<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1997
REGISTRATION NO. 333-36549
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------
AMENDMENT NO. 1 TO
Form S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------------------
PHILIP SERVICES CORP.
(Exact name of Registrant as specified in its charter)
ONTARIO
(Province, state or other jurisdiction of incorporation or organization)
4953
(Primary Standard Industrial Classification Code Number)
NOT APPLICABLE
(I.R.S. Employer Identification No.)
100 KING STREET WEST, P.O. BOX 2440, LCD1
HAMILTON, ONTARIO, CANADA
L8N 4J6
(905) 521-1600
(Address (including postal or zip code) and telephone number (including area
code)
of registrant's principal executive offices)
PHILIP ENVIRONMENTAL (NEW YORK) INC.
C/O CT CORPORATION SYSTEM
1633 BROADWAY
NEW YORK, NEW YORK 10010
(212) 664-1666
(Name, address (including zip code) and telephone number
(including area code) of agent for service)
------------------------------------
COPIES TO:
<TABLE>
<S> <C>
ROBERT M. CHILSTROM, ESQ. EDWIN L. MILLER, JR., ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP TESTA, HURWITZ & THIBEAULT, LLP
919 THIRD AVENUE 125 HIGH STREET
NEW YORK, NEW YORK 10022 BOSTON, MASSACHUSETTS 02110
(212) 735-3000 (617) 248-7000
</TABLE>
------------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------
PROPOSED MAXIMUM
TITLE OF EACH CLASS PROPOSED MAXIMUM AGGREGATE AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER UNIT(2) PRICE(2) FEE
- --------------------------------------------------------------------------------------------------
Common Shares, no par
value................... 23,000,000 shares US$19.29 US$443,670,000 US$134,446
</TABLE>
- --------------------------------------------------------------------------------
(1) Includes Common Shares that (i) are to be offered and sold in the United
States, (ii) are to be offered outside the United States but that may be
resold from time to time in the United States during the distribution and
(iii) may be purchased by the Underwriters pursuant to over-allotment
options and resold in the United States.
(2) Estimated solely for purposes of determining the registration fee in
accordance with Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been fixed with
the Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
Subject to Completion
September 26, 1997
PROSPECTUS
[LOGO]
20,000,000 SHARES
PHILIP SERVICES CORP.
COMMON SHARES
(NO PAR VALUE)
All of the common shares (the "Common Shares") offered hereby are being issued
and sold by Philip Services Corp. ("Philip" or the "Company"). Of the Common
Shares offered, Common Shares are being offered by the U.S. Underwriters
(as defined herein) in the United States (the "U.S. Offering") and Common
Shares are being offered by the International Underwriters (as defined herein)
in a concurrent offering outside the United States (the "International Offering"
and, together with the U.S. Offering, the "Offerings"), subject to transfers
between the U.S. Underwriters and the International Underwriters (collectively,
the "Underwriters"). The public offering price and the underwriting commission
per share will be identical for the U.S. Offering and the International
Offering. The closing of each of the U.S. Offering and the International
Offering is conditioned upon the other. See "Underwriting."
The outstanding Common Shares are listed on the New York Stock Exchange (the
"NYSE"), The Toronto Stock Exchange (the "TSE") and the Montreal Exchange (the
"ME") under the symbol "PHV." On September 23, 1997, the last reported sale
price of the Common Shares on the NYSE, the TSE and the ME was US$19.31,
Cdn$26.90 and Cdn$26.60, respectively. See "Price Range and Trading Volume of
the Common Shares."
See "Risk Factors" commencing on page 14 for a discussion of certain factors
that should be considered by potential investors.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC COMMISSION COMPANY(1)
<S> <C> <C> <C>
Per Share................................... US$ US$ US$
Total(2).................................... US$ US$ US$
</TABLE>
- --------------------------------------------------------------------------------
(1) Before deducting expenses payable by the Company estimated at US$2,500,000.
(2) The Company has granted to the U.S. Underwriters and the International
Underwriters 30-day options to purchase up to and additional
Common Shares, respectively, at the Price to Public, solely to cover
over-allotments, if any. If the Underwriters exercise such options in full,
the total Price to Public, Underwriting Commission and Proceeds to Company
will be US$ , US$ and US$ , respectively. See "Underwriting."
The Common Shares are offered subject to receipt and acceptance by the
Underwriters, to prior sale and to the Underwriters' right to reject any order
in whole or in part and to withdraw, cancel or modify the offer without notice.
It is expected that delivery of the Common Shares will be made at the office of
Salomon Brothers Inc, Seven World Trade Center, New York, New York, or through
the facilities of The Depository Trust Company, on or about , 1997.
SALOMON BROTHERS INC MERRILL LYNCH & CO.
The date of this Prospectus is , 1997.
<PAGE> 3
INSIDE FRONT COVER
[MAP OF FACILITIES]
[THE FOLLOWING NAMES APPEAR IN AN ORGANIZATIONAL CHART OF THE COMPANY'S BUSINESS
UNITS:]
Philip Services Corp.
Metals Recovery Group (Steel, Copper, Aluminum)
Industrial Services Group (On-Site Services, By-Products Recovery,
Environmental Services, Utilities Management)
CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SUCH TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON SHARES PRIOR TO THE PRICING
OF THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON SHARES
AND THE PURCHASE OF COMMON SHARES FOLLOWING THE PRICING OF THE OFFERING TO COVER
A SYNDICATE SHORT POSITION IN THE COMMON STOCK OR FOR THE PURPOSE OF MAINTAINING
THE PRICE OF THE COMMON STOCK. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
<PAGE> 4
GATEFOLD 1
<TABLE>
<C> <S>
Photograph: Shot of steel scrap bundles
Caption STEEL
Philip's facilities can annually process over 4 million tons of ferrous scrap,
a significant raw material in steel manufacturing.
Photograph: Cable and wire scrap being loaded onto conveyor by bobcat.
Caption: COPPER
Philip is the largest processor of cable and wire scrap in North America,
recovering copper, aluminum and plastics.
Photograph: Man in white hardhat ladling molten aluminum into ingots to produce deoxidizing
products.
Caption: ALUMINUM
Deoxidizing products processed from aluminum scrap are supplied to steel mills
and are used to eliminate gas bubbles in molten steel.
Photograph: Worker welding pipes at refinery.
Caption: INDUSTRIAL SERVICES
Philip provides integrated maintenance services for refineries, petrochemical
facilities and power plants, including specialized welding services.
Photograph: Two men in yellow suits in front on CN train.
Caption: INDUSTRIAL SERVICES
Philip provides single vendor on-site industrial cleaning and waste management
services to CN Rail facilities.
</TABLE>
<PAGE> 5
GATEFOLD 2
[DESCRIPTION OF BACKGROUND FOR GATEFOLD SPREAD: THREE PHILIP EMPLOYEES IN
COMPLETE PROTECTIVE CLOTHING LEANING ON SHOVELS AND STANDING IN FRONT OF
ELECTRIC ARC FURNACE AT STEEL MILL.]
[PHILIP LOGO]
<PAGE> 6
ENFORCEABILITY OF CERTAIN CIVIL LIABILITIES
Philip is a corporation existing under the laws of the Province of Ontario,
Canada. A majority of Philip's current directors and officers, and certain
experts named herein, are residents of Canada, and all or a substantial portion
of the assets of such persons and a substantial part of the assets of Philip are
located outside the United States. Consequently, it may be difficult for United
States investors to effect service of process within the United States on such
persons, or to realize, in the United States, upon judgments rendered against
Philip or such persons predicated upon the civil liability provisions of the
U.S. Federal securities laws. In addition, there is substantial doubt as to the
enforceability in Canada against Philip or such persons, in original actions or
in actions for enforcement of judgments of United States courts, of liabilities
predicated solely upon the U.S. Federal securities laws.
FORWARD-LOOKING STATEMENTS
This prospectus contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 with respect to
the results of operations and businesses of the Company. These forward-looking
statements involve certain risks and uncertainties. Factors that may cause
actual results to differ materially from those contemplated or projected,
forecast, estimated or budgeted in such forward-looking statements include,
among others, the following possibilities: (1) heightened competition, including
the intensification of price competition and the entry of new competitors; (2)
adverse state, federal and Canadian legislation and regulation; (3) failure to
obtain new customers or retain existing customers; (4) inability to carry out
marketing and/or expansion plans; (5) failure to successfully integrate acquired
businesses and/or to acquire additional businesses on favorable terms; (6) loss
of key executives; (7) changes in interest rates; (8) general economic and
business conditions which are less favorable than expected and (9) unanticipated
changes in industry trends. See "Risk Factors."
PRESENTATION OF FINANCIAL INFORMATION
The historical consolidated financial statements of Philip contained in
this Prospectus are reported in Canadian dollars and have been prepared in
accordance with generally accepted accounting principles in Canada ("Canadian
GAAP"). These principles conform in all material respects with accounting
principles generally accepted in the United States ("U.S. GAAP"), except as
described in Note 18 to the audited historical consolidated financial statements
of Philip (the "Consolidated Financial Statements of the Company") included
elsewhere in this Prospectus.
Except for the Consolidated Financial Statements of the Company and except
where otherwise indicated, all dollar amounts in this Prospectus are expressed
in U.S. dollars. References to $ are to U.S. dollars, and references to Cdn$ are
to Canadian dollars.
5
<PAGE> 7
EXCHANGE RATE INFORMATION
The following table sets forth, for each period indicated, the high and low
exchange rates for Canadian dollars expressed in U.S. dollars, the average of
such exchange rates on the last day of each month during such period, and the
exchange rate at the end of such period, based on the inverse of the noon buying
rate in The City of New York for cable transfers in Canadian dollars as
certified for customs purposes by the Federal Reserve Bank of New York (the
"Noon Buying Rate"):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, FISCAL YEARS ENDED DECEMBER 31,
-------------------- -----------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Low.............. 0.7145 0.7235 0.7235 0.7023 0.7103 0.7439 0.7761
High............. 0.7487 0.7391 0.7513 0.7527 0.7632 0.8046 0.8757
End.............. 0.7241 0.7322 0.7301 0.7323 0.7128 0.7544 0.7865
Average.......... 0.7269 0.7310 0.7330 0.7307 0.7302 0.7733 0.8242
</TABLE>
On September 23, 1997, the inverse of the Noon Buying Rate was $0.7193 per
Cdn$1.00.
------------------------------------
Fast Draw(R), Fast Clean(R), Life Guard(R), WeldSmart (R) and EPOC(R) are
trademarks, trade names or servicemarks of the Company or its subsidiaries that
are registered or otherwise protected under laws of various jurisdictions.
6
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and related notes appearing elsewhere in
this Prospectus. In this Prospectus, the terms "Company" or "Philip" mean Philip
Services Corp., its predecessors and its direct and indirect subsidiaries,
unless the context otherwise indicates. Prospective investors should carefully
consider the factors set forth herein under "Risk Factors" and are urged to read
this Prospectus in its entirety. Unless otherwise specifically indicated, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment options. All dollar references ($) in this Prospectus are to U.S.
dollars unless otherwise specifically indicated. References to Cdn$ are to
Canadian dollars.
THE COMPANY
The Company is one of North America's leading suppliers of resource
recovery and industrial services. The Company has the largest integrated network
of metals recovery and industrial services operations in North America,
servicing over 50,000 industrial and commercial customers from over 300
locations. The Company applies proprietary technologies to reduce the cost and
downtime associated with industrial cleaning and plant turnaround activities,
and to recover value from industrial by-products and metal bearing residuals.
The Company has achieved its leading position in the metals recovery and
industrial services markets through internal growth and through the acquisition
and integration of 40 companies since the beginning of 1996. As a result, the
Company is viewed as a leading consolidator in the metals recovery and
industrial services industries. The Company's primary base of operations is in
the United States, with over 70% of the Company's worldwide revenue generated in
U.S. dollars in the six months ended June 30, 1997. At September 23, 1997, the
aggregate market value of the outstanding Common Shares was $1.974 billion.
The Company's business is organized into two operating divisions -- the
Metals Recovery Group and the Industrial Services Group. The Metals Recovery
Group's three primary business operations are ferrous (steel), copper and
aluminum processing and recycling. The ferrous metals operations include the
collection and processing of ferrous scrap materials for shipment to steel mills
and the provision of related mill services. Ferrous operations also include
steel service centers that process and distribute structural steel products.
Copper operations are comprised of cold process mechanical recovery facilities,
scrap management, the management of material recycling centers for the
telecommunications industry, and copper refining. The group's aluminum recycling
operations process aluminum dross, a by-product of primary aluminum production,
and produce aluminum deoxidizing products and alloys from aluminum scrap. Both
the ferrous and non-ferrous operations of Philip provide significant brokerage
capabilities for scrap materials and primary metals, including steel, copper,
aluminum and tin. The Company services the steel, telecommunications, aluminum,
wire and cable and automotive industries, as well as utilities. Major customers
for the Company's ferrous processing operations include Armco, ASW, Copperweld,
Dofasco, Republic Engineered Steels, Stelco and Timken. Major customers for the
Company's non-ferrous processing operations include AK Steel, Bethlehem Steel,
Chrysler Canada, Noranda and Southwire.
The Industrial Services Group is the largest integrated provider of on-site
industrial services, by-products recovery and environmental services in North
America, with a network of over 250 facilities. The Industrial Services Group's
operations are divided into four main activities: on-site industrial services,
by-products recovery, environmental services and utilities management. On-site
industrial services include industrial cleaning and maintenance, waste
collection and transportation, container services and tank cleaning, turnaround
and outage services, mechanical contracting and refractory services. By-products
recovery includes distillation, engineered fuel blending, paint overspray
recovery, organic and inorganic processing and polyurethane recycling.
Environmental services include strategic resource management, decommissioning,
remediation, environmental consulting and engineering, and analytical and
emergency response services. Major clients include BASF, Boise Cascade, Chevron,
Conoco, Dupont, Ford, General Electric, General Motors, Monsanto, PPG and Shell.
7
<PAGE> 9
According to industry sources, the North American market for resource
recovery and industrial services is estimated to be a $50 billion market growing
at over 10% annually. The market is driven by manufacturers' desire to increase
efficiency and enhance competitiveness through increased outsourcing of non-core
services, a reduction in the number of vendors from which outsourced services
are purchased, and by maximizing resource recovery opportunities from waste and
by-products streams. The market for industrial services and resource recovery is
fragmented and primarily served by small, specialized regional service
providers. Resource recovery and industrial services are prime candidates for
outsourcing as neither are core activities and both benefit from the expertise
and economies of scale an outside supplier can provide.
The Company believes that it has developed a strategy to enhance its
leadership position by capitalizing on these industry trends. Key elements of
the Company's strategy include the following:
- Increase sales to existing customers by cross-selling services;
- Pursue strategic acquisitions that will broaden the Company's services
to existing customers or in key geographic regions with significant
industrial activity;
- Continue to vertically integrate its collection, processing and
distribution network; and
- Continue to develop and apply innovative process and service
technologies.
COMPETITIVE STRENGTHS
The Company believes the following competitive strengths enhance its
leadership position in the resource recovery and industrial services sectors:
Broadest Range of Integrated Services: Philip offers the broadest range of
metals recovery, by-products recovery and industrial and environmental services
in the industry. The Company believes it can better assist its clients achieve
lower costs and improve operating efficiencies by providing single source
solutions.
Broad Geographic Network: The Company's broad geographic network, unlike
its regional competitors, can support the requirements of its customers
throughout North America. This network enables the Company to effectively
package and cross-sell services to large North American accounts.
Proprietary Technologies: The Company has developed a series of
proprietary waste minimization, recovery and industrial cleaning and turnaround
processes. These proprietary technologies enable the Company to recover a higher
percentage of usable components and reduce both disposal costs and downtime
associated with turnaround operations.
Leading Consolidator: The industrial services sector is highly fragmented
and is undergoing rapid consolidation in response to market demands for vendor
reduction and broad geographic service capabilities. Philip is a leading
consolidator in the industry as a result of its financial strength, focused
strategy and multi-service capabilities.
RECENT ACQUISITIONS
Over the past five years, the Company has focused on increasing its revenue
base, its range of services and its geographic network of facilities throughout
North America through a series of strategic acquisitions. The Company intends to
continue to selectively pursue acquisitions in the United States and Canada in
the resource recovery and industrial services industries. The Company also
intends to pursue international markets by expanding its ferrous operations in
the United Kingdom and by supporting the European operations of its North
American clients. The following are the principal acquisitions completed by the
Company since June 30, 1997. Since revenues reported by the acquired businesses
were in certain instances prepared on a different basis of presentation than
those of the Company, such reported revenues are not necessarily indicative of
the revenues that would have been recognized by the Company on a pro forma basis
or that will be recognized by the Company in future periods.
8
<PAGE> 10
METALS RECOVERY
Intermetco. In August 1997, Philip completed the acquisition of Intermetco
Limited ("Intermetco"), a Canadian corporation, for a total consideration of
Cdn$66 million, including the assumption of Cdn$8 million in debt. The
acquisition price was paid with Cdn$4.7 million in cash and by the issuance of
approximately 2.7 million Common Shares. Intermetco is a scrap and recycling
processor which also manufactures and distributes pipe and tubular products.
Intermetco reported sales of Cdn$194.9 million for the fiscal year ended
December 31, 1996. The acquisition enhances Philip's ability to supply its steel
industry clients with fully integrated services, from raw materials to
by-products processing and distribution services. The Company believes that
significant synergies will be realized through the increased tonnage processed
at the Company's existing facilities, and through the integration of
Intermetco's pipe and tubular products operations into Philip's southwestern and
southeastern steel processing and distribution networks.
Roth. In July 1997, Philip purchased Roth Bros. Smelting Corp. ("Roth"), a
private company based in Syracuse, New York, for a total consideration of
approximately $52 million, including the assumption of $6.7 million in debt. The
acquisition price was paid with $37.5 million in cash and by the issuance of
approximately 422,000 Common Shares. Roth is a manufacturer of secondary
aluminum alloy products for the automotive and other industrial manufacturing
industries which recorded sales of approximately $94 million for the fiscal year
ended December 31, 1996. The Company believes the acquisition of Roth expands
its aluminum alloy operations and will result in greater market penetration of
the automotive manufacturers that are heavily concentrated in the Great Lakes
region.
INDUSTRIAL SERVICES
Allwaste. In July 1997, Philip acquired Allwaste, Inc. ("Allwaste") for a
total consideration of $502 million, including the assumption of $142 million in
debt. The acquisition price was paid by the issuance of approximately 23 million
Common Shares. Allwaste is an integrated provider of industrial and
environmental services which reported revenues of $382.2 million for the fiscal
year ended August 31, 1996. The Company believes the acquisition of Allwaste
significantly broadens the Company's service offerings, expands its geographical
presence in the United States and significantly increases its customer list. In
addition, Allwaste is expected to provide the Company with opportunities to
rationalize operations, to enhance revenues through the cross-selling of
services and to improve asset utilization.
Serv-Tech. In July 1997, Philip completed the acquisition of Serv-Tech
Inc. ("Serv-Tech") for a total consideration of $58 million, including the
assumption of $15 million in debt. The acquisition price was paid by the
issuance of approximately 2.7 million Common Shares. Serv-Tech is an integrated
provider of specialty services and products, including turnaround project
management services, electrical and instrumentation management services, and
specialty chemicals products. Serv-Tech reported revenues of $142.4 million for
the fiscal year ended December 31, 1996. The Company believes the acquisition
will strengthen its position in industrial maintenance and turnaround services.
In addition, the acquisition will broaden the Company's customer base in the
petrochemical and oil and gas utility industries.
CREDIT FACILITY
On August 11, 1997, the Company and Philip Environmental (Delaware) Inc.
("PEI"), a wholly owned subsidiary of the Company, entered into a Credit
Agreement with a group of Canadian and United States financial institutions,
providing for a revolving credit facility (the "Credit Facility") up to a
maximum amount of $1.5 billion. The Credit Facility, which is secured by a
pledge of all securities held by the Company and PEI in all of their material
subsidiaries has a five-year term. Borrowings under the Credit Facility bear
interest at varying rates, depending on the nature of the loan and the Company's
compliance with certain financial ratios. See "Description of Certain
Indebtedness -- Credit Facility."
------------------------------------
Philip is a corporation existing under the laws of the Province of Ontario.
The Company's head office is located at 100 King Street West, P.O. Box 2440,
LCD1, Hamilton, Ontario, Canada, L8N 4J6 and its telephone number is (905)
521-1600.
9
<PAGE> 11
THE OFFERINGS
<TABLE>
<S> <C>
COMMON SHARES OFFERED:
U.S. OFFERING............... Shares
INTERNATIONAL OFFERING...... Shares
-------------------
TOTAL.................... 20,000,000 Shares
-------------------
</TABLE>
COMMON SHARES TO BE
OUTSTANDING AFTER THE
OFFERINGS................ 122,214,491 shares(1)
USE OF PROCEEDS............ Net proceeds of the Offerings in the amount of
approximately $369.22 million will be used to repay
indebtedness outstanding under the Company's Credit
Facility. See "Use of Proceeds."
NYSE, TSE AND ME STOCK
EXCHANGE SYMBOL.......... "PHV"
- ---------------
(1) Based on 102,214,491 Common Shares outstanding as of September 23, 1997.
Excludes options outstanding at September 23, 1997 to purchase up to
9,198,690 Common Shares, of which options to acquire 4,232,871 Common Shares
were then exercisable, at prices ranging from Cdn$6.75 to Cdn$26.75.
10
<PAGE> 12
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table presents summary historical consolidated financial data
of Philip for the periods indicated, including the accounts of all companies
acquired prior to the end of the respective reporting periods. These companies,
all of which were acquired in transactions accounted for as purchases, are
included from their respective dates of acquisition. The selected historical
consolidated financial data for Philip as of and for the three years ended
December 31, 1996 is derived from the audited Consolidated Financial Statements
of Philip and as of and for the six months ended June 30, 1996 and 1997 is
derived from the unaudited interim consolidated financial statements of Philip,
which in the opinion of management include all adjustments (consisting solely of
normal recurring adjustments) necessary to present fairly the financial
information for such periods. Interim results are not necessarily indicative of
the results which may be expected for any other interim period or for a full
year. For all periods indicated, the selected historical consolidated financial
data reflects Philip's former municipal and commercial solid waste operations,
which were sold in August 1996, as a discontinued operation. Philip prepares its
Consolidated Financial Statements in accordance with Canadian GAAP. The summary
historical consolidated financial data set forth below is presented in both
Canadian GAAP and U.S. GAAP. Canadian GAAP conforms in all material respects
with U.S. GAAP, except as described in Note 18 to the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus. The selected
historical consolidated financial data should be read in conjunction with the
accompanying Consolidated Financial Statements of the Company and the related
Notes thereto included elsewhere in this Prospectus. Selected historical
consolidated financial data of the Company presented in U.S. GAAP (in U.S.
dollars) is disclosed in this Prospectus following the Consolidated Financial
Statements of the Company. Philip did not pay any cash dividends during the
periods set forth below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
FISCAL YEARS ENDED DECEMBER 31,
-------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- ----------- -----------
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CANADIAN GAAP:
STATEMENTS OF EARNINGS DATA:
Revenue.............................................. $ 856,629 $ 323,397 $ 802,490 $ 648,311 $ 489,740
Operating expenses................................... 701,300 251,586 615,462 489,569 366,649
Selling, general and administrative.................. 63,461 33,445 78,053 66,563 51,216
Depreciation and amortization........................ 24,148 15,438 33,966 25,510 21,354
--------- --------- --------- --------- ---------
Income from operations............................... 67,720 22,928 75,009 66,669 50,521
Interest expense..................................... 19,212 15,023 24,598 28,187 21,750
Other income and expense-net......................... (5,522) (2,459) (4,782) (3,689) (2,122)
--------- --------- --------- --------- ---------
Earnings from continuing operations before tax....... 54,030 10,364 55,193 42,171 30,893
Income taxes......................................... 16,392 2,707 15,180 12,354 8,769
--------- --------- --------- --------- ---------
Earnings from continuing operations.................. 37,638 7,657 40,013 29,817 22,124
Discontinued operations (net of tax)................. -- 7,234 (1,005) 2,894 2,502
--------- --------- --------- --------- ---------
Net earnings......................................... $ 37,638 $ 14,891 $ 39,008 $ 32,711 $ 24,626
========= ========= ========= ========= =========
Basic earnings per share:
Continuing operations.............................. $ 0.53 $ 0.19 $ 0.79 $ 0.80 $ 0.61
Discontinued operations............................ -- 0.18 (0.02) 0.08 0.07
--------- --------- --------- --------- ---------
$ 0.53 $ 0.37 $ 0.77 $ 0.88 $ 0.68
========= ========= ========= ========= =========
Fully diluted earnings per share:
Continuing operations.............................. $ 0.52 $ 0.19 $ 0.72 $ 0.68 $ 0.55
Discontinued operations............................ -- 0.14 (0.01) 0.05 0.05
--------- --------- --------- --------- ---------
$ 0.52 $ 0.33 $ 0.71 $ 0.73 $ 0.60
========= ========= ========= ========= =========
Weighted average number of common shares outstanding
(000s)............................................. 70,970 40,586 50,632 37,342 36,209
========= ========= ========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Working capital...................................... $ 526,982 $ 156,563 $ 347,501 $ 106,604 $ 88,269
Total assets......................................... 1,694,437 1,030,988 1,345,719 1,002,912 860,583
Total debt(1)........................................ 692,280 404,282 414,768 421,355 400,251
Shareholders' equity................................. 692,383 420,842 623,351 312,102 277,882
OTHER DATA:
Amortization......................................... $ 7,055 $ 5,188 $ 11,720 $ 9,798 $ 7,869
Depreciation......................................... 17,093 10,250 22,246 15,712 13,485
Additions to property, plant & equipment............. 44,539 22,810 59,847 37,016 29,910
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
FISCAL YEARS ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- --------- ---------
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
U.S. GAAP:
STATEMENTS OF EARNINGS DATA:
Revenue....................................... $ 856,629 $ 323,397 $ 742,975 $ 648,311 $ 489,740
Operating expenses............................ 701,300 251,586 563,393 489,569 366,649
Selling, general and administrative........... 63,461 33,445 75,674 66,563 51,216
Depreciation and amortization................. 24,148 15,438 33,006 25,510 21,354
--------- -------- --------- --------- --------
Income from operations........................ 67,720 22,928 70,902 66,669 50,521
Interest expense.............................. 19,212 15,023 22,157 25,557 19,339
Other income and expense-net.................. (5,522) (2,459) (4,708) (3,689) (2,122)
--------- -------- --------- --------- --------
Earnings from continuing operations before
tax......................................... 54,030 10,364 53,453 44,801 33,304
Income taxes.................................. 16,392 2,707 13,755 12,354 8,769
--------- -------- --------- --------- --------
Earnings from continuing operations........... 37,638 7,657 39,698 32,447 24,535
Discontinued operations (net of tax).......... -- 7,234 (1,005) 2,894 2,502
--------- -------- --------- --------- --------
Net earnings.................................. $ 37,638 $ 14,891 $ 38,693 $ 35,341 $ 27,037
========= ======== ========= ========= ========
Primary earnings per share:
Continuing operations....................... $ 0.53 $ 0.19 $ 0.79 $ 0.87 $ 0.68
Discontinued operations..................... -- 0.18 (0.02) 0.08 0.07
--------- -------- --------- --------- --------
$ 0.53 $ 0.37 $ 0.77 $ 0.95 $ 0.75
========= ======== ========= ========= ========
Fully diluted earnings per share:
Continuing operations....................... $ 0.52 $ 0.19 $ 0.69 $ 0.68 $ 0.55
Discontinued operations..................... -- 0.14 (0.01) 0.05 0.02
--------- -------- --------- --------- --------
$ 0.52 $ 0.33 $ 0.68 $ 0.73 $ 0.57
========= ======== ========= ========= ========
Weighted average number of common shares
outstanding (000s).......................... 70,970 40,586 50,073 37,342 36,209
========= ======== ========= ========= ========
BALANCE SHEET DATA (END OF PERIOD):
Working capital............................... $ 526,982 $ 156,563 $ 347,501 $ 106,604 $ 88,269
Total assets.................................. 1,687,430 1,026,211 1,338,692 998,135 855,681
Total debt(1)................................. 692,280 418,645 414,768 437,100 419,082
Shareholders' equity.......................... 685,376 401,702 616,324 291,580 254,150
OTHER DATA:
Amortization.................................. $ 7,055 $ 5,188 $ 11,016 $ 9,798 $ 7,869
Depreciation.................................. 17,093 10,250 21,990 15,712 13,485
Additions to property, plant and equipment.... 44,539 22,810 59,847 37,016 29,910
</TABLE>
- ---------------
(1) Total debt includes the current portion of long-term debt.
12
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA FINANCIAL DATA
The summary unaudited pro forma consolidated financial data set forth below
should be read in conjunction with the Unaudited Pro Forma Consolidated
Financial Information and related Notes included elsewhere in this Prospectus.
The summary unaudited pro forma financial information is presented as if the
acquisitions of Allwaste (completed on July 31, 1997), Intsel Southwest Limited
Partnership (completed on September 27, 1996) ("Intsel") and Luntz Corporation
(completed on December 23, 1996) ("Luntz") had occurred on January 1, 1996 (for
Statements of Earnings purposes) and as if the acquisition of Allwaste had
occurred on June 30, 1997 (for Balance Sheet purposes). The summary unaudited
pro forma statement of earnings data and balance sheet data do not take into
consideration other acquisitions completed by Philip in 1996 and 1997, which
acquisitions are not sufficiently material, either individually or in the
aggregate, to require pro forma disclosure under applicable disclosure rules.
The summary unaudited pro forma financial information is presented in U.S.
dollars and on the basis of U.S. GAAP, and excludes Philip's former municipal
and commercial solid waste operations and Allwaste's former glass recycling
operations since they are discontinued operations. This pro forma financial
information does not purport to represent what Philip's results of operations or
financial position would have been had the acquisitions of Allwaste, Intsel and
Luntz occurred on the dates indicated or for any future period or at any future
date.
<TABLE>
<CAPTION>
PRO FORMA
------------------------------------------------------
SIX MONTHS
ENDED FISCAL YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
--------------- -----------------
(thousands of dollars, except share and per share
amounts)
<S> <C> <C>
U.S. GAAP
STATEMENTS OF EARNINGS DATA:
Revenue................................................ $ 817,843 $ 1,162,306
Operating expenses..................................... 656,721 907,915
Selling, general and administrative.................... 66,536 113,251
Depreciation and amortization.......................... 37,003 67,740
---------- ----------
Income from operations................................. 57,583 73,400
Interest expense....................................... 18,926 32,479
Other income and expense-net........................... (5,870) (6,765)
---------- ----------
Earnings from continuing operations before tax......... 44,527 47,686
Income taxes........................................... 16,071 18,193
---------- ----------
Minority interest...................................... 138 (101)
---------- ----------
Earnings from continuing operations.................... $ 28,318 $ 29,594
========== ==========
Primary earnings per share............................. $ 0.30 $ 0.38
---------- ----------
Fully diluted earnings per share....................... $ 0.29 $ 0.36
========== ==========
Weighted average number of common shares
outstanding (000s)................................... 94,026 77,284
========== ==========
OTHER DATA:
Amortization........................................... 10,655 15,795
Depreciation........................................... 26,348 51,945
Additions to property, plant and equipment............. 50,254 66,677
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED(1)
----------- --------------
(thousands of dollars)
<S> <C> <C>
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................................................. $ 364,424 $ 364,424
Total assets.................................................................... 1,886,500 1,886,500
Total debt(2)................................................................... 607,396 238,178
Shareholders' equity............................................................ 888,617 1,257,835
</TABLE>
- ---------------
(1) As adjusted for the Offerings and the application of the estimated net
proceeds therefrom, at an assumed public offering price of $19.31 (based on
the last reported sale price of the Common Shares on the NYSE on September
23, 1997). See "Use of Proceeds."
(2) Total debt includes the current portion of long-term debt.
13
<PAGE> 15
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Common Shares.
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's consolidation strategy depends on its ability to identify and
acquire appropriate businesses for its industrial services and metals recovery
operations and to integrate the acquired operations effectively. There can be no
assurance that the Company will be able to locate acquisition candidates in
markets or on terms the Company deems attractive or that any identified
candidates will be acquired. The completion of acquisitions requires the
expenditure of sizeable amounts of capital, and the competition among companies
pursuing similar acquisition strategies may increase such capital requirements.
In order to finance any such acquisitions, it may be necessary for the Company
to raise additional funds either through public or private financings. Any
necessary equity or debt financing, if available at all, may be on terms that
are not favorable to the Company and may result in dilution to its shareholders.
In connection with its acquisitions, there may be liabilities that the
Company fails or is unable to discover, including liabilities arising from
pollution of the environment or non-compliance with environmental laws by prior
owners, and for which the Company, as a successor owner, may be responsible.
Indemnities and warranties for such liabilities from sellers, if obtained, may
not fully cover the liabilities due to their limited scope, amounts, or
duration, the financial limitations of the indemnitor or warrantor, or other
reasons.
Although the Company pursues its consolidation strategy with the
expectation that its acquisitions will result in beneficial synergistic effects
for the combined companies, there are significant uncertainties and risks
relating to the integration of an acquired company's operations. Whether the
anticipated benefits of the Company's acquisitions are ultimately achieved will
depend on a number of factors, including the ability of the combined companies
to achieve administrative cost savings, insurance and bonding cost reductions,
general economies of scale and, generally, to capitalize on the combined asset
base and strategic position of the combined companies. The timing and manner of
the implementation of decisions made with respect to the ongoing business of the
combined companies following the acquisition will materially affect the
operations of the combined companies. Given the range of potential outcomes
arising from such decisions and the interrelationships among decisions to be
made, it is difficult to quantify with precision the impact of such decisions on
the results of operations and financial condition of the combined companies.
There can be no assurance that any expected synergies will be realized or that
the results of the combined operations will be improved in a timely manner, if
at all. In addition, the process of integrating the acquired company's
operations into those of the Company could cause the interruption of, or the
loss of momentum in, the activities of either or both companies, which could
have an adverse effect on the combined operations.
The Company believes that consolidation within its industry will continue
to occur and that, to be a leader, its strategy must take account of this trend.
The Company expects to continue to evaluate acquisition opportunities on a
regular basis, including opportunities involving companies offered for sale in a
public auction process, and expects to pursue those situations which it believes
are in its long term best interests. The Company is currently engaged in
discussions concerning a number of possible acquisitions some of which, if they
are completed, would have a significant impact on the financial position
(including level of debt), results of operations and cash flows of the Company.
