
Section 1.02. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP consistent with those
applied in the preparation of the financial statements referred to in Section
5.05. The books and records of the Borrower shall be kept, and all financial
data submitted pursuant to this Agreement shall be prepared, in accordance with
GAAP.
Section 1.03. Types of Advances. Advances hereunder are distinguished
by "Type." The Type of an Advance refers to the determination whether such
Advance is a Eurodollar Rate Advance or a Prime Rate Advance.
ARTICLE II
COMMITMENT AND TERMS OF CREDIT
Section 2.01. The Commitment; Letters of Credit; Existing Letters of
Credit. (a) (i) The Bank agrees, on the terms and conditions and relying upon
the representations and warranties herein set forth, to make advances
("Advances") to the Borrower from time to time on one or more Business Days
during the period from the Effective Date up to the Termination Date (the
"Commitment Period"), which Advances shall, at the option of the Borrower, be
made as Prime Rate Advances or
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Eurodollar Rate Advances. Each Advance shall be in a principal amount of not
less than $500,000.00 and an integral multiple of $100,000.00. Within the limits
set forth in Section 2.01(a)(iii) and subject to the terms and conditions of
this Agreement, during the period from the date hereof until the Termination
Date, the Borrower may borrow under this Section and prepay at any time and from
time to time without premium or penalty and reborrow under this Section. The
unpaid principal amount of Note A (as defined in the 1993 Agreement) shall be
deemed a Prime Rate Advance made on and as of the Effective Date under Note A
hereof for all purposes hereunder.
(ii) Within the limitations set forth in Section 2.01(a)(iii),
the Bank agrees, on the terms and conditions and relying upon the
representations herein set forth, to issue additional standby or commercial
letters of credit for the account of the Borrower (the "Letters of Credit") from
time to time on any one or more Business Days during the period from the
Effective Date up to the Termination Date; provided, however, no Letter of
Credit shall be issued after the Termination Date and all Letters of Credit
shall expire on or prior to the Extended Termination Date.
(iii) Notwithstanding any other term or provision hereof (A) no
Advance shall be made if after giving effect to the making of such Advance the
aggregate amount of outstanding Advances would exceed the lesser of (1) the
Borrowing Base with respect to making Advances and (2) the Commitment and (B) no
Letter of Credit shall be issued if after giving effect to the issuance of such
Letter of Credit the aggregate amount of all L/C Obligations would exceed the
lesser of (1) the Borrowing Base with respect to the issuance of Letters of
Credit and (2) the L/C Limit. To the extent no Advance is made under Note A to
the Borrower to reimburse the Bank upon fundings of any Letter of Credit or
Existing Letter of Credit then, pursuant to Section 2.20(c), fundings of any
Letter of Credit or Existing Letter of Credit by the Bank shall be reimbursed
immediately by the Borrower.
(b) The Existing Letters of Credit and any renewals or extensions
thereof during the term hereof shall be deemed to be issued under this Agreement
and shall be a part of the L/C Limit. Pursuant to Section 2.20(c), fundings of
any Existing Letter of Credit by the Bank shall be reimbursed immediately by the
Borrower.
(c) The expiration date of an Existing Letter of Credit shall not be
extended beyond the Extended Termination Date.
Section 2.02. The Notes. (a) All cash Advances shall be evidenced by
a single Note dated of even date herewith (said Note, together with all
modifications, extensions, renewals and rearrangements thereof "Note A") of the
Borrower payable to the order of the Bank in the principal amount of the
Commitment, substantially in the form of Exhibit 2.02-A. The Bank is hereby
authorized, but not required, by the Borrower to endorse on the schedule (or a
continuation thereof) attached to Note A, to the extent applicable, the date,
the amount of each Advance and the amount of payment or prepayment of such
Advance; provided, however, the failure by the Bank to make any such endorsement
shall not affect the obligation of the Borrower under Note A or hereunder with
respect to such Advances.
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(b) The Obligations of the Borrower with respect to the Existing
Letters of Credit and the Letters of Credit, if any, shall be additionally
evidenced by Note B. Any sums outstanding under Note B shall be payable on
demand.
Section 2.03. Making the Advances. Subject to the provisions relating
to Advances under Section 2.20(c), each Advance shall be made upon the request
of an Authorized Officer of the Borrower and confirmed immediately in writing by
the Borrower in substantially the form of Exhibit 2.03 hereto (a "Borrowing
Request"). Each Borrowing Request shall, in the case of Prime Rate Advances, be
given to the Bank not later than 10:00 a.m. (Houston, Texas time), via telecopy
or hand delivery on the Borrowing Date for such Advance, and, in the case of
Eurodollar Rate Advances, not later than 10:00 a.m. (Houston, Texas time) not
later than three (3) days prior to the requested Advance. Each Borrowing Request
shall specify (a) the proposed Borrowing Date (which shall be a Business Day),
(b) the amount of the proposed Advance, (c) the Type of Advance, (d) the
availability of such Advance under the Commitment and (e) if such Advance is to
be a Eurodollar Rate Advance, the initial Interest Period (as defined below in
Section 2.06) to be applicable thereto. Each Borrowing Request shall be
irrevocable by the Borrower. Upon satisfaction of the applicable conditions set
forth in Article IV hereof, the Bank will make the proceeds of each Advance
available to the Borrower at the office of the Bank (or such other reasonable
place designated by the Borrower in advance) on the date specified in the
Borrowing Request. The Borrower shall, by its execution hereof and its
acceptance of the proceeds of the first Advance, be deemed to have certified to
the Bank that the conditions set forth in Sections 4.02 (d), (e) and (f) have
been satisfied.
Section 2.04. Conversions and Continuances. The Borrower shall have
the option to convert on any Business Day all or a portion of the outstanding
principal amount of one Type of Advance into another Type of Advance, provided,
no Advances may be converted into or continued as Eurodollar Rate Advances if a
Default or Event of Default is in existence on the date of the conversion. Each
such conversion shall be effected by the Borrower giving the Bank written notice
(each a "Notice of Conversion") prior to 10:00 a.m. (Houston, Texas time) at
least (a) three (3) Business Days prior to the date of such conversion in the
case of conversion into or continuance as Eurodollar Rate Advances and (b) prior
to 10:00 a.m. (Houston, Texas time) one (1) Business Day prior to the date of
conversion in the case of a conversion into Prime Rate Advances, specifying each
Advance (or portions thereof) to be so converted and, if to be converted into or
continued as Eurodollar Rate Advances, the Interest Period to be applicable
thereto.
Section 2.05. Interest Rate and Interest Payment Dates. The Borrower
shall pay interest on the unpaid principal amount of each Advance made by the
Bank from the date of such Advance until such principal amount shall be paid in
full, on the dates and at the rates per annum specified below:
(a) Subject to the provisions of Sections 2.05(e) and 9.11, each
Prime Rate Advance shall bear interest on the unpaid principal amount
thereof at a rate per annum equal to the lesser of (i) the Prime Rate and
(ii) the Highest Lawful Rate. Accrued and unpaid interest on the Prime
Rate Advances shall be due and payable (A) quarterly in arrears on the
last day of each calendar
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quarter occurring after the Effective Date and on the Termination Date,
(B) with respect to the principal amount of any voluntary or mandatory
repayment on the date of such voluntary or mandatory repayment and (C) at
maturity (whether by acceleration or otherwise) and, after maturity, on
demand.
(b) Subject to Sections 2.05(e) and 9.11, each Eurodollar Rate
Advance shall bear interest on the unpaid principal amount thereof from
the date of such Advance at a rate per annum (computed on the basis of the
actual number of days elapsed over a year of 360 days) which shall, during
each Interest Period applicable thereto, be equal to the lesser of (i) the
Highest Lawful Rate and (ii) the applicable Eurodollar Rate for such
Interest Period plus the Margin. The applicable Eurodollar Rate and the
Margin shall be fixed for each Interest Period and shall not change during
said Interest Period. Interest on each Eurodollar Rate Advance shall be
payable (A) on the last day of the Interest Period applicable thereto, (B)
with respect to the principal amount of any voluntary or mandatory
repayment on the date of such voluntary or mandatory repayment, or on the
date of any conversion or continuance and (C) at maturity (whether by
acceleration or otherwise) and, after maturity, on demand.
(c) The Bank, upon determining the Eurodollar Rate for any Interest
Period, shall notify the Borrower thereof. Each such determination shall,
absent manifest error, be final and conclusive and binding on all parties
hereto. In addition, prior to the due date for the payment of interest on
any Eurodollar Rate Advances set forth in the immediately preceding
paragraph, the Bank shall notify the Borrower of the amount of interest
due by the Borrower on all outstanding Eurodollar Rate Advances on the
applicable due date, but any failure of the Bank to so notify the Borrower
shall not reduce the Borrower's liability for the amount owed.
(d) The Borrower shall pay to the Bank, so long as the Bank shall be
required under regulations of the Board to maintain reserves with respect
to liabilities or assets consisting of or including Eurocurrency
Liabilities, additional interest on the unpaid principal amount of each
Eurodollar Rate Advance, from the date of such Advance until such
principal amount is paid in full, at an interest rate per annum equal at
all times during each Interest Period for such Advance to the lesser of
(i) the Highest Lawful Rate and (ii) the remainder obtained by subtracting
(A) the Eurodollar Rate for such Interest Period from (B) the rate
obtained by dividing such Eurodollar Rate referred to in clause (A) above
by that percentage equal to 100% minus the Reserve Percentage of the Bank
for such Interest Period. Such additional interest shall be determined by
the Bank as incurred and shall be payable upon demand therefor by the Bank
to the Borrower. Each determination by the Bank of additional interest due
under this Section shall be prima facie evidence thereof all purposes in
the absence of manifest error.
(e) Any amount of principal or, to the extent permitted by applicable
law, interest which is not paid when due including, without limitation,
any fundings of Letters of Credit or Existing Letters of Credit for which
the Bank is
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not reimbursed (whether by application of the proceeds of Advances under
Section 2.20(c) or otherwise) immediately by the Borrower (whether at
stated maturity, by acceleration or otherwise) shall bear interest from
the date on which such amount is due until such amount is paid in full at
a rate per annum equal at all times to the Prime Rate plus four percent
(4%) per annum but in no event to exceed the Highest Lawful Rate (the
"Default Rate") and shall be payable upon demand.
(f) The Borrower shall, at the time of making each payment of
principal and/or interest hereunder and under the Notes, specify to the
Bank the Advances or other sums payable by the Borrower hereunder or under
the Notes to which such payment is to be applied and in the event that the
Borrower fails to so specify, the Bank may apply such payment as it may
elect in its sole discretion.
Section 2.06. Interest Periods. (a) At the time the Borrower gives
any Borrowing Request or Notice of Conversion in respect of the making of, or
conversion into, a Eurodollar Rate Advance, the Borrower shall have the right to
elect, by giving the Bank on the dates and at the times specified in Section
2.03 or Section 2.04, as the case may be, notice of the interest period (each an
"Interest Period") applicable to such Eurodollar Rate Advance, which Interest
Period shall be either a one, two or three month period; provided, that:
(i) the initial Interest Period for any Eurodollar Rate Advance
shall commence on the date of such Eurodollar Rate Advance (including the
date of any conversion thereto or continuance thereof pursuant to Section
2.04); each Interest Period occurring thereafter in respect of such
Eurodollar Rate Advance shall commence on the day following the expiration
date of the immediately preceding Interest Period;
(ii) if any Interest Period relating to a Eurodollar Rate Advance
begins on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided, that if there are no more Business Days
in that month, the Interest Period shall expire on the preceding Business
Day; and
(iv) no Interest Period for Advances shall extend beyond the
Termination Date.
(b) If, upon the expiration of any Interest Period applicable to a
Eurodollar Rate Advance, the Borrower has failed to elect a new Interest Period
to be applicable to such Advance as provided above, the Borrower shall be deemed
to have elected to convert such Advance into a Prime Rate Advance effective as
of the day following the expiration date of such current Interest Period.
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Section 2.07. Interest Rate Not Ascertainable. In the event that the
Bank shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) that on any date for determining
the Eurodollar Rate for any Interest Period, by reason of any changes arising
after the date of this Agreement affecting the Eurodollar interbank market or
the Bank's position in such market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of Eurodollar Rate, then, and in any such event, the Bank shall
forthwith give notice to the Borrower of such determination. Until the Bank
notifies the Borrower that the circumstances giving rise to the suspension
described herein no longer exist, the obligations of the Bank to make Eurodollar
Rate Advances shall be suspended.
Section 2.08. Principal Payments of Advances. The unpaid principal
balance of the Advances, together with all accrued and unpaid interest thereon,
shall be due and payable on the Termination Date, subject to the mandatory
prepayments required pursuant to Section 2.17.
Section 2.09. Computations; Payments on Non-Business Days. (a) All
payments by the Borrower of principal and interest hereunder, under the Notes
and the other Loan Documents shall be made in U.S. Dollars to the Bank at its
office at 712 Main Street, Houston, Texas in immediately available funds not
later than 12:00 Noon (Houston, Texas time) on the date when due.
(b) Interest on the Prime Rate Advances shall be computed by the Bank
on the actual number of days elapsed over a year of 365 days, unless such
computation would cause the interest contracted for, charged or received to
exceed the Highest Lawful Rate, in which event, interest shall be computed for
the actual number of days elapsed over a year of 365 or 366 days, as the case
may be. Determination by the Bank of an interest rate hereunder shall be prima
facie evidence of its accuracy.
(c) Whenever any payment hereunder (other than payments of interest
on Eurodollar Rate Advances) shall be stated to be due on a day other than a
Business Day, such payment shall be made on the next succeeding Business Day and
such extension of time shall in such case be included in the computation of
payment of interest, the L/C Fees and all other amounts due under the Loan
Documents, as the case may be.
Section 2.10. Set-Off, Counterclaims and Taxes. All payments of
principal, interest, expenses, reimbursements, compensation and any other amount
from time to time due hereunder, under the Notes or any other Loan Document
shall be made by the Borrower without set-off or counterclaim and shall be made
free and clear of and without deduction for any present or future tax, levy,
impost or any other charge, if any, of any nature whatsoever now or hereafter
imposed by any taxing authority upon the Borrower. If the making of such
payments is prohibited by law unless such a tax, levy, impost or other charge is
deducted or withheld therefrom, the Borrower shall pay to the Bank, on the date
of each such payment, such additional amounts as may be necessary in order that
the net amounts received by the Bank after such deduction or withholding shall
equal the amounts which would have been
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received if such deduction or withholding were not required; provided, however,
that all amounts payable under this Agreement which constitute interest under
applicable law shall not exceed an amount which would result in the payment of
interest at a rate in excess of the Highest Lawful Rate.
Section 2.11. The Borrower Unconditionally Liable. The Borrower shall
be unconditionally liable to the Bank for the principal amount of any and all
Advances, any and all L/C Obligations, interest due thereon, the L/C Fees, the
Commitment Fee, and all other amounts due to the Bank hereunder or under any
other agreement or security document executed in connection herewith, and shall
make prompt and punctual payment when due of such amounts.
Section 2.12. Change in Legality. (a) Notwithstanding anything to the
contrary herein contained, if any change in any law or regulation or in the
interpretation thereof by any governmental authority charged with the
administration or interpretation thereof shall make it unlawful for the Bank or
its Eurodollar Lending Office to make or maintain any Eurodollar Rate Advance or
to give effect to its obligations as contemplated hereby with respect to
Eurodollar Rate Advances, then, by prompt written notice to the Borrower, the
Bank may:
(i) declare that Eurodollar Rate Advances will not thereafter be
made by the Bank hereunder, whereupon the Borrower shall be prohibited
from requesting Eurodollar Rate Advances from the Bank hereunder unless
such declaration is subsequently withdrawn; and
(ii) in the event that the maintenance of any Eurodollar Rate
Advance(s) shall have been made unlawful, require that all outstanding
Eurodollar Rate Advance(s) made by the Bank be converted to Prime Rate
Advances, in which event (A) all such Eurodollar Rate Advances shall be
automatically converted to Prime Rate Advances as of the effective date of
such notice as provided in paragraph (b) below and (B) all payments and
prepayments of principal which would otherwise have been applied to repay
the converted Eurodollar Rate Advances shall instead be applied to repay
the Prime Rate Advances resulting from the conversion of such Eurodollar
Rate Advances.
(b) For purposes of this Section, a notice to the Borrower by the
Bank pursuant to paragraph (a) above shall be effective on the date of receipt
thereof by the Borrower.
Section 2.13. Reserve Requirements; Change in Circumstances. (a) It
is understood that the cost to the Bank of making or maintaining any Advance,
Existing Letter of Credit or Letter of Credit may fluctuate as a result of the
applicability of, or changes in, reserve requirements imposed by the Board. The
Borrower agrees to pay to the Bank from time to time, as provided in paragraph
(d) below, such amounts as shall be necessary to compensate the Bank,
prospectively from the date of demand, for the portion of the cost of making or
maintaining any Advance, Existing Letter of Credit or Letter of Credit resulting
from any such reserve requirements to the extent set forth in this Section.
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(b) Notwithstanding any other provision herein, if after the date of
this Agreement the introduction of any applicable law or regulation or any
change in applicable law or regulation or in the interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
applicable guideline or request from any central bank or governmental authority
(whether or not having the force of law) (i) shall change the basis of taxation
of payments to the Bank of the principal of or interest on any Advance made by
the Bank, any Existing L/C Obligations, any L/C Obligations or any other fees or
amounts payable hereunder (other than (x) taxes imposed on the overall net
income of the Bank or its applicable lending office by any jurisdiction or by
any political subdivision or taxing authority therein (or any tax which is
enacted or adopted by any such jurisdiction, political subdivision or taxing
authority as a direct substitute for any such taxes) or (y) any tax, assessment
or other governmental charge that would not have been imposed but for the
failure of the Bank to comply with any certification, information, documentation
or other reporting requirement), (ii) shall impose, modify or deem applicable
any reserve, special deposit or similar requirement against assets of, deposits
with or for the account of, or credit extended by, the Bank (without duplication
of any amounts paid pursuant to Section 2.05(d)), or (iii) shall impose on the
Bank any other condition affecting this Agreement or any Advance made by the
Bank, and the result of any of the foregoing shall be to increase the cost to
the Bank of maintaining the Commitment or of making or maintaining any Advance
or issuing or maintaining any Existing Letter of Credit or Letter of Credit or
to reduce the amount of any sum received or receivable by the Bank hereunder
(whether of principal, interest or otherwise) in respect thereof by an amount
deemed in good faith by the Bank to be material, then the Borrower shall pay to
the Bank such additional amount or amounts as will compensate the Bank for such
increase or reduction, upon demand by the Bank. Notwithstanding the foregoing,
in no event shall the Bank be permitted to receive any compensation hereunder
constituting interest in excess of the Highest Lawful Rate.
(c) If the Bank shall have determined in good faith that any law,
rule, regulation or guideline adopted pursuant to or arising out of the July
1988 Report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards" or that the adoption of any applicable law, rule, regulation or
guideline regarding capital adequacy, or any change in any of the foregoing or
in the interpretation or administration thereof by any central bank or other
governmental authority charged with the interpretation or administration
thereof, or compliance by the Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such central
bank or governmental authority, affects or would affect the amount of capital
required or expected to be maintained by the Bank or any corporation controlling
the Bank and that the amount of such capital is increased by or based upon the
existence of the Commitment hereunder and other commitments of this type, then
the Borrower shall from time to time pay to the Bank upon demand additional
amounts sufficient to compensate the Bank or such corporation in the light of
such circumstances, to the extent that the Bank reasonably determines such
increase in capital to be allocable to the existence of the Commitment
hereunder.
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(d) If while any Existing Letter of Credit or any Letter of Credit is
outstanding, any law, executive order or regulation is enforced, adopted or
interpreted by any central bank or other governmental authority so as to affect
any of the Borrower's obligations or the compensation to the Bank in respect of
the Existing Letters of Credit or the Letters of Credit or the cost to the Bank
of establishing or maintaining the Existing Letters of Credit or the Letters of
Credit, then the Borrower shall from time to time upon demand, reimburse or
indemnify the Bank with respect thereto so that the Bank shall be in the same
position as if there had been no such enforcement, adoption or interpretation.
Notwithstanding the foregoing, in no event shall the Bank be permitted to
receive any compensation hereunder constituting interest in excess of the
Highest Lawful Rate.
(e) The Bank will notify the Borrower of any event occurring after
the date of this Agreement which will entitle the Bank to compensation pursuant
to this Section 2.13. A certificate of the Bank setting forth in reasonable
detail (i) such amount or amounts as shall be necessary to compensate the Bank
as specified in paragraph (a), (b), (c) or (d) above as the case may be, and
(ii) the calculation of such amount or amounts shall be simultaneously delivered
to the Borrower and shall be prima facie evidence of its accuracy. The Borrower
shall pay to the Bank the amount shown as due on any such certificate within ten
(10) days after Borrower's receipt of the same. The failure of the Bank to
demand increased compensation with respect to any Interest Period shall not
constitute a waiver of the right to demand compensation thereafter.
Section 2.14. Eurodollar Advance Prepayment and Default Penalties.
Subject to Section 9.11, the Borrower shall indemnify the Bank against any
reasonable loss or expense which it may actually sustain or incur as a
consequence of (a) an Advance of, or a conversion from or into, Eurodollar Rate
Advances that does not occur on the date specified therefor in a Borrowing
Request or Notice of Conversion (except by reason of Section 2.12) or (b) any
payment, prepayment or conversion of a Eurodollar Rate Advance required by any
other provision of this Agreement or otherwise made on a date other than the
last day of the applicable Interest Period (except for any conversion under
Section 2.12). Such loss or expense shall include an amount equal to the excess
determined by the Bank of (i) its actual cost of obtaining the funds for the
Advance being paid, prepaid or converted or not borrowed (based on the
Eurodollar Rate) for the period from the date of such payment, prepayment or
conversion or failure to borrow to the last day of the Interest Period for such
Advance (or, in the case of a failure to borrow, the Interest Period for the
Advance which would have commenced on the date of such failure to borrow) over
(ii) the amount of interest (as reasonably determined by the Bank) that would be
realized in reemploying the funds so paid, prepaid or converted or not borrowed
for such period or Interest Period, as the case may be. The Bank will notify the
Borrower of any loss or expense which will entitle the Bank to compensation
pursuant to this Section, as promptly as possible after it becomes aware
thereof, but failure to so notify shall not affect the Borrower's liability
therefor. A certificate of the Bank setting forth any amount which it is
entitled to receive pursuant to this Section shall be delivered to the Borrower
and shall be prima facie evidence of its accuracy. The Borrower shall pay to the
Bank the amount shown as due on any certificate within ten (10) days after its
receipt of the same. Without prejudice to the survival of any
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other obligations of the Borrower hereunder, the obligations of the Borrower
under this Section shall survive the termination of this Agreement and the
assignment of any of the Notes.
Section 2.15. Use of Letters of Credit and Proceeds of Advances. The
Borrower will use the proceeds of all Advances made hereunder for working
capital and general business purposes of the Borrower and its Subsidiaries and
will use all Letters of Credit issued hereunder for general business purposes of
the Borrower and its Subsidiaries provided, any Letter of Credit issued in
support of any Investment by Proler Environmental Services, Inc. in any facility
shall be considered an Investment subject to the limitations of Section 7.09(g).
Section 2.16. Voluntary Prepayments. Upon at least three (3) Business
Days' prior written notice, the Borrower shall have the right to voluntarily
prepay Advances in whole or in part from time to time on the following terms and
conditions: (a) no Eurodollar Rate Advance may be prepaid prior to the last day
of its Interest Period unless, simultaneously therewith, the Borrower pays to
the Bank all sums necessary to compensate the Bank for all costs and expenses
resulting from such prepayment, as reasonably determined by the Bank, described
in Sections 2.05(d), 2.13, and 2.14 hereof and (b) each prepayment pursuant to
this Section shall be applied first, to the payment of accrued and unpaid
interest, and then, to the outstanding principal of such Advances as shall be
designated by the Borrower.
Section 2.17. Mandatory Prepayments. (a) If any Borrowing Base
Certificate shall disclose the existence of a Borrowing Base Deficiency, the
Borrower, on the day that the delivery of such Borrowing Base Certificate is
required by Section 6.01(f), shall prepay a principal amount of outstanding
Advances equal to such Borrowing Base Deficiency.
(b) If, on any day, the market valuation of the Inventory of the
Borrower, its Subsidiaries and the Joint Ventures included in the Borrowing
Base, based on the American Metals Market Composite Valuation or such other
source of value acceptable to the Bank, is less than or equal to ninety percent
(90%) of the market valuation of such Inventory as disclosed in the most recent
Borrowing Base Certificate required to be delivered pursuant to Section 6.01(f),
the Borrowing Base shall be recalculated by the Borrower as of such date using
such market valuations as of such date and, if such recalculation results in a
Borrowing Base Deficiency, the Borrower, on the third business day following the
date of such recalculation shall deliver a new Borrowing Base Certificate and,
as required by Section 6.01(f), shall prepay a principal amount of outstanding
Advances equal to such Borrowing Base Deficiency.
Section 2.18. Reduction of the Commitment. (a) The Borrower shall
have the right, upon at least three (3) Business Days' notice to the Bank, to
terminate in whole or reduce in part the Unutilized Commitment; provided, that
each partial reduction shall be in the aggregate amount of $250,000.00 and an
integral multiple of $250,000.00 in excess thereof.
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(b) On the Termination Date the Commitment and the L/C Limit shall be
zero; provided, however, if any one or more Existing Letters of Credit or
Letters of Credit outstanding on the Termination Date have a later expiration
date, then the L/C Limit shall reduce to a level equal to the sum of the undrawn
face amount of each of the then outstanding Existing Letters of Credit and
Letters of Credit (reducing by the amount of any expiring Existing Letter of
Credit or Letter of Credit as it expires) and shall, in any event, terminate in
its entirety on the Extended Termination Date.
Section 2.19. Fees. (a) The Borrower agrees to pay to the Bank a
commitment fee (the /Commitment Fee") for the period from and including the date
hereof to but not including the Termination Date, computed at a rate equal to
one-half of one percent (1/2%) per annum on the daily average of the Unutilized
Commitment. Such Commitment Fee shall be due and payable in arrears on the last
Business Day of each calendar quarter and on the Termination Date.
(b) The Borrower shall pay to the Bank a letter of credit commission
with respect to each Existing Letter of Credit and Letter of Credit payable in
advance and computed for the period from the Effective Date or date of such
payment to the date upon which the next such payment is due hereunder at the
rate of one percent (1%) per annum (which, in the case of Commercial Letters of
Credit, shall be calculated on the basis of one-quarter of one percent (1/4%)
for each 90 day period or any part thereof) of the aggregate amount available to
be drawn under such Existing Letter of Credit and Letter of Credit on the date
on which such fee is calculated or the then minimum letter of credit insurance
fee charged by the Bank, whichever is greater; provided, however, with respect
to each Existing Letter of Credit, the amount of such commission payable to the
Bank shall be reduced by the amount of the commissions already paid to the Bank
with respect to such Existing Letter of Credit with respect to any period from
and after the Effective Date. Such commissions shall be payable in advance on
the Effective Date and on the last day of each calendar quarter occurring
thereafter and shall be nonrefundable.
(c) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Bank for such normal and customary costs and expenses
as are incurred or charged by the Bank in issuing, effecting payment under,
amending or otherwise administering any Existing Letter of Credit or any Letter
of Credit.
Section 2.20 Letters of Credit and Existing Letters of Credit. (a)(i)
Subject to the terms and conditions hereof, the Bank agrees to issue Letters of
Credit for the account of the Borrower on any Business Day during the Commitment
Period in such form as may be approved from time to time by the Bank; provided
that the Bank shall have no obligation to issue any Letter of Credit if, after
giving effect to such issuance, the L/C Obligations would exceed the L/C Limit.
Each Letter of Credit shall (A) be denominated in U. S. Dollars and shall be
either (1) a standby letter of credit issued to support obligations of the
Borrower or one or more of its Subsidiaries, contingent or otherwise (a "Standby
Letter of Credit") or (2) a documentary letter of credit in respect of the
purchase of goods or services by the Borrower or one or more of its Subsidiaries
in the ordinary course of business (a "Commercial Letter of Credit") and (B)
expire no later than the Extended Termination Date.
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(ii) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State of
Texas.
(iii) The Bank shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Bank to exceed any limits imposed by, any applicable law or regulation.
(b) (i) The Borrower may from time to time request that the Bank
issue a Letter of Credit by delivering to the Bank at its address for notices
specified herein a request (a "Letter of Credit Request") in the form set forth
as Exhibit 2.20 hereof and an Application therefor, completed to the
satisfaction of the Bank, and such other certificates, documents and other
papers and information as the Bank may reasonably request. The Bank shall not be
required to issue any Letter of Credit earlier than three (3) Business Days
after its receipt of the Letter of Credit Request and related Application
therefor and all such other certificates, documents and other papers and
information relating thereto. Upon receipt of any Letter of Credit Request and
related Application, the Bank will process such Application and the
certificates, documents and other papers and information delivered to it in
connection therewith in accordance with its customary procedures and, upon
satisfaction of the applicable terms and conditions set forth in Article IV,
shall promptly issue the original of the Letter of Credit requested to the
beneficiary thereof or as otherwise may be agreed by the Bank and the Borrower.
The Bank shall furnish a copy of each Letter of Credit issued hereunder to the
Borrower promptly following the issuance thereof.
(ii) In respect of any Letters of Credit or Existing Letters of
Credit, if any, outstanding on the Termination Date, assuming no Default or
Event of Default has occurred, the Borrower may, at its option, provide to the
Bank collateral in the form of cash or a certificate of deposit issued by the
Bank in the amount of such Letters of Credit or Existing Letters of Credit and
any expenses reasonably anticipated by the Bank in connection therewith,
whereupon the Bank shall release its Liens on all other collateral hereunder or
under any of the Loan Documents. In no event shall any Letters of Credit or
Existing Letters of Credit be outstanding beyond the Extended Termination Date.
The Borrower shall remain liable in respect of such Letters of Credit or
Existing Letters of Credit on terms consistent with the terms hereof, but for
all other purposes of this Agreement and the other Loan Documents the
Obligations will be deemed paid in full and not outstanding and the Commitment
shall be deemed terminated.
(c) The Borrower agrees to reimburse the Bank on each date on which
the Bank notifies the Borrower of the date and amount of a draft presented under
any Existing Letter of Credit or Letter of Credit and paid by the Bank for the
amount of (i) such draft so paid and (ii) any taxes, fees, charges or other
costs or expenses incurred by the Bank in connection with such payment. Upon the
presentment of any draft for honor under any Existing Letter of Credit or Letter
of Credit by the beneficiary thereof which the Bank determines is in compliance
with the condition for payment thereunder, the Bank shall promptly notify the
Borrower. In the event the Bank makes any payment pursuant to a draft presented
under an Existing Letter of Credit or a Letter of Credit, the Borrower shall
immediately, upon demand, pay
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said amount to the Bank in cash plus any interest due thereon from the date when
due at the Default Rate as provided in Section 2.05(e); provided, said payment
shall, unless otherwise made by the Borrower, come from Advances made under Note
A without requirement of a Borrowing Request if no Default or Event of Default
has occurred hereunder and is continuing, and, if, based on the most recent
Borrowing Base Certificate delivered to the Bank by the Borrower, the aggregate
amount of all outstanding Advances, after giving effect to such Letter of Credit
reimbursement Advance would not exceed the lesser of the Borrowing Base with
respect to making Advances and the Commitment. If, upon delivery of the next
Borrowing Base Certificate due hereunder, it shall be determined that such
Advance has caused said total to exceed the Borrowing Base with respect to
making Advances, the Borrower shall deliver, simultaneous with the delivery of
the Borrowing Base Certificate, immediately available funds to the Bank
sufficient to reduce the outstanding Advances to a sum equal to or less than the
Borrowing Base with respect to making Advances. Any amounts owing and unpaid by
the Borrower, and not advanced under Note A, shall be obligations of the
Borrower evidenced by Note B.
(d) The Borrower's obligations under this Section shall be absolute
and unconditional under any and all circumstances and irrespective of any set-
off, counterclaim or defense to payment which the Borrower may have or have had
against the Bank or any beneficiary of an Existing Letter of Credit or a Letter
of Credit. The Borrower also agrees with the Bank that the Bank shall not be
responsible for, and the Borrower's reimbursement obligations under Section
2.20(c) above shall not be affected by, among other things, the validity or
genuineness of documents or of any endorsements thereon, even through such
documents shall in fact prove to be invalid, fraudulent or forged, or any
dispute between or among the Borrower and any beneficiary of any Existing Letter
of Credit or Letter of Credit or any other party to which such Existing Letter
of Credit or Letter of Credit may be transferred or any claims whatsoever of the
Borrower against any beneficiary of such Existing Letter of Credit or Letter of
Credit or any such transferee. The Bank shall not be liable for any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Existing Letter
of Credit or Letter of Credit, except for errors or omissions caused by the
Bank's gross negligence or willful misconduct. The Borrower agrees that any
action taken or omitted by the Bank under or in connection with any Existing
Letter of Credit or Letter of Credit or the related drafts or documents, if done
in the absence of gross negligence or willful misconduct and in accordance with
the standards or care specified in the Uniform Customs and, to the extent not
inconsistent therewith, the Uniform Commercial Code of the State of Texas, shall
be binding on the Borrower and shall not result in any liability of the Bank to
the Borrower.
(e) The responsibility of the Bank to the Borrower in connection with
any draft presented for payment under any Existing Letter of Credit or Letter of
Credit shall, in addition to any payment obligation expressly provided for in
such Existing Letter of Credit or Letter of Credit be limited to determining
that the documents (including each draft) delivered under such Existing Letter
of Credit or Letter of Credit in connection with such presentment are in
conformity with such Existing Letter of Credit or Letter of Credit.
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(f) To the extent that any provision of any Application, certificate,
document or other papers related to any Existing Letter of Credit or Letter of
Credit is inconsistent with the provisions of this Agreement, the provisions of
this Agreement shall control and no such Application, certificate, document or
other paper shall give the Bank or the Borrower any greater rights than the Bank
or the Borrower would otherwise have under this Agreement.
Section 2.21. Ratification. Each Credit Party hereby confirms and
ratifies the terms of the Security Documents to which it is a party and the
creation of the Liens thereunder to secure the Obligations of the Borrower to
the Bank as more fully set forth therein and further agrees and acknowledges (a)
that, except as otherwise set forth in the Note and Deed of Trust Modification
Agreement, the Liens of the Security Documents to which it is a party extend to
and expressly secure the Obligations of the Borrower under this Agreement, the
Notes and the other Loan Documents and (b) that the Security Documents to which
it is a party and the Liens created thereunder are valid and subsisting and
shall remain enforceable against the Borrower in accordance with their terms and
shall not be reduced or limited or impaired by the execution of this Agreement
and the Notes. The Bank hereby agrees to promptly release the Liens under the
Security Documents on all property and assets of Proler Environmental Services,
Inc., but not any other Credit Parties, to the extent but only to the extent of
any project financed by Indebtedness permitted by Section 7.02(d), but not
otherwise.
ARTICLE III
GUARANTY
Section 3.01. Guaranty. (a) In consideration of, and in order to
induce the Bank to make Advances and issue Letters of Credit hereunder, the
Guarantors hereby absolutely, unconditionally and irrevocably, jointly and
severally guarantee the punctual payment and performance when due, whether at
stated maturity, by acceleration or otherwise, of all obligations and covenants
of the Borrower now or hereafter existing under this Agreement, the Notes and/or
any of the other Loan Documents to which it is a party whether for principal,
interest (including interest accruing or becoming owing both prior to and
subsequent to the commencement of any proceeding against or with respect to the
Borrower under any chapter of the Bankruptcy Code of the United States (11
U.S.C. (S) 101 et seq.) or any other Debtor Relief Law, fees, commissions,
expenses (including reasonable counsel fees and expenses) or otherwise, and all
reasonable costs and expenses, if any, incurred by the Bank in connection with
enforcing any rights under this Guaranty (all such obligations being the
"Guaranteed Obligations"). This Guaranty is an absolute, unconditional, present
and continuing guaranty of payment and not of collectibility and is in no way
conditioned upon any attempt to collect from the Borrower or any other action,
occurrence or circumstance whatsoever.