The terms of the Company's Credit Facility may restrict the Company's ability to
consummate certain acquisitions. There can be no assurance that any such
discussions will result in definitive agreements or completed transactions.
COMPETITION
The resource recovery and industrial services industries are highly
competitive and require substantial capital resources. Competition is both
national and regional in nature and the level of competition faced by the
Company in its various lines of business is significant. Technology in the
resource recovery
14
<PAGE> 16
and industrial services businesses is constantly changing. There can be no
assurance that the Company will be able to keep pace with technological changes,
that a competitor will not develop superior technology or that a well
capitalized competitor will not enter or expand in the areas in which the
Company competes.
The Company's primary competitors in the metals recovery industry are other
scrap processors in regions where its metals recovery operations are located.
The Company faces competition both on the purchase and sales sides of its
business; however, competition is particularly significant on the purchase side
for access to scrap. The Metals Recovery Group competes on the basis of price,
technological capability and service. The availability of scrap depends on a
number of factors, including the general level of economic activity in the
industries serviced by the Metals Recovery Group, many of which are cyclical in
nature, and market prices for scrap. Competition for access to scrap may
intensify during periods of scrap scarcity. There can be no assurance that the
Company will continue to have adequate access to scrap supplies at economic
prices.
The industrial services sector is also highly competitive and fragmented.
The Company competes with numerous local, regional and national companies of
varying sizes and financial resources. Competition for industrial services is
based primarily on hourly rates, productivity, safety, innovative approaches and
quality of service. The hazardous waste management industry competes with the
Company's industrial services operations by providing a price competitive
disposal alternative to a number of the Company's waste management and
by-products recovery services. The hazardous waste management industry currently
has substantial excess capacity caused by overbuilding, continuing efforts by
hazardous waste generators to reduce volume and to manage their waste on-site,
and the uncertain regulatory environment regarding hazardous waste management
and remediation requirements. These factors have led to downward pressure on
pricing in a number of the markets served by the Company's industrial services
operations. The Company expects these conditions to continue for the foreseeable
future. Competition could have a material adverse effect on the Company's
results of operations and financial condition by depressing prices or by causing
waste to be diverted to competitors. In addition, such competition could
materially affect the Company's ability to service its customers profitably, to
attract new customers and to retain such customers upon the expiration of
existing contracts.
DEPENDENCE ON OUTSOURCING AND VENDOR REDUCTION TRENDS
The Company's growth is dependent on the continuation of outsourcing and
vendor reduction trends within industrial enterprises. As these enterprises
focus on their core business, they are increasingly outsourcing non-core,
non-revenue generating activities in order to reduce costs. Such activities can
generally be performed on a more cost effective basis by specialized industrial
service and resource recovery companies which have greater expertise, technology
advantages and economies of scale. In addition, industrial enterprises are
evidencing a desire to reduce the number of vendors of industrial and resource
recovery services by purchasing services only from those suppliers that can
provide a "total service" solution, thereby providing further administrative and
cost reductions. If the pace of either of these trends slows or reverses, it
could have a material adverse effect on the Company's financial position and
results of operations.
MANAGEMENT OF GROWTH
The Company expects its business to continue to experience growth in
revenues, employees and customers. This growth is expected to place significant
and increasing demands on the Company's management and operational resources.
The Company's future performance will depend, in part, on its ability to manage
expanding operations. The failure of the Company to manage its growth could have
a material adverse effect on the financial position and results of operations of
the Company.
ENVIRONMENTAL AND REGULATORY RISKS
Environmental Regulations. The Company's operations are subject to various
comprehensive laws and regulations related to the protection of the environment.
Such laws and regulations, among other things, (i) regulate the nature of the
industrial by-products and wastes that the Company can accept for
15
<PAGE> 17
processing at its treatment, storage and disposal facilities, the nature of the
treatment they can provide at such facilities and the location and expansion of
such facilities; (ii) impose liability for remediation and clean-up of
environmental contamination, both on-site and off-site, resulting from past and
present operations at the Company's facilities; and (iii) may require financial
assurance that funds will be available for the closure and post-closure care of
sites, including acquired facilities. In addition, because the Company provides
its customers with services designed to protect the environment by cleaning and
removing materials or substances from their customers' equipment or sites that
must be properly handled, recycled or removed for ultimate disposal, the
Company's operations are subject to regulations which impose liability on
persons involved in handling, processing, generating or transporting hazardous
materials. These requirements may also be imposed as conditions of operating
permits or licenses that are subject to renewal, modification or revocation.
These laws and regulations have become and are likely to continue to become
increasingly stringent. Existing laws and regulations, and new laws and
regulations, may require the Company to modify, supplement, replace or curtail
its operating methods, facilities or equipment at costs which may be substantial
without any corresponding increase in revenues.
Hazardous substances are present in some of the processing, transfer,
storage, disposal and landfill facilities owned or used by the Company.
Remediation will be required at these sites at substantial cost. For each of
these sites, the Company, in conjunction with an environmental consultant, has
developed or is developing cost estimates that are periodically reviewed and
updated, and the Company maintains reserves for these matters based on such cost
estimates. Estimates of the Company's liability for remediation of a particular
site and the method and ultimate cost of remediation require a number of
assumptions and are inherently difficult. There can be no assurance that the
ultimate cost and expense of corrective action will not substantially exceed
such reserves and have a material adverse impact on the Company's operations or
financial condition.
In the normal course of its business, and as a result of the extensive
governmental regulation of industrial and environmental services and resource
recovery, the Company has been the subject of administrative and judicial
proceedings by regulators and has been subject to requirements to remediate
environmental contamination or to take corrective action. There will be
administrative or court proceedings in the future in connection with the
Company's present and future operations or the operations of acquired
businesses. In such proceedings in the past, the Company has been subject to
monetary fines and certain orders requiring the Company to take environmental
remedial action. In the future, the Company may be subject to monetary fines,
penalties, remediation, clean-up or stop orders, injunctions or orders to cease
or suspend certain of its practices. The outcome of any proceeding and
associated costs and expenses could have a material adverse impact on the
operations or financial condition of the Company.
The Company's industrial services businesses are subject to extensive
governmental regulation, and the complexity of such regulation makes consistent
compliance with such laws and regulations extremely difficult. In addition, the
demand for certain of the Company's services may be adversely affected by the
amendment or repeal of federal, state, provincial, or foreign laws and
regulations or by changes in the enforcement policies of the regulatory agencies
concerning such laws and regulations.
Public Concerns. There is a high level of public concern over industrial
by-products recovery and waste management operations, including the siting and
operation of transfer, processing, storage and disposal facilities and the
collection, processing or handling of industrial by-products and waste
materials, particularly hazardous materials. Zoning, permit and licensing
applications and proceedings and regulatory enforcement proceedings are all
matters open to public scrutiny and comment. As a result, from time to time, the
Company has been, and may in the future be, subject to citizen opposition and
publicity which may have a negative effect on its operations and delay or limit
the expansion and development of operating properties and could have a material
adverse effect on its operations or financial condition.
Environmental Insurance Coverage. Consistent with industry trends, the
Company may not be able to obtain adequate amounts of environmental impairment
insurance at a reasonable premium to cover liability to third parties for
environmental damages. Accordingly, if the Company were to incur liability for
16
<PAGE> 18
environmental damage either not provided for under such coverage or in excess of
such coverage, the Company's financial position and results of operations could
be materially and adversely affected.
Jurisdictional Restrictions on Waste Transfers. In the past, various
states, provinces, counties and municipalities have attempted to restrict the
flow of waste across their borders, and various U.S. and Canadian federal,
provincial, state, county and municipal governments may seek to do the same in
the future. Any such border closing may result in the Company incurring
increased third-party disposal costs in connection with alternate disposal
arrangements.
For a more detailed description of the impact of environmental and other
governmental regulation upon the Company, see "The Company -- Government
Regulation."
RELIANCE ON KEY PERSONNEL
The Company's operations are dependent on the abilities, experience and
efforts of its senior management. While the Company has entered into employment
agreements with certain members of its senior management, should any of these
persons be unable or unwilling to continue his employment with the Company, the
business prospects of the Company could be materially and adversely affected.
COMMODITY PRICE AND CREDIT RISKS
The Company is exposed to commodity price risk during the period that it
has title to products that are held in inventory for processing and/or resale.
Prices of commodities can be volatile due to numerous factors beyond the control
of the Company, including general economic conditions, labor costs, competition,
import duties, tariffs and currency exchange rates. In an increasing price
environment, competitive conditions will determine how much of the commodity
price increases can be passed on to the Company's customers. There can be no
assurance that the Company will not have a significant net exposure due to
significant price swings or failure of a counterparty to perform pursuant to the
contract.
SEASONALITY AND FLUCTUATIONS IN FINANCIAL RESULTS
The Company's Industrial Services Group tends to follow seasonal patterns,
with higher levels of activity during the period from April through November and
lower levels during the adverse weather conditions of winter and early spring.
These operations are also affected by the spending decisions of the Company's
customers, which in turn are influenced by general economic conditions and other
factors. As a result of all these factors, the Company's financial performance
can vary significantly from period to period.
ONGOING CAPITAL REQUIREMENTS AND LIQUIDITY
It is likely that the Company will need access to greater amounts of
financing or capital as its business continues to grow, particularly in
connection with future acquisitions. There can be no assurance that the Company
will be able to obtain additional financing when needed to develop further its
business or fund its operations or that, if available, such financing would be
on terms acceptable to it. Certain of the Company's loan agreements may restrict
the Company's ability to finance such expansion and capital expenditures with
borrowed funds.
LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS; RISK OF INFRINGEMENT
The Company uses a number of proprietary processes in its operations. The
Company possesses a number of United States patents and various foreign
counterparts of those patents. The Company relies primarily, however, on a
combination of trade secrets, confidentiality procedures and contractual
provisions to protect its intellectual property rights. The Company's patents
may be circumvented or invalidated and afford only limited protection. Despite
the Company's efforts to protect its proprietary rights, unauthorized parties
may attempt to obtain and use information that the Company regards as
confidential and proprietary, and there can be no assurance that the Company's
means of protecting its proprietary rights will be adequate. The Company is not
aware of any material claims that any of its intellectual property infringes on
the proprietary rights of third parties. There can be no assurance, however,
that third parties will not assert infringement claims against the Company,
which may be costly.
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds from the sale of the Common Shares offered hereby,
estimated to be $369.22 million (or $424.98 million if the over-allotment
options are exercised in full), assuming a public offering price of $19.31 per
share (based on the last reported sale price of the Common Shares on the NYSE on
September 23, 1997) and after deducting the estimated underwriting commission
and estimated offering expenses payable by the Company, will be used to repay
indebtedness outstanding under the Company's Credit Facility (described below),
a substantial portion of which was incurred to retire an existing credit
facility and repay approximately $130 million of the bank debt of Allwaste and
Serv-Tech after consummation of the acquisition of each of these companies.
The Company's Credit Facility provides for an aggregate maximum borrowing
of up to $1.5 billion. Borrowings under the Credit Facility bear interest at
varying rates, depending on the nature of the loan and the Company's compliance
with certain financial ratios. From August 11, 1997 through September 23, 1997,
interest rates under the Credit Facility ranged from prime plus 0.25% to prime
plus 1.25%. The Credit Facility terminates on August 12, 2002. As of August 31,
1997, the Company had borrowed an aggregate of $817 million under the Credit
Facility. See "Description of Certain Indebtedness -- Credit Facility" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity."
The reduction in indebtedness will provide the Company with renewed
borrowing capacity for capital expenditures, future acquisitions and general
corporate purposes.
DIVIDEND POLICY AND RECORD
The Company has not declared or paid cash dividends on its Common Shares
during the last five years. The Company currently intends to retain any earnings
for use in its business and does not anticipate paying any cash dividends on its
Common Shares in the foreseeable future. Any future declaration and payment of
dividends will be subject to the discretion of the Company's Board of Directors
and to applicable law and will depend upon the Company's results of operations,
earnings, financial condition, contractual limitations, cash requirements,
future prospects and other factors deemed relevant by the Company's Board of
Directors. The Company's Credit Facility restricts the payment of cash
dividends.
18
<PAGE> 20
PRICE RANGE AND TRADING VOLUME OF THE COMMON SHARES
The Company's Common Shares trade in the United States on the NYSE, and in
Canada on the TSE and the ME, under the symbol "PHV." The Company's Common
Shares traded in the United States on the Nasdaq National Market System
("Nasdaq") prior to April 30, 1996. The following tables set forth for the
fiscal periods indicated (based on the fiscal year ending December 31) the high
and low sale prices per share and trading volume of the Company's Common Shares
as reported by the NYSE, Nasdaq and the TSE, the principal Canadian exchange for
the trading of the Company's Common Shares. For current price information,
shareholders are encouraged to consult publicly available sources.
<TABLE>
<CAPTION>
PRICE RANGE AND TRADING VOLUME OF THE COMMON SHARES
--------------------------------------------------------------------
NYSE & NASDAQ TSE
--------------------------------- -------------------------------
HIGH LOW VOLUME HIGH LOW VOLUME
------- ------- ----------- ------- ------- ---------
(U.S. Dollars) (Canadian Dollars)
<S> <C> <C> <C> <C> <C> <C>
1995
First quarter.................. $ 6.13 $ 5.13 90,500 $ 8.50 $ 7.25 4,418,600
Second quarter................. 7.30 6.00 76,000 10.13 8.25 5,832,400
Third quarter.................. 7.50 6.38 50,100 10.25 8.25 6,078,700
Fourth quarter................. 7.25 6.00 1,481,300 9.75 7.88 4,777,400
1996
First quarter.................. $ 6.88 $ 6.13 368,900 $ 9.38 $ 8.00 3,399,100
Second quarter................. 8.88 6.50 29,040,400 12.00 8.75 1,760,100
Third quarter.................. 9.75 6.63 8,773,100 13.20 9.25 5,580,800
Fourth quarter................. 15.75 9.38 19,652,000 21.50 12.75 2,781,100
1997
First quarter.................. $ 18.38 $ 13.63 26,356,700 $ 24.75 $ 18.50 8,232,300
April.......................... 15.75 12.25 8,234,400 21.50 17.25 1,304,700
May............................ 15.88 12.38 15,886,900 22.00 17.15 4,340,000
June........................... 16.00 14.00 11,561,000 22.10 19.45 2,858,000
July........................... 15.88 14.38 9,147,200 21.90 19.95 2,918,868
August......................... 18.38 14.94 15,292,900 25.50 20.60 8,323,303
September (through September
23, 1997).................... 19.94 17.81 6,450,700 27.90 24.65 4,333,208
</TABLE>
On September 23, 1997, the last reported sale price on the NYSE of the
Common Shares was $19.31 and the last reported sales price on the TSE was
Cdn$26.90. On September 23, 1997, there were 102,214,491 Common Shares issued
and outstanding and held of record by approximately 2,333 shareholders.
19
<PAGE> 21
CONSOLIDATED CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as at the dates indicated and as adjusted to give effect to the
Offerings and the application of the net proceeds therefrom, assuming a public
offering price of $19.31 per share in the Offerings (based on the last reported
sale price of the Common Shares on the NYSE on September 23, 1997). See "Use of
Proceeds." This table has been presented in U.S. dollars and in accordance with
U.S. GAAP. This table should be read in conjunction with the Consolidated
Financial Statements of the Company, the notes thereto and the other financial
data included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997 AUGUST 31, 1997
---------------------------------------- --------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED ACTUAL AS ADJUSTED
--------- ------------ ----------- ----------- -----------
(thousands of dollars)
<S> <C> <C> <C> <C> <C>
SHORT-TERM DEBT:
Current portion of long-term
debt...................... $ 7,956 $ 12,016 $ 12,016 $ 12,273 $ 12,273
======== ======== ========
LONG-TERM DEBT:
Bank debt and other long-term
debt...................... 493,948 675,268 306,050 764,279 395,061
-------- -------- --------
SHAREHOLDERS' EQUITY:
Common Shares(2)(3).......... 383,824 905,863 1,275,081 912,443 1,281,661
Retained earnings(4)......... 138,338 138,338 138,338 138,338 138,338
Cumulative foreign currency
translation account....... (25,264) (25,264) (25,264) (25,264) (25,264)
-------- -------- --------
Total shareholders' equity... 496,898 1,018,937 1,388,155 1,025,517 1,394,735
-------- -------- --------
Total consolidated
capitalization............ $ 990,846 $ 1,694,205 $ 1,694,205 $ 1,789,796 $ 1,789,796
======== ======== ========
</TABLE>
- ---------------
(1) The pro forma column at June 30, 1997 is pro forma for the acquisitions of
Allwaste and Serv-Tech in July 1997, in which an aggregate of 25,819,903
Common Shares were issued; completion of the takeover bid for Intermetco in
August 1997 and subsequent compulsory acquisition in which an aggregate of
2,684,371 Common Shares were issued; completion of the acquisition of Roth
in July 1997, in which an aggregate of 422,331 Common Shares were issued;
and completion of the acquisition of D&L, Inc. in July 1997, in which an
aggregate of 286,418 Common Shares were issued. All of such increases
occurred prior to August 31, 1997. The pro forma number of Common Shares
issued and outstanding at June 30, 1997 is 100,682,388.
(2) An unlimited number of Common Shares are authorized. There were 71,469,365
Common Shares issued and outstanding at June 30, 1997 and 101,603,942 Common
Shares issued and outstanding at August 31, 1997.
(3) Excludes (i) options outstanding at June 30, 1997 to purchase up to
5,867,729 Common Shares, of which options to acquire 2,500,386 Common Shares
were then exercisable, at prices ranging from Cdn$6.75 to Cdn$21.75, and
(ii) options outstanding at August 31, 1997 to purchase up to 9,427,644
Common Shares, of which options to acquire 4,245,676 Common Shares were then
exercisable, at prices ranging from Cdn$6.75 to Cdn$26.75.
(4) Retained earnings are stated as at June 30, 1997.
20
<PAGE> 22
UNAUDITED PRO FORMA CONSOLIDATED
FINANCIAL INFORMATION
The accompanying unaudited pro forma consolidated balance sheet of Philip
includes the June 30, 1997 historical consolidated balance sheet of Philip and
the May 31, 1997 historical consolidated balance sheet of Allwaste as if the
acquisition of Allwaste had been consummated on June 30, 1997. The unaudited pro
forma combined statement of earnings of Philip for the fiscal year ended
December 31, 1996 combines the historical consolidated statement of earnings of
Philip for the fiscal year ended December 31, 1996 and the historical
consolidated statement of operations of Allwaste for the twelve months ended
November 30, 1996 as if the acquisition of Allwaste had occurred on January 1,
1996. The unaudited pro forma consolidated statement of earnings of Philip for
the six months ended June 30, 1997 combines the historical consolidated
statement of earnings of Philip for the six months ended June 30, 1997 and the
historical consolidated statement of operations of Allwaste for the six months
ended May 31, 1997 as if the acquisition of Allwaste had occurred on January 1,
1997. The financial information relating to Philip has been presented in U.S.
dollars and in accordance with U.S. GAAP.
The unaudited pro forma consolidated statement of earnings for the year
ended December 31, 1996 also includes the pro forma effects of the acquisitions
by Philip of Intsel (completed on September 27, 1996) and Luntz (completed on
December 23, 1996) as if such acquisitions had occurred on January 1, 1996. The
historical consolidated statements of earnings of Philip include operating
results of such acquired businesses subsequent to the respective dates of their
acquisitions. The unaudited pro forma consolidated statement of earnings for the
year ended December 31, 1996 includes the historical operating results of such
acquired businesses from January 1, 1996 to the respective dates of such
acquisitions.
The unaudited pro forma consolidated financial statements give effect to
the acquisitions of Allwaste, Intsel and Luntz using the purchase method of
accounting and include the adjustments described in the notes thereto. The
unaudited pro forma consolidated financial statements also give effect to the
issuance of Common Shares in exchange for the Allwaste common stock.
The unaudited pro forma consolidated financial statements do not take into
consideration other acquisitions completed by Philip in 1996 and 1997. See
"Recent Acquisitions" and "Risk Factors -- Risks Associated with Acquisitions."
The unaudited pro forma consolidated financial statements are presented for
illustrative purposes only and do not purport to represent what Philip's results
of operations or financial position would have been had the acquisitions of
Allwaste, Intsel or Luntz occurred on the dates indicated or for any future
period or at any future date, and are therefore qualified in their entirety by
reference to and should be read in conjunction with the historical consolidated
financial statements of Philip and the historical consolidated financial
statements of Allwaste, Intsel and Luntz contained elsewhere in this Prospectus.
21
<PAGE> 23
PHILIP SERVICES CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
PRO FORMA AS
ADJUSTED FOR
HISTORICAL RECLASSIFICATION THE
PHILIP ALLWASTE ENTRIES (NOTE 4) ADJUSTMENTS NOTE ALLWASTE MERGER
---------- --------- ---------------- ----------- ---- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenue................ $ 623,358 $ 194,485 $ -- $ -- $ 817,843
Operating expenses..... 510,282 144,239 2,200 -- 656,721
Selling, general &
administrative....... 46,254 37,945 (17,663) -- 66,536
Depreciation and
amortization......... 17,590 -- 15,463 3,950 5 37,003
-------- -------- -------- -------- --------
Income from
operations........... 49,232 12,301 -- (3,950) 57,583
Interest expense....... 13,979 4,947 -- -- 18,926
Other income and
expense -- net....... (4,051) (1,819) -- -- (5,870)
-------- -------- -------- -------- --------
Earnings before tax.... 39,304 9,173 -- (3,950) 44,527
Income taxes........... 11,923 4,148 -- -- 16,071
Minority interest...... -- 138 -- -- 138
-------- -------- -------- -------- --------
Net Earnings........... $ 27,381 $ 4,887 $ -- $ (3,950) $ 28,318
======== ======== ======== ======== ========
Primary earnings per
share................ $ 0.39 $ 0.30
======== ========
Fully diluted earnings
per share............ $ 0.38 $ 0.29
======== ========
Weighted average number
of common shares
outstanding (000s)
(Note 6)............. 70,970 94,026
======== ========
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
22
<PAGE> 24
PHILIP SERVICES CORP.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(thousands of dollars, except share and per share amounts)
<TABLE>
<CAPTION>
RECLASSIFICATION
HISTORICAL NOTE PRO FORMA ENTRIES
PHILIP LUNTZ INTSEL ADJUSTMENTS 2 PHILIP ALLWASTE (NOTE 4)
---------- --------- -------- ----------- ----- --------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue............ $ 545,344 $ 123,541 $ 99,014 $ 11,133 a $ 779,032 $ 383,274 $ --
Operating
expenses.......... 413,013 107,636 84,369 12,153 a,b,d 617,171 287,809 2,935
Selling, general &
administrative.... 56,063 8,649 5,485 585 a 70,782 76,200 (33,731)
Depreciation and
amortization...... 24,225 2,665 699 1,505 b 29,094 -- 30,796
---------- --------- -------- ----------- --------- --------- --------
Income from
operations........ 52,043 4,591 8,461 (3,110) 61,985 19,265 --
Interest expense... 16,263 711 -- 6,000 c 22,974 9,505 --
Other income and
expense -- net.... (3,456) (435) 332 -- (3,559) (3,206) --
---------- --------- -------- ----------- --------- --------- --------
Earnings (loss)
from continuing
operations before
tax............... 39,236 4,315 8,129 (9,110) 42,570 12,966 --
Income taxes....... 10,098 1,796 2,800 (2,814) 11,880 6,313 --
Minority
interest.......... -- -- -- -- -- (101) --
---------- --------- -------- ----------- --------- --------- --------
Earnings (loss)
from continuing
operations........ $ 29,138 $ 2,519 $ 5,329 $ (6,296) $ 30,690 $ 6,754 $ --
=========== ========== ========= ============== ========== ========== ==================
Primary earnings
per share......... $ 0.58
===========
Fully diluted
earnings per
share............. $ 0.51
===========
Weighted average
number of common
shares outstanding
(000s) (Note 6)... 50,073
===========
<CAPTION>
PRO FORMA
AS ADJUSTED
FOR THE
ALLWASTE
ADJUSTMENTS NOTE MERGER
----------- ----- -----------
<S> <C> <C> <C>
Revenue............ $ -- $ 1,162,306
Operating
expenses.......... 907,915
Selling, general &
administrative.... 113,251
Depreciation and
amortization...... 7,850 5 67,740
----------- -----------
Income from
operations........ (7,850) 73,400
Interest expense... -- 32,479
Other income and
expense -- net.... -- (6,765)
----------- -----------
Earnings (loss)
from continuing
operations before
tax............... (7,850) 47,686
Income taxes....... -- 18,193
Minority
interest.......... -- (101)
----------- -----------
Earnings (loss)
from continuing
operations........ $ (7,850) $ 29,594
============== ============
Primary earnings
per share......... $ 0.38
============
Fully diluted
earnings per
share............. $ 0.36
============
Weighted average
number of common
shares outstanding
(000s) (Note 6)... 77,284
============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
23
<PAGE> 25
PHILIP SERVICES CORP.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 1997
(thousands of dollars)
<TABLE>
<CAPTION>
PRO FORMA AS
ADJUSTED FOR
THE
PHILIP ALLWASTE ADJUSTMENTS NOTE ALLWASTE MERGER
----------- --------- ----------- ----- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents........... $ 7,602 $ 2,017 $ -- $ 9,619
Accounts receivable............ 257,088 86,326 -- 343,414
Inventory for resale........... 239,312 -- -- 239,312
Other current assets........... 36,862 17,313 -- 54,175
----------- --------- ----------- ---------------
540,864 105,656 -- 646,520
Fixed assets, net................ 341,494 126,056 -- 467,550
Goodwill......................... 261,929 85,529 301,843 3 649,301
Other assets..................... 79,100 32,029 12,000 123,129
----------- --------- ----------- ---------------
$ 1,223,387 $ 349,270 $ 313,843 $ 1,886,500
========== ========= ========== =============
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current liabilities
Accounts payable and accrued
liabilities................. $ 150,846 $ 59,070 $ 61,777 3 $ 271,693
Current maturities of long-term
debt........................ 7,956 2,447 -- 10,403
----------- --------- ----------- ---------------
158,802 61,517 61,777 282,096
Long-term debt................... 493,948 103,045 -- 596,993
Deferred income taxes............ 33,714 12,090 -- 45,804
Other liabilities................ 40,025 706 -- 40,731
Convertible subordinated debt.... -- 32,259 -- 32,259
Shareholders' equity............. 496,898 139,653 252,066 3 888,617
----------- --------- ----------- ---------------
$ 1,223,387 $ 349,270 $ 313,843 $ 1,886,500
========== ========= ========== =============
</TABLE>
The accompanying notes are an integral part of these pro forma consolidated
financial statements.
24
<PAGE> 26
PHILIP SERVICES CORP.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The unaudited pro forma consolidated balance sheet and statement of
earnings present the financial position of Philip as at June 30, 1997 and
results of its operations for the six months ended June 30, 1997 and the
year ended December 31, 1996, as if the acquisitions discussed in Notes 2
and 3 below had occurred at the beginning of the year ended December 31,
1996. These pro forma consolidated financial statements have been prepared
on the basis of U.S. GAAP.
The unaudited pro forma consolidated statement of earnings for the year
ended December 31, 1996 was prepared by combining the following:
- the unaudited pro forma consolidated statement of earnings of Philip,
which includes the significant acquisitions completed during the fiscal
year ended December 31, 1996 (Note 2), and
- the unaudited consolidated statement of earnings for Allwaste for the
twelve months ended November 30, 1996.
The unaudited pro forma consolidated statement of earnings for the six
months ended June 30, 1997 was prepared by combining the following:
- the unaudited historical consolidated statement of earnings of Philip
for the six months ended June 30, 1997.
- the unaudited consolidated statement of earnings for Allwaste for the
six months ended May 31, 1997.
The unaudited pro forma consolidated balance sheet at June 30, 1997 was
prepared by combining the unaudited balance sheet of Philip as at June 30,
1997 and the unaudited balance sheet of Allwaste as at May 31, 1997.
The pro forma consolidated financial statements should be read in
conjunction with the historical consolidated financial statements of
Philip, Allwaste, Intsel and Luntz included elsewhere in this Prospectus.
Certain figures from the Allwaste, Intsel and Luntz consolidated financial
statements have been reclassified to conform with the basis of presentation
used by Philip in preparing Philip's Consolidated Financial Statements.
The acquisition of Allwaste has been accounted for using the purchase
method of accounting.
The pro forma consolidated financial statements do not purport to be
indicative of the financial position of Philip or the results of operations
that might have occurred, had the acquisitions been concluded on January 1,
1996, nor are they necessarily indicative of future results.
2. ACQUISITIONS PRIOR TO DECEMBER 31, 1996
Statement of Earnings:
The audited consolidated statement of earnings of Philip for the year ended
December 31, 1996 as translated above, was adjusted to include the
acquisitions of Intsel and Luntz as if they had occurred on January 1, 1996
as follows:
(i) the results of operations of Luntz for the period from January 1, 1996
to the date of acquisition, which was December 23, 1996, have been
included in the unaudited pro forma consolidated statement of earnings;
and
25
<PAGE> 27
PHILIP SERVICES CORP.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)
2. ACQUISITIONS PRIOR TO DECEMBER 31, 1996 (CONTINUED)
(ii) the results of operations for Intsel for the period from January 1,
1996 to the date of acquisition, which was September 27, 1996, have been
included in the unaudited pro forma consolidated statement of earnings.
The pro forma consolidated statement of earnings of Philip ("Pro Forma
Philip") incorporates the following pro forma assumptions:
(a) actual revenue and expenses for the month of December 1996 for Luntz
have been recorded as an adjustment in order to reflect a full 12 month
period in the pro forma consolidated statement of earnings. The effect
of this adjustment is to record additional revenue of $11,133, operating
expenses of $10,248, and selling, general and administrative expenses of
$585;
(b) the amortization of goodwill and other intangibles and the depreciation
of the incremental fair market value increases relating to the
acquisitions have been included in the pro forma consolidated statement
of earnings from January 1, 1996 at rates consistent with those
disclosed in Note 1 to the Consolidated Financial Statements of the
Company. The amortization of goodwill was increased by approximately
$1,500 and the operating expenses were increased by approximately $500
as a result of this adjustment;
(c) interest on increased borrowings necessary to finance the acquisitions
has been included from January 1, 1996 for the acquisitions of Intsel
and Luntz. This adjustment increased interest expense by $6,000; and
(d) inventory for resale is valued on the last-in-first-out or "LIFO" basis
of accounting in the historical financial statements of Luntz. To be
consistent with the accounting policies employed by Philip, the basis of
accounting for inventory for resale has been adjusted to reflect the
lower of average purchase cost and net realizable value. As a result,
operating expenses have been increased by $1,388.
Balance Sheet:
The historical consolidated balance sheet for Philip includes the balance
sheets of Intsel and Luntz as at June 30, 1997 and, therefore, separate
balance sheets for these companies are not included.
3. ACQUISITION OF ALLWASTE
The acquisition of Allwaste has been accounted for using the purchase
method of accounting. The pro forma consolidated statement of earnings of
Allwaste for the twelve months ended November 30, 1996 used in the December
31, 1996 pro forma consolidated statement of earnings, was determined by
subtracting the results for fiscal quarter ended November 30, 1995 from the
annual audited financial statements of Allwaste for the fiscal year ended
August 31, 1996 and adding the financial results for the fiscal quarter
ended November 30, 1996.
26
<PAGE> 28
PHILIP SERVICES CORP.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)
3. ACQUISITION OF ALLWASTE (CONTINUED)
The purchase price for the acquisition of Allwaste has been calculated as
follows:
<TABLE>
<CAPTION>
NOTE
----
<S> <C> <C> <C>
Value of Philip common shares issued................... $360,388 3a
Value of options issued by Philip...................... 31,331 3b
Severance accruals..................................... 16,500 3c
Site rationalization accruals.......................... 6,800 3c
Transaction bonuses.................................... 1,000 8
Transaction costs...................................... 16,320 3c
Costs for new signage and repainting equipment......... 4,495 3c
Other accruals......................................... 6,941 3c
---
443,775
Book value of net assets acquired -- May 31, 1997...... $139,653
Adjust book value of net assets to July 31, 1997....... (9,721) 129,932 3d
-------- ---
Excess purchase price over book value.................. $313,843
===
Allocated to:
Investments....................................... $ 12,000 3d
Goodwill.......................................... 301,843
---
$313,843
===
</TABLE>
(a) The calculation of the value of Philip common shares is based on the
following:
<TABLE>
<S> <C>
Number of Allwaste common shares outstanding.............................. 37,735
Conversion ratio.......................................................... 0.611
Number of Philip common shares issued..................................... 23,056
Adjusted weighted average market price of Philip common shares............ $ 15.631
Value of Philip common shares............................................. $ 360,388
</TABLE>
The number of Philip common shares above issued in connection with the
Merger was determined based upon the number of shares of Allwaste common
stock outstanding as of July 30, 1997, the last business day preceding the
effective time of the Allwaste Merger.
The weighted average market price of Philip common shares above was
determined based on the average trading activity of Philip common shares on
the NYSE for the 10 day period before and after March 6, 1997, which was
the date of the announcement of the acquisitions. The weighted average
market price was then reduced for transaction costs that would have been
incurred if these common shares had been issued for cash.
27
<PAGE> 29
PHILIP SERVICES CORP.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)
3. ACQUISITION OF ALLWASTE (CONTINUED)
(b) Under the Allwaste Merger agreement, Philip assumed the employee stock
options of Allwaste. The value of outstanding options as at July 30,
1997 for Allwaste is as follows:
<TABLE>
<S> <C>
Allwaste options outstanding.............................................. 4,388,063
=========
Fair value of Philip options.............................................. $ 11.69
Exchange ratio............................................................ 0.611
---------
Fair value of equivalent Philip options................................... $ 7.14
=========
Fair value of options to be included in the purchase price................ $ 31,331
=========
</TABLE>
The fair value of the options was determined using the Black-Scholes option
valuation model with the following assumptions: (i) risk free rate of
6.96%, (ii) expected volatility of 32.74% for Philip, (iii) expected option
life of ranging from 5 to 10 years for Philip and (iv) no annualized
dividend yield.
(c) Transaction costs such as fees for legal, accounting and other
financial advisors, registration fees, printing and travel costs have
been included in the purchase price and recorded in accounts payable and
accrued liabilities in the Pro Forma Balance Sheet. Accruals for site
rationalization costs of Allwaste facilities of $6,800, accruals for
severance of Allwaste employees of $16,500, accruals for new signage and
repainting of Allwaste equipment to reflect the name change of $4,495,
and other accruals for unfavorable lease contracts, environmental
liabilities, self-insurance reserves and income taxes of $6,941 have
been included in the purchase price and recorded in accounts payable and
accrued liabilities in the Pro Forma Balance Sheet.
(d) The fair value of net assets acquired was determined as follows:
(i) Receivables -- were recorded at amounts to be recovered less
allowances for uncollectible amounts;
(ii) Fixed assets -- were assessed to be recorded at current replacement
costs since approximately 90% of the fixed assets were purchased in
the last three years;
(iii) Other assets (other than the investment in Safe Seal Company,
Inc.) -- were recorded at cost; and
(iv) Accounts payable and accrued liabilities and long-term debt -- were
recorded at the present value of amounts to be paid.
Allwaste has a 36.5% investment in Safe Seal Company, Inc. ("Safe Seal")
with a book value of $7,000 at July 31, 1997. Safe Seal, along with six
other arms-length companies have agreed to merge to form a company called
Innovative Value Technologies, Inc., subject to the completion of an
initial public offering (the "IPO"). The registration statement related
thereto is currently under review by the Securities and Exchange Commission
(the "Commission"). As a result of this pending transaction, the Allwaste
investment has an estimated value of $19,000, and therefore, the value of
the investment has been increased by $12,000. If the IPO is not successful
or the value of the investment changes upon completion of the IPO, the
amount allocated to the Safe Seal investment and goodwill will be adjusted
accordingly.
As a result of the Allwaste Merger, certain assets of Allwaste were
determined to be redundant such as computer software and hardware and
deferred financing costs and therefore were written off in the July 31,
1997 financial statements.
28
<PAGE> 30
PHILIP SERVICES CORP.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)
3. ACQUISITION OF ALLWASTE (CONTINUED)
(e) The adjustment to record the purchase accounting of Allwaste as at June
30, 1997 is as follows:
<TABLE>
<CAPTION>
DR (CR)
---------
<S> <C>
Investment in Safe Seal................................................... $ 12,000
Goodwill.................................................................. 301,843
Shareholders' equity...................................................... 139,653
Accounts payable and accrued liabilities.................................. (61,777)
Share capital............................................................. (391,719)
-------
$ --
=======
</TABLE>
4. RECLASSIFICATION ENTRIES
Reclassification entries have been made to disclose information in the
statement of earnings for Allwaste on a basis consistent with the
historical Consolidated Financial Statements of the Company. Specifically,
items such as supervisory wages and benefits, rent, utilities, business and
realty taxes, and repairs of operating facilities which amounted to
approximately $29,000 for the year ended December 31, 1996 and
approximately $14,500 for the six months ended June 30, 1997, have been
reclassified from selling, general and administrative expenses to operating
expenses. Depreciation and amortization expenses amounting to $30,796 for
the year ended December 31, 1996 and $15,463 for the six months ended June
30, 1997 have been reclassified from operating expenses and selling,
general and administrative expenses to a separate line disclosure format,
consistent with the Company's historical consolidated statement of
earnings.
5. PRO FORMA ADJUSTMENTS
(a) Amortization of goodwill has been recorded in the pro forma statement
of earnings based on the allocation of the purchase price as discussed
in Note 3 above. Goodwill will be amortized on a straight-line basis
over 40 years.
(b) Depreciation expense in the pro forma statement of earnings is based on
the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and Improvements........................................... 20-40 years
Machinery and Equipment.............................................. 3-20 years
</TABLE>
No adjustment to depreciation expense is required.
29
<PAGE> 31
PHILIP SERVICES CORP.
NOTES TO THE UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS) -- (CONTINUED)
6. PRO FORMA WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Pro Forma weighted average number of common shares outstanding has been
computed as follows (in thousands):
<TABLE>
<S> <C>
Year ended December 31, 1996:
Historical Philip weighted average number of common shares outstanding....... 50,073
Effect of recording the equity transactions at beginning of the period:
Shares issued for acquisitions prior to December 31, 1996.................... 2,222
Shares issued for Allwaste (Note 3).......................................... 23,056
------
Pro forma weighted average number of common shares outstanding............... 75,351
======
Six months ended June 30, 1997:
Historical Philip weighted average number of common shares outstanding....... 70,970
Effect of recording the equity transactions at beginning of the period:
Shares issued for Allwaste (Note 3).......................................... 23,056
------
Pro forma weighted average number of common shares outstanding............... 94,026
======
</TABLE>
7. NON-RECURRING COSTS
Philip expects that it will incur non-recurring costs relating to
severance, relocation and other integration costs. These costs are not
quantifiable at this time.
8. RELATED PARTY TRANSACTIONS
(a) Certain of the Allwaste executive officers are parties to executive
severance agreements with Allwaste. Under these severance agreements,
the executive officers were entitled to receive payment if they were
employed by Allwaste on the effective date of the Allwaste Merger or if
they were terminated. On the date of the Allwaste Merger and on the six
month anniversary date of the Allwaste Merger, severance payments
amounting to approximately $3.0 million are required; total severance is
approximately $6.0 million. In addition, the Company will pay an
additional $2.6 million to compensate the executive officers for related
excise taxes.
The severance agreements also provide that, in connection with the
Allwaste Merger, certain accelerations will occur in the dates on which:
(i) unexercised portions of an Allwaste executive officer's option
granted would become vested and exercisable and (ii) the restrictions
applicable to any restricted shares of Allwaste common stock issued to
any Allwaste executive officer under any Allwaste stock plan would lapse
or be deemed satisfied in full. If an Allwaste executive officer becomes
entitled to any payment or benefit pursuant to the severance agreements
which is subject to excise tax, Philip will pay the Allwaste executive
officer an additional amount such that the net amount retained by the
Allwaste executive officer will be equal to the severance payment. The
amount of excise tax due under these amounts is approximately $3.0
million.
The total of the amounts due to Allwaste executive officers is
approximately $11.6 million, which was included in the severance
accruals amount in the calculation of the purchase price.
(b) Transaction Bonuses
Pursuant to the Allwaste Merger Agreement, a retention bonus totalling
$1.0 million will be paid to the Allwaste executive officers. Each
Allwaste executive officer was entitled to receive one-half of the
retention bonus payment on the effective date of the Allwaste Merger and
will be entitled to the remaining portion on the three month anniversary
of such date. These amounts have been included in the calculation of the
purchase price.
30
<PAGE> 32
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table presents selected historical consolidated financial
data of Philip for the periods indicated, including the accounts of all
companies acquired prior to the end of the respective reporting periods. These
companies, all of which were acquired in transactions accounted for as purchases
during the past five years, are included from their respective dates of
acquisition. The selected historical consolidated financial data for Philip as
of and for the five years ended December 31, 1996 is derived from the audited
Consolidated Financial Statements of Philip and as of and for the six months
ended June 30, 1996 and 1997 is derived from the unaudited interim consolidated
financial statements of Philip, which in the opinion of management include all
adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial information for such periods. Interim results are
not necessarily indicative of the results which may be expected for any other
interim period or for a full year. For all periods indicated, the selected
historical consolidated financial data reflects Philip's former municipal and
commercial solid waste operations, which were sold in August 1996, as a
discontinued operation. Philip prepares its Consolidated Financial Statements in
accordance with Canadian GAAP and the summary historical consolidated financial
data set forth below is presented in Canadian GAAP. Canadian GAAP conforms in
all material respects with U.S. GAAP, except as described in Note 18 to the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus. The selected historical consolidated financial data should be read
in conjunction with the accompanying Consolidated Financial Statements of the
Company and the related Notes thereto included elsewhere in this Prospectus.
Selected historical consolidated financial data of the Company presented in U.S.
GAAP (in U.S. dollars) is disclosed in this Prospectus following the
Consolidated Financial Statements of the Company. Philip did not pay any cash
dividends during the periods set forth below.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
FISCAL YEARS ENDED DECEMBER 31,
------------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- --------- --------- --------
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CANADIAN GAAP:
STATEMENTS OF EARNINGS DATA:
Revenue............................... $ 856,629 $ 323,397 $ 802,490 $ 648,311 $ 489,740 $ 170,283 $ 60,401
Operating expenses.................... 701,300 251,586 615,462 489,569 366,649 108,331 27,165
Selling, general and administrative... 63,461 33,445 78,053 66,563 51,216 27,228 12,783
Depreciation and amortization......... 24,148 15,438 33,966 25,510 21,354 10,339 3,212
----------- ----------- ----------- ----------- --------- --------- --------
Income from operations................ 67,720 22,928 75,009 66,669 50,521 24,385 17,241
Interest expense...................... 19,212 15,023 24,598 28,187 21,750 9,092 2,197
Other income and expense-net.......... (5,522) (2,459) (4,782) (3,689) (2,122) (1,888) (491)
----------- ----------- ----------- ----------- --------- --------- --------
Earnings from continuing operations
before tax.......................... 54,030 10,364 55,193 42,171 30,893 17,181... 15,535
Income taxes.......................... 16,392 2,707 15,180 12,354 8,769 1,689 6,191
----------- ----------- ----------- ----------- --------- --------- --------
Earnings from continuing operations... 37,638 7,657 40,013 29,817 22,124 15,492 9,344
Discontinued operations (net of
tax)................................ -- 7,234 (1,005) 2,894 2,502 3,780 8,929
----------- ----------- ----------- ----------- --------- --------- --------
Net earnings.......................... $ 37,638 $ 14,891 $ 39,008 $ 32,711 $ 24,626 $ 19,272 $ 18,273
========== ========== ========== ========== ========= ========= ========
Basic earnings per share:
Continuing operations............... $ 0.53 $ 0.19 $ 0.79 $ 0.80 $ 0.61 $ 0.47 $ 0.31
Discontinued operations............. -- 0.18 (0.02) 0.08 0.07 0.11 0.29
----------- ----------- ----------- ----------- --------- --------- --------
$ 0.53 $ 0.37 $ 0.77 $ 0.88 $ 0.68 $ 0.58 $ 0.60
========== ========== ========== ========== ========= ========= ========
Fully diluted earnings per share:
Continuing operations............... $ 0.52 $ 0.19 $ 0.72 $ 0.68 $ 0.55 $ 0.43 $ 0.29
Discontinued operations............. -- 0.14 (0.01) 0.05 0.05 0.09 0.28
----------- ----------- ----------- ----------- --------- --------- --------
$ 0.52 $ 0.33 $ 0.71 $ 0.73 $ 0.60 $ 0.52 $ 0.57
========== ========== ========== ========== ========= ========= ========
Weighted average number of common
shares outstanding (000s)........... 70,970 40,586 50,632 37,342 36,209 32,827 30,377
========== ========== ========== ========== ========= ========= ========
BALANCE SHEET DATA (END OF PERIOD):
Working capital....................... $ 526,982 $ 156,563 $ 347,501 $ 106,604 $ 88,269 $ 20,566 $ 9,969
Total assets.......................... 1,694,437 1,030,988 1,345,719 1,002,912 860,583 717,925 348,101
Total debt(1)......................... 692,280 404,282 414,768 421,355 400,251 303,654 111,035
Shareholders' equity.................. 692,383 420,842 623,351 312,102 277,882 243,675 171,008
OTHER DATA:
Amortization.......................... $ 7,055 $ 5,188 $ 11,720 $ 9,798 $ 7,869 $ 2,620 $ 1,095
Depreciation.......................... 17,093 10,250 22,246 15,712 13,485 7,719 2,117
Additions to property, plant &
equipment........................... 44,539 22,810 59,847 37,016 29,910 31,320 14,329
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
FISCAL YEARS ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- ----------- --------- ---------
(THOUSANDS OF CANADIAN DOLLARS, EXCEPT SHARE AND
PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
U.S. GAAP:
STATEMENTS OF EARNINGS DATA:
Revenue....................................... $ 856,629 $ 323,397 $ 742,975 $ 648,311 $ 489,740
Operating expenses............................ 701,300 251,586 563,393 489,569 366,649
Selling, general and administrative........... 63,461 33,445 75,674 66,563 51,216
Depreciation and amortization................. 24,148 15,438 33,006 25,510 21,354
--------- -------- --------- --------- --------
Income from operations........................ 67,720 22,928 70,902 66,669 50,521
Interest expense.............................. 19,212 15,023 22,157 25,557 19,339
Other income and expense-net.................. (5,522) (2,459) (4,708) (3,689) (2,122)
--------- -------- --------- --------- --------
Earnings from continuing operations before
tax......................................... 54,030 10,364 53,453 44,801 33,304
Income taxes.................................. 16,392 2,707 13,755 12,354 8,769
--------- -------- --------- --------- --------
Earnings from continuing operations........... 37,638 7,657 39,698 32,447 24,535
Discontinued operations (net of tax).......... -- 7,234 (1,005) 2,894 2,502
--------- -------- --------- --------- --------
Net earnings.................................. $ 37,638 $ 14,891 $ 38,693 $ 35,341 $ 27,037
========= ======== ========= ========= ========
Primary earnings per share:
Continuing operations....................... $ 0.53 $ 0.19 $ 0.79 $ 0.87 $ 0.68
Discontinued operations..................... -- 0.18 (0.02) 0.08 0.07
--------- -------- --------- --------- --------
$ 0.53 $ 0.37 $ 0.77 $ 0.95 $ 0.75
========= ======== ========= ========= ========
Fully diluted earnings per share:
Continuing operations....................... $ 0.52 $ 0.19 $ 0.69 $ 0.68 $ 0.55
Discontinued operations..................... -- 0.14 (0.01) 0.05 0.02
--------- -------- --------- --------- --------
$ 0.52 $ 0.33 $ 0.68 $ 0.73 $ 0.57
========= ======== ========= ========= ========
Weighted average number of common shares
outstanding (000s).......................... 70,970 40,586 50,073 37,342 36,209
========= ======== ========= ========= ========
BALANCE SHEET DATA (END OF PERIOD):
Working capital............................... $ 526,982 $ 156,563 $ 347,501 $ 106,604 $ 88,269
Total assets.................................. 1,687,430 1,026,211 1,338,692 998,135 855,681
Total debt(1)................................. 692,280 418,645 414,768 437,100 419,082
Shareholders' equity.......................... 685,376 401,702 616,324 291,580 254,150
OTHER DATA:
Amortization.................................. $ 7,055 $ 5,188 $ 11,016 $ 9,798 $ 7,869
Depreciation.................................. 17,093 10,250 21,990 15,712 13,485
Additions to property, plant & equipment...... 44,539 22,810 59,847 37,016 29,910
</TABLE>
- ---------------
(1) Total debt includes the current portion of long-term debt.
32
<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is one of North America's leading suppliers of resource
recovery and industrial services. The Company has an integrated network of
metals recovery and industrial services operations in North America, servicing
over 50,000 industrial and commercial customers from over 300 locations. The
Company applies proprietary technologies to reduce the cost and downtime
associated with industrial cleaning and turnaround activities, and to recover
value from industrial by-products and metal bearing residuals. The Company's
business is organized into two operating divisions -- the Metals Recovery Group
and the Industrial Services Group. The Metals Recovery Group's three primary
business operations are ferrous (steel), copper, and aluminum processing and
recycling. The Industrial Services Group is a fully integrated provider of
on-site industrial services, by-products recovery and environmental services in
North America, with a network of over 250 facilities. The Industrial Services
Group's operations are divided into four main activities: on-site industrial
services, by-products recovery, environmental services and utilities management.
The Company has, through acquisitions, as well as internal growth,
substantially increased the revenue from its metals recovery and industrial
services operations. In the metals recovery operations, the Company's
acquisitions include Waxman Resources Inc. ("Waxman") in 1993, and Luntz
Corporation ("Luntz") of Canton, Ohio, the aluminum alloy processing assets
formerly owned by Alcan in Guelph, Ontario ("Alloys") and Intsel Southwest
Limited Partnership ("Intsel") of Houston, Texas in 1996. Luntz is a provider of
ferrous scrap and mill services in the United States. Alloys expands the
Company's ability to recover and process aluminum and aluminum alloy products.
Intsel is a distributor of a broad range of heavy carbon steel products. In 1997
the Company acquired Allied Metals Limited in the United Kingdom, the Reynolds
Metals Bellwoods facility and Intermetco Limited, one of Canada's largest
recyclers and processors of scrap metal products. Since the acquisition of
Waxman in 1993, the Company has been able to renew many contracts with existing
customers and enter into contracts with new customers for the processing of
copper, aluminum and ferrous materials. This, together with acquisitions, has
increased the annual revenue of the Company's metals recovery business from
approximately Cdn$50 million in 1993 to approximately Cdn$634 million in the
first six months of 1997. Industrial services acquisitions include Nortru, Inc.
and Burlington Environmental in 1993, and RMF Global, Inc. and Serv-Tech Inc. in
1997. In July 1997, the Company also acquired Allwaste, Inc., which provides
integrated industrial and environmental services and acts as an outsourcing
provider of on-site facility processes and services, primarily in North America.
Allwaste reported $382.2 million in revenues for the fiscal year ended August
31, 1996, and Serv-Tech reported revenues of $142.4 million for the fiscal year
ended December 31, 1996. The annual revenue of Philip's industrial services
business has grown from Cdn$160.1 million in the first six months of 1996 to
Cdn$210 million in the first six months of 1997. As a result of the Company's
significant expansion in recent years, the comparison set forth below may not be
a meaningful indicator of the future growth or performance of the Company.
In 1996, the Company disposed of its municipal and commercial solid waste
business in Ontario, Quebec and Michigan. The Consolidated Financial Statements
of the Company therefore disclose the results of this business as "discontinued
operations". Management's discussion and analysis of financial condition and
results of operations gives retroactive effect to discontinued operations as
discussed in Note 4 to the Consolidated Financial Statements of the Company.
Income from discontinued operations was Cdn$6.8 million in 1996, Cdn$2.9 million
in 1995 and Cdn$2.5 million in 1994. Interest expense has been allocated to the
municipal and commercial solid waste business segment based upon the
relationship of the net assets of the solid waste business to the Company's
consolidated net assets.
The Company earns revenue from the delivery of on-site industrial services,
the sale of recovered commodities and from fees charged to customers for
by-product transfer and processing, collection and disposal services. The
Company receives by-products and, after processing, disposes of the residuals at
a cost lower than the fees charged to its customers. Other sources of revenue
include fees charged for environmental consulting and engineering and other
services, and revenue from the sale of steel
33
<PAGE> 35
products. In its metals recovery operations, the Company is exposed to commodity
price risk during the period that it has title to products that are held in
inventory for processing and/or resale. Depending on the commodity, the Company
attempts to reduce its commodity price risk through various methods, including
partially matching purchases of recoverable materials with current and future
physical sales and the limited use of certain financial instruments.
Revenue by geographic segment is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------ --------------------------------------------------------
1997 1996 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
(Canadian dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
United States....... $ 514.7 60.1% $ 99.4 30.7% $ 373.4 46.5% $ 213.4 32.9% $ 166.7 34.0%
Canada.............. 277.4 32.4 224.0 69.3 429.1 53.5 434.9 67.1 323.0 66.0
Other............... 64.5 7.5 -- -- -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$ 856.6 100.0% $ 323.4 100.0% $ 802.5 100.0% $ 648.3 100.0% $ 489.7 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
The increase in revenue generated in the United States is a direct result
of the Company acquiring more businesses located in the United States and the
continuing expansion of business by subsidiary companies located in the United
States.
In October 1996, Philip entered into an agreement with the Ontario
Teachers' Pension Plan Board ("Teachers"'), whereby Teachers' acquired a 30%
equity interest in Philip Utilities Management Corporation ("PUMC"). Effective
from November 1, 1996, Philip's investment in PUMC has been recognized using the
proportionate consolidation method. Therefore, Philip's share of PUMC revenue
has been described as "utilities management" revenue.
Operating expenses include direct and indirect labor and the related taxes
and benefits, fuel, maintenance and repairs of equipment and facilities,
depreciation, property taxes, and accruals for future closure costs.
Selling, general and administrative expenses include management salaries,
clerical and administrative costs, professional services, facility rentals and
insurance costs, as well as costs related to the Company's marketing and sales
force.
The resource recovery and industrial services businesses are highly
competitive. Price competition in the metals recovery and industrial services
business is significant. Competition comes directly from companies in the
recovery and recycling business and indirectly from waste disposal companies
that charge competitive rates for disposal of waste products. The Company's
industrial services business is also sensitive to a broad range of competition
as customers seek out those firms with the reputation of having the best
industrial cleaning, maintenance and turnaround services and the processing and
transportation of industrial products and wastes. Competition could have a
material adverse effect on the Company's results of operations and financial
condition by depressing prices or by causing waste to be diverted to
competitors. In addition, such competition could materially affect the Company's
ability to service its customers profitably, to attract new customers and to
retain such customers upon the expiration of existing contracts.
Impact of Inflation, Economic Conditions and Seasonality
As a result of weather related circumstances during the winter months, and
a general economic slowdown over the Christmas holiday period, the Company
experiences lower levels of activity in December and during the first quarter of
its fiscal year. Therefore, the first quarter results may not be indicative of
the results that will be achieved during the entire year.
Impact of Political and Social Climate
The Company believes that public awareness of the need to handle and
dispose of by-product waste materials properly, and increasingly strict
regulatory controls affecting the treatment and handling of such waste, affect
the resource recovery and industrial services industry by increasing the demand
for the
34
<PAGE> 36
Company's services and reliance on experienced and licensed operators of
transfer, processing and disposal facilities. In addition, since the Company
places heavy emphasis on reuse and recycling as part of its overall operating
strategy, the Company is benefiting and expects to continue to benefit from the
increasing use of recycled products as raw materials. Nevertheless, the demand
for certain of the Company's services may be adversely affected by the amendment
or repeal of federal, state, provincial or foreign laws and regulations or by
changes in the enforcement policies of the regulating agencies concerning such
laws and regulations.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the results of
operations and the percentage relationships which the various items in the
Consolidated Statements of Earnings bear to the consolidated revenue from
continuing operations:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------- ----------------------------------------------------------
1997 1996 1996 1995 1994
---------------- ---------------- ---------------- ---------------- ----------------
(Canadian dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
Metals recovery......... $ 634.4 74.1% $ 163.3 50.5% $ 452.4 56.4% $ 308.8 47.6% $ 217.5 44.4%
Industrial services..... 210.4 24.5% 160.1 49.5% 348.3 43.4% 339.5 52.4% 272.2 55.6%
Utilities management.... 11.8 1.4% -- -- 1.8 0.2% -- -- -- --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
856.6 100.0% 323.4 100.0% 802.5 100.0% 648.3 100.0% 489.7 100.0%
Operating expenses........ 701.3 81.9% 251.6 77.8% 615.5 76.7% 489.6 75.5% 366.6 74.8%
Selling, general and
administrative.......... 63.5 7.4% 33.5 10.3% 78.1 9.7% 66.5 10.3% 51.2 10.5%
Depreciation and
amortization............ 24.1 2.8% 15.4 4.8% 33.9 4.2% 25.5 3.9% 21.4 4.4%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Income from operations.... 67.7 7.9% 22.9 7.1% 75.0 9.4% 66.7 10.3% 50.5 10.3%
Interest expense.......... 19.2 2.2% 15.0 4.6% 24.6 3.1% 28.2 4.3% 21.7 4.4%
Other income and expense-
net..................... (5.5) (0.6)% (2.5) (0.7)% (4.8) (0.6)% (3.7) (0.5)% (2.1) (0.4)%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Earnings from continuing
operations before tax... 54.0 6.3% 10.4 3.2% 55.2 6.9% 42.2 6.5% 30.9 6.3%
Income taxes.............. 16.4 1.9% 2.7 0.8% 15.2 1.9% 12.4 1.9% 8.8 1.8%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Earnings from continuing
operations.............. 37.6 4.4% 7.7 2.4% 40.0 5.0% 29.8 4.6% 22.1 4.5%
Discontinued operations
(net of tax)............ -- -- 7.2 2.2% (1.0) (0.1)% 2.9 0.4% 2.5 0.5%
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Net earnings.............. $ 37.6 4.4% $ 14.9 4.6% $ 39.0 4.9% $ 32.7 5.0% $ 24.6 5.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Revenue. Consolidated revenue in the first half of 1997 of Cdn$856.6
million represented an increase of Cdn$533.2 million or 165% over the first half
of 1996. The increase was attributable to internal growth in revenue of
approximately Cdn$52.7 million and Cdn$480.5 million from acquisitions.
The increase in metals recovery revenue in the first half of 1997 compared
to the first half of 1996 was Cdn$471.2 million or 288.5%. The acquisition of
two new businesses in the first half of 1997 and four new businesses in late
1996 in the metals recovery group contributed 94% of the increase. Industrial
services revenue increased Cdn$50.2 million in the first half of 1997, or 31.4%
over the first half of 1996. This increase was generally attributable to higher
volumes of waste material being processed by Philip's by-products recovery
facilities, although market prices for these services were generally flat
compared to the prior year period, and the acquisition of one new environmental
service business in the first half of 1997.
Operating Expenses. Operating expenses for the first half of 1997 were
Cdn$701.3 million, an increase of Cdn$449.7 million or 179% over the same period
in 1996. The increase in costs is due mainly to the acquisition of new
businesses in late 1996 and the first half of 1997, the results of which were
35
<PAGE> 37
consolidated with other Philip operations for the first time in the first half
of 1997. As a percentage of revenues, operating expenses increased from 77.8% in
the first half of 1996 to 81.9% in the first half of 1997. This increase is the
result of newly acquired businesses in the Metals Recovery Group which generally
have higher operating expense margins than other service categories.
Approximately Cdn$480.5 million of Philip's revenue generated in the first half
of 1997 came from these newly acquired businesses which had an operating margin
of approximately 7.0%.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were Cdn$63.5 million for the first half of 1997,
representing an increase of Cdn$30.0 million or 89.7% over the first half of
1996. The increase is attributable to the consolidation for the first time of
selling, general and administrative expenses of companies acquired in late 1996
and in the first half of 1997 and to the addition of selling and corporate staff
to manage the increased volume of business. However, as a percentage of revenue,
selling, general and administrative expenses decreased to 7.4% of revenue in the
first half of 1997 compared to 10.3% in the first half of 1996 because the
selling, general and administrative costs associated with companies acquired, as
a percentage of revenue, were lower than these same costs for existing
businesses.
Depreciation and Amortization. Depreciation and amortization of fixed
assets in the first half of 1997 was Cdn$17.1 million, representing an increase
of Cdn$6.8 million or 66.0% over the first half of 1996. This increase was due
to acquisitions, to a continued high level of fixed asset additions, and to the
full year effect of acquisitions completed by the Company in the prior year.
Interest Expense. Interest expense for the first half of 1997 was Cdn$19.2
million, representing an increase of Cdn$4.2 million or 28% over the first half
of 1996. This increase was primarily attributable to the increased borrowing to
finance the Company's growth by acquisition and fixed asset expansion, together
with working capital requirements to support the Company's increased revenue
base.
Other Income and Expense -- Net. Other income and expense -- net for the
first half of 1997 included a Cdn$3.8 million gain before tax on the sale of USA
Waste shares received as part of the proceeds on the sale of the municipal and
commercial solid waste business. The shares, which were restricted at the time
of receipt, were sold by Philip in February 1997 following the removal of the
restriction.
Income Taxes. Philip's effective income tax rate increased to 30.3% in the
first half of 1997 from 26.0% in the first half of 1996, due to a shift in
business to higher income tax rate jurisdictions. This effective income tax rate
was lower than the Canadian statutory federal rate due to the effect of Philip's
significant business in other jurisdictions where rates are generally lower than
income tax rates in Canada.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Consolidated revenue in 1996 of Cdn$802.5 million represented an
increase of Cdn$154.2 million or 23.8% over 1995. The increase was attributable
to internal growth of approximately Cdn$3.2 million and approximately Cdn$151.0
million from acquisitions.
The increase in metals recovery revenue in 1996 was Cdn$143.6 million or
46.5%. The acquisition of four new businesses in the metals recovery group
contributed approximately Cdn$127.8 million of the increase. The remainder of
the increase, or approximately Cdn$15.8 million, came from new contracts or the
renewal of existing contracts for the receipt and processing of additional
materials.
Industrial services revenue increased by approximately Cdn$8.8 million in
1996, or 2.6% over 1995 as a result of higher volumes of material processed by
the industrial services group and the acquisition of two businesses that added
Cdn$23.2 million compared to the prior year, offset by lower pricing levels
generally for this group compared to the prior year and a decline in
environmental services revenues of Cdn$15.1 million due to the closing of
non-contributing offices in the United States. In addition, a delay in the
licensing approval process for the continued use of the Taro landfill site
resulted in a decrease in revenue of approximately Cdn$13 million from 1995
levels. The approval was received in the fourth quarter of 1996.
36
<PAGE> 38
Operating Expenses. Operating expenses in 1996 were Cdn$615.5 million, an
increase of Cdn$125.9 million or 25.7% over 1995. These increased costs resulted
from the increased level of business activity in 1996 and from acquisitions
completed during the year. Operating expenses as a percentage of revenue
increased to 76.7% in 1996 as compared to 75.5% in 1995. The higher operating
expenses are a direct result of generally higher expenses in each of metals
recovery and industrial services during 1996 and a further shift in the
Company's business mix to include a higher percentage of metals recovery
business which typically has higher operating expenses.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses in 1996 were Cdn$78.1 million, representing an increase
of Cdn$11.5 million or 17.3% over 1995. The increase in 1996 is in part
attributable to the addition of selling and administrative costs of companies
acquired during the year and the full year effect of acquisitions completed in
the prior year, as well as to an increase in the general sales staff and a
general increase in costs over the prior year. As a percentage of revenue,
selling, general and administrative expenses decreased to 9.7% in 1996, largely
as a result of the increase in revenue.
Depreciation and Amortization. Depreciation and amortization of fixed
assets in 1996 was Cdn$22.2 million, representing an increase of Cdn$6.5 million
or 42% over 1995. This increase was due to acquisitions, to a continued high
level of fixed asset additions, and to the full year affect of acquisitions
completed by the Company during the prior year.
Interest Expense. Aggregate interest expense in 1996 was Cdn$24.6 million,
representing a decrease of Cdn$3.6 million or 12.7% over 1995. In May of 1996,
the Company issued common shares and used the proceeds to reduce the amount of
long-term debt outstanding. In addition, in 1996, all the remaining 6%
convertible subordinated debentures were converted into common shares of the
Company, further reducing the Company's outstanding debt. Both these factors
contributed to a lowering of interest expense in 1996.
Income Taxes. For the year ended December 31, 1996, the effective income
tax rate for the Company was approximately 28% as compared to an effective
income tax rate of 29% in 1995. This effective income tax rate reflects the
Company's significant business in other jurisdictions where rates are generally
lower than income tax rates in Canada.
Income from Discontinued Operations. Income from discontinued operations
increased in 1996 to Cdn$6.8 million, principally as a result of the Company
having been awarded several new contracts for municipal solid waste collection
and disposal which commenced January 1,1996. In 1995, income from discontinued
operations was Cdn$2.9 million, compared to the Cdn$2.5 million earned for the
year ended December 31, 1994.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
Revenue. Consolidated revenue in 1995 of Cdn$648.3 million represented an
increase of Cdn$158.6 million or 32.4% over 1994. The increase was attributable
to internal growth in revenue of approximately Cdn$105.6 million and Cdn$53.0
million from acquisitions.
The increase in metals recovery revenue in 1995 was Cdn$91.3 million or
42.0%. The acquisition of major new contracts for the receipt and processing of
additional materials added approximately Cdn$66.0 million to 1995 revenue, by
increasing the volume of copper and brass materials available for processing and
sale. Approximately Cdn$10.0 million of the increased revenue was attributable
to a 25% increase in production capacity which resulted from the Company opening
a wire and cable processing plant in the United States in June 1995. Lastly, an
increase in the volume of ferrous scrap sales produced Cdn$9.4 million in
additional 1995 revenue.
The increase in industrial services revenue in 1995 of Cdn$67.3 million was
attributable in part to Cdn$52.0 million in revenue generated by four new
businesses acquired in 1995 which were consolidated with the revenue of the
Company for the first time. The remainder of the increase was attributable to
the full year's consolidation of businesses acquired in the prior year,
including Cdn$21.0 million of additional revenue generated by the Delsan group,
a company acquired in late 1994, and the increased
37
<PAGE> 39
volume of materials handled by and the increased level of other business
services provided by this group in 1995. Pricing levels for services rendered by
this group were low throughout 1995 reflecting, in part, the over-capacity of
processing facilities in the chemical waste disposal market throughout North
America.
Operating Expenses. Operating expenses in 1995 were Cdn$489.6 million, an
increase of Cdn$122.9 million or 33.5% over 1994. These increased costs resulted
from the increased level of business activity in 1995, from acquisitions
completed in that year and the consolidation for a full year of acquisitions
completed in 1994, as well as internal growth. Operating expenses as a
percentage of revenue increased from 74.8% of revenue in 1994 to 75.5% of
revenue in 1995, due in part to the higher percentage of metals recovery
business and lower margins in industrial services than in the prior year.
Selling General and Administrative Expenses. Selling general and
administrative expenses in 1995 were Cdn$66.5 million, representing an increase
of Cdn$15.4 million or 30.0% over 1994. The increase in 1995 is in part
attributable to the addition of selling and administrative costs of companies
acquired during the year and the full year effect of acquisitions completed in
the prior year as well as to an increase in the general sales staff and a
general increase in costs over the prior year. As a percentage of revenue,
selling, general and administrative expenses decreased to 10.3% in 1995 from
10.5% in 1994, largely as a result of the increase in revenue.
Depreciation and Amortization. Depreciation and amortization of fixed
assets in 1995 was Cdn$15.7 million, representing an increase of Cdn$2.2 million
or 16.5%. This increase was due to acquisitions, a continued high level of fixed
asset additions, and to the full year effect of acquisitions completed by the
Company during the prior year.
Interest Expense. Aggregate interest expense in 1995 was Cdn$28.2 million,
representing an increase of Cdn$6.4 million or 29.6% over 1994. This increase
was primarily attributable to the increased level of borrowing to finance the
Company's growth by acquisition and fixed asset expansion, together with working
capital requirements to support the Company's increased revenue base.
Income Taxes. For the year ended December 31, 1995, the effective income
tax rate for the Company was approximately 29% as compared to an effective
income tax rate of 28% in 1994. This effective income tax rate reflects the
Company's significant business in other jurisdictions where rates are generally
lower than income tax rates in Canada.