(b) Each Guarantor hereby, jointly and severally, agrees to pay and
to indemnify the Bank harmless from and against any damage, loss, cost or
expense (including reasonable attorneys' fees) that the Bank may incur or be
subject to as a
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consequence, direct or indirect, of (i) any breach by such Guarantor or any
other Credit Party of any warranty, covenant, term or condition in, or the
occurrence of any default under, this Guaranty, this Agreement or any other Loan
Document, together with all reasonable expenses resulting from the compromise or
defense of any claims or liabilities arising as a result of any such breach or
default and (ii) any legal action commenced to challenge the validity of this
Guaranty, this Agreement or any other Loan Document.
Section 3.02. Continuing Guaranty. Each Guarantor guarantees that the
Guaranteed Obligations will be paid strictly in accordance with the terms of
this Agreement, the Notes and the other Loan Documents. Each Guarantor agrees
that the Guaranteed Obligations and Loan Documents may be extended or renewed,
and Advances repaid and reborrowed in whole or in part, without notice to or
assent by such Guarantor, and that it will remain bound upon this Guaranty
notwithstanding any extension, renewal or other alteration of any Guaranteed
Obligations or Loan Documents, or any repayment and reborrowing of Advances. The
obligations of each Guarantor under this Guaranty shall be absolute,
unconditional and irrevocable, and shall be performed strictly in accordance
with the terms hereof under any circumstances whatsoever, including:
(a) any extension, renewal, modification, settlement, compromise,
waiver or release in respect of any Guaranteed Obligations, including any
reduction or termination of all or a portion of the Commitment;
(b) any extension, renewal, amendment, modification, rescission,
waiver or release in respect of any Loan Documents;
(c) any release, exchange, substitution, non-perfection or invalidity
of, or failure to exercise rights or remedies with respect to, any direct
or indirect security for any Guaranteed Obligations, including the release
of any Guarantor or other Person liable on any Guaranteed Obligations;
(d) any change in the corporate existence, structure or ownership of
the Borrower, any Guarantor, or any insolvency, bankruptcy, reorganization
or other similar proceeding affecting the Borrower, such Guarantor, any
other Guarantor or any of their respective assets;
(e) the existence of any claim, defense, set off or other rights or
remedies which such Guarantor at any time may have against the Borrower,
or the Borrower or such Guarantor may have at any time against the Bank,
any other Guarantor or any other Person, whether in connection with this
Guaranty, the Loan Documents, the transactions contemplated thereby or any
other transaction;
(f) any invalidity or unenforceability for any reason of this
Agreement or other Loan Documents, or any provision of law purporting to
prohibit the payment or performance by the Borrower, such Guarantor or any
other Guarantor of the Guaranteed Obligations or Loan Documents, or of any
other obligation to the Bank; or
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(g) any other circumstances or happening whatsoever, whether or not
similar to any of the foregoing.
Section 3.03. Effect of Debtor Relief Laws. If after receipt of any
payment of, or proceeds of any security applied (or intended to be applied) to
the payment of all or any part of the Guaranteed Obligations, the Bank is for
any reason compelled to surrender or voluntarily surrenders, such payment or
proceeds to any Person (a) because such payment or application of proceeds is or
may be avoided, invalidated, declared fraudulent, set aside, determined to be
void or voidable as a preference, fraudulent conveyance, fraudulent transfer,
impermissible set off or a diversion of trust funds, or (b) for any other
reason, including (i) any judgment, decree or order of any court or
administrative body having jurisdiction over the Bank or any of its properties
or (ii) any settlement or compromise of any such claim effected by the Bank with
any such claimant (including the Borrower), then the Guaranteed Obligations or
part thereof intended to be satisfied shall be reinstated and continue, and this
Guaranty shall continue in full force as if such payment or proceeds have not
been received, notwithstanding any revocation thereof or the cancellation of any
Note or any other instrument evidencing any Guaranteed Obligations or otherwise;
and the Guarantors, jointly and severally, shall be liable to pay the Bank, and
hereby do indemnify the Bank and hold it harmless for the amount of such payment
or proceeds so surrendered and all expenses (including reasonable attorneys'
fees, court costs and expenses attributable thereto) incurred by the Bank in the
defense of any claim made against it that any payment or proceeds received by
the Bank in respect of all or part of the Guaranteed Obligations must be
surrendered. The provisions of this paragraph shall survive the termination of
this Guaranty, and any satisfaction and discharge of the Borrower by virtue of
any payment, court order or any federal or state law.
Section 3.04. Waiver of Subrogation. Notwithstanding any payment or
payments made by any Guarantor hereunder, or any set off or application by the
Bank of any security or of any credits or claims, no Guarantor will assert or
exercise any rights of the Bank or of such Guarantor against the Borrower or any
other Guarantor to recover the amount of any payment made by such Guarantor to
the Bank hereunder by way of subrogation, reimbursement, contribution,
indemnity, or otherwise arising by contract or operation of law, until such time
as the Obligations have been satisfied and the Bank shall have no Commitment. If
any amount shall nevertheless be paid to a Guarantor by the Borrower or another
Guarantor prior to payment in full of the Guaranteed Obligations, such amount
shall be held in trust for the benefit of the Bank and shall forthwith be paid
to the Bank to be credited and applied to the Guaranteed Obligations, whether
matured or unmatured.
Section 3.05. Subordination. Each Guarantor hereby subordinates all
indebtedness owing to it from the Borrower to all indebtedness of the Borrower
to the Bank, and agrees that it shall not accept any payment on the same until
payment in full of the obligations of the Borrower under this Agreement, the
Notes, the Letters of Credit, the Existing Letters of Credit and all other Loan
Documents, and shall in no circumstance whatsoever attempt to set off or reduce
any obligations hereunder because of such indebtedness. If any amount shall
nevertheless be paid to a
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Guarantor by the Borrower or another Guarantor prior to payment in full of
theGuaranteed Obligations, such amount shall be held in trust for the benefit of
the Bank and shall forthwith be paid to the Bank to be credited and applied to
the Guaranteed Obligations, whether matured or unmatured.
Section 3.06. Waiver. Each Guarantor hereby waives promptness,
diligence, notice of acceptance and any other notice with respect to any of the
Guaranteed Obligations and this Guaranty and waives presentment, demand of
payment, notice of intent to accelerate, notice of dishonor or nonpayment and
any requirement that the Bank institute suit, collection proceedings or take any
other action to collect the Guaranteed Obligations, including any requirement
that the Bank protect, secure, perfect or insure any Lien against any property
subject thereto or exhaust any right or take any action against the Borrower or
any other Person or any collateral (it being the intention of the Bank and each
Guarantor that this Guaranty is to be a guaranty of payment and not of
collection). It shall not be necessary for the Bank, in order to enforce any
payment by any Guarantor hereunder, to institute suit or exhaust its rights and
remedies against the Borrower, any other Guarantor or any other Person,
including others liable to pay any Guaranteed Obligations, or to enforce its
rights against any security ever given to secure payment thereof. Each Guarantor
hereby expressly waives each and every right to which it may be entitled by
virtue of the suretyship laws of the State of Texas, including, without
limitation, any and all rights it may have pursuant to Rule 31, Texas Rules of
Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies Code
and Chapter 34 of the Texas Business and Commerce Code. Each Guarantor hereby
waives marshaling of assets and liabilities, notice by the Bank of any
indebtedness or liability to which the Bank applies or may apply any amounts
received by the Bank, and of the creation, advancement, increase, existence,
extension, renewal, rearrangement and/or modification of the Guaranteed
Obligations. Each Guarantor expressly waives, to the extent permitted by
applicable law, the benefit of any and all laws providing for exemption of
property from execution or for valuation and appraisal upon foreclosure.
Section 3.07. Full Force and Effect. This Guaranty is a continuing
guaranty and shall remain in full force and effect until payment in full of the
Obligations of the Borrower under this Agreement, the Notes and all other Loan
Documents and all other amounts payable under this Guaranty and until the
termination of the Commitment.
ARTICLE IV
CONDITIONS PRECEDENT
Section 4.01. Conditions Precedent to the Initial Credit Event. The
obligation of the Bank to make its initial Advance or to issue the initial
Letter of Credit hereunder is subject to the conditions precedent that the Bank
shall have received on or before the date of such initial Credit Event, all of
the following, in form and substance satisfactory to the Bank and in such number
of counterparts as may be reasonably requested by the Bank:
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(a) the Notes duly executed and delivered by the Borrower;
(b) this Agreement duly executed and delivered by the Credit Parties;
(c) the Note and Deed of Trust Modification Agreements duly executed
and delivered by the Borrower to the Bank;
(d) the Security Agreement duly executed and delivered by the Credit
Parties;
(e) the Patent Security Agreement duly executed and delivered by
Proler Environmental Services, Inc.;
(f) the Pledge Agreement duly executed and delivered by the
appropriate Credit Parties party thereto;
(g) the Deeds of Trust duly executed and delivered by all of the
parties holding title to the Mortgaged Properties;
(h) Mortgagee title insurance policies issued by title insurers
satisfactory to the Bank in amounts satisfactory to the Bank (the
"Mortgagee Policies") and assuring the Bank that the Deeds of Trust in
respect of the Mortgaged Properties are valid and enforceable first
priority mortgages on the respective Mortgaged Properties, free and clear
of all defects and encumbrances except Permitted Liens. Such Mortgagee
Policies shall be in form and substance reasonably satisfactory to the
Bank;
(i) Appropriate endorsements to Mortgagee Policies in form and
substance satisfactory to the Bank to reflect the extended Termination
Date of Note B and the applicability thereto of the Mortgagee Policies;
(j) the Appraisal, if required by Bank;
(k) the Environmental Reports and, depending upon the content and
conclusion thereof, additional environmental reports, Phase II Audits and
such other related information concerning the Mortgaged Properties as the
Bank may require;
(l) (i) executed financing statements for all jurisdictions as may be
necessary or, in the reasonable opinion of the Bank, desirable to perfect
the security interests created by the Security Documents and (ii) evidence
that all other actions necessary or, in the reasonable opinion of the
Bank, desirable to perfect and protect the Liens created by the Security
Documents have been taken;
(m) copies of surveys satisfactory to the Bank covering, all
together, each tract or parcel of land (including all appurtenant
easements) subject to the Deeds of Trust, satisfactory in form and
substance to the Bank. In addition, the Bank shall have received such
officer's certificates and other similar instruments relating to survey
matters as the Bank may request;
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(n) a Uniform Commercial Code search, tax search and judgment report
of the appropriate records of the States of Texas, Delaware, and all other
states in which the Borrower or any Joint Venture is conducting business
satisfactory in form and substance to the Bank;
(o) all of the issued and outstanding stock of the Guarantors and
each Joint Venture that is a corporation owned by any Credit Party
together with related stock powers executed by the pledgor of such stock;
(p) a certificate of the president or a vice president and of the
secretary or an assistant secretary of each Credit Party certifying, inter
alia, (i) true and correct copies of resolutions adopted by the Board of
Directors of each such Credit Party, (A) authorizing the execution,
delivery and performance by each such Credit Party of the Loan Documents
to which it is or will be a party and, in the case of the Borrower, the
borrowings thereunder, (B) approving the forms of the Loan Documents to
which it is a party and which will be delivered at or prior to the date of
the initial Advance and (C) authorizing officers of each such Credit Party
to execute and deliver the Loan Documents to which it is or will be a
party and any related documents, (ii) true and correct copies of the
bylaws of each Credit Party that is a corporation, as amended to the date
of such certificate, (iii) the incumbency and specimen signatures of the
officers of each such Credit Party executing any documents on behalf of
it, (iv) the truth of the representations and warranties made by such
Credit Party in any Loan Document to which it is a party and which will be
delivered at or prior to the date of the initial Advance or Letter of
Credit, (v) the absence of any proceedings for the dissolution or
liquidation of each such Credit Party, (vi) the absence of the occurrence
and continuance of any Default or Event of Default with respect to each
such Credit Party and (vii) that no event or condition has occurred since
January 31, 1994 that would constitute a Material Adverse Effect;
(q) the favorable, signed opinion of Mayor, Day, Caldwell & Keeton,
L.L.P., counsel for the Credit Parties, addressed to the Bank, as to such
matters as the Bank may reasonably request;
(r) a Perfection Certificate executed by an Authorized Officer of
each Credit Party;
(s) payment of all reasonable fees and out-of-pocket expenses of
Andrews & Kurth L.L.P., counsel to the Bank, and any local counsel
retained by it;
(t) copies of certificates of good standing and existence for each of
the Credit Parties in the jurisdiction of its incorporation and
certificates of authority to conduct business in each jurisdiction in
which the failure to obtain same would constitute a Material Adverse
Effect; and
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(u) such other documents as the Bank may reasonably request relating
to the existence and good standing of each Credit Party, the
authorization, execution and delivery of this Agreement and the other Loan
Documents, and all other matters relevant hereto and thereto, all in form
and substance reasonably satisfactory to the Bank.
Section 4.02. Conditions Precedent to All Credit Events. The
obligation of the Bank to make any Advance, including the initial Advance, and
to issue any Letter of Credit, shall be subject to the further conditions
precedent that on the date of such Credit Event the following statements shall
be true (and each of the giving of the applicable Borrowing Request and the
acceptance by the Borrower of the proceeds of such Advance or the issuance of
the Letter of Credit, as the case may be, shall constitute a representation and
warranty by the Borrower that on the date of such Credit Event such statements
are true):
(a) with respect to each Advance or request for issuance of a Letter
of Credit, the Bank shall have received, except as set forth in Section
2.20(c) hereof, a Borrowing Request or Letter of Credit Request and
Application, as applicable, with respect to such Credit Event;
(b) with respect to any Advance, immediately after giving effect to
such Advance, the sum of the aggregate outstanding principal amount of all
Advances does not exceed the lesser of (i) the Commitment or (ii) the
Borrowing Base with respect to making Advances;
(c) with respect to the issuance of any Letter of Credit, immediately
after giving effect to such issuance, the sum of the aggregate outstanding
principal amount of all Existing Letters of Credit and all Letters of
Credit does not exceed the lesser of (i) the L/C Limit or (ii) the
Borrowing Base with respect to the issuance of Letters of Credit;
(d) the representations and warranties contained in Article V and
those contained in the other Loan Documents are true and correct in all
material respects as though made on and as of such date (except for those
expressly made as of the date thereof and except for changes in the
Borrower and its Subsidiaries arising from transactions contemplated by
the terms hereof);
(e) no Default or Event of Default has occurred and is continuing or
would result from such Credit Event;
(f) to the extent not previously delivered, the Bank shall have
received the Commitment Fee, the L/C Fees and all other fees, if any,
theretofore or then due and payable to it; and
(g) since the date of the Borrower's last audited financials, no
event shall have occurred and be continuing which has had or is likely to
have a Material Adverse Effect.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement, to make the
Advances and issue the Letters of Credit, each Credit Party represents and
warrants to the Bank as to itself, and, to the extent specifically stated, as to
its Subsidiaries and each Joint Venture in which it has an interest as follows.
Section 5.01. Organization. Each Credit Party (a) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, (b) is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each other jurisdiction in
which such qualification and good standing are necessary in order for such
Credit Party to conduct its business and own its properties as conducted and
owned and except where the failure to be so qualified or in good standing would
not constitute a Material Adverse Effect and (c) has all requisite power and
authority (corporate or otherwise) to conduct its business as now conducted, to
own or lease its property and assets and to execute, deliver and perform each of
the Loan Documents to which it is or may be a party.
Section 5.02. Authority. The execution, delivery and performance by
each Credit Party of this Agreement and the other Loan Documents to which it is
or may be a party and the consummation of the Advances and the issuance of the
Letters of Credit contemplated hereby, have been duly approved by the board of
directors of such Credit Party and no other corporate proceedings on the part of
such Credit Party are necessary to consummate such Advances or issue such
Letters of Credit. Each of the Loan Documents to which such Credit Party is a
party has been duly executed and delivered by such Credit Party and constitutes
the legal, valid and binding obligation of such Credit Party, enforceable
against such Credit Party in accordance with its terms.
Section 5.03. No Conflict. The execution, delivery and performance by
such Credit Party of each of the Loan Documents to which it is or may be a
party, do not and shall not, by the lapse of time, the giving of notice or
otherwise, (a) constitute a violation of any law, rule, regulation, order, writ,
judgment, injunction, decree, determination or award presently in effect having
applicability to such Credit Party or a breach of any provision contained in
such Credit Party's articles or certificate of incorporation or bylaws, or
contained in any material agreement, instrument or document to which it is a
party or by which it is bound, other than violations or breaches which would
not, individually or in the aggregate, result in a Material Adverse Effect or
(b) result in or require the creation or imposition of any Lien whatsoever upon
any of the properties or assets of such Credit Party (other than Liens permitted
by this Agreement and Liens in favor of the Bank arising pursuant to the Loan
Documents).
Section 5.04. Consents. No authorization, consent, approval, permit,
license, or exemption of or filing or registration with, any governmental agency
or any other Person which has not been obtained, was, is or will be necessary
for the
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valid execution, delivery or performance by any Credit Party of any of the Loan
Documents to which it is or may be a party.
Section 5.05. Financial Condition; No Material Adverse Change. (a)
The Borrower delivered to the Bank the consolidated balance sheet of the
Borrower and its Subsidiaries as of January 31, 1994 and the related
consolidated statements of operations, cash flow and stockholders' equity for
the year then ended, including the related schedules and notes, reported on by
Coopers & Lybrand.
(b) The unaudited consolidated balance sheet and statement of
operations and cash flow of the Borrower and its Subsidiaries as at October 31,
1994, copies of which has heretofore been furnished to the Bank, are correct in
all material respects, and present fairly the consolidated financial condition
of the Borrower as at such date (subject to normal year-end audit adjustments).