LIQUIDITY
At June 30, 1997, Philip's working capital was Cdn$527.0 million,
representing an increase of Cdn$179.5 million over December 31, 1996. Inventory
for resale was a significant component of Philip's working capital at June 30,
1997 and increased Cdn$82.0 million over December 31, 1996. Of this increase,
Cdn$47.0 million was added through companies acquired since December 31, 1996,
Cdn$6.0 million was added by reason of new plant facilities opened since
December 31, 1996 and the remainder resulted from inventories acquired in
connection with new contracts or renewed contracts entered into by the Metals
Recovery Group. In addition, accounts receivable at June 30, 1997 increased by
Cdn$80.7 million from December 31, 1996. Accounts receivable acquired as part of
new business acquisitions in the first half of 1997 were Cdn$93.3 million while
accounts receivable for existing business have decreased due to collection
efforts.
At June 30, 1997, Philip had long-term debt outstanding of Cdn$692.3
million, which represented 50% of Philip's total capitalization. This compares
to Cdn$414.8 million in long-term debt at December 31, 1996, which represented
40% of Philip's total capitalization. In August 1997 Philip entered into a
credit facility with a syndicate of lenders which provides for aggregate
borrowings of up to US$1.5 billion, which was used to retire an existing credit
facility and repay approximately US$130 million of bank debt of Allwaste and
Serv-Tech after consummation of the acquisition of each of these companies. As
of August 31, 1997, a total of US$817 was drawn under this facility. The Company
believes that cash generated from operations, together with amounts available
under the Credit Facility will be adequate to meet its capital expenditures and
working capital needs for the foreseeable future, although no assurance can be
given in this regard.
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The Company's future operating performance will be subject to future
economic conditions and to financial, business and other factors that are beyond
the Company's control.
CAPITAL EXPENDITURES
The following table describes the major components of the Company's capital
expenditures:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ -----------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(THOUSANDS OF CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C>
Equipment additions and replacements........ $33,300 $18,300 $42,800 $28,300 $17,000
Facilities acquisitions..................... 7,500 1,700 3,200 3,600 10,000
Landfill.................................... 3,700 2,800 13,800 5,100 2,900
------- ------- ------- ------- -------
$44,500 $22,800 $59,800 $37,000 $29,900
======= ======= ======= ======= =======
</TABLE>
The Company's capital expenditure program for the second half of fiscal
1997 is expected to be approximately Cdn$30 million. The Company expects to fund
these expenditures by utilizing cash flow generated from continuing operations
or by drawing down more funds from the Company's Credit Facility.
39
<PAGE> 41
BUSINESS
INTRODUCTION
The Company is one of North America's leading suppliers of resource
recovery and industrial services. The Company has the largest integrated network
of metals recovery and industrial services operations in North America,
servicing over 50,000 industrial and commercial customers from over 300
locations. The Company applies proprietary technologies to reduce the cost and
downtime associated with industrial cleaning and plant turnaround activities,
and to recover value from industrial by-products and metal bearing residuals.
The Company has achieved its leading position in the metals recovery and
industrial services markets through internal growth and through the acquisition
and integration of 40 companies since the beginning of 1996. As a result, the
Company is viewed as a leading consolidator in the metals recovery and
industrial services industries. The Company's primary base of operations is in
the United States, with over 70% of the Company's worldwide revenue generated in
U.S. dollars for the six months ended June 30, 1997. At September 23, 1997, the
aggregate market value of the outstanding Common Shares was $1.974 billion.
The Company's business is organized into two operating divisions -- the
Metals Recovery Group and the Industrial Services Group. The Metals Recovery
Group's three primary business operations are ferrous (steel), copper and
aluminum processing and recycling. The ferrous metals operations include the
collection and processing of ferrous scrap materials for shipment to steel mills
and the provision of related mill services. Ferrous operations also include
steel service centers that process and distribute structural steel products.
Copper operations are comprised of cold process mechanical recovery facilities,
scrap management, management of material recycling centers for the
telecommunications industry, and copper refining. The group's aluminum recycling
operations process aluminum dross, a by-product of primary aluminum production,
and produce aluminum deoxidizing products and alloys from aluminum scrap. Both
the non-ferrous and ferrous operations of Philip provide significant brokerage
capabilities for scrap materials and primary metals, including steel, copper,
aluminum and tin. The Company services the steel, telecommunications, aluminum,
wire and cable and automotive industries, as well as utilities. Major customers
for the Company's ferrous processing operations include Armco, ASW, Copperweld,
Dofasco, Republic, Stelco and Timken. Major customers for the Company's non-
ferrous processing operations include AK Steel, Bethlehem Steel, Chrysler
Canada, Noranda and Southwire.
The Industrial Services Group is the largest integrated provider of on-site
industrial services, by-products recovery and environmental services in North
America, with a network of over 250 facilities. The Industrial Services Group's
operations are divided into four main activities: on-site industrial services,
by-products recovery, environmental services and utilities management. On-site
industrial services include industrial cleaning and maintenance, waste
collection and transportation, container services and tank cleaning, turnaround
and outage services, mechanical contracting and refractory services. By-products
recovery includes distillation, engineered fuel blending, paint overspray
recovery, organic and inorganic processing and polyurethane recycling.
Environmental services include strategic resource management, decommissioning,
remediation, environmental consulting and engineering, and analytical and
emergency response services. Major clients include BASF, Boise Cascade, Chevron,
Conoco, Dupont, Ford, General Electric, General Motors, Monsanto, PPG and Shell.
For the six months ended June 30, 1997 and 1996 and each of the years in
the three year period ended December 31, 1996, the Company's revenue from
continuing operations by service category, as well as the percentage of total
revenue, was as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
--------------------------------- ---------------------------------------------------
1997 1996 1996 1995 1994
--------------- --------------- --------------- --------------- ---------------
(MILLIONS OF CANADIAN DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Metals Recovery...... $634.4 74.1% $163.3 50.5% $452.4 56.4% $308.8 47.6% $217.5 44.4%
Industrial
Services(1)........ 222.2 25.9 160.1 49.5 350.1 43.6 339.5 52.4 272.2 55.6
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$856.6 100.0% $323.4 100.0% $802.5 100.0% $648.3 100.0% $489.7 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Industrial Services revenues include utilities management revenues which, as
a percentage of aggregate revenues were 1.4%, 0.0% and 0.2% for the six
months ended June 30, 1997, the six months ended June 30, 1996 and the
fiscal year ended December 31, 1996, respectively. No revenues were recorded
in prior years.
40
<PAGE> 42
INDUSTRY OVERVIEW
Manufacturers are seeking to improve competitiveness by focusing on their
core business and by reducing costs in non-core, non-revenue producing
activities. Three key trends that have developed as a result are: (i) increased
outsourcing of non-core services, (ii) a reduction by manufacturers in the
number of vendors from which outsourced services are purchased and (iii)
maximizing resource recovery opportunities from waste and by-product streams.
The Company believes that the industrial services and resource recovery
industries are positioned to benefit from these three major trends.
Many non-core activities can be performed on a more cost effective basis by
specialized industrial service and resource recovery providers that have greater
expertise, technology advantages, access to markets for recovered materials and
economies of scale. As a result, companies which outsource non-core activities
are able to lower operating and capital costs, increase access to new
technologies, enhance by-product recovery and reduce liabilities by redirecting
accountability. In addition, by reducing the number of vendors from which
outsourced activities are purchased, and acquiring services from those suppliers
that can provide a "total service" solution on a national basis, manufacturers
can further lower administrative costs, reduce management overhead, and increase
supplier accountability while reducing potential liabilities. Recovery of
resources from waste and by-product streams improves manufacturing efficiency by
reducing and reusing manufacturing residuals and by-products, thereby lowering
operating costs, including raw material costs, and reducing environmental
liabilities.
As industries continue to outsource additional non-core services and
develop close relationships with outside service providers to deliver these
on-site services, the result is often a seamless integration between customer
and supplier. Companies which can deliver bundled services to these customers
realize significant competitive advantages through economies of scale and the
opportunity to share research and development and capital costs associated with
by-product recovery and outsourcing.
According to industry sources, the industrial services and resource
recovery market in North America is estimated to be a $50 billion market growing
at 10% annually. Metals recovery accounts for 44% of the services to this
market, 38% for in-plant services, 10% for chemical recovery and 8% for
disposal. The market is fragmented with industry participants ranging from
several large companies to thousands of small local companies. Few competitors
in the industry offer a full range of resource recovery and industrial services.
Most of the almost 20,000 companies supplying this market are specialized
regional service providers, often with limited financial resources. In response
to the demand for integrated services, the industrial services and resource
recovery industry is expected to consolidate rapidly over the next few years.
STRATEGY
The Company's strategies to realize continued growth from the outsourcing,
vendor reduction and resource recovery trends are as follows:
Increase sales to existing customers by cross-selling services. The
Company's customer base has grown significantly over the last few years, as a
result of both internal growth and acquisitions. As a result, the Company
possesses a large customer base across diverse industries. However, Philip's
metals and by-products recovery operations have historically been concentrated
in the steel, telecommunications, automotive, aluminum, chemical and paint
industries, whereas many of its newer industrial services customers are in the
refining, petrochemical, electric utility, pulp and paper and food processing
industries. The Company believes significant growth can be achieved by realizing
upon the resultant opportunities to cross-sell its additional service
capabilities to its significantly expanded customer base. For instance, the
Company foresees that its refinery turnaround services may be sold to the steel,
chemical, paint and other process industries. Also, Philip has historically
provided paint booth overspray recovery services to the automotive industry,
whereas Allwaste provided paint booth cleaning and management services.
Pursue strategic acquisitions that will broaden the Company's services to
existing customers or in key geographic regions with significant industrial
activity. The Company's geographic and service breadth strategy is designed not
only to provide a broad range of services nationally, but also to establish
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<PAGE> 43
a leadership position for certain areas of its business in key geographic
markets. The Company intends to pursue strategic acquisitions to implement this
strategy. For instance, the Company recently acquired Intermetco, the largest
ferrous metals recycler in Canada. The acquisition enhances Philip's ability to
meet its clients' raw material requirements and deliver additional industrial
services and establishes Philip as the largest provider of ferrous scrap to the
concentration of steel mills in the Great Lakes region.
Continue to vertically integrate its collection, processing and
distribution network. Through the acquisition and integration of new
businesses, Philip is creating vertically integrated collection, processing and
distribution networks in its Metals Recovery and Industrial Services Groups.
Such vertical integration of services expands the Company's services package and
provides multiple entry points for the sale of services to customers and results
in expanded markets for sale of recovered or recycled products. For instance,
the acquisitions of Luntz and Intsel added collection and processing of steel
scrap, and processing and distribution of finished steel products. These
activities add to the Company's integrated services package for the steel
industry and provide additional sales entry points to customers. The Allwaste
acquisition provides the Company's by-products recovery operations with
additional waste and by-product streams that had previously been delivered to
third parties for processing and disposal. Consequently, Allwaste can reduce
disposal costs for its industrial cleaning and maintenance customers through
by-products recovery and recycling. Another recently acquired company, Warrenton
Resources Inc. ("Warrenton"), refines copper scrap produced by the Company,
thereby enabling the Company to sell its processed scrap into the lower grade
commodity markets or refine it and sell it into higher value added markets.
Continue to develop and apply innovative process and service
technologies. The Company will continue to work in partnership with its
customers to develop and apply innovative applied technologies that minimize
waste generation, maximize the value of industrial by-products generated and
reduce the cost of services provided to customers. Examples of such innovative
solutions include: the EPOC paint overspray recovery program for the automotive
industry; cryogenic processing of polyvinyl chloride ("PVC") and polyethylene
("PE") plastic residue from cable and wire scrap for recycling; the polyurethane
recycling facility developed in association with the BASF Corporation; and the
Fast Draw and Fast Clean technologies, which provide remote control extraction
and semi-robotic cleaning of heat exchanger bundles, thereby lowering cost and
improving safety.
COMPETITIVE STRENGTHS
The Company believes the following competitive strengths enhance its
leadership position in the resource recovery and industrial services sectors:
Broadest Range of Integrated Services: Philip offers the broadest range of
metals recovery, by-products recovery and industrial and environmental services
in the industry. The Company believes it can better assist its clients achieve
lower costs and improve operating efficiencies by providing single source
solutions.
Broad Geographic Network: The Company's broad geographic network, unlike
its regional competitors, can support the requirements of its customers
throughout North America. This network enables the Company to effectively
package and cross-sell services to large North American accounts.
Proprietary Technologies: The Company has developed a series of
proprietary waste minimization, recovery and industrial cleaning and turnaround
processes. These proprietary technologies enable the Company to recover a higher
percentage of usable components and reduce both disposal costs and downtime
associated with turnaround operations.
Leading Consolidator: The industrial services sector is highly fragmented
and is undergoing rapid consolidation in response to market demands for vendor
reduction and broad geographic service capabilities. Philip is a leading
consolidator in the industry as a result of its financial strength, focused
strategy and multi-service capabilities.
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<PAGE> 44
BUSINESS UNITS
METALS RECOVERY
The Company's Metals Recovery Group applies customized process technologies
to recover metals from industrial by-products. The group's three primary
businesses include ferrous (steel), copper and aluminum processing and
recycling. The Company is North America's leading recycler of cable and wire
scrap, is the most fully integrated provider of services to the steel industry
in North America and is the largest producer of aluminum deoxidizing products,
an essential element in the manufacture of steel, in the northeastern United
States. The Company is also one of the largest ferrous scrap processors in the
United Kingdom. The Metals Recovery Group has approximately 2,000 employees and
is headquartered in Hamilton, Ontario.
The ferrous metals operations include the collection and processing of
ferrous scrap materials for shipment to steel mills and the provision of mill
services. Ferrous operations also include steel service centers that process and
distribute structural and flat rolled steel products. Copper operations are
comprised of cold process mechanical recovery facilities, scrap management and
copper refining. The group's aluminum recycling operations produce aluminum
deoxidizing products and alloys from aluminum scrap and process aluminum dross,
a by-product of primary aluminum production. Both the non-ferrous and ferrous
operations of Philip provide significant brokerage capabilities for scrap
materials and primary metals, including steel, copper, aluminum and tin. The
Company services the steel, telecommunications, aluminum, wire and cable, and
automotive industries, as well as utilities.
The Company intends to become the North American market leader in
delivering integrated metals recovery and related services through regional
concentration of its services in areas of high industrial activity, through
continued integration of its collection, processing and distribution
capabilities and through the development and use of proprietary technology. Set
forth below is a description of the operations of the Company's Metals Recovery
Group.
Ferrous Processing Operations. The Metals Recovery Group is a processor
and broker of ferrous scrap to steel mills and foundries located in the lower
Great Lakes region, the Pittsburgh-Ohio corridor and in the United Kingdom. As a
result of recent acquisitions and capital improvements, the Company's processing
capacity has grown from 450,000 tons annually in 1995 to more than four million
tons annually. The Company is also the most fully integrated service provider to
the North American steel industry, supplying scrap steel, deoxidizing product,
electric arc furnace dust management and other services such as mill scale
recovery, industrial vacuum, slag recovery, wastewater treatment,
decommissioning, and analytical and emergency response services.
Ferrous scrap is generated as a by-product of automotive stamping and
fabrication and is also derived from post-consumer sources (cars, refrigerators,
etc.). It is processed by baling, separation, or shredding during which time the
material is graded and sorted. The primary consumer of ferrous scrap is the
mini-mill steel industry, which uses electric arc furnace technology to reduce
scrap to molten form to produce steel. Production capacity in the mini-mill
steel industry is expected to continue to increase and to account for a rising
share of overall steel production in North America. This is expected to result
in increased demand for high quality ferrous scrap.
The Company's operations are regionally concentrated close to industrial
scrap producers and other suppliers and to local steel mills. Unlike many of the
Company's competitors that secure their supply of ferrous scrap indirectly
through ferrous scrap dealers, the Metals Recovery Group obtains most of its
ferrous scrap directly from industrial scrap producers pursuant to long standing
relationships. Accordingly, the Metals Recovery Group has access to consistent
volumes of high quality ferrous scrap from which it can supply the necessary
grades and mixtures required by the steel industry. As production capacity of
the mini-mill industry continues to increase, the Company believes that its
ability to consistently supply required volumes of quality scrap will make it
the supplier of choice in the regions it serves, and that the resulting
relationships will provide opportunities to sell additional services to such
customers.
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<PAGE> 45
The Metals Recovery Group also processes and distributes a broad range of
heavy carbon steel products through distribution and processing facilities
located in Houston, Texas, and five additional distribution centers located
across the southwestern and southeastern United States. The Company is one of
the largest distributors of structural steel products in these regions. Through
its acquisition of Intermetco, the Company also provides processing of steel
coils and produces spiral weld pipe. These operations enable the Company to
provide further services to the steel industry through bulk purchases that are
inventoried and further processed, cut or formed, for resale to steel
purchasers. This service expands the Company's package of integrated services to
the steel industry and provides the Company with another entry point through
which to sell additional services.
The Company has also established itself in the European scrap processing
and mill services industry with its recent acquisition of Allied Metals Limited
("Allied Metals") from ASW Holdings PLC ("ASW"). Allied Metals is one of the
largest steel scrap processing and mill services companies in the United
Kingdom. Allied Metals' principal business involves the collection of
post-consumer scrap and the sale of processed metal as a raw material to steel
mills and foundries that use electric arc furnace technology. In 1996, Allied
Metals processed approximately 670,000 tons of scrap steel. At its heavy media
separation facility, Allied Metals uses a proprietary process to recover copper,
aluminum and zinc from the residue of its auto shredding operations. Allied
Metals' facilities are concentrated in Southwest England and South Wales, from
which it supplies local steel mills and foundries and the export market through
its two seaport facilities. Approximately two thirds of Allied Metals' sales are
domestic and one third to foreign markets, primarily Europe and Asia. The
Company also provides on-site slag management and electric arc furnace dust
recycling at ASW's steel mill.
The Metals Recovery Group sets and adjusts its prices for ferrous metals
sold based upon prices set monthly by the major steel producers. The Company
manages its commodity price risk by acquiring ferrous metal scrap as it is
needed for its customers and maintaining relatively low inventories of scrap and
processed metals.
Copper Processing Operations. The Metals Recovery Group is North America's
leading processor of wire and cable scrap, recycling over 400 million pounds
annually. The primary metal recovered is copper. The wire and cable
manufacturing industry is the largest generator of scrap wire and cable in North
America. Other principal generators include the telecommunications industry
(through the dismantling and regeneration of telecommunications lines),
utilities and the automotive industry. The availability of wire and cable scrap
depends upon a number of factors, including the general level of economic
activity in the industries served by the Metals Recovery Group, many of which
are cyclical in nature, and market prices for copper and the other metals
recovered. The Metals Recovery Group has not historically had difficulties in
obtaining volumes of wire and cable scrap. The Metals Recovery Group operates
eleven wire and cable scrap processing lines located in Hamilton, Ontario (four
lines), Kendallville, Indiana (two lines), Orangeburg, New York (two lines),
Ashland Virginia (one line) and Phoenix, Arizona (two lines).
Through a proprietary granulation and separation system, the Metals
Recovery Group recovers copper and in some cases, aluminum, as well as PVC and
PE plastics from wire and cable insulation. Scrap is first chopped into fine
pieces and the metallic particles are physically separated from the plastic
insulation through a mechanical density process and a proprietary second stage
electrostatic separation system. The plastics are separated into PVC and PE
polymer streams through water-based separation and a proprietary cryogenic
process. The separate polymers are sold to plastic and resin manufacturers
instead of being disposed of in landfills, thereby reducing the customer's
disposal cost and risk. Through its use of proprietary technology and expertise,
the Company believes that its Metals Recovery Group is able to recover more
components and generate higher yields from wire and cable scrap than its
competitors.
Depending on the grade of the material, recovered copper is either sold as
#1 or #2 scrap, or refined into prime ingots for sale to brass mills or rod
mills, or to copper smelters throughout North America. The Metals Recovery Group
also negotiates toll and conversion contracts for its wire and cable
manufacturing customers through which scrap materials are exchanged for new raw
materials. Under tolling contracts, the Metals Recovery Group receives a fee for
processing scrap and returning the
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<PAGE> 46
recovered metals to the customer. Under conversion contracts, the Metals
Recovery Group acquires wire and cable scrap from the customer and delivers
back, directly or through secondary metals processors, specified amounts of
merchant copper and other metals. The Metals Recovery Group also enters into
brokerage contracts to supply merchant copper and other metals to significant
customers where quantities required exceed the amounts recovered from the scrap
supplied. This service results in the customer having to deal with fewer
suppliers.
The Metals Recovery Group also manages recycling centers for four regional
Bell operating companies under multi-year contracts. Under these contracts, the
Company collects scrap from the dismantling and regeneration of
telecommunications lines, categorizes it, and prepares the scrap for resale. In
certain cases, the Company has the first right to purchase the wire and cable
scrap, and in other cases the Company is paid a fee for collecting the material
and may also bid for the scrap once it is collected.
Through recently acquired Conversion Resources Inc. of Cleveland, Ohio
("Conversion Resources"), the Metals Recovery Group also provides resource
recovery programs that separate and process copper, brass and aluminum from
scrap produced by industrial clients. These metals are then sold to tube mills,
brass mills, foundries, specialty consumers and copper refineries. Through
recently acquired Warrenton Resources Inc. of Warrenton Missouri ("Warrenton"),
the Metals Recovery Group refines copper scrap into copper ingots and other
customer specified shapes and is the sole manufacturer of fire-refined copper
ingot in North America. Warrenton uses #2 copper scrap as input for the
production of its ingots, which is generated from the Company's copper cable and
wire chopping operations. As a result of this acquisition, cable and wire scrap
processing is vertically integrated to include collection, processing and
refining. This integration permits the Company to maximize the value of
recovered copper by enabling it to sell either into the lower grade commodity
markets or into the higher value added refined copper markets, as market
conditions vary.
The Company is exposed to commodity price risk during the period that it
has title to materials that are held in inventory for processing and/or resale.
The Company attempts to reduce its commodity price risk through various methods,
including partially matching purchases of recoverable materials with current and
future physical sales and the limited use of certain financial instruments.
Aluminum Processing Operations. Through its Guelph, Ontario and Syracuse,
New York plants, the Company is a leading producer of aluminum alloys for the
automotive industry situated in the Great Lakes region. The Company operates
furnaces for the production of foundry alloys, primarily from aluminum scrap.
The facilities have an annual capacity of 280 million pounds. The use of
lightweight aluminum in automotive production continues to increase as
manufacturers comply with increasingly stringent fuel consumption and air
emission guidelines. The Company's alloys facilities also provide molten
aluminum to its customers, primarily automotive parts manufacturers. The Company
is one of a small number of molten aluminum suppliers, which requires the use of
high cost "crucibles" and specialized vehicles to transport the molten aluminum.
This also requires that the Company's facilities be close to those of its
customers, which proximity provides a competitive advantage.
The Company is also a major producer of aluminum deoxidizing product for
the steel industry at facilities located in Painesville, Ohio and Richmond,
Virginia. Aluminum deoxidizing product is used in the manufacture of steel to
eliminate gas bubbles during the production process. The Company's aluminum
deoxidizing product is marketed to over 30 major North American steel mills and
provides another essential product offering to steel mills. Production of the
aluminum deoxidizing product also supports the vertical integration of the
Company's aluminum operations since aluminum recovered from dross provides a raw
material for aluminum deoxidizing production.
The Metals Recovery Group aluminum processing operations also recover
aluminum from dross, a by-product formed in the primary smelting of aluminum.
Aluminum producers deliver dross to the Company's rotary kiln furnaces where it
is melted and processed to produce aluminum ingots that are returned to the
customer for a tolling fee. The Metals Recovery Group operates three rotary kiln
furnaces in two locations in the province of Quebec which service the major
aluminum producers located within the province. Transportation costs associated
with aluminum dross recycling require that the Metals
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<PAGE> 47
Recovery Group's recycling operations be located closely to the primary smelters
served. The proximity of the Metals Recovery Group's Quebec operations to the
aluminum smelters, in combination with its contractual relationships with the
smelters, has resulted in the absence of significant competitors for the Metals
Recovery Group's aluminum dross recycling operations. The Metals Recovery Group
is the largest recycler of aluminum dross in Canada.
INDUSTRIAL SERVICES
Through its Industrial Services Group, the Company is the single largest
integrated industrial services provider in North America with over 250
locations, over 9,000 employees and a wide range of services geared towards the
industrial customer. The Company is the leading provider of on-site industrial
services and operates the largest network of solid and liquid industrial
by-product recovery facilities. The Industrial Services Group is headquartered
in Houston, Texas.
The increasing focus by industrial enterprises on their core competencies
has led to greater outsourcing of non-core, non-revenue generating activities in
order to reduce costs. Such activities can generally be performed on a more cost
effective basis by specialized industrial service companies which have greater
expertise, technology advantages and economies of scale. Such activities include
industrial cleaning and maintenance, waste management and transportation,
demolition and remediation, and resource recovery. In addition, industrial
customers are evidencing a desire to reduce the number vendors of industrial
services and to acquire services from those suppliers that can provide a "total
service" solution on a national basis, thereby providing further administrative
and cost reductions.
The Company has expanded rapidly through acquisitions to provide it with
the range of products and services and the geographic coverage necessary to
respond to these trends. The acquisitions of Allwaste and Serv-Tech have
resulted in a significant expansion of Philip's historical by-products recovery
and environmental services businesses by adding industrial cleaning and
maintenance, container services, waste transportation, refinery turnaround and
refactory services. This broader range of services better positions the Company
to take advantage of the vendor reduction trend. It has also provided the
Company with significant cross selling opportunities to the customer base of
each company, since Philip has historically been strong in the steel,
telecommunications, automotive, aluminum, chemical and paint industries, whereas
Allwaste and Serv-Tech serve the refining, petrochemical, electric utility, pulp
and paper and food processing industries. In addition, Allwaste and Serv-Tech
were previously reliant upon third parties for processing and disposal of wastes
generated from their industrial cleaning and turnaround projects. These waste
streams may now be processed at Philip's network of by-product recovery
facilities. This integration of on-site cleaning and maintenance with
transportation, processing and disposal allows the Company to provide to its
customers single source environmental accountability and competitive pricing.
The acquisitions of Allwaste and Serv-Tech have also given the Company a
significant presence in the heavily industrialized regions of the Gulf coast and
southeastern and southwestern United States, which complements Philip's
concentration in the Great Lakes and industrial northeast regions. The
Industrial Services Group is now organized into five operating regions: Central,
Midwest, Northeast, Southeast and Western, each with a mandate to provide the
complement of industrial services to customers in that region. In addition, many
of the Company's specialized services are marketed across all regions by
specialized groups through the coordination of sales, analysis, delivery and
execution, and technical support. These specialized services include demolition
and decommissioning services, turnaround services, chemical services and
products, analytical laboratories, container services and tank cleaning.
The Industrial Services Group is divided into four principal segments:
on-site industrial services, by-products recovery operations; environmental
services and utilities management.
On-Site Industrial Services. The Industrial Services Group is a leading
provider of on-site industrial services throughout North America. Industries
served include the refining, petrochemical, oil and gas, electric utility, pulp
and paper, automotive, food processing, paint and coatings, and transportation
industries. The Industrial Services Group provides industrial and commercial
customers with a range of
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industrial and environmental services, including on-site industrial cleaning and
maintenance (including hydroblasting, gritblasting, air-moving and liquid
vacuuming and container services, and tank cleaning); waste collection and
transportation; turnaround and outage services; refactory services; project
management services; inspection and analysis services; electrical and
instrumentation; and other general plant support services.
Hydroblasting is performed using high pressure pumps to remove hard
deposits from surfaces, such as heat exchangers, boilers, aboveground storage
tanks and pipelines, that may be unsuitable for other conventional cleaning
techniques. Gritblasting utilizes both abrasive and non-abrasive media to clean
surfaces on electrostatic precipitators and boilers and to prepare metal
surfaces for protective coatings and non-destructive testing. Air-moving and
liquid vacuuming remove and handle industrial wastes or salvageable materials
contained in customers' tanks, containers or other process configurations.
Container services include cleaning, inspection and repair of highway
tank-trailers, railcar tanks, intermodal containers and intermediate bulk
containers. The Industrial Services Group also inspects all cleaned containers,
in accordance with applicable governmental regulations, to ensure no product or
moisture remains in the cleaned container. The Company believes that its
container cleaning and repair service business is the largest noncarrier
operation in the industry in terms of total revenues and number of containers
serviced. Tank cleaning involves the removal of sludge and residual products
from the interior of storage tanks to allow inspection, repair and/or product
changeover. The Industrial Services Group is the largest cleaner of above ground
storage tanks in North America. The Company believes that the Industrial
Services Group has the most comprehensive mix of tank cleaning technologies and
service capabilities of any contractor in North America.
Waste collection and transportation services provide comprehensive on-site
by-product and waste management programs for facility waste streams. Waste is
tested and classified in order to determine the recyclability of the material
and third party disposal requirements. Manifests and other shipping
documentation are prepared and the waste material is sent to the Company's
recycling and reclamation facilities wherever possible, or to contracted third
party treatment and disposal facilities. The Industrial Services Group operates
a large fleet of collection vehicles.
Turnaround and outage services provide customers in refineries,
petrochemical facilities and power plants a single source integrated package of
turnaround maintenance services and other specialty services for the scheduled
maintenance, repair or replacement of process equipment, operating machinery and
piping systems. Sophisticated maintenance programs play an increasingly
important role in the continuous improvement of performance in plant operations.
Services provided include project management, planning and scheduling,
decontamination, heat exchange maintenance, refactory services and heat treating
services. The Company is a North American leader in providing turnaround
services to the petrochemical industry. This is largely due to its patented
technologies that reduce labor costs and turnaround costs, including those
associated with the cost of down-time. These technologies also significantly
reduce the safety risks associated with heat bundle extraction and cleaning. The
Company intends to expand the application of these technologies to other key
industry sectors, including steel, chemicals and utilities.
By-Products Recovery. The Industrial Services Group's by-products recovery
operations apply customized process technologies to recover or create useable
products from liquid and solid industrial by-products (primarily hazardous and
non-hazardous chemical waste) and thereby reduce the cost and quantity of
materials destined for final disposal. The Industrial Services Group collects
organic industrial by-products which are processed into engineered fuels or
distilled into solvents and also provides on-site waste minimization and
inorganic waste processing.
Producing engineered fuels involves the blending of liquid and solid
industrial by-products into a customized fuel for use in industrial furnaces,
principally cement kilns. Distillation of spent solvents occurs through both
simple and fractional methods with recovered solvents either returned to the
generator or sold to the automotive aftermarket. Inorganic processing
capabilities include the treatment of waste waters and cyanide residuals, and
the recovery of metals from sludges, slags and foundry
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sands. The Industrial Services Group also provides wastewater treatment, sludge
management and paint overspray recovery services to automotive and parts
manufacturers that use paint spray booth systems.
The revenue of the by-products recovery operations is derived from the fees
paid to the Company by generators of industrial by-products or waste, from the
sale of recovered materials or from tolling fees charged to customers for
services rendered. The operations provide services to in excess of 15,000
customers, primarily from the automotive, petrochemical, paint and coatings and
aviation industries and the military. Company activities include the following:
<TABLE>
<CAPTION>
INDUSTRY SERVED BY-PRODUCT KEY REUSABLE PRODUCT REUSE APPLICATION
- ------------------- ---------------------- --------------------- ------------------------------
<S> <C> <C> <C>
Air pollution Baghouse dust Iron, calcium Cement component
control..........
After-automotive Oil filters and oily Oil, steel, metals Fuel supplement; oil recovery;
and industrial water secondary metals recovery;
markets.......... steel production
Automotive Grinding swarf Steel Steel production
Paint overspray Solvents, resin Adhesives; fuel
recovery
Polyurethane Polyols Automotive parts
scrap
Automotive, Solvent-laden Solvents/high Engineered fuel
chemical sludges and BTU material supplement; solvent recovery
industries and solids
small quantity
generators
Chemical industry Off-spec carbon Carbon black Fuel supplement; reducing
black agent for pyrol processing
Commercial and Spent chlorinated Solvents Commercial and industrial
industrial solvents cleaning; cement component
cleaning
Plating industry Inorganic sludges Zinc phosphate, Fertilizer; secondary metals
non-ferrous recovery
metals
Steel industry Steel sludges, Ferrous metal, iron, Steel production; cement and
mill scale, silica, brass aggregate component
foundry sands
</TABLE>
The Company's network of facilities and application of proprietary
technologies enables Philip to process higher volumes of by-products at reduced
cost. By developing new technologies or customizing available technologies, the
Company has achieved competitive processing and recovery efficiencies. For
example, the Company has developed a container processing system which enables
it to handle large volumes of drummed by-products quickly and effectively. The
system operates in an inert atmosphere using automatic control and video
monitoring to empty or shred drummed by-products, which are then transferred to
feed storage tanks where product separation is controlled. Supplemental fuels
can then be blended from this material. By using this technology, the
by-products recovery facilities in Detroit and South Carolina can each process
approximately 15,000 drums of material per month. Philip has also established an
engineered fuel processing system ("Super Blender"), which emulsifies solids
with liquid chemical by-products and suspends these solids in a supplemental
fuel for industrial use. Through this process, the Company produces a
supplemental fuel that contains up to 50% solids by weight, providing its
customers a more environmentally suitable and lower cost alternative to the
disposal of solid hazardous waste. Super Blenders are located at the Company's
Detroit, Kansas City and South Carolina facilities.
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Solid and liquid chemical and industrial waste residues constitute the bulk
of materials managed by the by-products recovery operations. The hazardous waste
management industry, which provides disposal services, including incineration
and hazardous waste landfills, is a significant competitor to the Company for
by-product waste streams. As a result of overbuilding and the success of its
customer's waste minimization efforts, significant excess capacity has developed
in the hazardous waste management industry, leading to downward pricing
pressures in the markets served by the Company's by-products operations. To
counter this situation, the Company continues to develop and employ innovative
technologies that minimize on-site waste generation for its customers and
maximize the value and reuse opportunities for industrial by-products. By
developing increasingly value-added applications for the materials it manages,
in partnership with its key industrial customers, the Company maximizes its
margins and differentiates itself from conventional disposal alternatives.
Examples of this strategy include the patented Emulsion for Paint Overspray
Control ("EPOC") system installed at automotive and equipment manufacturing
facilities. In consultation with automotive manufacturers, the Industrial
Services Group developed the EPOC system for paint overspray recovery. This
technology eliminates the need to landfill paint sludge, a significant waste
stream and production bottleneck in automotive manufacturing. The system
captures paint overspray in an emulsion and then recovers for reuse the active
ingredient in the emulsion, together with the residual paint, at the Company's
dedicated processing facility. The EPOC system improves the efficiency of the
painting process and reduces costs by eliminating build up in the paint booth
and decreasing paint usage. The EPOC system is used in over 20 parts
manufacturing and automotive assembly plants throughout the United States,
including automotive production facilities where the Company provides on-site
operating personnel.
A further example is the Company's association with BASF Corporation
("BASF") to recycle rigid polyurethane for the automotive sector. Approximately
2.5 million tons of polyurethanes are produced annually in North America. The
majority are used in flexible foam systems of which approximately 800 million
pounds are recycled. Molded parts made from rigid polyurethanes such as bumpers,
interior panels and steering wheels are not recycled and are disposed of in
landfills. Philip has been chosen by BASF to build and operate the first
polyurethane recycling facility in North America, using BASF technology. This
Detroit based facility has an initial processing capacity of 10 million pounds
per year. At the facility, polyurethane scrap is ground, chopped and added to a
reactor containing solvents such as glycol, catalysts and other ingredients. It
is then thermally treated and cooled to ambient temperature. The polyol produced
from this process can be used as a virgin material in rigid polyurethane
applications.
Philip also owns a rock quarry covering approximately 190 acres in Stoney
Creek, Ontario ("Taro-East"). Philip has received regulatory authority to
utilize the Taro-East site as an industrial non-hazardous landfill with a total
capacity of 11 million tons and an annual fill rate of 825,000 tons. The site is
used for the disposal of solid non-hazardous residuals from the Company's
by-products management and recovery operations located in Hamilton, Ontario.
Environmental Services. The Company's environmental services operations
include a broad range of remediation and environmental services, including
strategic resource management, site remediation, decommissioning and investment
recovery, abatement, environmental consulting and engineering, and analytical
and emergency response services.
Site remediation includes project management, risk assessment, demolition,
on-site treatment and transportation services to address environmental
contamination problems. Remediation can range from simple soil excavation and
disposal to complex programs that in some cases involve assumption by the
Company of management of all aspects of its customers' environmental and
regulatory programs. Combined with investment recovery, the Industrial Services
Group's site remediation services not only address environmental problems and
support the closure and decommissioning of facilities, they can generate revenue
for customers.
Decommissioning involves the closing down of operations, removal of process
equipment, buildings and structures and site cleanup and remediation. The
Industrial Services Group provides project planning and management, including
design, planning and control, health and safety, waste reduction, demolition,
and final site rehabilitation. All decommission projects start with an
investment recovery audit. The
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<PAGE> 51
Company's extensive resource and by-products recovery capabilities enables it to
recover value from process equipment, building components, and ferrous and non
ferrous metals. Proceeds from the sale of these materials reduce the cost of
demolition and decommissioning for its customers.
The Industrial Services Group operates the largest network of environmental
laboratories in Canada, from which it provides analytical testing for its
customers across North America and from as far away as Japan. The Company
provides advanced air quality analysis and dioxin testing. The Industrial
Services Group also provides emergency response services, including containment,
clean-up, remediation and disposal of material resulting from the inadvertent
release of dangerous goods, hazardous materials, wastes or spills of material
that are unusual to the environment in quantity or quality. The Company is the
largest emergency response provider in Canada and is the designated responder
for its U.S. customers which bring material into Canada for processing disposal.
The competitive strengths of the Company's environmental services
operations include its ability to provide integrated cost competitive "back end"
solutions, such as decommissioning, remediation and investment recovery, to
problems identified through the risk assessment and consulting services phase of
the contract. Remediation services focus on proven technical solutions, such as
the treatment of solvent contamination by methane injection, and other acquired
or developed technologies.
Utilities Management. The Company provides turnkey wastewater treatment at
customers' facilities, including design, procurement, installation, start-up and
operation. The Company is able to design and construct economical and efficient
treatment systems and provide a guarantee of performance and assurance of
operability. The Company has operational responsibility for over 30 industrial
wastewater treatment facilities.
A portion of the Company's utilities management business is operated
through 70%-owned Philip Utilities Management Corporation ("PUMC"), which
designs, builds, operates and manages municipal water and wastewater treatment
facilities. PUMC has contracts with eight Ontario municipalities to operate and
manage their water and wastewater treatment facilities. PUMC has a 51% interest
in Southwest Utilities Inc., the sole provider of water services to a number of
communities located within a 75-mile radius of Houston, Texas, and an operator
of two wastewater treatment plants. PUMC also designs and installs supervisory
control and data acquisition systems which increase operating efficiencies of
water and wastewater treatment plants and reduce emergency maintenance and
overtime costs.
The Company also specializes in water and sewer pipeline rehabilitation and
maintenance and services the rapidly growing North American market for
trenchless technologies. Trenchless technologies allow pipeline repairs to take
place through entry and exit points, rather than excavation of entire pipelines.
This results in lower costs and reduces interruption of services. The Company
holds eight trenchless technology licenses that cover locations throughout North
America. The Company also cleans commercial and industrial pipelines using
high-pressure water systems and provides pipeline inspection, survey and mapping
services using closed-circuit television and licensed asset management software.
CDM Philip, a joint venture owned 80% by PUMC and 20% by Camp Dresser &
McKee Inc., a large U.S. engineering firm, recently announced that it had signed
a twenty-five year contract to design, build and operate a water treatment
facility for the city of Seattle. The Seattle contract is the largest water
treatment design, build and operate contract in North America. The design and
build component of the project is valued at $68 million and is expected to take
three years to complete.
PROPRIETARY TECHNOLOGY
The Company develops and applies proprietary technologies to provide
on-site waste minimization, by-products recovery and industrial services that
reduce customer costs, safety risks and potential environmental liabilities.
In its Metals Recovery Group, the Company applies proprietary technology to
obtain better yields from scrap and by-products and to develop further uses for
material that would otherwise be landfilled. Development and use of this
technology increases margins, reduces environmental risk for the Company and its
customers and adds to the integrated package of services provided by the
Company, making it
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<PAGE> 52
more attractive as a single source vendor. For example, the Company's second
stage electrostatic separator used in its copper recovery operations increases
the percentage of copper or aluminum recovered from cable and wire scrap. This
results in a higher yield of both the metal and plastics streams. The Company's
cryogenic process for separating plastics resins is also proprietary and further
increases margins. As this material is regulated as a hazardous waste in the
United States, the reduction of landfill volumes also represents a reduction of
the disposal cost and liability for the generator. Through a joint venture with
Harbison Walker Refactories, the Company has developed a technology to process
the residual material from its dross operations into calcium aluminate, which
acts as a slag conditioner in steel production. This process increases yield and
margin from the dross operations, provides an alternative to disposal for its
customers in the aluminum industry and adds to the Company's integrated steel
services portfolio.
The Company's Industrial Services Group applies proprietary technologies to
minimize waste, increase recovery and reuse of industrial by-products and
provide on-site industrial services that minimize downtime and costs associated
with industrial cleaning, maintenance and turnaround projects. These
technologies include engineered fuel blending, using a "Super Blender" to
emulsify solid and liquid chemical by-products into a fuel for cement kilns; the
EPOC paint overspray recovery system that reduces paint usage and eliminates the
landfilling of paint sludge; and the Company's association with BASF to recycle
rigid polyurethane, primarily generated from automotive production and
automotive scrap, into polyols for reuse in polyurethane applications.
Turnaround technologies primarily for the petrochemical and oil and gas
industries include Fast Draw, a remote control heat exchanger bundle extraction
technology; Fast Clean, a semi-robotic heat exchanger bundle cleaning process,
and Life Guard, a technology for decontaminating hydrocarbons in refinery towers
and vessels to reduce potential health and safety impacts during cleaning and
maintenance activities.
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The following table outlines certain of the Company's proprietary
technologies.
<TABLE>
<CAPTION>
TECHNOLOGY APPLICATION COMPETITIVE ADVANTAGE INDUSTRY SERVED
- --------------------- -------------------- ----------------------- ----------------------
<S> <C> <C> <C>
Fast Draw Remote control Reduced turnaround Petrochemical;
extraction of heat time and labor; Hydrocarbon
exchanger bundles Enhanced safety processing
Fast Clean Semi-robotic Reduced turnaround Petrochemical;
cleaning time and labor; Hydrocarbon
of heat exchanger Enhanced safety processing
bundles
Life Guard Decontamination of Elimination of personal Petrochemical;
hydrocarbons in safety risks; Hydrocarbon
refinery towers and Improved heat transfer processing
vessels performance
WeldSmart Welding; Reduces energy All welding
Heat treatment consumption and applications
increases
productivity
EPOC Paint overspray Reduces paint usage Automotive and
capture and and eliminates equipment
recovery landfilling of paint manufacturers
sludge
Super Blender Processing of solid Reduces disposal costs Petrochemical;
and liquid by- and eliminates Paint;
products into landfilling; Automotive;
engineered fuels Low cost fuel to cement Cement
industry
Plastics Recycling Cryogenic processing Alternative to disposal Cable and wire;
to separate PVC of cable and wire Telecommunications
and PE polymer insulation
streams
Calcium Aluminate Processes aluminum Eliminates landfilling; Aluminum;
Recovery dross residuals for Raw material for steel Steel
reuse manufacturing
Electric Arc Furnace Thermal treatment of Eliminates landfilling Steel
("EAF") Dust EAF to produce and reduces disposal
Recycling zinc concentrate costs
Rigid Polyurethane Thermal/chemical Eliminates landfilling; Automotive;
Recycling processing of rigid Supports "recyclable Polyurethane
polyurethane car" objective of applications
automotive parts automotive
into virgin polyols manufacturers
</TABLE>
Although the Company possesses patents for certain of the above
technologies, it relies primarily on trade secret protection and confidentiality
to protect its proprietary technology. While the time and capital investment
associated with these technologies provide a barrier to entry, there can be no
assurance that the Company will be able to maintain the confidentiality of this
technology.
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<PAGE> 54
SALES AND MARKETING
The Company's sales and marketing strategy is focused on establishing close
working relationships with customers, developing a thorough understanding of
their business, working jointly on research and development to achieve waste
reduction and by-products recovery efficiency, and bundling services to achieve
maximum efficiencies and cost reductions for customers. Philip strives to become
an integral part of its customers business through redesigning process
technologies, operating resource recovery facilities and delivering a broad
range of industrial outsourcing services.
The Company's relationship managers, who are assigned to industrial
accounts, are critical to the success of the sales and marketing program. These
individuals are responsible for managing all aspects of service delivery to that
customer, ensuring the customer has one point of contact for information,
service and accountability. This individual then consults other Company
specialists drawing upon their expertise as required to provide information and
implement a broad range of services.
The Company places less emphasis on traditional sales approaches, and more
on cross selling a broad range of services to its existing large industrial
customer base. Through its acquisition program, the Company has established a
large customer base in all key industrial sectors. Through the integration
process, the Company identifies services it is providing these customers and
opportunities for additional cross-selling. This process is carried out in
conjunction with the sales or operating personnel in the acquired company who
have relationships with these customers.
The Company also participates in competitive bidding processes to obtain
contracts granted by municipalities, local governments or private enterprises
for services such as site redemption and decommissioning contract services.
Contracts are generally awarded on the basis of sealed bids submitted by
interested bidders, and competition for these contracts is generally intense.
CUSTOMERS
Philip provides a broad range of metals recovery and industrial services to
major industry sectors including aluminum, automotive, chemical, food and
beverage, oil and gas, paint and coatings, petrochemical, pulp and paper, steel,
telecommunications, transportation, utilities, and wire and cable.
The Company's steel scrap processing and mill services operations serve
customers in the steel industry, while the processing and distribution
operations primarily serve industrial and commercial construction clients and
manufacturing industries such as barge and ship building; copper processing
operations purchase materials from the cable and wire, automotive and
telecommunications sectors and provide processed copper and materials management
services to brass and copper mills, and the cable and wire, automotive and
telecommunications industries; and aluminum processing operations purchase
materials from primary smelters and industrial aluminum scrap generators and
supply aluminum deoxidizing product, secondary aluminum alloys and recovered
aluminum ingots to the steel, automotive and aluminum industries, respectively.
The Company's industrial services cross a number of industry sectors, primarily
automotive, refining and petrochemical, oil and gas, pulp and paper, steel,
transportation and utilities.
Major clients for the Company's ferrous processing operations include
Armco, ASW, Copperweld, Dofasco, Republic Engineered Steels, Stelco and Timken.
Major customers for the Company's non-ferrous processing operations include AK
Steel, Bethlehem Steel, Chrysler Canada, Noranda and Southwire. Major customers
for the Company's industrial services include BASF, Boise Cascade, Chevron,
Conoco, Dupont, Ford, General Electric, General Motors, Monsanto and Shell. No
customer accounts for more than 5% of the Company's consolidated revenue.
Philip seeks to enter into Master Service Agreements with large customers
to establish the Company as an approved vendor. Master Service Agreements are a
primary vehicle for large companies to reduce their suppliers, while
concurrently establishing high standards of service delivery with fewer
suppliers which can provide more services, and which are financially strong and
geographically diverse. In some cases, these agreements approve less than three
suppliers in the area of resource recovery and industrial services, providing
the Company with a strong competitive advantage. In other cases, a number of
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suppliers are approved and the Master Service Agreement serves only to assist
the Company in selling its services on a plant by plant basis. Philip has
entered into twenty-four national Master Service Agreements to date with such
companies as ARCO, BASF, Canadian National Railways, Dupont, General Electric,
Northrop-Grumman, Valspar and Weyerhauser. These Master Service Agreements
provide the Company with significant opportunity to package and cross-sell a
number of services to large national accounts.
COMPETITION
The resource recovery and industrial services industries are highly
competitive and require substantial capital resources. Competition is both
national and regional in nature and the level of competition faced by the
Company in its various lines of business is significant. Potential customers of
the Company typically evaluate a number of criteria, including price, service,
reliability, prior experience, financial capability and liability management. In
servicing its customers, the Company believes its primary competitive strengths
are: (i) that it offers the broadest range of metals recovery, by-products
recovery and industrial and environmental services in the industry; (ii) its
broad geographic network; (iii) its proprietary technologies; and (iv) the fact
that it is a leading consolidator in the industry due to its financial strength,
focused strategy, and multi-service capabilities. Although the Company believes
it is the leading integrated provider of metals recovery and industrial services
in North America, it competes with a variety of companies that may be larger in
particular business lines in which the Company operates.
The primary competitors of the Metals Recovery Group are other scrap
processors in regions where the Metals Recovery Group operates. Although the
Metals Recovery Group competes in both the purchase and sale sides of its
businesses, competition is primarily on the purchase side for access to scrap,
which may become more intense during times of scrap scarcity. Availability
depends upon the level of economic activity in the industries from which the
Company acquires its scrap, and market prices. The Company believes that its
longstanding relationship with generators of metal bearing scrap give it an
advantage over its competitors, a majority of which purchase scrap from dealers.
In its ferrous metals processing operations, the Company competes for access to
scrap with a small number of larger regional operators as well as a large number
of smaller operators. In its copper operations the Metals Recovery Group
competes for scrap with a limited number of regional competitors in the regions
that it serves. The Company enhances its competitive position through the use of
proprietary technology to separate and recycle the polymer streams, thereby
providing additional service and reducing landfilling costs and liability for
the scrap producing customer. The Company's aluminum dross recycling operations
face limited competition due to their geographic proximity to the primary
aluminum refiners. In its aluminum alloys business, the Company faces
substantial competition for aluminum scrap from a number of larger competitors,
including primary refiners. One advantage the Company has is that it generates
substantial amounts of aluminum scrap internally through its ferrous operations
(e.g., automobile engine blocks). In the Company's aluminum deoxidizing product
business, the Company competes for scrap supply with a number of smaller
regional competitors.
On the sales side of the Metals Recovery Group, the Company seeks to
enhance its competitive position by enhancing the efficiency of its operations
through economies of scale and increased recovery rates, thereby lowering its
costs, which increase margins and give it pricing flexibility. The Company also
accompanies its product sales with a broad range of services, or vertically
integrates its operations to gain access to multiple markets. In its ferrous
operations, the Company's acquisitions have resulted in economies of scale that
generate efficiencies in its delivery capabilities. The Company has constructed
a shredder with an annual capacity of 750,000 tons in Hamilton, Ontario which
enables the Company to process volumes faster and process especially heavy steel
that traditional shredders cannot handle. The Metals Recovery Group also
competes on the sale side by offering a more secure supply of high quality scrap
than a majority of its competitors and by providing a broad range of additional
mill services. In its copper operations, the Metals Recovery Group's products
are generally sold into commodity markets where prices are set by the
marketplace. However, the Company competes through its use of proprietary
technology to maximize yield and margins. In addition, through the recent
acquisition of Warrenton, the Company now has the alternative of selling its
processed scrap into the lower grade commodity markets
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<PAGE> 56
or refining it and selling it into the higher value added markets, as market
conditions vary. In the Company's alloys business, the Company competes against
two competitors whose alloy operations are larger than those of the Company. The
Company differentiates itself through its ability to supply molten aluminum and
a broad range of alloy types. In the aluminum deox business, the Company
competes against a number of smaller regional competitors. The Company believes
that the size of its operations and the broad range of aluminum deoxidizing
products it supplies provide it with a competitive advantage.
The industrial services sector is also highly competitive and fragmented.
The Company competes with numerous local, regional and national companies of
varying sizes and financial resources. Competition for industrial services is
based primarily on hourly rates, productivity, safety, innovative approaches and
quality of service. The hazardous waste management industry competes with the
Company's industrial services operations by providing a price competitive
disposal alternative to a number of the Company's waste management and
by-products recovery services. The hazardous waste management industry currently
has substantial excess capacity caused by overbuilding, continuing efforts by
hazardous waste generators to reduce volumes and to manage their waste on-site,
and the uncertain regulatory environment regarding hazardous waste management
and remediation requirements. These factors have led to downward pressure on
pricing in a number of the markets served by the Company's industrial services
operations. The Company expects these conditions to continue for the foreseeable
future. The Company competes by developing and employing innovative technologies
that minimize on-site waste generation for its customers and maximize the value
and reuse opportunities for the industrial by-products. Through developing
increasingly value-added applications for the materials it manages, in
partnership with its key industrial customers, the Company maximizes its margins
and differentiates itself from conventional disposal alternatives. Examples of
this strategy include the patented EPOC system installed at automotive and
equipment manufacturing facilities, and the Company's association with BASF to
recycle rigid polyurethane for the automotive sector.
GOVERNMENT REGULATION
The Company is subject to government regulation including stringent
environmental laws and regulations. Among other things, these laws and
regulations impose requirements to control air, soil and water pollution, and
regulate health, safety, zoning, land use and the handling and transportation of
industrial by-products and waste materials. This regulatory framework imposes
compliance burdens and costs on the Company. Notwithstanding the burdens of this
compliance, the Company believes that its business prospects are enhanced by the
enforcement of laws and regulations by government agencies.
Applicable federal and state or provincial laws and regulations regulate
many aspects of the resource recovery and industrial services industry. Laws and
regulations typically provide operating standards for treatment, storage,
management and disposal facilities and monitoring and spill containment
requirements and set limits on the release of contaminants into the environment.
Such laws and regulations, among other things, (i) regulate the nature of the
industrial by-products and wastes that the Company can accept for processing at
its treatment, storage and disposal facilities, and the nature of the treatment
they can provide at such facilities and the location and expansion of such
facilities; (ii) impose liability for remediation and clean-up of environmental
contamination, both on-site and off-site, resulting from past and present
operations at the Company's facilities; and (iii) may require financial
assurance that funds will be available for the closure and post-closure care of
sites. Such laws and regulations also require manifests to be completed and
delivered in connection with any shipment of prescribed materials so that the
movement and disposal of such material can be traced and the persons responsible
for any mishandling of such material identified.
In particular, the regulatory process requires the Company to obtain and
retain numerous governmental approvals, licenses and permits to conduct its
operations, any of which may be subject to revocation, modification or denial.
Operating permits need to be renewed periodically and may be subject to
revocation, modification, denial or non-renewal for various reasons, including
failure of the Company to satisfy regulatory concerns. Adverse decisions by
governmental authorities on permit applications submitted by the Company may
result in abandonment or delay of projects, premature closure of facilities
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<PAGE> 57
or restriction of operations, all of which could have a material adverse effect
on the Company's earnings for one or more fiscal quarters or years.
Federal, state, provincial, local and foreign governments have also from
time to time proposed or adopted other types of laws, regulations or initiatives
with respect to the resource recovery and industrial services industry. Included
among them are laws, regulations and initiatives to ban or restrict the
international, interprovincial, intraprovincial, interstate or intrastate
shipment of wastes, impose higher taxes on out-of-state-waste shipments than
in-state shipments, reclassify certain categories of non-hazardous wastes as
hazardous and regulate disposal facilities as public utilities. Certain state
and local governments have promulgated "flow control" regulations, which attempt
to require that all waste generated within the state or local jurisdiction must
go to certain disposal sites. From time to time legislation is considered that
would enable or facilitate such laws, regulations or initiatives. Due to the
complexity of regulation of the industry and to public pressure, implementation
of existing or future laws, regulations or initiatives by different levels of
governments may be inconsistent and are difficult to foresee.
Also subject to regulation are spills of certain industrial by-products and
waste materials. While the specific provisions of spills related laws and
regulations vary among jurisdictions, such laws and regulations typically
require that the relevant authorities be notified promptly, that the spill be
cleaned up promptly and that remedial action be taken by the responsible party
to restore the environment to its pre-spill condition. Generally, the
governmental authorities are empowered to act to clean up and remediate spills
and environmental damage and to charge the costs of such clean-up to one or more
of the owners of the property, the person responsible for the spill, the
generator of the contaminant and certain other parties. Such authorities may
also impose a tax or other liens to secure such parties' reimbursement
obligations.
The Company's facilities are subject to periodic unannounced inspection by
federal, provincial, state and local authorities to ensure compliance with
license terms and applicable laws and regulations. The Company works with the
authorities to remedy any deficiencies found during such inspections. If serious
violations are found or deficiencies, if any, are not remedied, the Company
could incur substantial fines and could be required to close a site. See
"Business -- Legal Proceedings."
Environmental laws and regulations impose strict operational requirements
on the performance of certain aspects of hazardous substances remedial work.
These requirements specify complex methods for identification, storage,
treatment and disposal of waste materials managed during a project. Failure to
meet these requirements could result in termination of contracts, substantial
fines and other penalties.
Governmental authorities have a variety of administrative enforcement and
remedial orders available to them to cause compliance with environmental laws or
remedy or punish violations of such laws. Such orders may be directed to various
parties, including present or former owners or operators of the concerned sites,
or parties that have or had control over the sites. In certain instances, fines
may be imposed.
In the event that administrative actions fail to cure the perceived problem
or where the relevant regulatory agency so desires, an injunction or temporary
restraining order or damages may be sought in a court proceeding. In addition,
public interest groups, local citizens, local municipalities and other persons
or organizations may have a right to seek relief from court for purported
violations of law. In some jurisdictions recourse to the courts for individuals
under common law principles such as nuisance have been or may be enhanced by
legislation providing members of the public with statutory rights of action to
protect the environment. In such cases, even if an industrial by-products or
waste materials treatment, storage or disposal facility is operated in full
compliance with applicable laws and regulations, local citizens and other
persons and organizations may seek compensation for damages caused by the
operation of the facility.
While, in general, the Company's businesses have benefited substantially
from increased governmental regulation, the resource recovery and industrial
services industry in North America has become subject to extensive and evolving
regulation. The Company makes a continuing effort to anticipate
56
<PAGE> 58
relevant material regulatory, political and legal developments, but it cannot
predict the extent to which any future legislation or regulation may affect its
operations. The Company believes that with heightened legal, political and
citizen awareness and concerns, all companies in the resource recovery and
industrial services industry may be faced, in the normal course of operating
their businesses, with fines and penalties and the need to expend funds for
capital projects, remedial work and operating activities, such as environmental
contamination monitoring, and related activities. Regulatory or technological
developments relating to the environment may require companies engaged in the
industrial services and resource recovery industry to modify, supplement or
replace equipment and facilities at costs which may be substantial. Because the
businesses in which the Company is engaged are intrinsically connected with the
protection of the environment and the potential discharge of materials into the
environment, a substantial portion of the Company's capital expenditures is
expected to relate, directly or indirectly, to such equipment and facilities.
Moreover, it is possible that future developments, such as increasingly strict
requirements of environmental laws and regulations, and enforcement policies
thereunder, could affect the manner in which the Company operates its projects
and conducts its business, including the handling, processing or disposal of the
industrial by-products and waste materials generated thereby.
HAZARDOUS SUBSTANCES LIABILITY
Canadian and U.S. laws impose liability on the present or former owners or
operators of facilities which release hazardous substances into the environment.
Furthermore, companies may be required by law to provide financial assurances
for operating facilities in order to ensure their performance of obligations
complies with applicable laws and regulations. Similar liability may be imposed
upon the generators and transporters of waste which contain hazardous
substances. All such persons may be liable for waste site investigation costs,
waste site clean-up costs and natural resource damages, regardless of fault, the
exercise of due care or compliance with relevant laws and regulations; such
costs and damages can be substantial.
In the United States, such liability stems primarily from CERCLA and its
state equivalents (collectively, "Superfund") and RCRA and similar state
statutes. CERCLA imposes joint and several liability for the costs of
remediation and natural resource damages on the owner or operator of a facility
from which there is a release or a threat of a release of a hazardous substance
into the environment and on the generators and transporters of those hazardous
substances. Under RCRA and equivalent state laws, regulatory authorities may
require, pursuant to administrative order or as a condition of an operating
permit, that the owner or operator of a regulated facility take corrective
action with respect to contamination resulting from past or present operations.
Such laws also require that the owner or operator of regulated facilities
provide assurance that funds will be available for the closure and post-closure
care of its facilities. Since the Company has operations in, and has shipped and
continues to ship hazardous waste to disposal sites in the United States, the
Company is exposed to potential liability in the United States under RCRA,
CERCLA and their state law equivalents resulting from the handling and
transportation of such wastes and for alleged environmental damage associated
with past, present and future waste disposal practices.
The Company is aware that hazardous substances are present in some of the
landfills and transfer, storage processing and disposal facilities used by it.
Certain of these sites have experienced environmental problems and clean-up and
remediation is required. The Company has grown in the past (and expects to
continue to grow in part in the future) by acquiring other businesses. As a
result, the Company has acquired, or may in the future acquire, landfills and
other transfer and processing sites which contain hazardous substances or which
have other potential environmental problems and related liabilities, and may
acquire businesses which may in the future incur substantial liabilities arising
out of their respective past practices, including past disposal practices.
Certain of Philip's and its U.S. subsidiaries' transfer, storage,
processing and disposal facilities are contaminated as a result of operating
practices at the sites, and remediation will be required at a substantial cost.
Investigations of these sites have characterized to varying degrees the nature
and extent of the contamination. Philip and these subsidiaries, in conjunction
with environmental regulatory
57
<PAGE> 59
agencies, have in some instances commenced to remediate the sites in accordance
with approved corrective action plans, pursuant to permits or other agreements
with regulatory authorities.
For each of these sites, the Company, in conjunction with an environmental
consultant, has developed or is developing cost estimates that are periodically
reviewed and updated. Estimated remediation costs, for individual sites and in
the aggregate, are substantial. While the Company maintains reserves for these
matters based upon cost estimates, there can be no assurance that the ultimate
cost and expense of corrective action will not exceed such reserves and have a
material adverse impact on the Company's operations or financial condition.
The Company is required under certain U.S. and Canadian laws and
regulations to demonstrate financial responsibility for possible bodily injury
and property damage to third parties caused by both sudden and non-sudden
occurrences. The Company is also required to provide financial assurance that
funds will be available when needed for closure and post-closure care at certain
of its treatment, storage and disposal facilities, the costs of which could be
substantial. Such laws and regulations allow the financial assurance
requirements to be satisfied by various means, including letters of credit,
surety bonds, trust funds, a financial (net worth) test and a guarantee by a
parent corporation. In the United States, a company must pay the closure costs
for a waste treatment, storage or disposal facility owned by it upon the closure
of the facility and thereafter pay post-closure care costs. There can be no
certainty that these costs will not materially exceed the amounts provided
pursuant to financial assurance requirements. In addition, if such a facility is
closed prior to its originally anticipated time, it is unlikely that sufficient
funds will have been accrued over the life of the facility to fund such costs,
and the owner of the facility could suffer a material adverse impact as a
result. Consequently, it may be difficult to close such facilities to reduce
operating costs at times when, as is currently the case in the hazardous waste
services industry, excess treatment, storage or disposal capacity exists.
Subsidiaries acquired by Philip have been named as potentially responsible
or liable parties ("PRPs") under U.S. federal and state Superfund laws, with
respect to several sites. These proceedings are based principally on allegations
that subsidiaries of Philip (or their predecessors) disposed of hazardous
substances at the sites in question. The Company routinely reviews and evaluates
its potential liability at third-party sites based upon its judgment and
experience at similar sites and the advice of environmental consultants and
maintains reserves based upon such review and evaluation. There can be no
assurance that the Company will not subsequently incur liabilities at such sites
or at additional sites that materially exceed the amounts reserved.
Estimates of the Company's liability for remediation of a particular site
and the method and ultimate cost of remediation require a number of assumptions
and are inherently difficult, and the ultimate outcome may differ from current
estimates. As additional information becomes available, estimates are adjusted.
While the Company does not anticipate that any such adjustment would be material
to its financial statements, it is possible that technological, regulatory or
enforcement developments, the results of environmental studies or other factors
could alter this expectation and necessitate the recording of additional
liabilities which could be material. Moreover, because the Philip and various of
its subsidiaries have disposed of waste materials at more than 200 third-party
disposal facilities, it is possible that Philip and its subsidiaries will be
identified as PRPs at additional sites. The impact of such future events cannot
be estimated at the current time.
The Company may also be required to indemnify customers who incur liability
in connection with the foregoing pursuant to the terms of contracts between such
customers and the subsidiaries involved.
EMPLOYEES
As of August 31, 1997, Philip employed over 11,000 people, approximately
1,400 of whom are unionized. Of such employees, over 2,000 work in the Metals
Recovery Group, over 9,000 work in the Industrial Services Group and
approximately 120 work in the Company's corporate office.
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<PAGE> 60
PROPERTIES
The Company currently operates approximately 300 facilities throughout
North America, South America and Western Europe. The Company believes that its
primary existing facilities are effectively utilized, well maintained, and in
good condition. The Company believes that its facilities are adequate for its
current needs and that suitable additional space will be available as required.
LEGAL PROCEEDINGS
From time to time, the Company is named a defendant in legal actions
arising out of the normal course of business. The Company is not a party to any
pending legal proceeding the resolution of which the management of the Company
believes will have a material adverse effect on the Company's results of
operations or financial condition or to any other pending legal proceedings
other than ordinary, routine litigation incidental to its business. The Company
maintains liability insurance against risks arising out of the normal course of
business.
In January 1997, the State of Missouri brought an enforcement action
against Solvent Recovery Corporation and the Company in state court alleging
numerous violations of hazardous waste regulations at the Company's Kansas City,
Missouri facility. Included were allegations that alterations or additions to
the facility's operations had been implemented without required modification of
the facility's hazardous waste permit as well as allegations of numerous
deficiencies under regulations and the permit in the accumulation, record
keeping, inspection, labeling, transportation and handling of such waste.
Through subsequent meetings and correspondence, the state has required (1)
submittal of a comprehensive application for permit modification; (2) submittal
of a plan for achieving and maintaining compliance with respect to operations;
and (3) payment of a penalty of approximately $560,000. The Company has
submitted permit application documents and a compliance plan and is negotiating
with the State for resolution of this matter. While settlement may require
payment of a substantial penalty, the Company does not expect that the matter
will have a material adverse effect on the Company's results of operations or
financial position.
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<PAGE> 61
RECENT ACQUISITIONS
Over the past five years, the Company has focused on increasing its revenue
base, its range of services and its geographic network of facilities throughout
North America through a series of strategic acquisitions. The Company intends to
continue to selectively pursue acquisitions in the United States and Canada in
the resource recovery and industrial services industries. The Company also
intends to pursue international markets through its expanding ferrous operations
in the United Kingdom and by supporting the European operations of its North
American clients. The following table sets forth acquisitions since January 1996
for which the purchase price, including debt assumed, was in excess of $10
million.
<TABLE>
<CAPTION>
COMPANY OR
CLOSING DATE ASSETS ACQUIRED PRIMARY LOCATION BUSINESS UNIT
- -------------------------------- -------------------- ------------------- --------------------
<S> <C> <C> <C>
August 1997..................... Intermetco Limited Hamilton, Ontario Metals Recovery
(Ferrous)
July 1997....................... Allwaste, Inc. Houston, Texas Industrial Services
July 1997....................... Serv-Tech, Inc. Houston, Texas Industrial Services
July 1997....................... Roth Bros. Smelting Syracuse, New York Metals Recovery
Corp. (Aluminum)
July 1997....................... 21st Century Providence, Rhode Industrial Services
Environmental Island
Management Inc.
July 1997....................... International Hatfield, Industrial Services
Alliance Pennsylvania
Services, Inc.
May 1997........................ Reynolds Metals' Bellwood, Virginia Metals Recovery
Bellwood, Virginia (Aluminum)
facility
February 1997................... RMF Global, Inc. Toledo, Ohio Industrial Services
February 1997................... Conversion Cleveland, Ohio Metals Recovery
Resources, Inc. (Copper)
February 1997................... Warrenton Warrenton, Missouri Metals Recovery
Resources, Inc. (Copper)
January 1997.................... Allied Metals Great Britain Metals Recovery
Limited (Ferrous)
January 1997.................... Luntz Corporation Canton, Ohio Metals Recovery
(Ferrous)
December 1996................... Alcan Aluminum's Guelph, Ontario Metals Recovery
Guelph Alloy Plant (Aluminum)
September 1996.................. Reclaimers Inc. Kendalville, Metals Recovery
Indiana (Copper)
September 1996.................. Intsel Southwest LP Houston, Texas Metals Recovery
(Ferrous)
</TABLE>
The following are the principal acquisitions completed by the Company since
June 30, 1997. Since revenues reported by the acquired businesses were in
certain instances prepared on a different basis of presentation than those of
the Company, such reported revenues are not necessarily indicative of the
revenues that would have been recognized by the Company on a pro forma basis or
that will be recognized by the Company in future periods.