(c) The financial statements referred to in paragraphs (a) and (b)
above, including the related schedules and notes thereto, have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
involved.
(d) The Borrower has disclosed to the Bank in writing any and all
facts which would result in, or which Borrower believes may result in, a
Material Adverse Effect and since January 31, 1994, there has been no material
adverse change in the business, operations, properties, assets, business
prospects or financial condition of the Borrower and its Subsidiaries taken as a
whole except as to those matters previously disclosed to the Bank as of the date
hereof.
Section 5.06. Litigation; Material Adverse Effect. (a) Except as set
forth in Exhibit 5.06 hereto, there are no actions, suits or proceedings pending
or, to the best of Borrower's knowledge, threatened or probable of assertion,
against or affecting any Credit Party or any of its Subsidiaries or any property
or rights of any Credit Party or any of its Subsidiaries before any court or any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the Borrower or any such
Subsidiary would constitute a Material Adverse Effect.
(b) Except as otherwise disclosed to the Bank in writing, neither the
business, properties nor operations of any Credit Party nor any of its
Subsidiaries is materially and adversely affected by any fire, explosion,
accident, strike, lockout or other labor dispute, embargo, act of God or act of
a public enemy or other event, condition or casualty, provided the determination
of such effect shall include a consideration of available insurance proceeds.
Section 5.07. Indebtedness. Except as set forth in Exhibit 5.07 or as
set forth in the financial statements referred to in Section 5.05, and except
for the Indebtedness represented by this Agreement, the Notes and the other Loan
Documents, no Credit Party, nor any of its Subsidiaries has any secured or
unsecured Indebtedness.
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Section 5.08. No Margin Stock. No Credit Party nor any of its
Subsidiaries is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U), and no
part of the proceeds of any Advance will be used, directly or indirectly, (a) to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock or (b) for the purpose of purchasing,
carrying or trading in any securities under such circumstances as to involve any
Credit Party in a violation of Regulation X.
Section 5.09. Accuracy and Completeness of Information. All written
estimates, projections and forecasts furnished by or on behalf of the Borrower
and the other Credit Parties to the Bank for purposes of or in connection with
this Agreement, or in connection with any Advance, were and will be prepared on
the basis of assumptions, data, tests or conditions believed to be reasonable,
valid or to represent industry conditions existing at the time such estimates or
forecasts were furnished. Neither this Agreement, the Notes, the other Loan
Documents, the statements and documents referred to in Section 5.05 nor any
other document delivered by the Borrower or any of its Subsidiaries to the Bank
contains any material misstatement of fact or omits to state a material fact
necessary in order to make the statements contained herein or therein not
misleading as of the respective date thereof. The Borrower has not intentionally
withheld any fact known to it which has or is reasonably likely to constitute a
Material Adverse Effect which has not been set forth or referred to in this
Agreement, the Notes, the other Loan Documents or such other document heretofore
furnished to the Bank.
Section 5.10. ERISA. (a) No Reportable Event or withdrawal from or
termination, reorganization or insolvency has occurred and is continuing with
respect to any Plan that would likely constitute a Material Adverse Effect and
(b) neither the PBGC nor the Borrower nor any Commonly Controlled Entity has
instituted any proceedings or taken any other actions with respect to the
withdrawal from, or the termination, reorganization or insolvency of any Plan
that would reasonably be expected to have a Material Adverse Effect.
Section 5.11. Government Regulation. No Credit Party nor any of its
Subsidiaries is (a) an "investment company" or a company directly or indirectly
controlled by or acting on behalf of any Person which is an "investment
company," as such term is defined in the Investment Company Act of 1940, (b) a
"holding company" or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a "holding
company," as such terms are defined in the Public Utility Holding Company Act of
1935, or (c) a "public utility," as such term is defined in the Federal Power
Act.
Section 5.12. Property. Each Credit Party and each of its
Subsidiaries, as the case may be, has good record and defensible title in fee
simple to or valid leasehold interests in all its real properties and marketable
title to all its other property and assets except where the failure to so have
such title or interest would not reasonably be expected to have a Material
Adverse Effect.
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Section 5.13. Payment of Taxes. The federal income tax returns of the
Borrower and other tax returns and reports of each Credit Party and its
Subsidiaries required to be filed with the appropriate governmental agencies in
all jurisdictions in which such returns and reports are required to be filed
have been filed and all of the foregoing are true, correct and complete, and the
Borrower paid all taxes and other similar charges, or made adequate provision
therefor, that are due and payable within the time prescribed for filing and
payment or an appropriate extension has been requested and obtained for such
filing or payment except where such failure would not reasonably be expected to
result in a Material Adverse Effect. Neither the Borrower nor any of its
Subsidiaries has taken any reporting positions for which it does not have a
reasonable basis and no such Person anticipates any further material tax
liability with respect to the tax years for which returns have been filed. The
Borrower has no knowledge of any proposed tax assessment against the Borrower or
any of its Subsidiaries that would reasonably be expected to have a Material
Adverse Effect which is not being actively contested in good faith.
Section 5.14. Insurance. Each Credit Party and each of its
Subsidiaries carries and will continue to carry insurance with reputable
insurers in respect of its properties in such amounts and against such risks as
is customarily maintained by other Persons of similar size engaged in similar
business and reasonably acceptable to the Bank.
Section 5.15. Subsidiaries; Joint Ventures. (a) Exhibit 5.15 hereto
lists each Subsidiary of each Credit Party and each Joint Venture in which a
Credit Party has an interest, the jurisdiction under which each such Subsidiary
and Joint Venture is incorporated or organized and the direct and indirect
ownership interest of such Credit Party therein. Each Subsidiary of a Credit
Party has been duly organized and is validly existing in good standing under the
laws of its jurisdiction of organization.
(b) The Borrower has heretofore delivered to the Bank a copy of the
Articles or Certificate of Incorporation of each Joint Venture that is a
corporation and each agreement creating or governing the rights of the parties
to each other Joint Venture (collectively, the "Joint Venture Agreements") in
existence on the date hereof, as amended to the date hereof. Each Joint Venture
Agreement is in full force and effect and as to each Joint Venture Agreement
creating each non-corporate Joint Venture is enforceable against each Credit
Party which is a party thereto in accordance with its terms.
Section 5.16. Patents. Each Credit Party and each of its Subsidiaries
owns or holds a valid license to use all material patents, trademarks, service
marks, trade names, copyrights, licenses and other rights, that are necessary
for, and no restriction applicable to any such patent, trademark, service mark,
trade name, copyright, license or other right would interfere in any material
respect with, the operation of its business taken as a whole as presently
conducted and as proposed to be conducted.
Section 5.17. Compliance with Statutes. (a) Each Credit Party and
each of its Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies,
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domestic or foreign, in respect of the conduct of its business and the ownership
of its property, except such non-compliance as is not likely to, in the
aggregate, have a Material Adverse Effect.
(b) Each Credit Party and each of its Subsidiaries is in compliance
with all applicable Environmental Laws governing its business for which failure
to comply is likely to have a Material Adverse Effect, and no Credit Party nor
any of its Subsidiaries is liable for any material penalties, fines or
forfeitures for failure to comply with any of the foregoing in the manner set
forth above. All licenses, permits, registrations or approvals required for the
business of each Credit Party and each of its Subsidiaries, as conducted as of
the Effective Date, under any Environmental Law have been secured and each
Credit Party and each of its Subsidiaries is in substantial compliance
therewith, except such licenses, permits, registrations or approvals the failure
to secure or to comply therewith is not likely to have a Material Adverse
Effect. No Credit Party nor any of its Subsidiaries is in noncompliance with,
breach of or default under any applicable writ, order, judgment, injunction, or
decree to which such Credit Party or such Subsidiary is a party or which would
affect the ability of such Credit Party or such Subsidiary to operate any of its
properties and no event has occurred and is continuing which, with the passage
of time or the giving of notice or both, would constitute noncompliance, breach
of or default thereunder, except in each such case, such noncompliances,
breaches or defaults as are not likely to, in the aggregate, have a Material
Adverse Effect. There are, as of the Effective Date, no Environmental Claims
pending or, to the best knowledge of any Credit Party, threatened, which (i)
question the validity, term or entitlement of such Credit Party or any of its
Subsidiaries for any permit, license, order or registration required for the
operation of any facility which such Credit Party or any of its Subsidiaries
currently operates and (ii) wherein any unfavorable decision, ruling or finding
would be reasonably likely to have a material adverse effect on the financial
viability of any facility thereof. There are no facts, circumstances, conditions
or occurrences on any real property or, to the knowledge of the Credit Parties,
on any property adjoining or in the vicinity of any real property that could
reasonably be expected (i) to form the basis of an Environmental Claim against
any Credit Party or any of its Subsidiaries or (ii) to cause such real property
to be subject to any restrictions on the ownership, occupancy, use or
transferability of such real property under any Environmental Law, except in
each such case, such Environmental Claims or restrictions that individually or
in the aggregate are not reasonably likely to have a Material Adverse Effect.
(c) To the best of the Credit Parties' knowledge, Hazardous Materials
have not at any time been (i) generated, used, treated or stored on, or
transported to or from, any real property of any Credit Party or any of its
Subsidiaries or (ii) released on any real property, in each case where such
occurrence or event is reasonably likely to have a Material Adverse Effect.
Section 5.18. Labor Relations; Collective Bargaining Agreements. (a)
Set forth on Exhibit 5.18 is a list and description (including dates of
termination) of all collective bargaining or similar agreements between or
applicable to any Credit Party or any of its Subsidiaries and any union, labor
organization or other bargaining
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agent in respect of the employees of any Credit Party or any of its Subsidiaries
on the Effective Date.
(b) No Credit Party nor any of its Subsidiaries is engaged in any
unfair labor practice that could have a Material Adverse Effect. There is (i) no
significant unfair labor practice complaint pending against any Credit Party or
any of its Subsidiaries or, to the best knowledge of any Credit Party,
threatened against any of them before the National Labor Relations Board, and no
significant grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement is now pending against any Credit
Party or any of its Subsidiaries or, to the best knowledge of such Credit Party,
threatened against any of them, (ii) no significant strike, labor dispute,
slowdown or stoppage is pending against any Credit Party or any of its
Subsidiaries or, to the best knowledge of such Credit Party, threatened against
such Credit Party or any of its Subsidiaries and (iii) no union representation
question exists with respect to the employees of any Credit Party or any of its
Subsidiaries, except such as is not reasonably likely to have a Material Adverse
Effect.
Section 5.19. Liabilities. (a) All contingent liabilities and direct
liabilities of the Credit Parties and their respective Subsidiaries, and all
anticipated losses of the Credit Parties and their respective Subsidiaries,
which in the aggregate are material to the Credit Parties and their respective
Subsidiaries taken as a whole, are set forth in the financial statements
referred to in Section 5.05 to the extent required by GAAP and modified by the
footnotes to such statements and (b) all contingent liabilities and direct
liabilities of the Credit Parties and all unrealized or anticipated losses of
the Credit Parties and their respective Subsidiaries, which in the aggregate are
material to the Credit Parties and their respective Subsidiaries taken as a
whole, to the extent required by GAAP will be set forth in the financial
statements next delivered pursuant to Section 6.01 hereof after any of such are
incurred or anticipated, as applicable.
Section 5.20. Solvency. The Credit Parties, viewing their businesses
and operations as a single consolidated entity, have capital sufficient to carry
on their businesses and transactions and all businesses and transactions in
which they are about to engage and are now solvent and able to pay their
respective debts as they mature, and the Credit Parties now collectively own
property having a value, both at fair valuation and at present fair salable
value, greater than the amount required to pay all existing debts of the Credit
Parties.
Section 5.21. Default. As of the date of execution of this Agreement,
none of the Credit Parties is in default in any material respect under the 1993
Agreement, any of the Loan Documents (as defined in the 1993 Agreement) to which
it is a party or any indenture, mortgage, security agreement, or other material
agreement or obligation to which it is a party or by which any of its properties
may be bound, except where such default would not reasonably be expected to have
a Material Adverse Effect.
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ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any of the Obligations shall remain unpaid or outstanding
or the Bank shall have any Commitment, unless the Bank shall otherwise consent
in writing, each Credit Party covenants and agrees as to itself, and, to the
extent specifically stated, as to its Subsidiaries and each Joint Venture in
which it has an interest that:
Section 6.01. Reporting Requirements. The Borrower shall deliver or
cause to be delivered to the Bank:
(a) Annual Reports. Upon the earlier of 120 days after the close of
each fiscal year of the Borrower or the day following the date of filing of
Borrower's Annual Report on Securities and Exchange Commission Form 10-K, either
(i) a copy of the Borrower's Annual Report on Form 10-K as filed with respect to
such year or (ii) consolidated and consolidating balance sheets of the Borrower
and its Subsidiaries, as at the end of such fiscal year and the related
statements of operations, cash flow and stockholders' equity for such fiscal
year, setting forth comparative figures for the preceding fiscal year, and
examined by Coopers & Lybrand (or other independent certified public accountants
of recognized national standing reasonably acceptable to the Bank) whose opinion
shall not be qualified as to the scope of audit and as to the status of the
Borrower or any of its Subsidiaries as a going concern, together, in each case,
with a certificate of the accounting firm referred to above stating that in the
course of its regular audit of the business of the Borrower, which audit was
conducted in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge of any Default or Event of Default
that has occurred and is continuing, or, if such firm has obtained knowledge of
any Default or Event of Default that has occurred and is continuing, a statement
as to the nature thereof.
(b) Quarterly Reports. Upon the earlier of 60 days after the close of
each of the first three quarterly accounting periods in each fiscal year of the
Borrower, or the day following each date of filing of Borrower's Quarterly
Report on Form 10-Q either (i) a copy of the Borrower's Quarterly Report on Form
10-Q as filed with respect to such quarterly period or (ii) consolidated and
consolidating balance sheets of the Borrower and its Subsidiaries, as at the end
of such quarterly period and the related statements of operations and cash flows
for such quarterly period and for the elapsed portion of the fiscal year ended
with the last day of such quarterly period, and setting forth comparative
figures for the related periods in the prior fiscal year, in each case,
certified by an Authorized Officer, subject to changes resulting from audit and
normal year-end audit adjustments.
(c) Monthly Reports. As soon as practicable, and in any event within
30 days (45 days in the case of the last monthly accounting period of each
fiscal quarter), after the end of each monthly accounting period (commencing
with January 1995) of each fiscal year of the Borrower and each Joint Venture,
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as at the end of
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such period, and the balance sheet of any Joint Venture that is accounted for in
such month in the statements of the Borrower or its Subsidiaries, and the
related statements of operations for such period setting forth comparative
figures for the corresponding period of the previous year, including listings
and agings of all Receivables for the Borrower and each Joint Venture, each of
which shall be certified by an Authorized Officer, subject to changes resulting
from audit and normal year-end audit adjustments.
(d) Officer's Certificate. Together with each delivery of any
financial statements pursuant to clauses (a), (b) and (c) above, a certificate
of an Authorized Officer demonstrating compliance by the Borrower and the other
Credit Parties with the provisions of Section 7.03 and stating whether any Event
of Default or Default has occurred and is continuing, and if there is any Event
of Default or Default, describing it and the steps, if any, being taken to cure
it.
(e) SEC Filings. Promptly upon transmission thereof, copies of all
such financial statements, proxy statements, notices and reports as the Borrower
shall send to its public stockholders and copies of all registration statements
(without exhibits) and reports which it files with the Securities and Exchange
Commission.
(f) Borrowing Base Certificate. Together with each delivery of the
monthly reports pursuant to clause (c) above and on each date on which a new
Borrowing Base Certificate is required to be delivered as provided in Section
2.17(b), a Borrowing Base Certificate in the form of Exhibit 1.01-A attached
hereto, signed by an Authorized Officer of the Borrower, including therein
information as at the end of the period covered by said certificate and, if
applicable, immediately available funds to repay any Advances outstanding in
excess of the Borrowing Base that were made pursuant to Section 2.20(c).
(g) ERISA Filings. Promptly upon the filing or making thereof, copies
of each filing and report made by the Borrower, under ERISA with the PBGC or
with the U.S. Department of Labor or which the Borrower may receive from such
Persons that, in each case, relate to a condition or event that would likely
have a Material Adverse Effect.
(h) Reportable Events. Forthwith upon the Borrower receiving actual
notice of the occurrence of a Reportable Event under, the termination,
insolvency or reorganization of, or the institution of steps by the PBGC, the
Borrower or any Commonly Controlled Entity with respect to the withdrawal,
termination, insolvency or reorganization of any Plan to which the Borrower may
have any liability, written notice thereof describing the same and the steps
being taken by the Borrower with respect thereto.
(i) Auditors' Reports. Promptly upon receipt thereof, a copy of each
other report or "management letter" submitted to the Borrower by its independent
accountants in connection with any annual, interim or special audit made by it
of the books of the Borrower, provided if said report contains personnel
information of a confidential nature, Borrower may delete said sections before
delivery of same to the Bank.
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(j) Appraisals. Annually, upon written request by the Bank, an
Appraisal for each of the Mortgaged Properties; provided, that the Bank shall
not request any Appraisal prior to the Termination Date.
(k) Environmental Reports. Upon written request by the Bank, an
Environmental Report for each of the Mortgaged Properties; provided, however,
that the Bank understands and agrees that it may not request or perform any
environmental inspection, audit or assessment of any property owned or leased by
any Credit Party unless (1) all of the obligations of the Borrower hereunder
shall have been accelerated in accordance with Article VIII hereof (and such
acceleration shall not have been rescinded), (2) the Borrower receives prior
notice of the inspection, audit or assessment and the proposed scope thereof,
(3) the Bank and the Credit Parties agree that the Borrower shall be entitled to
review any report produced from any such inspection, audit or assessment
simultaneously with its delivery to the Bank and (4) any environmental
consultant utilized in connection therewith shall be a party mutually acceptable
to the Bank and the Borrower, with the Bank and the Borrower hereby stipulating
that E.R.M. - Southwest, Inc. is mutually acceptable.
(l) Other Reports. In addition to the reports and statements
described in this Section, the Borrower shall provide the Bank with such other
financial reports and information as the Bank may from time to time reasonably
request respecting the business, properties, operations or condition (financial
or otherwise) of the Borrower or any Joint Venture.
Section 6.02. Existence. Each Credit Party shall preserve and
maintain its and its Subsidiaries' existence, rights, franchises and privileges
in the jurisdictions of their incorporation or other organization and their
qualification and good standing in all jurisdictions in which the failure to
preserve or maintain such existence, rights, franchises, privileges,
qualification and good standing would be likely to constitute a Material Adverse
Effect.
Section 6.03. Maintenance of Properties; Insurance. (a) Each Credit
Party and each of its Subsidiaries shall maintain with financially sound,
responsible and reputable insurance companies insurance against such risks and
in such amounts as are usually insured against by Persons of established
reputation engaged in the same or similar businesses and similarly situated;
provided, however, notwithstanding the foregoing, each Credit Party and its
Subsidiaries will maintain (i) all insurance required by state statutes to be
maintained by employers for the protection of employees against work related
injuries and (ii) to the extent available at commercially reasonable rates,
comprehensive general liability coverage in such amounts as are appropriate for
the operations of such Credit Party and its Subsidiaries and (iii) all insurance
that such Credit Party and its Subsidiaries are required to maintain by law and
(iv) insurance required to be maintained by any of the Credit Parties pursuant
to the Deeds of Trust. Each policy in effect from time to time pursuant to the
terms of this Section, shall include a provision for thirty (30) days' prior
written notice to the Bank of any cancellation or expiration thereof and shall
show the Bank as an additional insured.
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(b) Each Credit Party will maintain and preserve all of its material
properties necessary for the proper conduct of its business in working order and
condition, ordinary wear and tear excepted.
Section 6.04. Notice of Litigation. The Borrower shall promptly, upon
actual notice or knowledge thereof, deliver or cause to be delivered to the Bank
notice of (a) the institution of or threat of, any action, suit, proceeding,
governmental investigation or arbitration against or affecting any Credit Party
or any of its Subsidiaries not previously disclosed in writing to the Bank
pursuant to Section 5.06 which, if determined adversely to such Credit Party or
such Subsidiary, would constitute a Material Adverse Effect or (b) any material
development in any action, suit, proceeding, governmental investigation or
arbitration already disclosed, which is likely to constitute a Material Adverse
Effect.
Section 6.05. Taxes; Claims. Each Credit Party and each of its
Subsidiaries shall (a) timely file all federal, state and local tax returns and
other reports which such Credit Party and such Subsidiaries are required by law
to file or obtain an appropriate extension for filing thereof, (b) maintain
adequate reserves on its books in accordance with GAAP for the payment of all
material taxes, assessments and governmental charges, and pay prior to
delinquency all such taxes, assessments and governmental charges, and (c) pay
all other material claims (including, without limitation, claims for labor,
services, materials and supplies) that have become due and payable and that by
law have or may become a Lien on the Borrower's property or assets, prior to the
time when any penalty or fine may be incurred with respect thereto, other than
any such tax, assessment, charge, levy or claim which is being contested in good
faith, by proper proceedings and with respect to which adequate reserves have
been established.
Section 6.06. Notice of Default. The Borrower shall notify the Bank
in writing within three (3) Business Days after Borrower becomes aware of the
occurrence thereof, (a) of any condition or event that constitutes either an
Event of Default or a Default, (b) of any other default by the Borrower or any
of its Subsidiaries under any material note, indenture, advance agreement,
mortgage, lease, deed or other similar agreement to which the Borrower or any of
its Subsidiaries is a party or by which the Borrower or any of its Subsidiaries
is bound, the existence of which might reasonably be expected to lead to a
Material Adverse Effect, or (c) of any event or condition that might reasonably
be expected to constitute a Material Adverse Effect, such notice to specify the
nature and period of existence of any such condition, event, default or
potential default and what action the Borrower has taken, is taking or proposes
to take with respect thereto.
Section 6.07. Inspections. From time to time during regular business
hours and upon reasonable notice, each Credit Party will permit any agents or
representatives of the Bank to examine and make copies of and abstracts from the
records and books of account and files and visit the properties of such Credit
Party and its Subsidiaries to discuss the affairs, finances and accounts of such
Credit Party and its Subsidiaries with any of its independent certified public
accountants (with an officer or other representative of such Credit Party
present); provided, however, that
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the Bank shall keep any information obtained confidential to the extent that the
Bank is not required by law to disclose such information and such information is
not otherwise generally available to the public.
Section 6.08. Compliance with Laws; Notices. (a) General. The
Borrower shall, and shall cause its Subsidiaries to, comply with all material
laws, rules and regulations, including, without limitation, all Environmental
Laws, and all restrictive covenants applicable to the Borrower and its
Subsidiaries, the noncompliance with which might, in any respect, constitute a
Material Adverse Effect; provided, however, that neither the Borrower nor any of
its Subsidiaries shall be required to comply with any such law or restrictive
covenant if the applicability or validity thereof is being contested in good
faith, by proper proceedings and for which adequate reserves have been
established.
(b) Environmental Matters. Promptly upon obtaining knowledge thereof,
the Borrower shall deliver to the Bank notice of (i) any pending or threatened
Environmental Claim against the Borrower or any of its Subsidiaries or any real
property of the Borrower or any of its Subsidiaries unless such Environmental
Claim could not, individually or when aggregated with all other such
Environmental Claims, reasonably be expected to have a Material Adverse Effect;
(ii) any condition or occurrence on any real property of the Borrower or any of
its Subsidiaries that (A) results in material noncompliance by the Borrower or
such Subsidiary with any applicable Environmental Law unless such noncompliance
could not, individually or when aggregated with all other such non-compliance
claims, reasonably be expected to have a Material Adverse Effect; (iii) any
condition or occurrence on any real property of the Borrower that could
reasonably be anticipated to cause such real property to be subject to any
restrictions on the ownership, occupancy, use or transferability of such real
property under any Environmental Law unless such restrictions could not,
individually or when aggregated with all other such restrictions, reasonably be
expected to have a Material Adverse Effect; and (iv) the taking of any removal
or remedial action in response to the actual or alleged presence of any
Hazardous Material on any real property of the Borrower or any of its
Subsidiaries, unless the presence of such Hazardous Materials and the removal or
remedial action in response thereto could not, individually or when aggregated
with all such other occurrences or events, reasonably be expected to have a
Material Adverse Effect. All such notices shall describe in reasonable detail
the nature, to the extent known, of the claim, investigation, condition,
occurrence or removal or remedial action and the response thereto of the
Borrower or of its applicable Subsidiary. In addition, the Borrower will provide
the Bank with copies of all material written communications with any government
or governmental agency relating to Environmental Law, all material
communications with any government or governmental agency relating to
Environmental Claims, and such detailed reports of any Environmental Claim, in
each case as they relate to the Mortgaged Properties as may reasonably be
requested in writing from time to time by the Bank.
Section 6.09. Books and Records; Accounting Systems and Principles.
Each Credit Party will keep adequate records and books of account in which
complete entries will be made in accordance with GAAP, reflecting all financial
transactions of such Credit Party and its Subsidiaries.
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Section 6.10. Ownership of Credit Parties. The Borrower will at all
times directly own and hold the entire legal title to and beneficial interest in
all outstanding shares of all classes of the capital stock of the other Credit
Parties.
Section 6.11. Further Assurances. Each Credit Party shall at the
Borrower's expense, promptly execute and deliver, or cause to be executed and
delivered, to the Bank upon reasonable request all such other and further
documents, agreements and instruments reasonably required to comply with or
accomplish the covenants and agreements of such Credit Party in the Loan
Documents to which it is a party.
Section 6.12. Performance of Loan Documents. Each Credit Party will
perform or cause to be performed all of the terms, covenants, agreements and
conditions on its part to be performed under this Agreement and each of the
other Loan Documents.
Section 6.13. Activities of Joint Venture. Except for Liens and
Indebtedness incurred in connection with any project financing as described in
Sections 7.02(d) and 7.09(g), each of the Credit Parties will use its good faith
efforts, within the bounds of good business judgment and its legal obligations
under or in connection with the Joint Venture Agreements to which it is a party
affecting the Joint Ventures, to limit the Indebtedness that may be incurred by
and any liens that may be granted by said Joint Ventures. To the extent that
said Credit Parties are able to do so within the aforesaid bounds, they will
encourage said Joint Ventures to minimize the imposition of any of said
Indebtedness or the granting of any liens.
ARTICLE VII
NEGATIVE COVENANTS
So long as any of the Obligations shall remain unpaid or outstanding
or the Bank shall have any Commitment, unless the Bank shall otherwise consent
in writing, each Credit Party covenants and agrees as to itself, and, to the
extent specifically stated, as to its Subsidiaries and each Joint Venture in
which it has an interest that:
Section 7.01. Liens. Each Credit Party shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or permit to exist,
whether directly or indirectly, any Lien on or with respect to any of its
properties or assets, whether now held or hereafter acquired, except:
(a) Liens created pursuant to this Agreement or any other Loan
Document or other Liens in favor of the Bank;
(b) Liens existing on the Effective Date and set forth on Exhibit
7.01(b);
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(c) Liens imposed by law, carriers', warehousemen's or mechanics'
liens, and Liens to secure claims for labor, material or supplies arising
in the ordinary course of business, but only to the extent that payment
thereof shall not at the time be due or is being contested in good faith
by appropriate proceedings diligently conducted and with respect to which
appropriate reserves have been set aside in accordance with GAAP, and so
long as the enforcement thereof has been stayed and such Liens do not
individually or in the aggregate have a Material Adverse Effect;
(d) Deposits or pledges to enable the Credit Parties and their
Subsidiaries to exercise any privilege or license, deposits or pledges
made in connection with, or to secure payment of, workmen's compensation,
unemployment insurance, old age pensions or other social security, or to
secure the performance of bids, tenders, contracts (other than those
relating to borrowed money) or leases or to secure statutory obligations
or surety or appeal bonds, or to secure indemnity, performance or other
similar bonds in the ordinary course of business, or in connection with
contests, so long as such Liens do not individually or in the aggregate
materially impair the value or materially interfere with the use of any
property subject thereto or the operation of the usual business of the
Credit Party(ies) involved and do not, in the aggregate exceed
$1,000,000.00;
(e) Liens for taxes, assessments, levies or other governmental
charges not yet due or which are being contested in good faith by
appropriate proceedings diligently conducted and with respect to which
appropriate reserves have been set aside in accordance with GAAP, and so
long as the enforcement thereof has been stayed and such Liens do not
individually or in the aggregate have a Material Adverse Effect;
(f) Liens arising out of judgments or awards against a Credit Party,
or any of its Subsidiaries with respect to which such Person shall be in
good faith prosecuting an appeal or a proceeding for review, or Liens
incurred by a Credit Party, or such Subsidiary for the purpose of
obtaining a stay or discharge of any legal proceeding to which such Person
is a party, provided, however, nothing herein is intended to waive any
Event of Default that may result from any such judgment, award or
proceeding under Section 8.01(k);
(g) Liens consisting of encumbrances, easements or reservations of,
or rights of others for, rights of way, sewers, electric lines, telegraph
and telephone lines, pipelines and other similar purposes, zoning
restrictions, restrictions on the use of real property and minor defects
and irregularities in the title thereto, landlord's or lessor's Liens
under leases to which a Credit Party, or any of its Subsidiaries is a
party and other similar encumbrances, none of which has a Material Adverse
Effect;
(h) Rights of collecting banks having a right of set off, revocation,
refund or chargeback with respect to money or instruments of a Credit
Party or any of its Subsidiaries on deposit with or in the possession of
such bank;
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(i) The right of first refusal of each shareholder of Prolerized
Chicago Corporation to purchase any stock of such corporation offered for
sale by any shareholder prior to the sale of such stock to any Person, all
as more fully described in the bylaws of Prolerized Chicago Corporation
and the Agreement dated August 2, 1962, as amended or otherwise modified,
by and between the Borrower and M. S. Kaplan Company;
(j) Liens to secure Indebtedness incurred in connection with the
purchase of equipment for use in Borrower's day to day office operations
not to exceed, in the aggregate during the term hereof, $250,000.00;
(k) Other Permitted Liens;
(l) Liens on assets of Proler Environmental Services, Inc. (but not
any other Credit Parties) to secure Indebtedness permitted by Section
7.02(d) hereof; and
(m) Extensions, renewals or replacements of any Lien referred to in
the foregoing clauses; provided, however, that no Lien arising or existing
as a result of such extension, renewal or replacement shall be extended to
cover any property not theretofore subject to the Lien being extended,
renewed or replaced so as to violate this Agreement; and further provided
that the principal amount of Indebtedness secured thereby shall not exceed
the principal amount of Indebtedness so secured at the time of such
extension, renewal or replacement so as to violate this Agreement.
Section 7.02. Indebtedness. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or permit to exist any
Indebtedness as defined herein exclusive of those items described in
subparagraph (g) of such definition except:
(a) Indebtedness of the Credit Parties hereunder and under the other
Loan Documents;
(b) Indebtedness set forth in Exhibit 5.07 or as set forth in the
financial statements referred to in Section 5.05;
(c) Taxes, assessments or other governmental charges which are not
yet delinquent or are being contested in good faith by appropriate action
promptly initiated and diligently conducted, and in respect of which
adequate reserves shall have been made therefor;
(d) Indebtedness, whether in the form of loans, Capital Leases or
other forms of Indebtedness, incurred by Proler Environmental Services,
Inc., (but not any other Credit Party) in an aggregate original principal
amount not to exceed $20,000,000.00, in connection with project
financings, provided such Indebtedness shall be without recourse to any
Credit Party other than Proler Environmental Services, Inc.;
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(e) Indebtedness of the Borrower, not to exceed $20,000,000.00,
provided such Indebtedness is subordinate and inferior in all respects
(including subsequent to the filing of any petition for relief under the
U.S. Bankruptcy Code) to the Obligations on such terms and conditions and
in such degree as the Bank shall approve in writing prior to the
incurrence thereof, such approval not to be unreasonably withheld; and
(f) Extensions, renewals and replacements (but not increases) of any
Indebtedness referred to in the foregoing clauses.
Section 7.03. Financial Covenants. (a) The Borrower shall not permit
the ratio of (i) Consolidated Current Assets to (ii) Consolidated Current
Liabilities to be less than 1.75 to 1.0 at the end of any fiscal quarter of the
Borrower.
(b) The Borrower shall not permit Consolidated Net Worth at any time
to be less than $52,000,000.00.
(c) The Borrower shall not permit EBITDA (i) for the fiscal quarter
ending January 31, 1995 to be less than (-$600,000.00), (ii) for the period of
the two consecutive fiscal quarters ending April 30, 1995 to be less than
(-$400,000.00), (iii) for the period of the three consecutive fiscal quarters
ending July 31, 1995 to be less than zero, (iv) for the period of the four
consecutive fiscal quarters ending October 31, 1995 to be less than
$1,000,000.00 and (v) for the period of the five consecutive fiscal quarters
ending January 31, 1996 to be less than $2,000,000.00.
Section 7.04. Consolidation, Mergers and Acquisitions; Fundamental
Changes. Except as otherwise provided herein, including, without limitation, as
provided in Section 7.09(g), the Borrower shall not, and shall not permit any of
its Subsidiaries, other than actions by Proler Environmental Services, Inc.,
contemplated under Sections 7.02, 7.09 or 7.11 without the prior written consent
of the Bank, to merge or consolidate with or acquire all or any part of the
outstanding capital stock or assets of any other Person (other than purchases or
other acquisitions of inventory and equipment in the ordinary course of
business) or liquidate, wind up or dissolve (or suffer any liquidation or
dissolution), or suffer a change in ownership directly or indirectly, except
that the following shall be permitted:
(a) any Credit Party (other than the Borrower) may merge into or
consolidate with any Credit Party or with any other Subsidiary of any
Credit Party, provided that a Credit Party is the survivor;
(b) any Subsidiary of a Credit Party may merge into or consolidate
with any other Subsidiary of any Credit Party, provided, that, if a
wholly-owned Subsidiary of a Credit Party is a party to such merger or
consolidation, a wholly-owned Subsidiary of a Credit Party is the
survivor, and provided, further, that if the outstanding shares of stock
of a Subsidiary that is a party to such a merger or consolidation are
pledged to the Bank under the Pledge Agreement, then the shares of such
surviving Subsidiary which are held by any Credit Party or any Subsidiary
of a Credit Party shall be pledged to the Bank under the Pledge Agreement;
and
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(c) the dissolution or liquidation of any of (i) Proler International
Sales Corporation, Buffalo Steel Corporation, or Gulf Coast Metals, Inc.
and (ii) any other Subsidiary which is not a Credit Party if immediately
after such dissolution or liquidation of any such other Subsidiary, the
Borrower and its consolidated Subsidiaries are not less creditworthy in
the reasonable opinion of the Bank and provided the Bank has prior written
notice thereon.
Section 7.05. Transactions with Affiliates. Subject to Section 7.16
hereof and the Investments allowed under Section 7.09(g), the Credit Parties
shall not, and shall not permit any of their Subsidiaries to, enter into, or be
a party to, any transaction with any Affiliate (including any Joint Venture)
except on terms and conditions as favorable (or more favorable) to such Credit
Party or such Subsidiary than would be obtained in a comparable arm's length
transaction between unrelated parties, provided, however, that the Credit
Parties may deal with any Joint Venture as contemplated by Section 7.09(f) or
the Joint Venture Agreements or any other joint venture agreements to which they
are a party in accordance with past practice or within the bounds of good
business judgment.
Section 7.06. Use of Proceeds. No proceeds of any Advance or Letter
of Credit shall be used by the Borrower for the purpose, whether immediate,
incidental or ultimate, of purchasing or carrying any "margin stock," within the
meaning of Regulation U of the Board of Governors of the Federal Reserve System.