Intermetco. In August 1997, Philip completed the acquisition of the
outstanding shares of Intermetco, a Canadian corporation, for a total
consideration of Cdn$66 million, including the assumption of Cdn$8 million in
debt. The acquisition price was paid with Cdn$4.7 million in cash and by the
issuance of approximately 2.7 million Common Shares. In addition to its core
recycling and scrap processing operations, Intermetco is also a manufacturer and
distributor of pipe and tubular products. Intermetco
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<PAGE> 62
employs approximately 250 people at its 12 North American facilities. For the
fiscal year ended December 31, 1996, Intermetco reported Cdn$194.9 million in
revenues. The acquisition enhances Philip's ability to supply its steel industry
clients with fully integrated services, from raw materials to by-product
processing and distribution services. The Company believes that synergies will
be realized through the increased tonnage processed at the Company's existing
facilities, and through the integration of Intermetco's pipe and tubular
products operations into Philip's southwestern and southeastern steel processing
and distribution networks.
Allwaste. In July 1997, Philip acquired Allwaste in a stock-for-stock
transaction for a total consideration of $502 million, including the assumption
of $142 million in debt. The acquisition price was paid by the issuance of
approximately 23 million Common Shares. Allwaste is an integrated provider of
industrial and environmental services and acts as an outsourcing provider of
on-site facility processes and services primarily in the United States, Canada,
and Mexico. Allwaste operates 180 facilities throughout North America and has
approximately 3,800 employees. For the fiscal year ended August 31, 1996,
Allwaste reported $382.2 million in revenues. The acquisition of Allwaste
significantly broadens the Company's industrial service offerings, expands its
geographical presence in the United States and significantly increases its
customer base. In addition, Allwaste is expected to provide the Company with
opportunities to rationalize operations, to enhance revenues through the
cross-selling of services and to improve asset utilization.
Serv-Tech. In July 1997, Philip acquired Serv-Tech in a stock-for-stock
transaction for a total consideration of $58 million, including the assumption
of $15 million in debt. The acquisition price was paid by the issuance of
approximately 2.7 million Common Shares. Serv-Tech is an integrated provider of
specialty services and products, including turnaround project management
services, electrical and instrumentation management services, and specialty
chemicals products primarily to the refinery and petrochemical industries. As of
December 31, 1996, the Company had 969 full-time employees and a total of 23
operating facilities located in California, Georgia, Louisiana and Texas. For
the fiscal year ended December 31, 1996, Serv-Tech reported $142.4 million in
revenues. The Company believes the acquisition will strengthen its position in
industrial maintenance and turnaround services. In addition, the acquisition
broadens the Company's customer base in the petrochemical and oil and gas
utility industries.
Roth. In July 1997, Philip acquired Roth, a private company based in
Syracuse, New York, for a total consideration of approximately $52 million,
including the assumption of $6.7 million in debt. The acquisition price was paid
with $37.5 million in cash and by the issuance of approximately 422,000 Common
Shares. Roth is a manufacturer of secondary aluminum alloy products for the
automotive and other industrial manufacturing industries which recorded sales of
approximately $94 million for the fiscal year ended December 31, 1996. The
Company believes the acquisition of Roth expands its aluminum alloy operations
and will result in greater market penetration of the automotive manufacturers
that are heavily concentrated in the Great Lakes region.
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<PAGE> 63
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and position of each of the directors and executive officers
of Philip as of September 23, 1997, are as follows:
<TABLE>
<CAPTION>
NAME AND MUNICIPALITY OF
RESIDENCE AGE POSITION WITH PHILIP
- --------------------------------- ---- ------------------------------------------------
<S> <C> <C>
ALLEN FRACASSI................... 44 President, Chief Executive Officer and Director
Ancaster, Ontario
PHILIP FRACASSI.................. 38 Executive Vice-President, Chief Operating
Ancaster, Ontario Officer and Director
HOWARD BECK...................... 64 Chairman and Director
Toronto, Ontario
ROY CAIRNS....................... 72 Director
St-Catharines, Ontario
DERRICK ROLFE.................... 43 Director
Toronto, Ontario
NORMAN FOSTER.................... 59 Director
Bloomfield Hills, Michigan
FELIX PARDO...................... 60 Director
Cambridge, Massachusetts
HERMAN TURKSTRA.................. 63 Director
Hamilton, Ontario
WILLIAM E. HAYNES................ 54 Director
Houston, Texas
ROBERT L. KNAUSS................. 66 Director
Hanover, New Hampshire
ROBERT WAXMAN.................... 42 President, Metals Recovery Group and Director
Ancaster, Ontario
MARVIN BOUGHTON.................. 57 Executive Vice-President and Chief Financial
Burlington, Ontario Officer
ROBERT M. CHISTE................. 50 President, Industrial Services Group
Houston, Texas
PETER CHODOS..................... 46 Executive Vice-President, Corporate Development
Toronto, Ontario
ANTONIO PINGUE................... 48 Executive Vice-President, Corporate & Government
Niagara Falls, Ontario Affairs
COLIN SOULE...................... 41 Executive Vice-President, General Counsel and
Toronto, Ontario Corporate Secretary
JOHN WOODCROFT................... 38 Executive Vice-President, Operations
Dundas, Ontario
</TABLE>
MR. ALLEN FRACASSI has been the President, Chief Executive Officer and a
director of Philip since December 1990. Allen Fracassi and Philip Fracassi, the
founders of the Company, are brothers.
MR. PHILIP FRACASSI has been the Executive Vice-President, Chief Operating
Officer and a director of Philip since December 1990. Philip Fracassi and Allen
Fracassi, the founders of the Company, are brothers.
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<PAGE> 64
MR. BECK was appointed Chairman of Philip on March 9, 1994 and has been a
director of Philip since December 1990. From 1991 to 1993, he was Vice-Chairman
of Barrick Gold Corporation (formerly American Barrick Gold Corporation), an
integrated gold mining company, and of The Horsham Corporation, a holding
company.
MR. CAIRNS has been a director of Philip since December 1990. Mr. Cairns
has been counsel to, and was previously a partner with, Chown, Cairns, a law
firm.
MR. ROLFE has been a director of Philip since January 1991. Since 1992, Mr.
Rolfe has been the President and Chief Executive Officer of RM Capital
Corporation, an investment company.
MR. FOSTER has been a director of Philip since January 1994. Mr. Foster was
the President, By-Products Recovery Group, of Philip from February 1996 to July
1997. Mr. Foster was President and Chief Executive Officer of Nortru, Inc. from
prior to 1991 to July 1997 and President and Chief Executive Officer of
Burlington Environmental Inc. from December 1993 to July 1997.
MR. PARDO has been a director of Philip since March 1994. Since May 1993,
Mr. Pardo has been President and Chief Executive Officer of Ruhr-American Coal
Corporation. From 1992, Mr. Pardo was Chairman of Newalta Corporation, an oil
field waste management company and a partner and director of Quorum Funding, an
investment company.
MR. TURKSTRA has been a member of Turkstra, Mazza, Shinehoft, Mihailovich,
Associates, a law firm, since 1959.
MR. HAYNES has been a director of Philip since August 6, 1997, and until
July 31, 1997 was a director of Allwaste from June 1996. He is the Chairman,
President and Chief Executive Officer of Innovative Valve Technologies, Inc., an
industrial valve repair and distribution company in which Philip owns a minority
equity interest. He served as the President and Chief Executive Officer of
LYONDELL-CITGO Refining Company Ltd. from July 1992 to December 1995.
MR. KNAUSS has been a director of Philip since August 6, 1997, and until
July 31, 1997 was a director of Allwaste from March 1988. He is the President
and Chief Executive Officer of Baltic International U.S.A., Inc., an aviation
investment company, and a director of the Mexico Fund, Inc., an investment fund
based in Mexico City, and Equus II, Inc., an investment fund based in Houston,
Texas. Mr. Knauss served for 12 years as the Dean and Distinguished University
Professor of the University of Houston Law Center.
MR. WAXMAN has been a director of Philip since January 1994. Mr. Waxman has
been the President, Metals Recovery Group, since February 28, 1996. Since
September 1993, Mr. Waxman has been President and Chief Executive Officer of
Waxman Resources Inc. From 1989 to 1993, Mr. Waxman was Chief Operating Officer
of I. Waxman & Sons Limited.
MR. BOUGHTON has been the Executive Vice-President and Chief Financial
Officer of Philip since January 1994 and May 1992, respectively. He was
Vice-President, Finance of Philip from September 1991 to December 1993.
MR. CHISTE became President of the Company's Industrial Services Group upon
completion of the Allwaste Merger. Prior to that he was President and Chief
Executive Officer of Allwaste from 1994. Prior to that he was Chief Executive
Officer of American National Power, Inc., a successor to Transco Energy Company
focused on the power generation business in North and South America, from 1984
to 1986.
MR. CHODOS has been Executive Vice-President, Corporate Development, of
Philip since June 1996. Prior to that time, he was Vice President and Director
of BZW Canada, an investment bank, from May 1992 to June 1996 and was Managing
Partner of Loewen, Ondaatje, McCutcheon & Company Limited, an investment bank,
from May 1983 to April 1992.
MR. PINGUE has been Executive Vice-President, Corporate and Government
Affairs since May 1997. Prior to that he was Senior Vice-President, Corporate &
Government Affairs, of Philip from March 1995. Prior to that, he was Senior-Vice
President, Environmental Services and Regulatory Affairs of the Company from
January 1994, and was Vice-President, Environmental and Regulatory Affairs, of
the Company from 1991 to December 1993.
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<PAGE> 65
MR. SOULE has been the General Counsel of Philip since October 1991, was
appointed Corporate Secretary of Philip in January 1992, was appointed Senior
Vice-President of Philip in May 1994 and Executive Vice-President of Philip in
May 1997.
MR. WOODCROFT has been Executive Vice-President, Operations since May 1997.
Prior to that he was Senior Vice President, Operations, of Philip from January
1994 and was Vice-President, Acquisitions and Development, of Philip from May
1991 to December 1993.
The Directors of Philip are elected annually by the shareholders and serve
until the next annual meeting.
DIRECTORS' COMPENSATION
Each director of the Company who is not a salaried officer or employee of
the Company is paid an annual fee of Cdn$25,000 and a fee of Cdn$1,000 per
meeting (including committee meetings) attended, and receives a one time award
of 20,000 options to acquire common shares of the Company. The options are
granted at an exercise price equal to the closing price of the Common Shares on
The Toronto Stock Exchange on the last trading day preceding the date of the
grant and vest over a period of three years from the date of the grant.
EXECUTIVE COMPENSATION
The table below sets forth the compensation in respect of each of the last
three fiscal years earned by the President and Chief Executive Officer and the
four other most highly compensated executive officers of the Company (the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION -------------------------------
------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(2) OPTIONS/SARS COMPENSATION(4)
- --------------------------- ---- ------- ------- ---------------- ------------ ----------------
($) ($) ($) (#) ($)
<S> <C> <C> <C> <C> <C> <C>
ALLEN FRACASSI............. 1996 366,757 586,800 32,743(3) 75,000 3,484
President and 1995 364,299 404,007 45,285(3) -- 5,100
Chief Executive Officer 1994 366,300 401,099 34,733(3) -- 5,128
PHILIP FRACASSI............ 1996 293,406 440,100 -- 75,000 4,309
Executive Vice-President
and...................... 1995 291,439 312,113 -- -- 5,282
Chief Operating Officer 1994 293,040 309,982 -- -- 4,945
JOHN WOODCROFT............. 1996 201,716 330,075 -- 60,000 5,043
Executive Vice-President, 1995 163,934 98,361 -- 30,000 4,918
Operations 1994 135,531 33,883 -- 30,000 4,066
MARVIN BOUGHTON............ 1996 194,381 256,725 -- 60,000 4,520
Executive Vice-President
and...................... 1995 193,078 96,539 -- 30,000 5,255
Chief Financial Officer 1994 194,139 87,363 -- 30,000 4,945
COLIN SOULE................ 1996 154,038 220,050 -- 60,000 4,621
Executive
Vice-President,.......... 1995 145,719 72,860 -- 30,000 4,372
General Counsel & 1994 135,531 33,883 -- 30,000 4,066
Corporate Secretary
</TABLE>
- ---------------
(1) All amounts have been converted to U.S. dollars based upon average exchange
rates of Canadian dollars per $1.00 of 1.3633, 1.3725 and 1.3650 for 1996,
1995, and 1994, respectively.
(2) Except as noted, perquisites and other personal benefits do not exceed the
lesser of $50,000 or 10% of the total annual salary and bonus for the Named
Executive Officers.
(3) Represents imputed interest benefit on housing loan.
(4) Represents Company's contribution to a retirement savings plan.
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<PAGE> 66
STOCK OPTIONS
The table below sets forth the options granted to the Named Executive
Officers under the Company's stock option plans during the fiscal year ended
December 31, 1996.
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1996(1)
<TABLE>
<CAPTION>
POTENTIAL
% OF REALIZABLE VALUE AT
TOTAL OPTIONS ASSUMED ANNUAL
SECURITIES GRANTED TO EXERCISE RATES OF STOCK
UNDER OPTIONS EMPLOYEES IN OR PRICE APPRECIATION
NAME GRANTED FISCAL YEAR(2) BASE PRICE(3) FOR OPTION TERM EXPIRATION DATE
- --------------------- ------------- --------------- -------------- -------------------- ---------------
(#) ($/Share) 5% ($) 10% ($)
<S> <C> <C> <C> <C> <C> <C>
Allen Fracassi....... 75,000 6% 8.00 377,337 956,245 August 6, 2006
Philip Fracassi...... 75,000 6% 8.00 377,337 956,245 August 6, 2006
John Woodcroft....... 60,000 5% 8.00 301,869 764,996 August 6, 2006
Marvin Boughton...... 60,000 5% 8.00 301,869 764,996 August 6, 2006
Colin Soule.......... 60,000 5% 8.00 301,869 764,996 August 6, 2006
</TABLE>
- ---------------
(1) The Company's employee stock option plans provide for the granting of stock
options to purchase common shares of the Company to employees and directors
of the Company at the discretion of the Board of Directors. All options are
subject to certain conditions of service and the provision of a
non-competition agreement. Options granted to Named Executive Officers in
fiscal 1996 vest in equal monthly amounts over 36 months from the date they
were granted.
(2) A total of 1,220,000 options were granted under the Company's employee stock
option plans during the fiscal year ending December 31, 1996.
(3) Amounts have been converted to U.S. dollars based upon an average exchange
rate of Canadian dollars per $1.00 of 1.3633.
The table below sets forth each exercise of options during the fiscal year
ended December 31, 1996 by the Named Executive Officers.
AGGREGATED OPTION EXERCISES DURING THE FISCAL YEAR
ENDED DECEMBER 31, 1996 AND FISCAL YEAR-END
OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SECURITIES AGGREGATE OPTIONS AT OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1996 DECEMBER 31, 1996
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ------------------------- ----------- --------- -------------------------- --------------------------
(#) ($) (#) ($)
<S> <C> <C> <C> <C>
Allen Fracassi(1)........ -- -- 18,320/66,680 430,743/139,512
Philip Fracassi(2)....... -- -- 18,320/66,680 430,743/139,512
John Woodcroft........... 27,500 111,740 55,552/74,448 429,474/502,826
Marvin Boughton.......... 20,000 47,850 65,552/74,448 515,240/502,826
Colin Soule.............. 7,500 30,750 75,552/74,448 583,671/502,826
</TABLE>
- ---------------
(1) Allen Fracassi holds an additional 389,031 exercisable options to acquire
Common Shares which were granted to him in connection with his sale to the
Company in 1990 of his interest in Philip Environmental Corporation.
(2) Philip Fracassi holds an additional 387,355 exercisable options to acquire
Common Shares which were granted to him in connection with his sale to the
Company in 1990 of his interest in Philip Environmental Corporation.
(3) The closing price of the Common Shares on The Toronto Stock Exchange on
December 31, 1996 was Cdn$19.75. All amounts have been converted to U.S.
dollars based upon an exchange rate of Canadian dollars per $1.00 of 1.3700
as of December 31, 1996.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with each of the Named
Executive Officers. The agreements set forth the benefits to which a Named
Executive Officer would be entitled in the event of termination without cause
before or after an event which gives rise to a change of control of the Company
or in the event of a change in the executive's responsibilities, title,
authority or compensation
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<PAGE> 67
after an event which gives rise to a change of control of the Company. In the
event of termination without cause prior to a change of control, a Named
Executive Officer would be entitled to a severance payment equal to two times
his base salary plus two times the annual average bonus and cash value of
benefits earned by the Named Executive Officer in the previous two years. In the
event of termination without cause after a change of control or in the event of
a change in the executive's responsibilities, title, authority or compensation
within two years of a change in control, a Named Executive Officer would be
entitled to a severance payment equal to three times his base salary plus three
times the annual average of the bonus and cash value of benefits earned by the
Named Executive Officer in the previous two years. In addition, stock options
granted to the Named Executive Officer will fully vest on termination and will
remain exercisable until the expiry of the original term of such options.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has a Compensation Committee comprised of Howard L.
Beck, Derrick Rolfe and Roy Cairns, all of whom are outside directors. The
Compensation Committee meets as required to consider the compensation packages
of the President and Chief Executive Officer, the Executive Vice Presidents and
the Chief Operating Officer. The Compensation Committee also makes
recommendations to the full Board of Directors with respect to the remuneration
of directors.
CERTAIN TRANSACTIONS
In connection with the December 1993 acquisition of Nortru, Inc. ("Nortru")
from Norman Foster, the Company guaranteed a $5,950,000 note payable by a
wholly-owned subsidiary of the Company to Mr. Foster. The note, which was
unsecured, bore interest at U.S. prime plus 2% and was payable in equal monthly
installments of $165,000 plus interest maturing on May 20, 1997. The outstanding
balance of the note was paid in full by the Company on May 21, 1997. Upon
consummation of the acquisition of Nortru, Mr. Foster became a director of the
Company.
In addition, the Company entered into a non-competition and retention
agreement with Mr. Foster, pursuant to which the Company agreed to pay Mr.
Foster an aggregate of $7 million in consideration for certain non-compete and
employment covenants from Mr. Foster. Payments of $1.4 million are due under
this agreement on December 31, 1997 and 1998.
As at September 23, 1997, the aggregate amount of indebtedness due to the
Company from all current or former officers, directors and employees was
Cdn$737,200, consisting of the outstanding balance of a loan made to Allen
Fracassi, the President and Chief Executive Officer of the Company, for the
purpose of purchasing a home. The loan is unsecured, non-interest bearing and
matures on September 30, 1997. The largest aggregate amount outstanding under
the loan during the fiscal year ended December 31, 1996 was Cdn$787,200.
The law firm of Turkstra, Mazza, Shinehoft, Mihailovich Associates, of
which Herman Turkstra is of counsel, provided services to the Company in 1995,
1996 and 1997. Fees paid to Mr. Turkstra's firm in 1995, 1996 and through
September 23, 1997 totalled Cdn$769,160, Cdn$921,456 and Cdn$516,713,
respectively.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
According to information supplied to the Company by the beneficial owner
listed below, the following person beneficially owned more than 5% of the
outstanding Common Shares as of December 31, 1996:
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED(2)
-----------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
- -------------------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Denver Investment Advisors LLC(1) 5,356,275 5.24 4.38
1225 17th Street, 26th Floor
Denver, Colorado 80202
</TABLE>
- ---------------
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<PAGE> 68
(1) As reported in a Schedule 13G filed with the Securities and Exchange
Commission (the "Commission") in February 1997.
(2) At September 23, 1997.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of September 23, 1997 by (i) each
director of the Company, (ii) the Named Executive Officers, and (iii) all
current directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
BENEFICIALLY OWNED
----------------------
NUMBER OF SHARES PRIOR TO AFTER
DIRECTORS AND EXECUTIVE OFFICERS(1) BENEFICIALLY OWNED OFFERING OFFERING
- --------------------------------------------------- ------------------ -------- --------
<S> <C> <C> <C>
Allen Fracassi(2)(3)............................... 2,348,597 2.30 1.92
Philip Fracassi(2)(4).............................. 2,026,572 1.98 1.66
John Woodcroft(2)(5)............................... 100,827 * *
Marvin Boughton(2)(6).............................. 120,827 * *
Colin Soule(2)(7).................................. 95,827 * *
Howard Beck(2)(8).................................. 423,336 * *
Roy Cairns(2)(9)................................... 923,336 * *
Derrick Rolfe(2)(10)............................... 23,336 * *
Norman Foster(2)(11)............................... 272,088 * *
Felix Pardo(2)(12)................................. 7,336 * *
Herman Turkstra(2)(13)............................. 27,446 * *
William E. Haynes(2)(14)........................... 3,824 * *
Robert L. Knauss(2)(15)............................ 3,824 * *
Robert Waxman(2)(16)............................... 87,990 * *
Peter Chodos (2)(17)............................... 52,768 * *
Robert M. Chiste(2)(18)............................ 567,114 * *
Antonio Pingue(2)(19).............................. 130,827 * *
All Directors and Executive Officers as a Group (17 7,215,875 7.06 5.90
persons).........................................
</TABLE>
- ---------------
* Indicates less than 1.0%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from September 23, 1997, whether
pursuant to the exercise of options, conversion of securities or otherwise.
Each beneficial owner's percentage of ownership is determined by assuming
that options to purchase Common Shares that are held by such person and
which are exercisable within 60 days of September 23, 1997 have been
exercised. Unless otherwise noted in the footnotes below, the Company
believes all persons named in the table have sole voting power and
investment power with respect to all Common Shares beneficially owned by
them. Options to acquire Common Shares which vest after 60 days after
September 23, 1997 are indicated separately in the notes that follow.
(2) The address of each of the directors and Named Executive Officers is 100
King Street West, P.O. Box 2440 LCD1, Hamilton, Ontario, Canada L8N 4J6.
(3) Includes 496,942 Common Shares issuable upon the exercise of employee stock
options. Does not include 377,089 Common Shares subject to options which
are not exercisable within 60 days.
(4) Includes 478,608 Common Shares issuable upon the exercise of employee stock
options. Does not include 293,757 Common Shares subject to options which
are not exercisable within 60 days.
(5) Includes 100,827 Common Shares issuable upon the exercise of employee stock
options. Does not include 249,173 Common Shares subject to options which
are not exercisable within 60 days.
(6) Includes 119,827 Common Shares issuable upon the exercise of employee stock
options. Does not include 249,173 Common Shares subject to options which
are not exercisable within 60 days.
(7) Includes 95,827 Common Shares issuable upon the exercise of employee stock
options. Does not include 249,173 Common Shares subject to options which
are not exercisable within 60 days.
(8) Includes 423,336 Common Shares issuable upon the exercise of employee stock
options. Does not include 16,664 Common Shares subject to options which are
not exercisable within 60 days.
(9) Includes 23,336 Common Shares issuable upon the exercise of employee stock
options. Does not include 16,664 Common Shares subject to options which are
not exercisable within 60 days.
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<PAGE> 69
(10) Includes 23,336 Common Shares issuable upon the exercise of employee stock
options. Does not include 16,664 Common Shares subject to options which are
not exercisable within 60 days.
(11) Includes 100,000 Common Shares issuable upon the exercise of employee stock
options. Does not include 100,000 Common Shares subject to options which
are not exercisable within 60 days.
(12) Includes 3,336 Common Shares issuable upon the exercise of employee stock
options. Does not include 31,664 Common Shares subject to options which are
not exercisable within 60 days.
(13) Includes 11,120 Common Shares issuable upon the exercise of employee stock
options. Does not include 28,880 Common Shares subject to options which are
not exercisable within 60 days.
(14) Includes 1,668 Common Shares issuable upon the exercise of employee stock
options. Does not include 18,332 Common Shares subject to options which are
not exercisable within 60 days.
(15) Includes 1,668 Common Shares issuable upon the exercise of employee stock
options. Does not include 65,681 Common Shares subject to options which are
not exercisable within 60 days.
(16) Includes 84,990 Common Shares issuable upon the exercise of employee stock
options. Does not include 245,010 Common Shares subject to options which
are not exercisable within 60 days.
(17) Includes 52,768 Common Shares issuable upon the exercise of employee stock
options. Does not include 222,232 Common Shares subject to options which
are not exercisable within 60 days.
(18) Includes 411,554 Common Shares issuable upon the exercise of employee stock
options. Does not include 137,185 Common Shares subject to options which
are not exercisable within 60 days.
(19) Includes 130,827 Common Shares issuable upon the exercise of employee stock
options. Does not include 249,173 Common Shares subject to options which
are not exercisable within 60 days.
SHARE CAPITAL OF THE COMPANY
The Company's authorized capital consists of an unlimited number of Common
Shares, 102,214,491 of which were issued and outstanding as of September 23,
1997. In addition, options to acquire a further 9,198,690 Common Shares were
outstanding on September 23, 1997.
The holders of Common Shares are entitled to receive dividends when, if and
as declared by the directors and, on liquidation, dissolution or winding up, to
receive pro rata the remaining property of the Company available for
distribution after the payment of the Company's creditors. The holders of Common
Shares are entitled to receive notice of and to attend meetings of shareholders,
and to vote on the basis of one vote per Common Share held. Holders of the
Common Shares of the Company have no pre-emptive, subscription, redemption or
conversion rights. All outstanding shares are fully paid and non-assessable.
The Board of Directors of the Company adopted a Shareholder Rights Plan
(the "Plan") on April 11, 1995. The Plan was amended by the Board of Directors
on May 19, 1995 and approved by the shareholders of the Company on May 24, 1995.
Under the Plan, the Board of Directors declared a dividend distribution of one
right (a "Right") for each Common Share to holders of record. The Plan does not
affect the acquisition of up to 20% of the issued and outstanding Common Shares
and other voting shares ("Voting Shares") of the Company. If a person acquires
20% or more of the Voting Shares of the Company other than by means of a
Permitted Bid or Competing Bid without the approval of the Board of Directors,
holders of Rights other than the acquiror may acquire Common Shares at a
significant discount to prevailing market prices. Accordingly, in such a case,
the Rights will cause significant dilution to an acquiror other than through a
Permitted Bid, a Competing Bid or on terms approved by the Board of Directors.
Under the Plan, as amended, a "Permitted Bid" is a take-over bid which provides
for a minimum deposit period of at least 60 days that is made to the holders of
all Voting Shares of the Company. A Permitted Bid must satisfy certain
conditions provided for in the Plan including that the bid be accepted by
holders independent of the bidder depositing at least 50% of their shares in
acceptance of the bid, in which case the bid must then be extended for a further
period of 10 business days. The Plan, as amended, is operative for a three year
period expiring June 30, 1998.
DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT FACILITY
The Company and Philip Environmental (Delaware) Inc. ("PEI"), a
wholly-owned subsidiary of the Company, entered into a Credit Agreement, dated
August 11, 1997, with a syndicate of lenders
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<PAGE> 70
composed of Canadian and United States financial institutions. The Company's
Credit Facility provides for an aggregate maximum borrowing amount of up to $1.5
billion available in seven tranches, each tranche differentiated by the
aggregate maximum amount of available credit, the applicable group of lenders
and the eligible borrowers. Borrowings under the Credit Facility bear interest
at varying rates, depending on the nature of the loan and the Company's
compliance with certain financial ratios. From August 11, 1997 through September
23, 1997, interest rates under the Credit Facility ranged from prime plus 0.25%
to prime plus 1.25%. The Company's and PEI's obligations under the Credit
Facility are secured by a pledge of all of the issued and outstanding securities
held by the Company or PEI in all of their material subsidiaries. The Credit
Facility terminates and all unpaid principal, interest, fees and other amounts
are due on August 12, 2002.
The terms of the Credit Agreement restrict the payment of cash dividends to
stockholders and require the Company to comply with a number of financial
covenants, including the maintenance of specified financial ratios. As of August
31, 1997, the Company was in compliance with these covenants. As of August 31,
1997, the Company had borrowed an aggregate of $817 million under the Credit
Facility.
ALLWASTE 7 1/4% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2014
In connection with the acquisition of Allwaste, Philip assumed and became
co-obligor of, by supplemental indenture (the "Supplemental Indenture"), the due
and punctual performance and observance of all the covenants and conditions to
be performed by Allwaste under the indenture (the "Indenture") with respect to
Allwaste's 7 1/4% Convertible Subordinated Debentures Due 2014 (the "Allwaste
Debentures"). The Supplemental Indenture provides that at any time up to and
including June 1, 2014, the holder of any Allwaste Debenture will have the right
to convert the principal amount of such Allwaste Debenture (or any portion
thereof equal to $1,000 or an integral multiple thereof) into Common Shares
equal to the principal amount of the Allwaste Debentures surrendered for
conversion divided by $19.5376; provided, however, that if such Allwaste
Debenture or any portion thereof is called for redemption prior to June 1, 2014,
then the right of such holder to convert such Allwaste Debenture into Common
Shares will terminate after the close of business on the fifth day prior to the
redemption date. As of September 23, 1997, there were outstanding $28.9 million
aggregate principal amount of Allwaste Debentures. If all Allwaste Debentures
outstanding on that date were converted, the Company would be required to issue
approximately 1.48 million Common Shares.
The Company's acquisition of Allwaste constituted a "Redemption Event"
pursuant to the Indenture. Accordingly, each holder of Allwaste Debentures has
the right to require Allwaste to redeem all or any portion (equal to $1,000 or
any integral multiple thereof) of such holder's Allwaste Debentures for cash at
the principal amount thereof, together with accrued interest thereon to the 90th
day following the acquisition; provided, however, that Allwaste is not obligated
to redeem any Allwaste Debenture at any time when the subordination provisions
of the Allwaste Debentures would not permit Allwaste to make a payment of
principal, premium or interest on the Allwaste Debentures.
MATERIAL INCOME TAX CONSIDERATIONS
The following discussion is not intended to be, nor should it be construed
to be, legal or tax advice to any particular prospective purchaser. This
discussion does not purport to deal with all aspects of Canadian and United
States federal income taxation that may be relevant to prospective purchasers of
Common Shares and does not take into account Canadian provincial or territorial
tax laws, United States state or local tax laws, or tax laws of jurisdictions
outside of Canada and the United States. The following discussion is based upon
the tax laws of Canada and the United States as in effect on the date of this
Prospectus, which are subject to change. Prospective purchasers should consult
their own tax advisors with respect to their particular circumstances.
MATERIAL CANADIAN FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth the opinion of Stikeman, Elliott, Canadian counsel
to the Company, as to the material Canadian federal income tax considerations
generally applicable to a person who acquires
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<PAGE> 71
Common Shares pursuant to this Prospectus and who for the purposes of the Income
Tax Act (Canada) (the "Act") and the Canada-United States Income Tax Convention,
1980 (the "Convention") (i) throughout the period during which the purchaser
owns the Common Shares, is not resident in Canada and is a resident of the
United States, (ii) holds Common Shares as capital property, (iii) deals at
arm's length with the Company, (iv) does not use or hold, and is not deemed to
use or hold, such Common Shares in, or in the course of, carrying on a business
or providing independent personal services in Canada, and (v) does not own (or
is not treated as owning) 10% or more of the outstanding voting shares of the
Company (a "U.S. Holder"). Special rules, which are not addressed in this
discussion, may apply to a U.S. Holder that is (i) an insurer that carries on an
insurance business in Canada and elsewhere or (ii) a "financial institution"
subject to special provisions of the Act applicable to income gain or loss
arising from "mark to market" property.
This discussion is based on the current provisions of the Convention, the
Act and the regulations thereunder (the "Regulations"), all specific proposals
to amend the Act and Regulations announced by the Minister of Finance (Canada)
prior to the date of this Prospectus and counsel's understanding of the current
published administrative practices of Revenue Canada. This discussion is not
exhaustive of all potential Canadian tax consequences to a U.S. Holder and does
not take into account or anticipate any other changes in law, whether by
judicial, governmental or legislative decision or action, nor does it take into
account the tax legislation or considerations of any province, territory or
foreign jurisdiction.
Dividends paid or credited or deemed to be paid or credited on Common
Shares owned by a U.S. Holder will be subject to Canadian withholding tax under
the Act at a rate of 25% on the gross amount of the dividends. The rate of
withholding tax generally is reduced under the Convention to 15% where the U.S.
Holder is the beneficial owner of the dividends. Under the Convention, dividends
paid to certain religious, scientific, charitable and similar tax exempt
organizations and certain pension organizations that are resident, and exempt
from tax, in the United States and who have complied with certain administrative
procedures are exempt from this Canadian withholding tax.
A gain realized by a U.S. Holder on a disposition or deemed disposition of
Common Shares generally will not be subject to tax under the Act unless such
Common Shares constitute taxable Canadian property within the meaning of the Act
at the time of disposition or deemed disposition. Common Shares generally will
not be taxable Canadian property provided the Common Shares are listed on a
prescribed stock exchange and at no time within the five-year period immediately
preceding the disposition did the U.S. Holder, persons with whom the U.S. Holder
did not deal at arm's length, or the U.S. Holder together with such persons, own
25% or more of the issued shares (and in the view of Revenue Canada, taking into
account any interest therein or options in respect thereof that belonged to the
U.S. Holder, persons with whom the U.S. Holder did not deal at arm's length, or
the U.S. Holder and such persons) of any class or series of the Company's
shares. A deemed disposition of Common Shares will arise on the death of a U.S.
Holder. If the Common Shares are taxable Canadian property to a U.S. Holder, any
capital gain realized on a disposition or deemed disposition of such shares will
generally be exempt from tax under the Act by virtue of the Convention if the
value of the Common Shares at the time of the disposition or deemed disposition
is not derived principally from real property situated in Canada (as defined by
the Convention).
The Company has advised that the Common Shares do not now derive their
value principally from real property situated in Canada; however, the
determination as to whether Canadian tax would be applicable on a disposition or
deemed disposition of Common Shares must be made at the time of that disposition
or deemed disposition.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth the opinion of Skadden, Arps, Slate, Meagher &
Flom LLP, U.S. counsel to the Company, as to the material United States federal
income tax consequences of an investment in the Common Shares generally
applicable to the following persons who invest in and hold such Common Shares as
capital assets ("United States Shareholders"): (i) citizens or residents (as
defined for United States federal income tax purposes) of the United States,
(ii) corporations or partnerships created or
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<PAGE> 72
organized in the United States or under the laws of the United States or of any
state or the District of Columbia, (iii) estates, the income of which is subject
to United States federal income taxation regardless of its source, (iv) any
trust if (x) a United States court is unable to exercise primary supervision
over the administration of the trust and (y) one or more United States
fiduciaries have the authority to control all substantial decisions of the
trust, and (v) certain trusts in existence on August 20, 1996 which were treated
as United States persons under the law in effect immediately prior to such date
and which make a valid election to be treated as a "United States Person" under
the Internal Revenue Code of 1986, as amended (the "Code"). This discussion does
not purport to be a comprehensive description of all the tax considerations that
may be relevant to a United States Shareholder's decision to acquire Common
Shares. In particular, this discussion does not address (a) the tax treatment of
special classes of United States Shareholders, such as banks, insurance
companies, tax-exempt organizations or dealers in securities, (b) the tax
treatment of United States Shareholders that own (directly or indirectly by
attribution) 10 percent or more of the voting shares of the Company, or (c) any
aspect of state, local or non-United States tax laws.
This discussion is based on the Code, judicial decisions, administrative
pronouncements, and existing and proposed Treasury regulations, changes to any
of which after the date of this Prospectus could have retroactive effect.
Additionally, the implementation of certain aspects of the PFIC rules (discussed
below) and other matters discussed herein requires the issuance of Treasury
regulations which have not yet been promulgated and which may have retroactive
effect.
Prospective investors should consult their tax advisors as to the tax
consequences of an investment in the Common Shares in light of their particular
circumstances, including the effect of any foreign, United States state or local
tax laws.
TAXATION OF CAPITAL GAINS
Gain or loss, if any, recognized by a United States Shareholder on the sale
or other disposition of Common Shares will be subject to United States federal
income taxation as capital gain or loss in an amount equal to the difference
between the United States Shareholder's adjusted tax basis in the Common Shares
and the amount realized on the disposition. Any such gain or loss will generally
be treated as long-term or short-term capital gain or loss, depending on whether
the United States Shareholder's holding period with respect to the Common Shares
is longer than one year. In general, long-term capital gains with respect to
Common Shares held for more than 18 months are subject to a maximum tax rate of
20% and long-term capital gains with respect to Common Shares held for more than
12 months but not more than 18 months are subject to a maximum tax rate of 28%.
A holder of Common Shares who is not a United States Shareholder (a "Non
United States Shareholder") generally will not be subject to United States
federal income tax or withholding tax in respect of gain recognized on a
disposition of Common Shares unless such gain is effectively connected with a
trade or business of the Non United States Shareholder in the United States, or
in the case of an individual Non United States Shareholder, such Non United
States Shareholder is present in the United States for 183 or more days in the
calendar year in which such disposition of Common Shares takes place and such
Non United States Shareholder either (i) has a tax home (as defined in the Code)
in the United States, or (ii) such gain is attributable to an office or other
fixed place of business in the United States.
DIVIDENDS ON COMMON SHARES
The gross amount of any distribution by the Company (including any Canadian
taxes withheld therefrom) with respect to Common Shares generally will be
includible in the gross income of a United States Shareholder as foreign source
dividend income to the extent paid out of current or accumulated earnings and
profits of the Corporation, as determined under United States federal income tax
principles. To the extent that the amount of any distribution exceeds the
Company's current and accumulated earnings and profits for a taxable year, the
distribution will first be treated as a tax-free return of capital to the extent
of the United States Shareholder's adjusted tax basis in the Common Shares and
to the extent that such distribution exceeds the United States Shareholder's
adjusted tax basis in the Common Shares, will be taxed as a capital gain. Such
dividends will not be eligible for the dividends received
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<PAGE> 73
deduction generally allowed to corporations under the Code. If a United States
Shareholder receives a dividend in Canadian dollars, the amount of the dividend
for United States federal income tax purposes will be the U.S. dollar value of
the dividend (determined at the spot rate on the date of such payment)
regardless of whether the payment is later converted into U.S. dollars. In such
case, the United States Shareholder may recognize ordinary income or loss as a
result of currency fluctuations between the date on which the dividend is paid
and the date the dividend amount is converted into U.S. dollars.
A Non United States Shareholder generally will not be subject to United
States federal income or withholding tax on dividends received on Common Shares,
unless such income is effectively connected with the conduct of a trade or
business of such Non United States Shareholder in the United States.
Credit for Foreign Taxes Withheld. Subject to the limitations set forth in
Sections 901 and 904 of the Code (including certain holding period
requirements), the foreign tax withheld or paid with respect to dividends on the
Common Shares generally will be eligible for credit against a United States
Shareholder's federal income tax liability. Alternatively, a United States
Shareholder may claim a deduction for such amount of withheld foreign taxes, but
generally only for a year for which such United States Shareholder elects to do
so with respect to all foreign income taxes. The overall limitation on foreign
taxes eligible for credit is calculated separately with respect to specific
classes of income.
PASSIVE FOREIGN INVESTMENT COMPANY DISCUSSION
The foregoing discussion assumes that the Company is not currently, and
will not be in the future, classified as a "passive foreign investment company"
("PFIC") within the meaning of the Code. Based on its current and projected
income, assets and activities, the Company does not believe it will be
classified as a PFIC for its current or any succeeding taxable year. However, if
during any taxable year of the Company, 75% or more of the Company's gross
income consists of certain types of "passive" income, or if the average value
during a taxable year of the Company's "passive assets" (generally assets that
generate passive income) is 50% or more of the average value of all assets held
by the Company, the Company will be classified as a PFIC for such year and in
succeeding years. If the Company is classified as a PFIC, a United States
Shareholder holding Common Shares will be subject to increased tax liability in
respect of gain realized on the sale of the Common Shares or upon the receipt of
certain dividends, unless such person makes an election to be taxed currently on
its pro rata portion of the Company's income, whether or not such income is
distributed in the form of dividends or otherwise.
UNDERWRITING
Subject to the terms and conditions set forth in the U.S. Underwriting
Agreement (the "U.S. Underwriting Agreement"), the Company has agreed to sell to
each of the underwriters named below (the "U.S. Underwriters"), and each of the
U.S. Underwriters, for whom Salomon Brothers Inc and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are acting as representatives (the "U.S.
Representatives"), has severally agreed to purchase from the Company the number
of Common Shares set forth opposite its name below:
<TABLE>
<CAPTION>
U.S. UNDERWRITERS NUMBER OF SHARES
-------------------------------------------------------------------- ----------------
<S> <C>
Salomon Brothers Inc ...............................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated............................................
--------
Total........................................................
========
</TABLE>
In the U.S. Underwriting Agreement, the several U.S. Underwriters have
agreed, subject to the terms and conditions set forth therein, to purchase all
the Common Shares offered in the U.S. Offering if any such Common Shares are
purchased. In the event of a default by any U.S. Underwriter, the
72
<PAGE> 74
U.S. Underwriting Agreement provides that, in certain circumstances, purchase
commitments of the non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated. The U.S. Underwriters have agreed to
purchase such Common Shares from the Company at the public offering price set
forth on the cover page of this Prospectus and the Company has agreed to pay the
U.S. Underwriters the underwriting commission set forth on the cover page of
this Prospectus for each Common Share so purchased. The Company has been advised
by the U.S. Representatives that the several U.S. Underwriters propose initially
to offer such Common Shares to the public at the public offering price set forth
on the cover page of this Prospectus, and to certain dealers at such price, less
a concession not in excess of $ per Common Share. The U.S. Underwriters
may allow, and such dealers may reallow, a concession not in excess of
$ per Common Share to other dealers. After the Offerings, the public
offering price and such concessions may be changed.
The Company has also entered into an International Underwriting Agreement
with the underwriters named therein (the "International Underwriters"), for whom
Salomon Brothers International Limited and Merrill Lynch International Limited
are acting as representatives (the "International Representatives"), providing
for the concurrent offer and sale of Common Shares outside of the United States.
The public offering price and underwriting commission per Common Share for
each of the Offerings will be identical. The closing of each of the Offerings is
conditioned upon the closing of the other.
The Company has granted to the U.S. Underwriters an option, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of additional Common Shares at the same public offering
price per Common Share as set forth on the cover page of this Prospectus to
cover over-allotments, if any. The Company has agreed to pay the U.S.
Underwriters the underwriting commission set forth on the cover page of this
Prospectus for each additional Common Share so purchased. To the extent that the
U.S. Underwriters exercise such option, each U.S. Underwriter will have a firm
commitment, subject to certain conditions, to purchase the same proportion of
such Common Shares as the number of Common Shares to be purchased and offered by
such U.S. Underwriter in the above table bears to the total number of Common
Shares initially offered by the U.S. Underwriters. The Company has also granted
to the International Underwriters an option, exercisable during the 30-day
period after the date of this Prospectus, to purchase up to an aggregate of
additional Common Shares at the same public offering price per Common
Share to cover over-allotments, if any.
The U.S. Underwriters and the International Underwriters have entered into
an Agreement Between U.S. Underwriters and International Underwriters (the
"Agreement Between U.S. Underwriters and International Underwriters"), pursuant
to which each U.S. Underwriter has severally agreed that, as part of the
distribution of the Common Shares offered by the U.S. Underwriters, (i) it is
not purchasing any Common Shares for the account or benefit of anyone other than
a U.S. Person and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any Common Shares or distribute this Prospectus to any
person outside the United States or to anyone other than a U.S. Person. Each
U.S. Underwriter has also agreed that it has not offered or sold and will not
offer or sell, by means of any document other than this Prospectus in final form
as filed with the Commission, any Common Shares. Each International Underwriter
has severally agreed that, as part of the distribution of the Common Shares by
the International Underwriters, (i) it is not purchasing any Common Shares for
the account or benefit of any U.S. Person, and (ii) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Common Shares or
distribute any Prospectus relating to the International Offering to any person
within the United States or to anyone who is a U.S. Person. The foregoing
limitations do not apply to stabilization transactions or to certain other
transactions specified in the Agreement Between U.S. Underwriters and
International Underwriters. As used herein, "United States" means the United
States of America (including the District of Columbia) and its territories, its
possessions and other areas subject to its jurisdiction, and "U.S. Person" means
a resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, and certain other persons and entities, and includes any
United States branch of a person other than a U.S. Person.
73
<PAGE> 75
Pursuant to the Agreement Between U.S. Underwriters and International
Underwriters, sales may be made between the Underwriters of such number of
Common Shares as may be mutually agreed. The price of any Common Shares so sold
shall be the public offering price as set forth on the cover page to this
Prospectus, less an amount not greater than the concession to securities
dealers. To the extent that there are sales between U.S. Underwriters and
International Underwriters pursuant to the Agreement Between U.S. Underwriters
and International Underwriters, the number of Common Shares initially available
for sale by U.S. Underwriters or International Underwriters may be more or less
than the amount appearing on the cover page of this Prospectus
No action has been or will be taken in any jurisdiction by the Company or
by any Underwriter that would permit a public offering of the Common Shares or
possession or distribution of a prospectus in any jurisdiction where action for
that purpose is required, other than in the United States and Canada. Persons
into whose possession this Prospectus comes are advised by the Company and the
Underwriters to inform themselves about, and to observe any restrictions as to,
the offering of the Common Shares and the distribution of this Prospectus.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Shares, including Common Shares initially sold in
the concurrent international offering by the International Underwriters, to U.S.
persons and persons located in the United States.
In connection with the Offerings, rules of the Commission permit the
Underwriters to engage in certain transactions that stabilize the price of the
Common Shares. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Common Shares.
If the Underwriters over-allot or create short positions in the Common
Shares in connection with the Offerings by selling more Common Shares than are
set forth on the cover page of this Prospectus, the Underwriters may reduce that
short position by purchasing Common Shares in the open market. The Underwriters
may also elect to reduce any short position by exercising all or part of the
over-allotment option described above.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of Common Shares. In addition, neither the
Company nor any of the Underwriters makes any representation that the
Underwriters will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
The U.S. Underwriting Agreement and the International Underwriting
Agreement each provide that the Company will indemnify the several Underwriters
against certain liabilities, including liabilities under the Securities Act, or
contribute to payments the Underwriters may be required to make in respect
thereof.
The Company and its executive officers and directors will agree that none
of them will, directly or indirectly, offer, sell, announce an intention to
sell, contract to sell, pledge, hypothecate, grant any option to purchase or
otherwise dispose of, any Common Shares or securities convertible or
exchangeable into or exercisable for any Common Shares without the prior written
consent of Salomon Brothers Inc for a period of 90 days after the date of this
Prospectus, except in the case of the executive officers and directors for an
aggregate of 500,000 Common Shares, and subject to certain additional
exceptions.
The Underwriters and their affiliates have provided and will in the future
continue to provide investment banking and other financial services for the
Company in the ordinary course of business for which they have received and will
receive customary compensation.
LEGAL MATTERS
Certain Canadian legal matters relating to the Common Shares offered hereby
will be passed upon, on behalf of the Company, by its General Counsel and by
Stikeman, Elliott (Toronto) and, on behalf of
74
<PAGE> 76
the Underwriters, by Osler, Hoskin & Harcourt (Toronto). Certain U.S. legal
matters relating to the Common Shares offered hereby will be passed upon, on
behalf of the Company, by Skadden, Arps, Slate, Meagher & Flom LLP (Toronto and
New York) and, on behalf of the Underwriters, by Testa, Hurwitz & Thibeault, LLP
(Boston).
EXPERTS
The consolidated balance sheets of the Company and its subsidiaries as of
December 31, 1996 and 1995 and the consolidated statements of earnings, retained
earnings and changes in financial position for each of the three years in the
period ended December 31, 1996, included in this Prospectus have been included
herein in reliance on the report of Deloitte & Touche, independent auditors, as
stated in their reports, given on the authority of that firm as experts in
accounting and auditing.
The consolidated balance sheets of Allwaste and its subsidiaries at August
31, 1996 and 1995, and the consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended August
31, 1996 included in this Prospectus have been included herein in reliance on
the report of Arthur Anderson LLP, independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The combined statements of income and of cash flows of Pechiney (ISW),
Inc., PPC (ISW), Inc. and Intsel Southwest Limited Partnership for the nine
months ended September 26, 1996 included in this Prospectus have been so
included in reliance on the report of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
The consolidated statements of income and cash flows of Luntz Corporation
for the fiscal year ended December 31, 1995 included in this Prospectus have
been included herein in reliance on the report of Ernst & Young LLP, independent
auditors, given on the authority of that firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (including all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Shares offered
hereby. The Prospectus omits certain information contained in the Registration
Statement. For further information with respect to the Company and the Common
Shares offered hereby, reference is hereby made to the Registration Statement
and to the exhibits and schedules filed therewith. Statements contained in this
Prospectus regarding the contents of any agreement or other document filed as an
exhibit to the Registration Statement are not necessarily complete, and in each
instance reference is made to the copy of such agreement filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference. The Registration Statement, including the exhibits and
schedules thereto, may be inspected at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, DC 20549,
and copies of all or any part thereof may be obtained from such office upon
payment of the prescribed fees.
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and the rules and regulations promulgated thereunder. In
accordance therewith, the Company files periodic reports and other information
with the Commission. The reports and other information filed by the Company,
including the Registration Statement and the exhibits and schedules thereto, may
be inspected and copied at the public reference facilities maintained by the
Commission at its principal offices at 450 Fifth Street, N.W., Washington, D.C.
20549, and at its regional offices located at Seven World Trade Center, New
York, New York 10048, and 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of all or any part thereof may be obtained from the Public
Reference Section of the Commission in Washington, D.C., upon payment of certain
fees prescribed by the Commission and are also publicly available through the
Commission's web site (http://www.sec.gov). The Common Shares are listed on the
NYSE. Reports and other information described above may be inspected and copied
at facilities maintained by the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
75
<PAGE> 77
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PHILIP SERVICES CORP.
Auditors' Report to Shareholders....................................................... F-2
Unaudited Consolidated Balance Sheets at June 30, 1997 and Audited Consolidated Balance
Sheets at December 31, 1996 and 1995................................................. F-3
Unaudited Consolidated Statements of Earnings for the six months ended June 30, 1997
and 1996 and Audited Consolidated Statements of Earnings for the fiscal years ended
December 31, 1996, 1995 and 1994..................................................... F-4
Unaudited Consolidated Statements of Retained Earnings for the six months ended June
30, 1996 and 1997 and Audited Consolidated Statements of Retained Earnings for the
fiscal years ended December 31, 1996, 1995 and 1994.................................. F-5
Unaudited Consolidated Statements of Changes in Financial Position for the six months
ended June 30, 1997 and 1996 and Audited Consolidated Statements of Changes in
Financial Position for the fiscal years ended December 31, 1996, 1995 and 1994....... F-6
Notes to Consolidated Financial Statements............................................. F-7
UNAUDITED SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA PRESENTED IN U.S. GAAP
(IN U.S. DOLLARS).................................................................... F-27
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ALLWASTE, INC.
Condensed Consolidated Balance Sheets at May 31, 1997 (unaudited) and August 31,
1996................................................................................. F-28
Condensed Consolidated Statements of Operations for the nine and three month periods
ended May 31, 1997 and May 31, 1996 (unaudited)...................................... F-29
Condensed Consolidated Statements of Cash Flows for the nine month periods ended May
31, 1997 and May 31, 1996 (unaudited)................................................ F-30
Notes to Condensed Consolidated Financial Statements (unaudited)....................... F-31
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF ALLWASTE, INC.
Report of Independent Public Accountants............................................... F-35
Audited Consolidated Balance Sheets at August 31, 1996 and 1995........................ F-36
Audited Consolidated Statements of Operations for the fiscal years ended August 31,
1996, 1995 and 1994.................................................................. F-37
Audited Consolidated Statements of Shareholders' Equity at August 31, 1996, 1995, 1994
and 1993............................................................................. F-38
Audited Consolidated Statements of Cash Flows for the fiscal years ended
August 31, 1996, 1995 and 1994....................................................... F-39
Notes to Consolidated Financial Statements............................................. F-40
AUDITED FINANCIAL STATEMENTS OF PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP
Report of Independent Accountants...................................................... F-58
Audited Combined Statement of Income for the nine month period ended September 26,
1996................................................................................. F-59
Audited Combined Statement of Cash Flows for the nine month period ended September 26,
1996................................................................................. F-60
Audited Notes to Combined Financial Statements......................................... F-61
AUDITED FINANCIAL STATEMENTS OF LUNTZ CORPORATION
Report of Independent Auditors......................................................... F-64
Unaudited Consolidated Statement of Income for the eleven month period ended November
30, 1996 and Audited Consolidated Statement of Income for the fiscal year ended
December 31, 1995.................................................................... F-65
Unaudited Consolidated Statement of Cash Flows for the eleven month period ended
November 30, 1996 and Audited Consolidated Statement of Cash Flows for the fiscal
year ended December 31, 1995......................................................... F-66
Notes to Consolidated Statements of Income and Cash Flows.............................. F-67
</TABLE>
F-1
<PAGE> 78
AUDITORS' REPORT TO SHAREHOLDERS
TO THE SHAREHOLDERS OF PHILIP SERVICES CORP. (FORMERLY PHILIP ENVIRONMENTAL
INC.)
We have audited the consolidated balance sheets of Philip Services Corp. as
at December 31, 1996 and 1995, and the consolidated statements of earnings,
retained earnings and changes in financial position for each of the years in the
three year period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Canada. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at December 31,
1996 and 1995 and the results of its operations and the changes in its financial
position for each of the years in the three year period ended December 31, 1996
in accordance with accounting principles generally accepted in Canada.
Deloitte & Touche
Chartered Accountants
Mississauga, Ontario
February 26, 1997
(April 22, 1997 with respect to Note 18(d))
F-2
<PAGE> 79
PHILIP SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1996 1995
JUNE 30, ----------- -----------
1997 (Restated)
-----------
(unaudited)
(in thousands of Canadian dollars)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and equivalents............................ $ 10,485 $ 8,279 $ --
Accounts receivable (net of allowance for
doubtful accounts of $8,092; 1995 --
$5,528)...................................... 354,604 273,865 138,180
Inventory for resale............................ 330,085 248,055 99,442
Other current assets (Note 5)................... 50,845 61,219 71,322
----------- ----------- -----------
746,019 591,418 308,944
Fixed assets (Note 6)............................. 471,026 348,065 351,849
Goodwill.......................................... 368,289 329,809 292,610
Other assets (Note 7)............................. 108,366 75,690 48,722
Due from an officer and director.................. 737 737 787
----------- ----------- -----------
$ 1,694,437 $ 1,345,719 $ 1,002,912
========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued liabilities........ $ 208,064 $ 216,580 $ 126,531
Interim financing loans payable (Note 3)........ -- -- 53,000
Current maturities of long-term debt and loans
from related parties (Notes 8 and 17(b))..... 10,973 27,337 22,809
----------- ----------- -----------
219,037 243,917 202,340
Long-term debt (Note 8)........................... 681,307 387,431 249,534
Loans from related parties (Note 17(b))........... -- -- 1,128
Deferred income taxes............................. 46,503 42,777 31,430
Other liabilities (Note 10)....................... 55,207 48,243 58,494
Convertible subordinated debentures (Note 11)..... -- -- 147,884
Contingencies (Note 19)
Shareholders' equity (Note 12).................... 692,383 623,351 312,102
----------- ----------- -----------
$ 1,694,437 $ 1,345,719 $ 1,002,912
========== ========== ==========
Signed on behalf of the Board of Directors.
HERMAN TURKSTRA ALLEN FRACASSI
Director Director
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 80
PHILIP SERVICES CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- ---------- ----------
(unaudited) (unaudited) (Restated) (Restated)
(in thousands of Canadian dollars except share and per share amounts)
<S> <C> <C> <C> <C> <C>
Revenue................................... $ 856,629 323,397 802,490 648,311 489,740
Operating expenses........................ 701,300 251,586 615,462 489,569 366,649
Selling, general and administrative....... 63,461 33,445 78,053 66,563 51,216
Depreciation and amortization............. 24,148 15,438 33,966 25,510 21,354
----------- ----------- --------- ---------- ----------
Income from continuing operations......... 67,720 22,928 75,009 66,669 50,521
Interest -- short-term.................. 304 570 1,180 2,089 2,355
-- long-term..................... 18,908 14,453 23,418 26,098 19,395
Other income and expense -- net......... (5,522) (2,459) (4,782) (3,689) (2,122)
----------- ----------- --------- ---------- ----------
Earnings from continuing operations before
tax..................................... 54,030 10,364 55,193 42,171 30,893
Income taxes (Note 15).................... 16,392 2,707 15,180 12,354 8,769
----------- ----------- --------- ---------- ----------
Earnings from continuing operations....... 37,638 7,657 40,013 29,817 22,124
Discontinued operations (net of tax) (Note
4)...................................... -- 7,234 (1,005) 2,894 2,502
----------- ----------- --------- ---------- ----------
Net earnings.............................. $ 37,638 $ 14,891 $ 39,008 $ 32,711 $ 24,626
----------- ----------- --------- ---------- ----------
Basic earnings per share
Continuing operations................... $ 0.53 $ 0.19 $ 0.79 $ 0.80 $ 0.61
Discontinued operations................. -- $ 0.18 $ (0.02) $ 0.08 $ 0.07
----------- ----------- --------- ---------- ----------
$ 0.53 $ 0.37 $ 0.77 $ 0.88 $ 0.68
=========== =========== ========= ========== ==========
Fully diluted earnings per share
Continuing operations................... $ 0.52 $ 0.19 $ 0.72 $ 0.68 $ 0.55
Discontinued operations................. -- $ 0.18 $ (0.01) $ 0.05 $ 0.05
----------- ----------- --------- ---------- ----------
$ 0.52 $ 0.33 $ 0.71 $ 0.73 $ 0.60
=========== =========== ========= ========== ==========
Weighted average number of common shares
outstanding (000s)...................... 70,970 40,586 50,632 37,342 36,209
=========== =========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 81
PHILIP SERVICES CORP.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- ---------- ----------
(unaudited) (unaudited) (Restated) (Restated)
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C> <C>
Balance, beginning of year as previously
reported................................ $ 145,679 $ 106,671 $ 106,671 $ 73,960 $ 49,803
Cumulative effect of change in accounting
policy (Note 11)........................ -- -- -- -- (469)
----------- ----------- --------- ---------- ----------
Balance, beginning of year as restated.... 145,679 106,671 106,671 73,960 49,334
Net earnings.............................. 37,638 14,891 39,008 32,711 24,626
----------- ----------- --------- ---------- ----------
Balance, end of year...................... $ 183,317 $ 121,562 $ 145,679 $ 106,671 $ 73,960
=========== =========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 82
PHILIP SERVICES CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------------- -----------------------------------------
1997 1996 1996 1995 1994
----------- ----------- --------- ---------- ----------
(unaudited) (unaudited) (Restated) (Restated)
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings from continuing operations... $ 37,638 $ 7,657 $ 40,013 $ 29,817 $ 22,124
Items included in earnings not affecting
cash
Depreciation and amortization........... 19,006 11,690 26,236 18,458 15,383
Amortization of goodwill................ 5,142 3,748 7,730 7,052 5,971
Deferred income taxes................... 2,589 (3,941) 19,542 15,542 11,503
Net gain on sale of assets.............. -- -- (2,241) (1,215) --
----------- ----------- --------- ---------- ----------
Cash flow from continuing operations...... 64,375 19,154 91,280 69,654 54,981
Change in non-cash working capital (Note
14)..................................... (131,283) (42,759) (180,518) (49,818) (63,308)
----------- ----------- --------- ---------- ----------
Cash provided by (used in) continuing
operating activities.................... (66,908) (23,605) (89,238) 19,836 (8,327)
Cash provided by discontinued operating
activities.............................. -- 29,494 28,830 15,114 21,649
----------- ----------- --------- ---------- ----------
Cash provided by (used in) operating
activities.............................. (66,908) 5,889 (60,408) 34,950 13,322
----------- ----------- --------- ---------- ----------
INVESTING ACTIVITIES
Proceeds from sale of solid waste
operations (Notes 3 & 4)................ -- 53,250 210,800 -- --
Acquisitions -- including acquired cash
(bank indebtedness) (Note 3)............ (175,612) (16,335) (222,440) (11,727) (33,997)
Purchase of fixed assets.................. (44,539) (22,810) (59,847) (37,016) (29,910)
Other -- net.............................. (8,991) (28,573) (35,903) (26,584) (989)
----------- ----------- --------- ---------- ----------
Cash used in continuing investing
activities.............................. (229,142) (14,468) (107,390) (75,327) (64,896)
Cash used in investing activities of
discontinued operations................. -- (14,059) (17,307) (55,824) (18,421)
----------- ----------- --------- ---------- ----------
Cash used in investing activities......... (229,142) (28,527) (124,697) (131,151) (83,317)
----------- ----------- --------- ---------- ----------
FINANCING ACTIVITIES
Proceeds from long-term debt.............. 390,317 48,164 338,704 52,643 193,177
Principal payments of long-term debt...... (120,483) (102,613) (255,914) (11,927) (108,671)
Conversion of convertible subordinated
debentures.............................. -- -- (147,884) -- (170)
Common shares issued...................... 28,422 93,896 291,869 1,466 9,824
Other (Note 12)........................... -- -- (20,708) -- (22)
----------- ----------- --------- ---------- ----------
Cash provided by continuing financing
activities.............................. 298,256 39,447 206,067 42,182 94,138
Cash provided by (used in) financing
activities of discontinued operations... -- (15,980) (12,683) 38,215 (1,903)
----------- ----------- --------- ---------- ----------
Net cash provided by financing
activities.............................. 298,256 23,467 193,384 80,397 92,235
----------- ----------- --------- ---------- ----------
Net change in cash for the year........... 2,206 829 8,279 (15,804) 22,240
Cash position, beginning of year.......... 8,279 -- -- 15,804 (6,436)
----------- ----------- --------- ---------- ----------
Cash position, end of year................ $ 10,485 $ 829 $ 8,279 $ -- $ 15,804
=========== =========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 83
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
1. BASIS OF PRESENTATION
Philip Environmental Inc. (the "Company") is an integrated resource
recovery and industrial services company, which provides metal recovery and
processing services, by-products recovery, and industrial services to major
industry sectors throughout North America. These consolidated financial
statements include the accounts of the Company and all of its subsidiary
companies.
2. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared in Canadian
dollars using accounting principles generally accepted in Canada ("Canadian
GAAP") which, except for the matters as described in note 18, conform in all
material respects with accounting principles generally accepted in the United
States ("US GAAP").
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingencies at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from the Company's estimates.
For all periods presented, the Consolidated Financial Statements and Notes
to the Consolidated Financial Statements disclose the Company's municipal and
commercial solid waste business as discontinued operations, as discussed in note
4.
Revenue recognition
Revenue from by-products recovery operations is recognized upon receipt and
acceptance of materials for processing. Treatment, transportation and disposal
costs are accrued when the related revenue is recognized.
Revenue from environmental service contracts is recorded using the
percentage of completion basis for fixed rate contracts and as the related
service is provided for time and material contracts.
Revenue from the sale of recovered commodities and steel products is
recognized at the time of shipment. For contracts where the Company brokers
materials between two parties, only the commission on the transaction is
recorded.
Cash and equivalents
Cash and equivalents consist of cash on deposit and term deposits in money
market instruments with maturity dates of less than three months from the date
they are acquired.
Inventory
Inventory is recorded at the lower of average purchased cost and net
realizable value.
Fixed assets
Fixed assets are stated at cost and are depreciated over their estimated
useful lives generally on the following basis: buildings 20 to 40 years
straight-line; equipment 5% to 30% straight-line. Landfill sites and
improvements thereto are recorded at cost and amortized over the life of the
landfill site based on the estimated landfill capacity as determined by
engineering studies and the landfill capacity utilized during the year is based
on actual tonnage received by the site. Operating costs associated with landfill
sites are charged to operations as incurred. Assets under development include
the direct cost of land, buildings
F-7
<PAGE> 84
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and equipment acquired for future use together with engineering, legal and other
costs incurred before the assets are brought into operation.
The Company periodically reviews the carrying value of its fixed assets to
determine whether such values are recoverable. Any resulting write-downs are
charged to earnings.
Goodwill
Goodwill represents the excess of the purchase price of businesses acquired
over the fair value of the identifiable assets acquired and is amortized over
periods not exceeding 40 years. At each balance sheet date management assesses
the appropriateness of the goodwill balance based on the undiscounted future
cash flow from operating results.
Other Assets
Deferred financing costs are amortized over the life of the related debt
instrument. Other intangibles such as non-compete agreements are amortized over
periods relating to the terms of the agreements.
Environmental liability
The Company accrues the estimated costs relating to the closure and
post-closure monitoring of its landfill sites. The Company charges earnings with
these estimated future costs based on engineering estimates over the fill rate
of landfill sites. The accrued liability for environmental and closure costs is
disclosed in the consolidated balance sheet under other liabilities. Amounts
required to dispose of waste materials located at the Company's transfer and
processing facilities are included in accounts payable and accrued liabilities.
Interest capitalization
The Company includes, as part of the cost of its fixed assets, all
financing costs incurred prior to the asset becoming available for operation,
providing the resulting capital cost of the fixed asset does not exceed the net
recoverable amount of the asset.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated at
the exchange rates in effect at the balance sheet date. Gains and losses on
translation are reflected in net earnings of the period, except: (i) unrealized
foreign currency gains and losses on long-term monetary assets and liabilities
which are deferred and amortized over the remaining lives of the related items
on a straight-line basis; (ii) unless the item has been designated as a hedge of
the net investment in self-sustaining foreign operations, in which case the
translation gains and losses are included in the cumulative foreign currency
translation adjustment.
The assets and liabilities denominated in a foreign currency for foreign
operations, all of which are self-sustaining, are translated at exchange rates
in effect at the balance sheet date. The resulting gains and losses are
accumulated in a separate component of shareholders' equity. Revenue and expense
items are translated at average exchange rates prevailing during the period.
F-8
<PAGE> 85
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial instruments
The Company's accounts receivable and long-term debt constitute financial
instruments. The Company's accounts receivable approximated their fair value as
at December 31, 1996 and 1995. Concentration of credit risk in accounts
receivable is limited, due to the large number of customers the Company
services. The Company performs ongoing credit evaluations of its customers, but
does not require collateral to support customer accounts receivable. The Company
establishes an allowance for doubtful accounts based on the credit risk
applicable to particular customers, historical and other information.
3. ACQUISITIONS AND DIVESTITURES (in thousands)
During 1996, the Company acquired eleven businesses, including Intsel
Southwest Limited Partnership ("Intsel") and Luntz Corporation ("Luntz"). Intsel
is a distributor of a broad range of heavy carbon steel products based in
Houston, Texas. Luntz, based in Canton, Ohio, provides ferrous scrap and mill
services in the USA. During 1995, six businesses were acquired and during 1994,
two businesses were acquired.
All business combinations have been accounted for using the purchase method
of accounting and are summarized below:
<TABLE>
<CAPTION>
JUNE 30,
--------------------- DECEMBER 31,
--------------------------------------------------------------------------
1997 1996 1995 1994
--------- -------- --------- ---------
1996
------------------------------------------------
INTSEL LUNTZ OTHER TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Purchase consideration
Cash..................... $ 131,576 $ 7,377 $ 84,020 $ 2,473 $ 62,595 $ 149,088 $ 2,565 $ 6,650
Company's common
shares................. 23,644 13,000 -- 27,200 13,000 40,200 1,700 8,500
Deferred payments and
long-term debt......... 8,681 (4,084) -- 24,480 5,940 30,420 6,140 17,000
Acquisition costs and
accruals............... 1,868 43 270 791 4,202 5,263 944 116
--------- -------- --------- --------- --------- --------- --------- ---------
$ 165,769 $ 16,336 $ 84,290 $ 54,944 $ 85,737 $ 224,971 $ 11,349 $ 32,266
========= ======== ========= ========= ========= ========= ========= =========
Fair value of net assets
acquired
Cash (bank
indebtedness).......... $ (9,843) $ 1 $ 2,709 $ -- $ (178) $ 2,531 $ (378) $ (1,731)
Long-term debt........... (4,946) (308) -- (12,593) (7,134) (19,727) (338) (3,799)
Assets, excluding cash &
intangibles............ 181,607 6,607 68,036 93,070 70,577 231,683 19,358 26,499
Liabilities.............. (62,544) (1,449) (24,889) (40,678) (20,366) (85,933) (18,441) (13,516)
Goodwill................. 43,243 8,116 37,066 12,425 39,469 88,960 10,308 23,313
Other intangibles........ 18,252 3,369 1,368 2,720 3,369 7,457 840 1,500
--------- -------- --------- --------- --------- --------- --------- ---------
$ 165,769 $ 16,336 $ 84,290 $ 54,944 $ 85,737 $ 224,971 $ 11,349 $ 32,266
========= ======== ========= ========= ========= ========= ========= =========
</TABLE>
F-9
<PAGE> 86
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
3. ACQUISITIONS AND DIVESTITURES (CONTINUED)
The following table summarizes the unaudited consolidated pro-forma results
of operations, assuming the 1996 acquisitions of Luntz and Intsel had occurred
at the beginning of 1995. This information does not purport to be indicative of
the results of the operations that actually would have resulted if the
acquisitions had occurred on January 1, 1995.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995
- ------------------------------------------------------------ ----------- -----------
(unaudited)
<S> <C> <C>
Revenue..................................................... $ 1,064,210 $ 1,028,758
Earnings from continuing operations......................... $ 47,637 $ 38,191
Fully diluted earnings per share from continuing
operations................................................ $ 0.83 $ 0.74
</TABLE>
In July 1995, the Company acquired the 30% minority interest in Intersan
Inc. ("Intersan") not previously owned by the Company for $40,000.