The Borrower shall not engage principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying margin stock within the meaning of such Regulation U. The Borrower will
not permit the proceeds of any Advance to be used for any purpose other than as
set forth herein.
Section 7.07. Compliance with ERISA. The Borrower shall not, and
shall not permit any of its Subsidiaries to, (a) terminate any Plan so as to
result in any liability to PBGC which could reasonably be expected to have a
Material Adverse Effect, (b) engage in any "prohibited transaction" (as defined
in Section 4975 of the Code) involving any Plan which would result in a
liability for an excise tax or civil penalty in connection therewith which could
reasonably be expected to have a Material Adverse Effect, (c) incur or suffer to
exist any "accumulated funding deficiency" (as defined in Section 302 of ERISA),
whether or not waived involving any Plan which could reasonably be expected to
have a Material Adverse Effect or (d) allow or suffer to exist any event or
condition, which presents a material risk of incurring a liability to PBGC by
reason of termination of any such Plan which could reasonably be expected to
have a Material Adverse Effect.
Section 7.08. Limitation on Negative Pledge Clauses. The Credit
Parties shall not, and shall not permit any of their Subsidiaries to, enter into
any agreement with any Person other than the Bank which prohibits or limits the
ability of the Credit Parties or any of their Subsidiaries to create, incur,
assume or suffer to exist any Lien upon any of their property, assets or
revenues, whether now owned or hereafter acquired, other than any such agreement
entered into by Proler Environmental Services, Inc., but not any other Credit
Party, in connection with the Indebtedness permitted by Section 7.02(d) hereof.
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Section 7.09. Investments. The Credit Parties shall not, and shall
not permit any of their Subsidiaries to, directly or indirectly, make any
Investments except:
(a) Investments existing on the Effective Date and listed on Exhibit
7.09;
(b) Investments on terms customary in the industry involved in the
form of accounts receivable incurred, and Investments made in settlement
of such accounts receivable, all in the ordinary course of business of the
Credit Parties and their Subsidiaries;
(c) Permitted Investments;
(d) stock or securities received in the settlement of debts (created
in the ordinary course of business);
(e) travel advances to officers and employees made in the ordinary
course of business;
(f) Investments in Joint Ventures; and
(g) Investments in the stock or assets of other Persons not to exceed
(i) $2,500,000.00 in any one Person or any single transaction, provided,
any such Investment up to $6,000,000.00 shall be permitted if made in or
to Proler Environmental Services, Inc. by any other Credit Party for the
purpose of funding the construction by Proler Environmental Services, Inc.
or a non-Credit Party Affiliate thereof of a gasification plant for which
no recourse exists to any other Credit Party or (ii) $6,000,000.00
outstanding with supplemental Investments to maintain such level allowed
so long as no more than $6,000,000.00 is invested during any twelve-month
period, computed on a rolling four (4) quarter basis, without the prior
written approval of the Bank, such approval not to be unreasonably
withheld; provided, that any Investment in or to Proler Environmental
Services, Inc. referred to in clause (i) above shall be considered an
Investment under this subsection (ii) and shall not serve to increase the
total amount allowed in any twelve-month period.
Section 7.10. Sale and Leaseback. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into any arrangement with any
Person providing for the leasing by the Borrower of real or personal property
which has been or is to be sold or transferred by the Borrower or such
Subsidiary to such Person or to any other Person to whom funds have been or are
to be advanced by such Person on the security as such property or rental
obligations of the Borrower or such Subsidiary, other than leases entered into
in connection with any project financed in whole or in part by Indebtedness
permitted by Section 7.02(d), which together with all other Indebtedness
incurred in respect of such project, shall not exceed $20,000,000.00 in the
aggregate.
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Section 7.11. Capital Expenditures. The Borrower shall not incur
Consolidated Capital Expenditures (exclusive of (A) any Consolidated Capital
Expenditures attributable to capital expenditures made by the Borrower or Proler
Environmental Services, Inc. in connection with any project financed in whole or
in part by Indebtedness permitted by Sections 7.02(d), 7.02(e), 7.02(f) or 7.10,
which expenditures shall be a part of, and may not exceed the amount permitted
by Sections 7.02(d), 7.02(e) or 7.02(f) and (B) exclusive of Investments
permitted by Section 7.09) in an aggregate amount in excess of $12,000,000.00
for any twelve-month period during the term of this Agreement, computed on a
rolling four (4) quarter basis.
Section 7.12. Limitation on Restrictions Affecting Subsidiaries. The
Borrower shall not, and shall not permit any of its Subsidiaries to, create or
otherwise cause or permit to exist or become effective any consensual
encumbrance or restriction of any kind, on the ability of any such Subsidiary to
(a) pay dividends or make any distributions on its capital stock or joint
venture or partnership interests, (b) pay any indebtedness to the Borrower or
any other Subsidiary of the Borrower, (c) make loans or advances to the Borrower
or any Subsidiary of the Borrower or (d) transfer any of its property or assets
to the Borrower or any Subsidiary of the Borrower, other than, in the case of
each of the foregoing clauses (a) through (d), any such encumbrance or
restriction created by Proler Environmental Services, Inc. in connection with
any Indebtedness permitted by Section 7.02(d).
Section 7.13. Restricted Payments. Except as contemplated or
permitted by the Rights Agreement dated as of September 26, 1988, as amended or
modified, the Borrower shall not directly or indirectly declare, order, pay,
make or set apart any Restricted Payment; provided, that the Borrower may make
Restricted Payments in the form of dividends on, and repurchases of, its own
capital stock up to a maximum amount of $2,500,000.00 for each twelve-month
period, computed on a rolling four (4) quarter basis.
Section 7.14. Other Business. The Credit Parties will not engage, and
will not permit any of their Subsidiaries to engage, in any lines of business
other than the business in which they are engaged on the Effective Date and
other activities incidental or related to such business, including, without
limitation, lines of business relating to processing, treatment and disposal of
waste streams and the sale, use or marketing of products produced in connection
therewith or the licensing of technology in connection therewith.
Section 7.15. Joint Venture Agreements. The Joint Venture Agreements
shall not be modified, amended, terminated or otherwise affected without the
prior written consent of the Bank, other than the Joint Venture Agreements for
HPI, a New York partnership, and HPNJ, a New York partnership.
Section 7.16. No Transfers to Affiliates. Other than as permitted by
Sections 7.05 and 7.09, the Credit Parties shall not transfer to all of their
Affiliates any assets, having a value in excess of $1,000,000 in the aggregate,
during the term hereof, unless said transfer is paid for by said Affiliate with
cash as of the time of the transfer.
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ARTICLE VIII
DEFAULT AND REMEDIES
Section 8.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing, namely:
(a) the Borrower shall fail to pay when due any installment of
principal of or interest on any Advance or other amount due hereunder,
under the Notes or any Loan Document to which it is a party; or
(b) the Borrower shall fail to pay immediately upon demand by the
Bank whether by application from the proceeds of an Advance pursuant to
Section 2.20(c) or otherwise, the amount paid by the Bank pursuant to a
draft presented under an Existing Letter of Credit or a Letter of Credit;
or
(c) any other Credit Party shall fail to pay any amount payable to
the Bank by such Credit Party hereunder or under any other Loan Document
to which it is a party when due thereunder; or
(d) the Borrower shall fail to comply with or perform any covenant,
agreement or condition in Article VII hereof; or
(e) any Credit Party shall fail to perform any other term, covenant
or agreement contained herein or in any other Loan Document to which it is
a party which failure could reasonably be expected to have a Material
Adverse Effect and such failure shall not have been remedied within thirty
(30) days after the earlier of (i) the discovery thereof by the Credit
Party or (ii) the receipt of written notice thereof by the Borrower from
the Bank; or
(f) any representation or warranty made by any Credit Party in any
Loan Document to which it is a party or in any certificate, agreement,
instrument or statement contemplated by or delivered pursuant to, or in
connection with, any Loan Document shall prove to have been incorrect in
any material respect when made; or
(g) any Credit Party shall (i) fail to pay any Indebtedness having a
principal amount in excess of $250,000.00 (other than the amounts referred
to in subsections (a) and (b) of this Section 8.01) owing by such Person,
or any interest or premium thereon, when due (or, if permitted by the
terms of the relevant document, within any applicable grace period),
whether such Indebtedness shall become due by scheduled maturity, by
required prepayment, by acceleration, by demand or otherwise; or (ii) fail
to perform any term, covenant or condition on its part to be performed
under any agreement or instrument evidencing, securing or relating to any
such Indebtedness, when required to be performed, and such failure shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of
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such failure is to accelerate, or to permit the holder or holders of such
Indebtedness to accelerate, the maturity of such Indebtedness; or
(h) any Loan Document shall (other than with the consent of the
Bank), at any time after its execution and delivery and for any reason,
cease to be in full force and effect or to provide the Liens contemplated
thereby, except for such provisions or Liens that the Bank determines are
not material either individually or in the aggregate, or shall be declared
to be null and void, or the validity or enforceability thereof or of the
Liens contemplated thereby shall be contested by any Credit Party party to
the Loan Documents or any such Credit Party shall deny that it has any or
further liability or obligation under any Loan Document; or
(i) any Reportable Event that might constitute grounds for the
termination of any Plan, or for the appointment by an appropriate United
States district court of a trustee to administer any Plan, shall have
occurred and be continuing for at least thirty (30) days, or any Plan
shall be terminated, or a trustee shall be appointed by an appropriate
United States district court to administer any Plan, or the PBGC shall
institute proceedings to terminate any Plan or to appoint a trustee to
administer any Plan, and, in any such event, the then-current value of
such Plan's benefits guaranteed under Title IV of ERISA at the time shall
exceed by more than $270,000.00 the then current value of such Plan's
assets, allocable to such benefits at such time; or
(j) any Credit Party shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, or shall consent to any such
relief or to the appointment of or taking possession by any such official
in an involuntary case or other proceeding commenced against it, or shall
make a general assignment for the benefit of creditors, or shall fail
generally to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; or
(k) an involuntary case or other proceeding shall be commenced
against any Credit Party seeking liquidation, reorganization or other
relief with respect to it or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of
a trustee, receiver, liquidator, custodian or other similar official of it
or any substantial part of its property, and such involuntary case or
other proceeding shall remain undismissed and unstayed for a period of 90
days; or an order for relief shall be entered against such Credit Party
under the federal bankruptcy laws as now or hereafter in effect; or
(l) a final judgment or order for the payment of money in excess of
$270,000.00 (net of acknowledged, uncontested insurance coverage) shall be
rendered against any Credit Party and either (i) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order or
(ii) a stay
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of enforcement of such judgment or order by reason of a pending appeal or
otherwise, shall not be in effect for any period of thirty (30)
consecutive days; or
(m) any single Person shall in a single transaction or a series of
related transactions acquire control of more than 51% of the Borrower's
capital stock;
then, (x) upon the occurrence of any Event of Default described in Section
8.01(j) or Section 8.01(k), (i) the Commitment shall automatically terminate and
the Bank's obligation to issue Letters of Credit shall automatically terminate
and (ii) the unpaid principal amount of and accrued interest on all Advances
together with all other amounts owing by the Credit Parties under this
Agreement, the Notes, the other Loan Documents and any other agreement or
security document contemplated by or delivered in connection with this Agreement
(including all L/C Obligations and Existing L/C Obligations) shall automatically
become immediately due and payable without, in any case, presentment for
payment, further demand, protest, notice of intent to accelerate, notice of
acceleration or further notice of any kind, all of which are hereby expressly
waived by the Borrower, and (y) upon the occurrence of any other Event of
Default, the Bank may, by notice to the Borrower, (i) declare the Commitment to
be terminated, whereupon the same shall forthwith terminate and (ii) declare the
entire unpaid principal amount of all Advances, all interest accrued and unpaid
thereon and all other amounts payable by any Credit Party under this Agreement
(including all L/C Obligations and Existing L/C Obligations), the Notes, the
other Loan Documents and any other agreement or security document contemplated
by or delivered in connection with this Agreement, to be forthwith due and
payable, whereupon all such amounts shall become and be forthwith due and
payable, without presentment for payment, further demand, protest, notice of
intent to accelerate, notice of acceleration or further notice of any kind, all
of which are hereby expressly waived by the Borrower. With respect to all
Letters of Credit and Existing Letters of Credit as to which presentment for
honor shall not have occurred at the time of an acceleration pursuant to clause
(x) or (y) above, the Borrower shall at such time deposit in a cash collateral
account opened by the Bank an amount equal to the aggregate undrawn face amount
of such Letters of Credit and Existing Letters of Credit. Amounts held in such
cash collateral account shall be applied by the Bank to the payment of drafts
drawn under such Letters of Credit and Existing Letters of Credit, and the
unused portion thereof after all such Letters of Credit and Existing Letters of
Credit shall have expired or been fully drawn upon, if any, shall be applied to
repay other obligations of the Borrower hereunder and under the Notes and the
other Loan Documents. After all such Letters of Credit and Existing Letters of
Credit shall have expired or been fully drawn upon, all L/C Obligations and
Existing L/C Obligations shall have been satisfied and all other obligations of
the Borrower hereunder and under the Notes and the other Loan Documents shall
have been paid in full, the balance, if any, in such cash collateral account
shall be returned to the Borrower.
Section 8.02. Set-Off in Event of Default. Upon the occurrence and
during the continuance of any Event of Default, the Bank is hereby authorized,
at any time and from time to time, without notice to the Borrower or any other
Credit Party (any such notice being expressly waived by the Credit Party) and to
the fullest extent permitted by applicable law, to set-off and apply any and all
deposits (general
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or special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Bank or any branch, subsidiary or
Affiliate of the Bank to or for the credit or the account of any Credit Party
against any and all of the obligations of the Credit Parties, now or hereafter
existing under this Agreement (including all L/C Obligations and Existing L/C
Obligations), the Notes or the other Loan Documents to which each such Credit
Party is a party, irrespective of whether or not the Bank shall have made any
demand for satisfaction of such Obligations and although such Obligations may be
unmatured. The Bank agrees to notify the Borrower promptly after any such set-
off and application made by the Bank; provided, however, that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Bank under this Section are in addition to other rights and
remedies (including other rights of set-off) which the Bank may have hereunder
or under any applicable law.
ARTICLE IX
MISCELLANEOUS
Section 9.01. Amendments. No modification, amendment or waiver of any
provision of this Agreement (including, without limitation, the Guaranty), the
Notes or any other Loan Document, or consent to any departure by any Credit
Party herefrom or therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Bank and each Credit Party party thereto,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
Section 9.02. Notices. All notices, consents, requests, approvals,
demands and other communications (collectively, "Communications") provided for
herein and in the other Loan Documents shall be in writing (including telecopied
communications) and mailed, telecopied or delivered as follows:
if to the Borrower or any other Credit Party to, or in care of--
Proler International Corp.
4265 San Felipe, Suite 900
Houston, Texas 77027
Attention: Herman Proler
Telecopy No.: (713) 627-2737
with a copy to:
Mayor, Day, Caldwell & Keeton, L.L.P.
700 Louisiana, Suite 1900
Houston, Texas 77002
Attn: Gail Merel
Telecopy No.: (713) 225-7047
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if to the Bank --
Texas Commerce Bank National Association
712 Main Street
Houston, Texas 77002
Attention: Stephen H. Oglesby or Curtis D. Karges
Telecopy No.: (713) 236-6004
with a copy to:
Andrews & Kurth L.L.P.
4200 Texas Commerce Tower
Houston, Texas 77002
Attention: Thomas J. Perich
Telecopy No.: (713) 220-4285
or at such other address as the Bank or any Credit Party shall designate in a
Communication to each of the other parties hereto. All Communications shall be
effective, in the case of written or telecopied communications, three days after
being deposited in the mail, or upon the date sent by telecopy or (in the case
of Communications which are not mailed or telecopied) when delivered and (if a
Communication is sent by telecopy or delivered) receipt thereof is confirmed,
respectively, in each case addressed as aforesaid. Notwithstanding the
foregoing, all Borrowing Requests shall not be effective until received by the
Bank.
Section 9.03. Costs, Expenses and Taxes. The Borrower agrees to pay
on demand all reasonable costs and expenses of the Bank in connection with (a)
the administration of the Loan Documents, the Letters of Credit and the
preparation, execution, delivery, filing, recording and administration of this
Agreement, the Advances, the Notes, the Letters of Credit, the Existing Letters
of Credit and the other Loan Documents and any other agreements or security
documents delivered in connection with or pursuant to any of the Loan Documents,
including the reasonable fees and out of pocket expenses of Andrews & Kurth
L.L.P., counsel for the Bank and any local counsel who may be retained by such
counsel, and the cost of any and all appraisals, surveys, environmental audits
or studies subject to the limitations of Section 6.01(l), title insurance
policies and similar items required hereby, (b) all reasonable costs and
expenses, if any, incurred by the Bank in connection with the enforcement of
this Agreement and the other Loan Documents and any other agreements or security
documents executed in connection with or pursuant to any of the Loan Documents,
including the reasonable fees and out of pocket expenses of counsel for the Bank
and any local counsel who may be retained by such counsel, and (c) the
reasonable costs and expenses in connection with the custody, preservation, use
or operation of, or the sale of, or collection from, or other realization upon
the collateral covered by any of the Loan Documents. The agreements of the
Borrower contained in this Section shall survive the termination of the
Commitment and the payment of all amounts owing by any Credit Party hereunder or
under any of the other Loan Documents.
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Section 9.04. Binding Effect; Successors and Assigns. This Agreement
shall be binding upon and inure to the benefit of the Credit Parties, the Bank
and their respective successors and assigns, except that no Credit Party may
assign or transfer its respective rights hereunder without the prior written
consent of the Bank.
Section 9.05. Independence of Covenants. All covenants contained in
the Loan Documents shall be given independent effect so that if a particular
action or condition is not permitted by any of such covenants, the fact that
such action or condition would be permitted by an exception to, or otherwise be
within the limitations of, another covenant shall not avoid the occurrence of a
Default or an Event of Default if such action is taken or condition exists.
Section 9.06. Survival of Representations and Warranties. All
represen tations and warranties contained in this Agreement and the other Loan
Documents, or made in writing by any Credit Party in connection herewith or
therewith, shall survive the execution and delivery of this Agreement, the
Notes, any Letters of Credit, the Existing Letters of Credit and the other Loan
Documents. Any investigation by the Bank shall not diminish in any respect
whatsoever its right to rely on such representations and warranties.
Section 9.07. Separability. Should any clause, sentence, paragraph,
subsection, Section or Article of this Agreement be judicially declared to be
invalid, unenforceable or void, such decision will not have the effect of
invalidating or voiding the remainder of this Agreement, and the parties hereto
agree that the part or parts of this Agreement so held to be invalid,
unenforceable or void will be deemed to have been stricken herefrom by the
parties hereto, and the remainder will have the same force and effectiveness as
if such stricken part or parts had never been included herein.
Section 9.08. No Waiver; Remedies. No failure on the part of the Bank
to exercise, and any delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies provided in this Agreement and the Notes are cumulative and
not exclusive of any remedies provided in any of the other Loan Documents or by
law.
Section 9.09. Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same agreement.
Section 9.10. Governing Law. This Agreement, the Notes, the Letters
of Credit, the Existing Letters of Credit and, unless otherwise specified
therein, all other Loan Documents and all other documents executed in connection
herewith or therewith, shall be deemed to be contracts and agreements executed
by Credit Parties and the Bank under the laws of the State of Texas and of the
United States and for all purposes shall be construed in accordance with, and
governed by, the laws of the State of Texas and of the United States. Without
limitation of the foregoing,
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nothing in this Agreement, the Notes or any other Loan Documents shall be deemed
to constitute a waiver of any rights which the Bank may have under federal
legislation relating to the rate of interest which the Bank may contract for,
take, receive, reserve or charge in respect of the Term Loan, any Advance or any
of the other Obligations. The Bank and the Borrower further agree that insofar
as the provisions of Article 1.04, Subtitle 1, Title 79, of the Revised Civil
Statutes of Texas, 1925, as amended, are applicable to the determina tion of the
Highest Lawful Rate with respect to the Obligations, the indicated (weekly) rate
ceiling computed from time to time pursuant to Section (a) of such Article shall
apply to the Obligations; provided, however, that to the extent permitted by
such Article, the Bank may from time to time by notice from the Bank to the
Borrower revise the election of such interest rate ceiling as such ceiling
affects the then current or future balances outstanding under the Notes. The
provisions of Chapter 15 of Subtitle 3 of the said Title 79 do not apply to this
Agreement, the Notes or any transactions contemplated by any Loan Document.
Section 9.11. Limitation on Interest. Each provision in this
Agreement, the Notes the Letters of Credit, the Existing Letters of Credit and
each other Loan Document is expressly limited so that in no event whatsoever
shall the amount paid, or otherwise agreed to be paid, to the Bank for the use,
forbearance or detention of the money to be advanced under this Agreement, the
Notes or any other Loan Document or otherwise (including any sums paid as
required by any covenant or obligation contained herein or in any other Loan
Document which is for the use, forbearance or detention of such money), exceed
that amount of money which would cause the effective rate of interest to exceed
the Highest Lawful Rate, and all amounts owed under this Agreement and each
other Loan Document shall be held to be subject to reduction to the effect that
such amounts so paid or agreed to be paid which are for the use, forbearance or
detention of money under this Agreement or such Loan Document shall in all
events be less than that amount of money which would cause the effective rate of
interest to exceed the Highest Lawful Rate. Anything in this Agreement, the
Notes, the Letters of Credit, the Existing Letters of Credit or any other Loan
Document to the contrary notwithstanding, the Borrower shall never be required
to pay unearned interest on the Advances or any of the other Obligations or ever
be required to pay interest on the Advances or any of the other Obligations at a
rate in excess of the Highest Lawful Rate, or if the holder of any of the
Advances or any of the other Obligations shall receive any unearned interest or
shall receive monies that are deemed to constitute interest which would increase
the effective rate of interest payable by the Borrower under this Agreement,
such Note and the other Loan Documents to a rate in excess of the Highest Lawful
Rate, then (a) the amount of interest which would otherwise be payable by the
Borrower under this Agreement, such Note and other Loan Documents shall be
reduced to the amount allowed under applicable law and (b) any unearned interest
paid by the Borrower or any interest paid by the Borrower in excess of the
Highest Lawful Rate shall be in the first instance credited on the principal of
such Note with the excess thereof, if any, refunded to the Borrower. It is
further agreed that, without limitation of the foregoing, all calculations of
the rate of interest contracted for, charged or received by the Bank under the
Notes, this Agreement, the Letters of Credit, the Existing Letters of Credit or
the other Loan Documents, are made for the purpose of determining whether such
rate exceeds the Highest Lawful Rate, and shall be made, to the extent
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permitted by usury laws applicable to the Bank (now or hereafter enacted), by
amortizing, prorating, allocating and spreading in equal parts during the period
of the full stated term of the Obligations evidenced by the Notes all interest
at any time contracted for, charged or received by the Bank in connection
therewith. If at any time and from time to time, (x) the amount of interest
payable to the Bank on any date shall be computed at the Highest Lawful Rate
pursuant to this Section and (y) in respect of any subsequent interest
computation period the amount of interest otherwise payable to the Bank would be
less than the amount of interest payable to the Bank computed at the Highest
Lawful Rate, then to the extent permitted by applicable usury law, the amount of
interest payable to the Bank in respect of such subsequent interest computation
period shall continue to be computed at the Highest Lawful Rate until the total
amount of interest payable to the Bank shall equal the total amount of interest
which would have been payable to the Bank if the total amount of interest had
been computed without giving effect to this Section.
Section 9.12. Indemnification. (a) The Borrower and each other Credit
Party agrees to indemnify, defend and hold the Bank, as well as its officers,
employees, agents, directors, shareholders, counsels and Affiliates
(collectively, "Indemnified Persons") harmless from and against any and all
loss, liability, damage, judgment, claim, deficiency, penalty, fine, response
and remediation cost, stabilization cost, encapsulation cost, treatment, storage
or disposal cost, groundwater monitoring or environmental sampling cost or any
other reasonable cost or expense (including interest, penalties, reasonable
attorneys', experts' or consultants' fees, and disbursements in connection with
any investigative, administrative or judicial proceeding and amounts paid in
settlement) (collectively, "Indemnified Liabilities") incurred by or asserted
against any Indemnified Person arising out of, in any way connected with, or as
a result of (i) the execution and delivery of this Agreement and the other Loan
Documents, the performance by the parties hereto and thereto of their respective
obligations hereunder and thereunder (including the making of the Commitment of
the Bank) and consummation of the transactions contemplated hereby and thereby,
(ii) the actual or proposed use of the Letters of Credit, the Existing Letters
of Credit or the proceeds of the Advances, (iii) any past, present or future
violation by Borrower, any of its Subsidiaries, any operator who is not an
Indemnified Person of the Mortgaged Properties, or any other Person (other than
any Indemnified Person) of any requirement of law, including Environmental Laws,
with regard to the ownership, operation, use or occupancy of the Mortgaged
Properties occurring at any time prior to the repayment in full of the Advances
and the other Obligations, (iv) solely insofar as any of the following arises
out of any Mortgaged Property, the past, present or future treatment, storage,
disposal, generation, use, transport, movement, migration, presence, release,
spill or emission of any pollutants, contaminants, Hazardous Materials, or
hazardous or toxic substances or wastes into or onto soil, land, surface water,
ground water, watercourses, publicly owned treatment works, drains, sewer
systems, wetlands or septic systems occurring at any time prior to the repayment
in full of the Advances and the other Obligations, (v) ownership by the Bank of
any real or personal property following rightful foreclosure under the Security
Documents, to the extent such losses, liabilities, damages, judgments, claims,
deficiencies or expenses arise out of or result from the presence or release of
any Hazardous Materials in, on or under such property during the period owned,
leased or operated by the Borrower or any of its
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Subsidiaries, including, without limitation, losses, liabilities, damages,
judgments, claims, deficiencies or expenses which are imposed under
Environmental Laws upon Persons by virtue of their ownership, (vi) foreseeable
consequential or punitive damages incurred as a result of any matter or claim
described above or (vii) any claim, litigation, investigation or proceeding
relating to any of the foregoing, whether or not any Indemnified Person is a
party thereto.
(b) WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR ANY OF THE
OTHER LOAN DOCUMENTS BUT IN ALL EVENTS SUBJECT TO SUBPARAGRAPH (C) OF THIS
SECTION 9.12, IT IS THE EXPRESS INTENTION OF THE BORROWER AND THE OTHER CREDIT
PARTIES THAT EACH INDEMNIFIED PERSON SHALL BE INDEMNIFIED AND HELD HARMLESS
AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DEFICIENCIES, JUDGMENTS OR
REASONABLE EXPENSES ARISING OUT OF OR RESULTING FROM THE ORDINARY NEGLIGENCE
(WHETHER SOLE OR CONTRIBUTORY) OF SUCH INDEMNIFIED PERSON. THE OBLIGATIONS OF
THE BORROWER AND THE OTHER CREDIT PARTIES UNDER THIS SECTION 9.12 SHALL SURVIVE
THE TERMINATION OF THIS AGREEMENT AND THE COMMITMENT AND THE REPAYMENT OF THE
OBLIGATIONS.
(c) Notwithstanding any other provision of this Agreement or any
other Loan Document or any other document or instrument, in no event shall any
Credit Party be liable in any manner with respect to any or all Indemnified
Liabilities to the extent arising from any acts or omissions constituting gross
negligence or willful misconduct on the part of any Indemnified Person.
(d) With respect to all Indemnified Liabilities relating to any
Mortgaged Property or any Hazardous Material or any Environmental Law,
notwithstanding any other provision of this Agreement or any other Loan Document
or any other document or instrument, no Credit Party shall be liable (x) for any
acts of any Indemnified Person or of any Person acting on behalf of or at the
direction of any Indemnified Person, or (y) in the event that any Indemnified
Person, or any Person acting on behalf of or at the direction of any Indemnified
Person, is judicially or administratively determined to be a Person having
management participation or otherwise exercising control within the meaning of
the Environmental Laws in effect on the date of this Agreement, for any omission
of any Indemnified Person or any omission of any Person acting on behalf of, or
at the direction of any Indemnified Person, or (z) for any act or omission of
any Person occurring from and after the date on which none of the Credit Parties
holds title to such Mortgaged Property; provided, however, that this clause (z)
shall not release any Credit Party from any liability which it would otherwise
have under this subparagraph (d) for conditions arising prior to said date as to
which any Indemnified Liability is asserted subsequent to said date.
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Section 9.13. Notice and Defense of Claims. (a) The Credit Parties
shall give prompt notice to the Bank of:
(i) their receipt of any correspondence, demand, notice, order,
complaint, notice of violation, assessment, claim or request for
information issued pursuant to or under color of any Environmental Laws or
which refers to any Hazardous Materials from any federal, state or local
governmental authority or from any private party or organization with
respect to the Mortgaged Properties, any operator of the Mortgaged
Properties or any Credit Party, which, in the reasonable good faith
judgment of the Credit Parties, is likely to result in a Material Adverse
Effect;
(ii) the institution of any claim, suit, action, investigation or
administrative or judicial proceeding or action (formal or informal) of
which the Credit Parties are aware, brought with regard to the condition,
use, ownership, operation, occupancy or maintenance of the Mortgaged
Properties under the Environmental Laws or relating to Hazardous Materials
which claim, suit, action, investigation or administrative or judicial
proceeding or action, in the reasonable good faith judgment of the Credit
Parties, is likely to result in a Material Adverse Effect; and
(iii) the discovery or detection, of which the Credit Parties are
aware, by any Person, of Hazardous Materials on the Mortgaged Properties
which, in the reasonable good faith judgment of the Credit Parties, is
likely to result in a Material Adverse Effect.
(b) The Credit Parties shall retain the exclusive right, at their
option, to compromise, settle or defend, at their expense and with their own
counsel, any Indemnified Liabilities; provided, however, that the Credit Parties
shall provide the Bank with all such copies of documents and pleadings relating
to such Indemnified Liabilities as the Bank may reasonably request; provided,
further, that in the case of any action in which any Indemnified Person is a
named party thereto, such counsel retained by the Credit Parties shall be
reasonably acceptable to such Indemnified Person. In the case of any such action
in which an Indemnified Person is a named party thereto, the Credit Parties, at
the request of such Indemnified Person, shall keep such Indemnified Person
apprised of all matters relevant to such action and such Indemnified Person
shall have the full right, at its own expense, to participate, through counsel
or otherwise, in all meetings and proceedings with adverse parties or
governmental authorities (other than any confidential meetings unrelated to
claims against such Indemnified Person); provided, however, that if any of the
Credit Parties give notice in writing to such Indemnified Person that the Credit
Parties do not intend, for whatever reason, to defend any such action, then such
Indemnified Person may prosecute its own defense or response with its own
counsel and the reasonable fees of such counsel shall be at the expense of the
Credit Parties for that portion of the action relating to any Indemnified
Liabilities if: (x) such Indemnified Person shall prosecute such defense or
response diligently and in an appropriate manner and (y) such Indemnified
Person, at the request of any of the Credit Parties, shall keep the Credit
Parties apprised of all matters relevant to such action; provided, further, that
in the event that such Indemnified Person does not consent to any settlement or
62
<PAGE>
compromise proposed by the parties to such action and acceptable to the Credit
Parties, then the liability of the Credit Parties under Sections 9.12 and 9.13
of this Agreement for any Indemnified Liabilities shall not exceed that
liability which the Credit Parties would have had if such Indemnified Person had
consented to such settlement or compromise.
(c) Upon the occurrence of any of the events contemplated by
subsection (a) above relating to any Mortgaged Property, the Bank shall have
(but need not exercise) the right to retain, at its own expense, consultants and
specialists of the Bank's choice to assess the necessity for and appropriateness
of the investigation, removal, remediation, encapsulation or other treatment of
any Hazardous Materials found on the Mortgaged Properties. If the Bank
reasonably determines that any such activities are necessary and appropriate to
prevent the occurrence of a Material Adverse Effect, it shall deliver written
notice to the Credit Parties of the basis of such determination, describing such
activities with reasonable specificity. Upon receipt of such notice, and if such
activities are required by law, the Credit Parties will diligently, and in a
reasonable manner, undertake and complete such activities to the Bank's
reasonable satisfaction, at the Credit Parties' sole expense.
(d) The Indemnified Persons shall give prompt written notice to the
Credit Parties of any claim against the Indemnified Persons which might give
rise to a claim by the Indemnified Persons against the Credit Parties under
Section 9.12.
Section 9.14. Limitation by Law. All rights, remedies and powers
provided in this Agreement and the other Loan Documents may be exercised only to
the extent that the exercise thereof does not violate any applicable provision
of law, and all the provisions of this Agreement and the other Loan Documents
are intended to be subject to all applicable mandatory provisions of law which
may be controlling and to be limited to the extent necessary so that they will
not render this Agreement or any other Loan Document invalid, unenforceable, in
whole or in part, or not entitled to be recorded, registered or filed under the
provisions of any applicable law.
Section 9.15. Interpretation. (a) In this Agreement, unless a clear
contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any gender includes each other gender;
(iii) the words "herein," "hereof" and "hereunder" and other
words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision;
(iv) reference to any Person includes such Person's successors
and assigns but, if applicable, only if such successors and assigns are
permitted by this Agreement, and reference to a Person in a particular
capacity excludes such Person in any other capacity or individually,
provided that nothing in this clause (iv) is intended to authorize any
assignment not otherwise permitted by this Agreement;
63
<PAGE>
(v) reference to any agreement, document or instrument means such
agreement, document or instrument as amended, supplemented or modified and
in effect from time to time in accordance with the terms thereof and, if
applicable, the terms hereof, and reference to any Note includes any note
issued pursuant hereto in extension or renewal thereof and in substitution
or replacement therefor;
(vi) unless the context indicates otherwise, reference to any
Article, Section, Schedule or Exhibit means such Article or Section hereof
or such Schedule or Exhibit hereto;
(vii) the words "including" (and with correlative meaning
"include") means including, without limiting the generality of any
description preceding such term;
(viii) with respect to the determination of any period of time,
the word "from" means "from and including" and the word "to" means "to but
excluding";
(ix) reference to any law means such as amended, modified,
codified or reenacted, in whole or in part, and in effect from time to
time; and
(x) whenever any accounting computation is required to be made,
for purposes hereof, such computation shall be made in accordance with
GAAP.
(b) The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
(c) No provision of this Agreement shall be interpreted or construed
against any Person solely because that Person or its legal representative
drafted such provision.
Section 9.16. Waiver of Texas Deceptive Trade Practices Act. Each
Credit Party hereby waives all rights, remedies, claims, demands and causes of
action based upon or related to the Texas Deceptive Trade Practices-Consumer
Protection Act as described in Section 17.41 et seq. of the Texas Business &
Commerce Code, as the same pertains or may pertain to any of the Loan Documents
or any of the transactions contemplated therein, to the maximum extent that such
rights, etc. may lawfully and effectively be waived. In furtherance of this
waiver, each undersigned obligor under the Loan Documents hereby represents and
warrants that (a) each such Credit Party has assets of $5,000,000.00 or greater
according to its most recent financial statement prepared in accordance with
GAAP and has knowledge and experience in financial and business matters that
enable it to evaluate the merits and risks of a transaction, (b) each such
Credit Party is represented by legal counsel in connection with the negotiation,
execution and delivery of the Loan Documents and (c) no such Credit Party
considers itself to be in a significantly disparate bargaining position with
respect to the Loan Documents.
64
<PAGE>
Section 9.17. Releases. Each Credit Party hereby releases, discharges
and acquits forever the Bank and its officers, directors, trustees, agents,
employees and counsel (in each case, past, present or future) from any and all
Claims existing as of the date hereof (or the date of actual execution hereof by
the applicable person or entity, if later). As used herein, the term "Claim"
shall mean any and all liabilities, claims, defenses, demands, actions, causes
of action, judgments, deficiencies, interest, liens, costs or expenses
(including court costs, penalties, attorneys' fees and disbursements and amounts
paid in settlement) of any kind and character whatsoever, including claims for
usury, breach of contract, breach of commitment, negligent misrepresentation or
failure to act in good faith, in each case whether now known or unknown,
suspected or unsuspected, asserted or unasserted or primary or contingent, and
whether arising out of written documents, unwritten undertakings, course of
conduct, tort, violations of laws or regulations or otherwise arising out of
this transaction, the transaction contemplated by the 1993 Agreement, and all
related documents, transactions and events.
Section 9.18. Final Agreement of the Parties. THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION
26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE, AND REPRESENT THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 9.19. Effect of Agreement. This Agreement shall in its
entirety constitute an amendment and restatement of the 1993 Agreement in
complete replacement and substitution of the 1993 Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized as of the
date first above written.
BORROWER:
PROLER INTERNATIONAL CORP.
By: /s/ M.F. Loy
---------------------------
Name: M. F. Loy
Title: Vice President - Finance
65
<PAGE>
GUARANTORS:
PROLERIZED STEEL CORPORATION
By: /s/ M.F. Loy
-----------------------------------
Name: M. F. Loy
Title: Vice President - Finance
PROLERIDE TRANSPORT SYSTEMS, INC.
By: /s/ M.F. Loy
-----------------------------------
Name: M. F. Loy
Title: Vice President - Finance
PROLER RECYCLING, INC.
By: /s/ M.F. Loy
-----------------------------------
Name: M. F. Loy
Title: Vice President - Finance
PROLER ENVIRONMENTAL
SERVICES, INC.
By: /s/ M.F. Loy
-----------------------------------
Name: M. F. Loy
Title: Vice President - Finance
BANK:
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ C.D. Karges
-----------------------------------
Name: Curtis D. Karges
Title: Senior Vice President
66
<PAGE>
EXHIBIT 10.23
PROLER INTERNATIONAL CORP.
DEFERRED COMPENSATION AGREEMENT
FOR STEVE GILLILAND
Proler International Corp., a Delaware corporation (the
"Corporation") and Steve Gilliland ("Gilliland") hereby enter into
this Deferred Compensation Agreement (the "Agreement"), for the
purpose of providing to Gilliland additional compensation on a
deferred basis.
I. Effective Date.
The effective date of the Agreement shall be February 6, 1995.
II. Payment of Deferred Compensation.
A. If Gilliland is employed by the Corporation continuously
from the Effective Date until any of the dates set forth in the
table below, he shall receive as deferred compensation, commencing
on the first day of the month following the later of (i) his Normal
Retirement Date (as defined below) or (ii) the month in which he
retires from employment with the Corporation, and on the first day
of each succeeding month continuing for 119 months thereafter, the
monthly payment set forth below opposite the date which immediately
precedes his termination date. For purposes hereof, the Normal
Retirement Date means the date on which Gilliland attains age 65,
or would have attained age 65 in the event of his earlier death.
Vesting Date
<TABLE>
<CAPTION>
Vesting Date Monthly Payment Total Vested Amount
------------ --------------- -------------------
<S> <C> <C>
February 1, 2000 $833.33 $100,000
February 1, 2001 $1,666.67 $200,000
February 1, 2002 $2,500.00 $300,000
February 1, 2003 $3,333.33 $400,000
February 1, 2004 $4,166.67 $500,000
</TABLE>
Notwithstanding any other provision of this Agreement to the
contrary, upon the occurrence of any of the following events prior
to the Normal Retirement Date and while Gilliland is employed by
the Company, Gilliland shall be entitled to receive deferred
compensation in accordance with the provisions of this Section II
as if he had remained in the employ of the Company continuously
until the Normal Retirement Date; provided, however, such deferred
compensation shall be payable on the first day of the month
following the month in which he actually retires from employment
with the Company or the Normal Retirement Date, whichever occurs
later, and on the first day of each succeeding month continuing for
120 months after the later of his actual retirement or the Normal
Retirement Date:
(1) the merger or consolidation of the Company with
another company or the sale, exchange, transfer or other
disposition of all, or substantially all, of the assets of the
Company in a transaction in which those persons who are
holders of common stock
<PAGE>
of the Company immediately prior to the consummation of such
transaction will not, immediately after the consummation thereof,
be in control of the surviving or successor corporation or entity;
or
(2) the acquisition by any individual, corporation,
partnership, trust, entity or other person or any group
thereof of the beneficial ownership (as such terms are used in
Section 13(d) of the Securities Exchange Act of 1934, as
amended) of voting securities representing 51% or more of the
combined voting power of the Company's then outstanding voting
securities; or
(3) the acquisition by any individual, corporation,
partnership, trust, entity or other person or any group
thereof of the beneficial ownership (as such terms are used in
Section 13(d) of the Securities Exchange Act of 1934, as
amended) of voting securities representing 20% or more of the
combined voting power of the Company's then outstanding voting
securities and the reconstitution of the Board of Directors of
the Company such that a majority of the directors are the
nominees of such person or group.
In no event shall the amount of deferred compensation
otherwise payable under this Agreement exceed the lesser of (i)
299% of Gilliland's "base amount" (as such term is defined and used
in Section 280G of the Internal Revenue Code of 1986 (the "Code")),
or (ii) the maximum amount of additional compensation which may be
paid to Gilliland (after taking into account all other amounts
payable to or for the benefit of Gilliland) without such additional
compensation resulting in the denial of any Federal income tax
deduction by the Company for such payments under Section 280G or
Section 4999 of the Code. For purposes of clause (ii) of the
immediately preceding sentence, the determination of whether
Section 280G or Section 4999 of the Code applies to deferred
compensation otherwise payable to Gilliland, and, if so, the
maximum amount of deferred compensation which may be paid in
accordance with clause (ii) of the immediately preceding sentence,
shall be made by the Board of Directors of the Company, which may
rely upon the advice of the Company's legal counsel, and such
determination shall be conclusively binding upon the Company and
Gilliland. If the determination of the Board as provided in the
immediately preceding sentence is not accepted by the Internal
Revenue Service upon audit of either the Company or Gilliland, the
Company shall not be liable to Gilliland for reimbursement of any
excise tax or for any other tax, penalty, interest, cost or
damages.
B. If Gilliland dies prior to the Normal Retirement Date
while employed by the Corporation, the amounts that would have been
paid to Gilliland under Paragraph A hereof, if he had retired on
the Normal Retirement Date, shall be paid to the beneficiary or
beneficiaries designated by Gilliland or, if no such designation
has been made, to the executor or administrator of Gilliland's
estate or to his heirs at law if no administration is had on
Gilliland's estate, and such payments shall commence on the first
day of the month following the month in which Gilliland's death
occurs.
C. If, following retirement, Gilliland does not live to
receive all the deferred compensation to which he is entitled
pursuant to Paragraph A hereof, the monthly payments
2
<PAGE>
which remain unpaid at the date of Gilliland's death shall be
paid to the beneficiary or beneficiaries designated by Gilliland
or, if no such designation has been made, to the executor or
administrator of Gilliland's estate or to his heirs at law if no
administration is had on Gilliland's estate.
III. Disability.
A. If Gilliland's employment with the Corporation is
terminated as a result of his Total and Permanent Disability
(defined below) prior to the Normal Retirement Date and he remains
Totally and Permanently Disabled until the Normal Retirement Date,
Gilliland shall be entitled to receive monthly payments, commencing
on the Normal Retirement Date in accordance with the provisions of
Section II hereof, as if he had remained in the employ of the
Corporation continuously until the Normal Retirement Date and then
terminated employment on that date. If Gilliland's employment with
the Corporation is terminated as a result of his Total and
Permanent Disability, and Gilliland is thereafter determined by the
Board of Directors of the Corporation, pursuant to Paragraph III.B
below, to be no longer Totally and Permanently Disabled before the
Normal Retirement Date, Gilliland's rights under this Agreement
shall terminate unless he returns to active employment with the
Corporation within thirty (30) days following the date he is
determined to be no longer Totally and Permanently Disabled.
B. For the purposes of this Section, a determination by the
Board of Directors of the Corporation in its discretion that
Gilliland is Totally and Permanently Disabled or is no longer
Totally and Permanently Disabled shall be conclusive and binding on
all parties.
Total and Permanent Disability means a mental or physical
disability which in the opinion of a physician selected by the
Corporation will prevent Gilliland from earning a reasonable
livelihood with the Corporation, which can be expected to result in
death or which has lasted or can be expected to last for a
continuous period of not less than twelve months and which:
1. Was not contracted, suffered or incurred while
Gilliland was engaged in, or did not result from his
having engaged in, a felonious criminal enterprise;
2. Did not result from alcoholism or addiction to
narcotics or any self-inflicted injury while sane or
insane; and
3. Did not result from an injury incurred while
Gilliland was a member of the armed forces of the United
States and for which Gilliland receives a military
pension.
3
<PAGE>
IV. Severance of Employment.
If Gilliland's employment with the Corporation is severed or
terminated for any reason with or without cause (including
resignation by Gilliland or termination by the Corporation) other
than due to his Total and Permanent Disability or death as provided
herein, no deferred compensation shall be paid under the terms of
the Agreement and Gilliland's rights under this Agreement shall
terminate.
V. Forfeiture of Deferred Compensation.
Payment of deferred compensation to Gilliland under the
Agreement may be terminated by the Corporation, if Gilliland during
any time that he is receiving payments hereunder, associates
himself with or engages in, directly or indirectly, either
personally or as an employee, associate, partner, stockholder,
manager, agent or otherwise, or by means of any corporate or legal
device, any business, which, in the opinion of the Board of
Directors of the Corporation, is in competition with the business
of the Corporation, or solicits or obtains business from customers
or suppliers of the Corporation who were customers or suppliers on
the date he retires.
VI. Right to Discharge.
Nothing in this Agreement shall be construed to be a contract
of employment and the Corporation reserves the absolute right to
discharge Gilliland at any time with or without cause.
VII. Assignment.
Gilliland, his spouse and his heirs shall have no right to
commute, sell, transfer, assign or otherwise convey any right to
receive any payment under this Agreement. Any such attempted
assignment or transfer shall terminate Gilliland's rights under
this Agreement and the Corporation shall have no further obligation
or liability to him hereunder.
VIII. Right to Other Benefits.
Nothing contained in this Agreement shall in any way affect or
interfere with the right of Gilliland to share or participate in
any other retirement, profit-sharing, bonus or similar plan of the
Corporation in which he may be entitled to share or participate as
an officer or employee of the Corporation.
IX. Waiver.
No term or provision of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the
enforcement of any term or provision of this Agreement, except by
a written instrument signed by the party charged with such waiver
or estoppel. No such written waiver shall be deemed a continuing
waiver unless specifically stated therein.
4
<PAGE>
X. Entire Agreement; Modification; Interpretation.
This Agreement constitutes the entire agreement between the
parties concerning the subject matter hereof, and there are no
promises, representations, warranties or commitments with respect
to such subject matter except as set forth herein. This Agreement
may be amended or modified only by a written instrument executed by
the Chief Executive Officer of the Corporation, or by another
officer of the Corporation duly authorized by the Board of
Directors of the Corporation, and by Gilliland or his legal
representative. This Agreement shall be subject to interpretation
and construction by the Corporation in its discretion, including
supplying any omission, correcting any defect, or resolving any
inconsistency.
XI. Severability.
If any term or provision of this Agreement is determined to be
invalid, illegal or unenforceable by final judgment of any court of
competent jurisdiction, such term or provision shall not affect the
validity, legality or enforceability of any other term or
provision, and the remainder of this Agreement which shall remain
in full force and effect.
XII. Governing Law, Taxes and Rights as a Creditor.
THIS AGREEMENT SHALL BE SUBJECT TO AND CONSTRUED UNDER THE
LAWS OF THE STATE OF TEXAS AND, TO THE EXTENT APPLICABLE, THE
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED, AND
ANY OTHER APPLICABLE LAWS OF THE UNITED STATES. The Corporation
shall have the right to withhold any tax which Corporation
determines is required to be withheld in
5
<PAGE>
connection with the payments provided for herein. Gilliland's
rights hereunder shall at all times be those of a general
creditor of the Corporation.
WITNESS: PROLER INTERNATIONAL CORP.
By: /s/ David A. Juengel By: /s/ Herman Proler
----------------------------- --------------------------
Herman Proler,
Name: David A. Juengel Chairman of the Board and
----------------------- Chief Executive Officer
Date: March 2, 1995
--------------------------- Date: March 2, 1995
------------------------
WITNESS:
By: /s/ David A. Juengel /s/ Steve Gilliland
----------------------------- -----------------------------
Steve Gilliland
Name: David A. Juengel
------------------------
Date: March 2, 1995 Date: March 2, 1995
--------------------------- ------------------------
6
<PAGE>
EXHIBIT 21
PROLER INTERNATIONAL CORP. AND SUBSIDIARIES
The following table provides certain information as to (i) each direct and
indirect subsidiary of the Company and (ii) each of the Company's joint
operations:
<TABLE>
<CAPTION>
RELATIONSHIP
TO COMPANY
OR A
NAME OF ENTERPRISE SUBSIDIARY (1)
------------------ --------------
<S> <C>
The Company: Proler International Corp., a Delaware corporation
Subsidiaries of the Company included in consolidated financial statements:
Prolerized Steel Corporation, a Texas Corporation.............................. 100%
Proleride Transport Systems, Inc., a Texas corporation......................... 100%
Buffalo Steel Corporation, a Texas corporation................................. 100%
Gulf Coast Metals, Inc., a Texas corporation; a wholly owned subsidiary
of Buffalo Steel Corporation.................................................. 100%
MRI Corporation, a Delaware corporation........................................ 100%
Proler Environmental Services, Inc., a Delaware corporation.................... 100%
Proler Recycling, Inc., (formerly Proler Elemental Refining, Inc.)
a Delaware corporation........................................................ 100%
Joint Operations of the Company included in combined financial statements filed
for unconsolidated subsidiaries:
Hugo Neu-Proler Company, a partnership under the laws of California............ 50%(2)
Prolerized Chicago Corporation, an Illinois corporation........................ 50%
Maru Shipping Company, Inc., a Panamanian corporation.......................... 50%(2)
Prolerized New England Company, a partnership under the laws of New York....... 50%(2)(3)
Prolerized Schiabo-Neu Company, a partnership under the laws of New York....... 33 1/3%(2)
Dover Barge Company, a Delaware corporation.................................... 33 1/3%
Worcester Recycling, Inc., a Massachusetts corporation......................... 50%(3)
Prolerized New England Foreign Sales Corporation, a Virgin Island corporation.. 50%(4)
Prolerized Schiabo-Neu Foreign Sales Corporation, a Virgin Island corporation.. 33 1/3%(5)
Hugo Neu-Proler Foreign Sales Corporation, a Virgin Island corporation......... 50%(6)
Pacific Bulk Loading, Inc., a California corporation........................... 50%
Bulkloader, Inc., a Massachusetts corporation.................................. 50%(4)
Pacific Industrial Metal Corporation, a California corporation................. 50%(7)
H. Finkelman, Inc., a Maine corporation........................................ 50%(3)
B. Rovner & Co., Inc. a New Hampshire corporation.............................. 50%(4)
Point Comfort Venture, a partnership under the laws of Texas................... 50%
Alameda Street Metal Corp., a California corporation........................... 50%
HPNJ, a partnership under the laws of New York................................. 50%(2)
HPI, a partnership under the laws of New York.................................. 49%(2)
HPNJ Foreign Sales Corporation, a Virgin Islands corporation................... 50%
- ------------------
(1) Percentage of voting stock or share in profits owned by the Company except as otherwise indicated.
(2) Control can be exercised by the Company only by unanimous consent of the partners.
(3) Owned by Proleride Transport Systems, Inc. Company, a partnership. See footnote (2).
(4) Owned by Prolerized New England Company, a partnership. See footnote (2).
(5) Owned by Prolerized Schiabo-Neu Company, a partnership. See footnote (2).
(6) Owned by Hugo Neu-Proler Company, a partnership. See footnote (2).
(7) Owned by Pacific Bulk Loading, Inc.
</TABLE>
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Proler International Corp. on Form S-8 (File No. 33-35013) of our reports dated
April 28, 1995, on our audits of the consolidated financial statements of Proler
International Corp. and subsidiaries and the combined financial statements of
Proler International Corp.'s Joint Operations as of January 31, 1995 and 1994,
and for each of the three years in the period ended January 31, 1995, which
reports are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Houston, Texas
April 28, 1995
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Proler International Corp. on Form S-8 (File No. 33-35013) of our reports dated
March 22, 1995, and February 21, 1995, respectively, on our audits of the
consolidated financial statements and financial statement schedules of
Prolerized Schiabo-Neu Company as of December 31, 1994 and 1993 and for each of
the three years in the period ended December 31, 1994, 1993 and 1992 and Dover
Barge Company as of January 31, 1995 and 1994, and for each of the three years
in the period ended January 31, 1995, 1994 and 1993 (not presented separately
therein), which reports are included in this Annual Report on Form 10-K.
LA GUARDIA & PETRELLA L.L.C.
Fort Lee, New Jersey
April 28, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Proler International Corp.'s Consolidated Financial Statements and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1995
<PERIOD-START> FEB-01-1994
<PERIOD-END> JAN-31-1995
<CASH> 3,829
<SECURITIES> 0
<RECEIVABLES> 2,183
<ALLOWANCES> 0
<INVENTORY> 1,752
<CURRENT-ASSETS> 9,342
<PP&E> 35,047
<DEPRECIATION> 15,802
<TOTAL-ASSETS> 65,439
<CURRENT-LIABILITIES> 4,317
<BONDS> 0
<COMMON> 5,351
0
0
<OTHER-SE> 53,129
<TOTAL-LIABILITY-AND-EQUITY> 65,439
<SALES> 18,610
<TOTAL-REVENUES> 18,610
<CGS> 18,091
<TOTAL-COSTS> 18,091
<OTHER-EXPENSES> 1,690
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 453
<INCOME-PRETAX> 464
<INCOME-TAX> 161
<INCOME-CONTINUING> 303
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 303
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