The Company arranged interim financing (the "Interim Financing") to acquire
the 30% minority interest and to repay a $13,000 advance from the former
minority shareholder. The Interim Financing bore interest at a rate of 10% per
annum and was secured by the assets of Intersan.
In November 1995, the Company reached an agreement to sell the Greater
Montreal Area solid waste collection and transfer business of Intersan (the
"Intersan Business") for $43,250. As part of the sale of the Intersan Business,
the Company entered into a disposal services agreement with the purchaser. The
initial consideration for the disposal service agreement amounted to $10,000 and
was recorded as deferred revenue (note 10).
The proceeds from the sale of the Intersan Business, and the disposal
services agreement, which amounted to $53,250, were received in January 1996,
and used to repay in full the Interim Financing.
Subsequent to the year end, the Company acquired three additional
businesses. RMF Global, Inc. of Toledo, Ohio provides industrial maintenance and
mechanical services, remediation, cleaning and abatement services. Warrenton
Resources, Inc. of Warrenton, Missouri, and Conversion Resources, Inc., of
Cleveland, Ohio, two sister companies are processors of non-ferrous metals.
Allied Metals Limited ("Allied") is a steel scrap processing and mill services
company in the United Kingdom. The total consideration paid for these acquired
businesses amounted to approximately $113,500 and was made up of $94,700 in
cash, $18,400 in shares of the Company and $400 in deferred payments to the
vendors. All three business combinations will be accounted for using the
purchase method of accounting in 1997.
4. DISCONTINUED OPERATIONS (in thousands)
In August 1996, the Company sold its municipal and commercial solid waste
business (the "Solid Waste Business") for a total consideration of US $115,000
to USA Waste Services, Inc. ("USA Waste"). The consideration included US $60,000
in cash, US $38,000 in unrestricted common shares of USA Waste, and US $17,000
in restricted common shares of USA Waste (in total, representing less than 2% of
USA Waste's voting stock). The unrestricted common shares of USA Waste were sold
in September 1996 for US $39,508, resulting in a gain before tax of US $1,508
which is included in Other income and expense -- net in the Consolidated
Statements of Earnings. The restriction on the US $17,000 common shares of USA
Waste ($23,290 at December 31, 1996) was removed in January 1997 and in February
1997, the Company sold these shares for US $19,800, resulting in a further gain
before tax of US $2,800.
F-10
<PAGE> 87
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
4. DISCONTINUED OPERATIONS (CONTINUED)
As part of the sale of the Solid Waste Business, the Company entered into a
five year disposal services agreement with the purchaser at preferential tipping
rates to utilize disposal capacity at two of the landfills which were sold. No
value was assigned to this agreement in the calculation of the loss which
resulted on the sale of the Solid Waste Business. The value of this agreement,
estimated to be US $3,000 on a discounted basis, will be recognized as a
reduction in future disposal costs as capacity at the landfills is utilized.
The sale of the Solid Waste Business in 1996 included the remaining portion
of Intersan, and the disposal services agreement, as described in note 3.
Revenue of the Solid Waste Business, net of intercompany revenue, was
$51,962, $83,850 and $80,573 for the fiscal years ended December 31, 1996, 1995
and 1994, respectively. Income from discontinued operations in the Consolidated
Statements of Earnings is presented net of allocated interest expense of $5,133,
$7,000 and $4,500 and net of applicable income taxes of $4,394, $2,363 and
$2,218 for the fiscal years ended December 31, 1996, 1995 and 1994,
respectively. Interest was allocated based upon the ratio of the net assets of
the Solid Waste Business to the Company's consolidated net assets. No general
corporate overhead was allocated to the discontinued operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31 1996 1995 1994
- ----------------------------------------------------------- -------- ------- -------
<S> <C> <C> <C>
Loss on sale of Solid Waste Business, net of income taxes
recoverable of $3,607.................................... $ (7,848) $ -- $ --
Income from discontinued operations (net of tax)........... 6,843 2,894 2,502
-------- ------- -------
Discontinued operations.................................... $ (1,005) $ 2,894 $ 2,502
======== ====== ======
</TABLE>
5. OTHER CURRENT ASSETS (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Shares of USA Waste (note 4)............................ $ -- $ 23,290 $ --
Parts and supply inventory.............................. 12,485 10,048 7,361
Deposits on contracts................................... 17,963 14,049 4,848
Income taxes (payable) recoverable...................... (6,058) 1,790 (1,244)
Prepaid expenses........................................ 3,127 1,660 2,847
Other................................................... 23,328 10,382 4,260
Proceeds receivable from sale of the Intersan Business
and the disposal services agreement (note 3).......... -- -- 53,250
-------- -------- --------
$ 50,845 $ 61,219 $ 71,322
======== ======== ========
</TABLE>
F-11
<PAGE> 88
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
6. FIXED ASSETS (in thousands)
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------- ----------------------------------- -----------------------------------
ACCUMULATED NET BOOK ACCUMULATED NET BOOK ACCUMULATED NET BOOK
COST DEPRECIATION VALUE COST DEPRECIATION VALUE COST DEPRECIATION VALUE
--------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Land.......... $ 69,823 $ -- $ 69,823 $ 54,835 $ -- $ 54,835 $ 51,798 $ -- $ 51,798
Landfill
sites....... 24,947 2,219 22,728 21,279 891 20,388 95,048 12,650 82,398
Buildings..... 98,421 16,564 81,857 81,336 10,694 70,642 59,836 5,072 54,764
Equipment..... 370,174 93,254 276,920 254,841 74,102 180,739 177,928 38,728 139,200
Assets under
development... 19,698 -- 19,698 21,461 -- 21,461 23,689 -- 23,689
--------- ----------- --------- --------- ----------- --------- --------- ----------- ---------
$ 583,063 $ 112,037 $ 471,026 $ 433,752 $ 85,687 $ 348,065 $ 408,299 $ 56,450 $ 351,849
========= =========== ========= ========= =========== ========= ========= =========== =========
</TABLE>
7. OTHER ASSETS (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Restricted investments (a)............................. $ 35,972 $ 32,420 $ 21,205
Deferred financing costs............................... 14,770 15,188 8,735
Other.................................................. 57,624 28,082 18,782
--------- -------- --------
$ 108,366 $ 75,690 $ 48,722
========= ======== ========
</TABLE>
(a) These restricted investments support the Company's self-insurance program
and are invested and managed by the Company's wholly-owned insurance
subsidiary.
F-12
<PAGE> 89
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
8. LONG TERM DEBT (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Bank term loan (including US $150,794 in 1996; US
$9,950 in 1995)(a)................................. $ 630,811 $ 339,889 $ 219,846
Bank term loan (b)................................... -- -- 13,900
Loans (including US $767 in 1996; US $1,122 in 1995)
collateralized by certain assets of subsidiaries of
the Company having a net book value of $11,947
bearing interest at a weighted average fixed rate
of 5.7% (1995 -- 9.21%) maturing at various dates
up to 2002......................................... 6,704 7,089 1,920
Loans (including US $3,608 in 1996; US $615 in 1995)
collateralized by certain assets of subsidiaries of
the Company having a net book value of $16,565
bearing interest at prime plus a weighted average
floating rate of 1.87% (1995 -- 1.14%) maturing at
various dates up to 2002........................... 4,948 7,508 4,287
Loans (including US $25,625), unsecured, bearing
interest at prime plus a weighted average floating
rate of 3.37% maturing at various dates up to
2001............................................... 25,248 35,698 --
Obligations under capital leases on equipment bearing
interest at rates varying from 6% to 12% maturing
at various dates to 2002........................... 22,754 19,841 16,336
Other................................................ 1,815 3,611 12,111
--------- --------- ---------
692,280 413,636 268,400
Less current maturities of long-term debt (c)........ 10,973 26,205 18,866
--------- --------- ---------
$ 681,307 $ 387,431 $ 249,534
========= ========= =========
</TABLE>
(a) In September 1996, the Company signed a new US $550 million term loan
agreement with a syndicate of Canadian and US lenders which replaced the
1994 revolving term loan agreement and refinanced certain other long-term
debt. The new term loan agreement expires in September of 2000, and
contains certain restrictive covenants and financial covenants including
the following:
- the Company must meet interest ratio coverage tests as well as total
debt and secured debt ratio coverage tests
- the Company must maintain a prescribed level of shareholders' equity
- certain acquisitions by the Company must be reviewed by the lenders
prior to completion
At December 31, 1996 the Company is in compliance with all of the covenants
of the credit agreement.
Borrowings under the credit facility are guaranteed, jointly and severally
by the Company's wholly owned subsidiaries and are collateralized by a
fixed and floating charge on substantially all of the assets of the Company
and its wholly owned subsidiaries. The facility bears interest based on a
moving grid. At December 31, 1996, the Company was paying prime rate, which
was 4.75%, on these borrowings.
F-13
<PAGE> 90
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
8. LONG TERM DEBT (CONTINUED)
At December 31, 1996, the Company had undrawn credit capacity under this
facility of approximately $395,200, net of outstanding letters of credit
which amounted to $18,400.
(b) Intersan (note 3) had a separate term loan which bore interest at rates
varying from prime to prime plus 0.25% and was collateralized by
substantially all of the assets of Intersan. This loan was repaid in
January of 1996.
(c) The aggregate amount of payments required to meet long-term debt
installments in each of the next five years is as follows:
<TABLE>
<S> <C>
1997................................................... $ 26,205
1998................................................... 6,047
1999................................................... 5,192
2000................................................... 373,482
2001................................................... 2,710
</TABLE>
9. FINANCIAL INSTRUMENTS (in thousands)
Derivative financial instruments are used to fix the interest rate on a
portion of the Company's floating rate debt, thereby maintaining interest rate
risk at an acceptable level. This is accomplished by swapping the Company's
floating rate interest obligations, on a notional amount of debt, with
commercial banks having a fixed rate interest obligation. As a result the
Company is reliant upon the counterparty to fulfill its obligations and provide
protection from interest rate fluctuations. This credit risk exposure is
controlled by dealing only with counterparties with strong public credit
ratings. A summary of these interest rate swap agreements is as follows:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Notional amount................................................... $ 260,000 $ 180,000
Weighted average term to maturity (years)......................... 1.1 1.5
Average interest rate to maturity................................. 6.60% 6.72%
</TABLE>
10. OTHER LIABILITIES (in thousands)
<TABLE>
<CAPTION>
DECEMBER 31
JUNE 30 ----------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Deferred payments (a)................................... 22,497 $ 16,129 $ 20,143
Accrued environmental and closure costs................. 21,604 25,819 24,107
Deferred revenue........................................ -- -- 10,000
Other................................................... 11,106 6,295 4,244
-------- -------- --------
$ 55,207 $ 48,243 $ 58,494
======== ======== ========
</TABLE>
(a) Deferred payments relate to acquisitions (see Acquisitions and Divestitures
note 3), whereby the former owners of the businesses have agreed to accept
part of their payment over future periods of time. All such amounts are
non-interest bearing and are unsecured.
F-14
<PAGE> 91
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
11. CONVERTIBLE SUBORDINATED DEBENTURES (in thousands except per share amounts)
<TABLE>
<CAPTION>
1995
1996 ----------
--------- (restated)
<S> <C> <C>
6% Convertible subordinated debentures........................... $ -- $ 147,884
</TABLE>
In 1993, the Company issued US $120,000, 6% convertible subordinated
debentures due October 15, 2000 unless previously redeemed, with interest
payable each April 15 and October 15. The debentures were convertible at the
option of the holder into common shares of the Company at any time up to October
15, 2000 at a conversion price of US$6.25 per common share. In 1994, debentures
of US$125 were converted.
During 1996, all of the remaining 6% convertible subordinated debentures
outstanding were converted into common shares of the Company. Notwithstanding
the conversion of these debentures, the January 1996 pronouncement from the
Canadian Institute of Chartered Accountants ("CICA") referred to as Section 3860
and entitled "Financial Instruments -- Disclosure and Presentation" is
applicable for the Company's year ended December 31, 1996 and, as required,
Section 3860 has been applied retroactively.
Where a financial instrument consists of both a liability and an equity
component, Section 3860 requires that each part be reported separately in
accordance with guidance provided in the pronouncement. The Company has
therefore restated the liability represented by the 6% convertible subordinated
debentures. In addition, shareholders' equity has been restated to include the
component of the 6% convertible subordinated debentures deemed to be "other paid
in capital" under Section 3860 and amounting to $20,708 at December 31, 1995.
Interest expense has been increased for the years ended December 31, 1996, 1995
and 1994 by $2,060, $2,630 and $2,411, respectively to disclose the restated
interest expense, and net earnings have been correspondingly reduced. Basic
earnings per share have been restated to reflect the reduced net earnings which
result from the application of this pronouncement. Fully diluted earnings per
share previously reported by the Company remain unchanged for each of the years
ended December 31, 1996, 1995 and 1994 since the number of common shares
represented by the 6% convertible subordinated debentures remains unchanged and
the interest expense of the related liability regardless of how determined, is
eliminated in the computation of fully diluted earnings per share.
F-15
<PAGE> 92
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
12. SHAREHOLDERS' EQUITY (in thousands except number of shares)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
JUNE 30, 1995
1997 1996 ------------
------------ ------------ (restated)
<S> <C> <C> <C>
Share capital................................ $ 505,193 $ 476,771 $ 184,901
Other paid in capital (note 11).............. -- -- 20,708
Retained earnings............................ 183,317 145,679 106,671
Cumulative foreign currency translation
adjustment................................. 3,873 901 (178)
------------ ------------ ------------
$ 692,383 $ 623,351 $ 312,102
============ ============ ============
SHARE CAPITAL CONSISTS OF:
Authorized
Unlimited number of common shares
ISSUED
Common shares and equivalents
Number....................................... 71,469,365 69,876,868 37,453,833
Dollars...................................... $ 505,193 $ 476,771 $ 184,901
</TABLE>
The issued share capital of the Company is comprised of the following:
<TABLE>
<CAPTION>
COMMON SHARES
--------------------------
NUMBER AMOUNT
----------- ---------
<S> <C> <C>
BALANCE -- DECEMBER 31, 1994.................................... 37,271,522 $ 183,436
Shares issued in respect of acquisitions during 1995............ 194,116 1,700
Shares cancelled................................................ (68,404) (670)
Other........................................................... 32,985 246
Share options exercised for cash................................ 23,614 189
----------- ---------
BALANCE -- DECEMBER 31, 1995.................................... 37,453,833 184,901
Shares issued in respect of acquisitions during 1996............ 3,600,102 40,200
Shares issued on conversion of convertible subordinated
debentures.................................................... 19,180,000 146,059
Other paid in capital (note 11)................................. -- 20,708
Shares issued for cash.......................................... 8,625,000 76,065
Share options exercised for cash................................ 953,724 8,365
Other........................................................... 64,209 473
----------- ---------
BALANCE -- DECEMBER 31, 1996.................................... 69,876,868 476,771
Shares issued in respect of acquisitions during 1997............ 1,035,347 23,644
Share options exercised for cash................................ 514,738 3,978
Other........................................................... 42,412 800
----------- ---------
BALANCE -- JUNE 30, 1997........................................ 71,469,365 $ 505,193
========== =========
</TABLE>
F-16
<PAGE> 93
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
12. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTIONS
Common share options issued and outstanding are as follows:
<TABLE>
<CAPTION>
NUMBER $/SHARE
--------- ------------------
<S> <C> <C> <C> <C>
Employee stock option plans (a)
Year of grant
1992......................................................... 50,000 8.00 to 10.375
1993......................................................... 134,000 8.18 to 9.00
1994......................................................... 842,080 6.75 to 8.00
1995......................................................... 843,812 7.875 to 9.875
1996......................................................... 1,210,800 8.50 to 11.90
Issued in conjunction with the acquisition of Philip
Environmental Corporation (c).............................. 776,386 7.05 to 8.00
Issued to a director of the Company (b)(c)................... 200,000 7.35
---------
Total outstanding December 31, 1996.......................... 4,057,078
=========
</TABLE>
(a) The Company has allotted and reserved 4,257,149 common shares under its 1991
and 1994 Employee Stock Option Plans. Under the plans, options may be
granted to purchase common shares of the Company at the then current market
price. All options currently expire five to ten years from the date of
grant. All the options outstanding were issued at the then current market
price.
(b) These options were issued in 1991 at a discount to the then current market.
(c) These options expire on November 26, 2000.
13. INVESTMENT IN PHILIP UTILITIES MANAGEMENT CORPORATION (in thousands)
In October 1996, the Company entered into an agreement with the Ontario
Teachers' Pension Plan Board ("Teachers"'), whereby Teachers' acquired an equity
position in Philip Utilities Management Corporation ("PUMC"), a subsidiary of
the Company. Under the terms of the agreement, Teachers' invested $10 million in
equity and will purchase $10 million in subordinated convertible debentures in
return for a 30% voting and a 6.4% non-voting interest, respectively, in PUMC.
As of December 31, 1996 Teachers' had not purchased any subordinated convertible
debentures.
Prior to divesting of its 30% ownership interest in PUMC, the Company
consolidated the results of the subsidiary. The Company recorded in income only
the net fees earned by PUMC for management services rendered, which were
insignificant. The shareholders agreement between Teachers' and the Company
provides for joint control of all economic activities of PUMC and therefore,
from November 1, 1996, the Company's investment in PUMC has been recognized
using the proportionate consolidation method. The disposition of the Company's
30% interest in PUMC resulted in a gain of $2,241 which is included in Other
income and expense -- net in the Consolidated Statements of Earnings.
F-17
<PAGE> 94
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
13. INVESTMENT IN PHILIP UTILITIES MANAGEMENT CORPORATION (CONTINUED)
At December 31, 1996, the Company's interest in the financial position of
PUMC was as follows:
<TABLE>
<S> <C>
Current assets................................................................. $ 12,524
Long-term assets............................................................... $ 14,853
Current liabilities............................................................ $ 7,831
Long-term liabilities.......................................................... $ 4,388
Financial results of PUMC for the two month period ended December 31, 1996 were as follows:
Revenue........................................................................ $ 1,812
Expenses....................................................................... $ 1,816
Net loss....................................................................... $ (4)
Cash used in operating activities.............................................. $ (83)
Cash provided by financing activities.......................................... $ 74
Cash used in investing activities.............................................. $ (1,493)
</TABLE>
14. CHANGE IN NON-CASH WORKING CAPITAL (in thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
----------------------------------------
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Accounts receivable................................. $ (51,135) $ (27,078) $ (18,472)
Inventory for resale................................ (77,316) (33,121) (49,424)
Other............................................... (47,544) (18,215) (3,105)
Accounts payable and accrued liabilities............ 1,155 20,943 12,559
Income taxes........................................ (5,678) 7,653 (4,866)
---------- --------- ---------
$ (180,518) $ (49,818) $ (63,308)
========== ========= =========
</TABLE>
15. INCOME TAXES (in thousands)
The Company's income tax provision is comprised of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income tax based on the Federal and Provincial
effective income tax rates........................ $ 24,627 $ 18,820 $ 13,697
Increase (decrease) in income taxes resulting from:
Lower income tax rates in the USA and other
jurisdictions.................................. (6,236) (5,249) (5,484)
Manufacturing and processing allowances........... (5,526) (3,394) (1,037)
Non-deductible expenses for income tax purposes,
principally goodwill amortization.............. 3,298 3,854 2,825
Utilization of unrecognized loss carryforwards.... -- (1,160) --
Other............................................... (983) (517) (1,232)
-------- -------- --------
Income taxes........................................ $ 15,180 $ 12,354 $ 8,769
======== ======== ========
</TABLE>
F-18
<PAGE> 95
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
15. INCOME TAXES (CONTINUED)
The allocation between current and deferred income taxes results primarily
from the accelerated write-off of expenditures for income tax purposes and
certain accounting accruals not currently deductible for income tax purposes,
offset by the accounting recognition of loss carryforwards.
16. INTEREST CAPITALIZATION (in thousands)
During the years ended December 31, 1996, 1995 and 1994 the Company
included $3,040, $2,427, and $747 respectively of financing costs as part of the
cost of assets under development.
17. RELATED PARTIES (in thousands)
(a) The following transactions were recorded with the directors and officers of
the Company:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Advances from (repayments to) directors............ $ (3,943) $ (18,311) $ (3,889)
Interest paid to directors......................... 267 1,891 2,040
Unsecured advances to an officer and
director-net..................................... (50) (50) (37)
</TABLE>
(b) Loans from related parties consist of:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Note payable (US$826 in 1996; US$2,810 in 1995) to the former
owner of an acquired company who is a director of the Company
(i)............................................................. $ 1,132 $ 3,835
Mortgage payable to a company owned in part by a director of the
Company (ii).................................................... -- 1,236
------- -------
1,132 5,071
Less current maturities of loans.................................. 1,132 3,943
------- -------
$ -- $ 1,128
====== ======
</TABLE>
(i) The $1,132 (1995 -- $3,835) advance is unsecured and bears interest at
US prime plus 2% per annum and is payable in monthly installments of
$226 plus interest.
(ii) The mortgage was secured by the property acquired and bore interest at
a rate of 12.84% per annum. This mortgage was paid in full in January
1996 and therefore was included as part of current maturities at
December 31, 1995.
18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (in thousands)
These consolidated financial statements have been prepared in accordance
with Canadian GAAP which conforms in all material respects with US GAAP except
as noted below:
(a) Balance Sheets
The Financial Accounting Standards Board SFAS No. 109 "Accounting for
Income Taxes" requires pre-acquisition losses to be recognized as a reduction in
goodwill rather than as a reduction in the income tax provision. Therefore,
under US GAAP, the goodwill and the retained earnings disclosed in the
Consolidated Balance Sheets at December 31, 1996 and 1995 would be reduced by
$4,652 and $4,777 respectively.
F-19
<PAGE> 96
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
The separate reporting of the liability and equity components of a
financial instrument required by the January 1996 pronouncement by the CICA
referred to in note 11 to the Consolidated Financial Statements as Section 3860,
is not permitted under US GAAP. Therefore, the restatement of the Company's
Consolidated Financial Statements discussed in note 11 must be eliminated to
reflect US GAAP. Specifically, under US GAAP, the liability represented by the
6% convertible subordinated debentures would be $163,629 at December 31, 1995,
the other paid in capital at December 31, 1995 would be zero, and the share
capital of the Company would be $469,853 at December 31, 1996.
The retained earnings of the Company would be $150,875, $112,182, and
$76,841 as at December 31, 1996, 1995 and 1994, respectively, after adjusting
for the impact of Section 3860 as discussed above and adjusting for Luntz as
described in paragraph (b) of this note.
(b) Statements of Earnings
The statements of earnings for the years ended December 31, 1996, 1995, and
1994 have to be adjusted to eliminate the effect of the increased interest
expense required under CICA Section 3860, which is not permitted under US GAAP
(note 11 to the Consolidated Financial Statements).
In addition, under US GAAP, the revenue and expenses of Luntz would not
have been included in the Consolidated Statements of Earnings until such time as
the Shareholders of Luntz had definitively approved the purchase and sale
agreement which occurred on or about December 23, 1996. In 1994, the Company had
negotiated a separate line of credit which provided the Company with flexibility
if the former minority shareholder of Intersan exercised his right to require
the Company to purchase his minority interest in Intersan for $30 million in
common shares of the Company. The Company therefore deleted these shares from
the calculation of the fully diluted earnings per share for the year ended
December 31, 1994. As a result, the basic earnings per share for the year ended
December 31, 1994 would not be materially different under US GAAP, but the fully
diluted earnings per share for the year ended December 31, 1994 would be
reduced.
F-20
<PAGE> 97
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
The consolidated statements of earnings which follow have been adjusted to
disclose the above noted differences between Canadian GAAP and US GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
---------------------- -----------------------------------
1997 1996 1996 1995 1994
--------- --------- --------- --------- ---------
(in thousands of Canadian dollars except share and per share
amounts)
<S> <C> <C> <C> <C> <C>
Revenue............................... $ 856,629 $ 323,397 $ 742,975 $ 648,311 $ 489,740
Operating expenses.................... 701,300 251,586 563,393 489,569 366,649
Selling, general and administrative... 63,461 33,445 75,674 66,563 51,216
Depreciation and amortization......... 24,148 15,438 33,006 25,510 21,354
--------- --------- --------- --------- ---------
Income from continuing operations..... 67,720 22,928 70,902 66,669 50,521
Interest -- short-term................ 304 570 1,180 2,089 2,355
-- long-term................. 18,908 14,453 20,977 23,468 16,984
Other income and expense -- net..... (5,522) (2,459) (4,708) (3,689) (2,122)
--------- --------- --------- --------- ---------
Earnings from continuing operations
before tax.......................... 54,030 10,364 53,453 44,801 33,304
Income taxes.......................... 16,392 2,707 13,755 12,354 8,769
--------- --------- --------- --------- ---------
Earnings from continuing operations... 37,638 7,657 39,698 32,447 24,535
Discontinued operations (net of
tax)................................ -- 7,234 (1,005) 2,894 2,502
--------- --------- --------- --------- ---------
$ 37,638 $ 14,891 $ 38,693 $ 35,341 $ 27,037
========= ========= ========= ========= =========
</TABLE>
F-21
<PAGE> 98
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(c) Statements of Changes in Financial Position
Amounts included in the Consolidated Statements of Changes in Financial
Position include items which were of a non-cash transaction basis and would not
be included for US GAAP reporting. The following is a summary of the changes in
operating, investing and financing activities under US GAAP.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, YEARS ENDED DECEMBER 31,
------------------------ ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- --------- ---------
(in thousands of Canadian dollars)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings from continuing
operations....................... $ 37,638 $ 9,040 $ 39,698 $ 32,447 $ 24,535
Items included in earnings not
affecting cash................... 26,737 11,497 50,307 39,837 32,857
---------- ---------- ---------- --------- ---------
Cash flow from continuing
operations....................... 64,375 20,537 90,005 72,284 57,392
Change in non-cash working
capital.......................... (154,731) (43,034) (154,172) (51,286) (71,312)
---------- ---------- ---------- --------- ---------
Cash provided by (used in)
continuing operating
activities....................... (90,356) (22,497) (64,167) 20,998 (13,920)
Cash provided by discontinued
operating activities............. -- 29,495 28,830 15,114 21,649
---------- ---------- ---------- --------- ---------
Cash provided by (used in)
operating activities............. (90,356) 6,998 (35,337) 36,112 7,729
---------- ---------- ---------- --------- ---------
INVESTING ACTIVITIES
Proceeds from sale of solid waste
operations....................... 23,448 53,250 187,510 -- --
Acquisitions -- including acquired
cash (bank indebtedness)......... (143,149) (7,346) (151,821) (3,887) (7,997)
Purchase of fixed assets........... (35,503) (15,269) (40,877) (32,044) (23,510)
Other -- net....................... (19,643) (24,289) (44,291) (30,800) (11,489)
---------- ---------- ---------- --------- ---------
Cash used in continuing investing
activities....................... (174,847) 6,346 (49,479) (66,731) (42,996)
Cash used in investing activities
of discontinued operations....... -- (14,059) (17,307) (15,237) (18,421)
---------- ---------- ---------- --------- ---------
Cash used in investing
activities....................... (174,847) (7,713) (66,786) (81,968) (61,417)
---------- ---------- ---------- --------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings of
long-term debt................... 388,439 40,623 294,820 44,585 185,348
Principal payments of long-term
debt............................. (124,882) (103,994) (255,914) (11,927) (108,675)
Common shares issued............... 3,852 80,896 84,179 189 893
---------- ---------- ---------- --------- ---------
Cash provided by continuing
financing activities............. 267,409 17,525 123,085 32,847 77,566
Cash used in financing activities
of discontinued operations....... -- (15,980) (12,683) (2,795) (1,638)
---------- ---------- ---------- --------- ---------
Cash provided by financing
activities....................... $ 267,409 $ 1,545 $ 110,402 $ 30,052 $ 75,928
---------- ---------- ---------- --------- ---------
</TABLE>
F-22
<PAGE> 99
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
There is no impact on the Company's cash position as a result of the variances
between Canadian GAAP and US GAAP.
(d) Additional Disclosure
The following additional disclosures would be provided under US GAAP.
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
(I) Cash paid for interest.............................. $ 26,551 $ 37,701 $ 26,459
Cash paid for income taxes......................... $ 1,526 $ 3,168 $ 3,919
</TABLE>
(II) SEGMENTED INFORMATION
<TABLE>
<CAPTION>
1994
------------------------
CANADA US
<S> <C> <C>
Revenue....................................................... $ 390,768 $ 179,545
Gross Profit.................................................. $ 90,675 $ 41,229
Total Assets.................................................. $ 613,962 $ 246,621
</TABLE>
(III) SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON SHARES
--------------------------
NUMBER AMOUNT
<S> <C> <C>
Balance -- December 31, 1993................................ 35,906,500 $ 173,612
Shares issued in respect of acquisitions during 1994........ 1,117,914 8,500
Shares issued on conversion of subordinated debentures...... 20,000 170
Other....................................................... 47,108 470
Share options exercised for cash............................ 180,000 684
----------- ---------
Balance -- December 31, 1994................................ 37,271,522 $ 183,436
========== =========
</TABLE>
(IV) IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Stock Options
SFAS No. 123 "Accounting for Stock Based Compensation", issued in October
1995, defines a fair value based method of accounting for employee stock
options. Under this fair value method, compensation cost is measured at the
grant date based on the fair value of the award and is recognized over the
exercise period. However, SFAS No. 123 allows an entity to continue to
measure compensation cost in accordance with Accounting Principle Board
Statement No. 25 ("APB 25"). The Company has elected to measure
compensation costs related to stock options in accordance with ABP 25 and
recognizes no compensation expense for stock options granted. Accordingly,
the Company has adopted the disclosure-only provisions of SFAS No. 123.
F-23
<PAGE> 100
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
If compensation costs were measured using the fair value of the stock
options on the date of grant, during 1995 and 1996, in accordance with SFAS
No. 123, the Company's net earnings would be as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------- -----------------------------
AS REPORTED AS REPORTED
----------- AS ADJUSTED ----------- AS ADJUSTED
------------ ------------
For SFAS 123 For SFAS 123
<S> <C> <C> <C> <C>
Net earnings under US GAAP.... $ 38,693 $ 35,634 $ 35,341 $ 34,077
Basic earnings per share...... $ 0.77 $ 0.71 $ 0.95 $ 0.91
Fully Diluted earnings per
share....................... $ 0.68 $ 0.63 $ 0.73 $ 0.71
</TABLE>
The weighted average fair value of options granted in 1996 and 1995 were
$1.98 and $1.63 respectively. The fair value of each option was determined
using the Black-Scholes option valuation model with the following
assumptions for 1996 and 1995: (i) risk free interest rate of 6.96 and 7.58
percent, respectively, (ii) expected volatility of 32.74 and 23.95 percent,
respectively, (iii) expected option life of ranging from 5 to 10 years and
(iv) no annualized dividend yield.
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128 "Earnings per Share" which is effective for years ending after December
15, 1997 (fiscal 1997 for the Company). This statement replaces the
presentation of primary earnings per share with a presentation of basic
earnings per share ("EPS"). Basic EPS excludes the dilution effect of
common stock equivalents previously included in primary EPS and is computed
by dividing net earnings by the weighted-average number of common shares
outstanding for the period. The calculation of diluted EPS will not change
under SFAS No. 128.
The adoption of SFAS No. 128 by the Company, will not materially change the
amounts disclosed as basic EPS.
(V) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of long-term debt is estimated to approximate fair value
based on the Company's current incremental borrowing rates for similar
types of borrowing arrangements.
The Company's fair value obligation for all interest rate derivative
contracts disclosed in Note 9 to the Consolidated Financial Statements as
of December 31, 1996 and December 31, 1995 approximate the face value due
to the short-term nature of these instruments.
The fair value of the Company's convertible subordinated debentures as at
December 31, 1995 was estimated to be $147.8 million based on the
discounted value of the required future cash payments using an estimated
current borrowing rate of a similar liability at December 31, 1995 of 8.5%.
F-24
<PAGE> 101
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
18. CANADIAN AND UNITED STATES ACCOUNTING PRINCIPLES (CONTINUED)
(VI) INCOME TAXES
The following disclosure is required under the Financial Accounting
Standards Board SFAS No. 109 "Accounting for income taxes":
The net deferred tax liability consists of the following temporary
differences:
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Difference in fixed assets and goodwill basis................. $ 60,998 $ 41,959
Net operating loss carryforwards.............................. (21,482) (16,252)
Other......................................................... 3,261 5,723
--------- ---------
Net deferred tax liability.................................... $ 42,777 $ 31,430
========= =========
</TABLE>
The net operating loss carryforwards expire between the years 2002 and
2011. In assessing the value of the deferred tax assets, management
considers whether it is more likely than not that all of the deferred tax
assets be realized. Projected future income, tax planning strategies and
the expected reversal of deferred tax liabilities are considered in making
this assessment. Based on the level of historical taxable income and
projections for future taxable income over the periods which the net
operating losses are deductible, it is more likely than not the Company
will realize the benefits of these deferred tax assets and therefore, has
recorded no valuation allowance. The amount of the deferred tax asset
considered realizable, however, could be reduced in the future if estimates
of future taxable income during the carryforward period are reduced.
(VII)ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Accounts payable................................. $ 155,939 $ 152,325 $ 76,204
Accrued liabilities.............................. 52,125 64,255 50,327
--------- --------- ---------
$ 208,064 $ 216,580 $ 126,531
========= ========= =========
</TABLE>
19. CONTINGENCIES (in thousands)
(a) Certain operating subsidiaries acquired by the Company have been named as a
potentially responsible or liable party in respect of several US federal or
state superfund sites. These proceedings are principally based on
allegations that the subsidiaries (or their predecessors) disposed of
hazardous substances at the sites in question. Based on its review of these
claims, the Company has estimated its share of the cost to remediate these
sites and has accrued $574 as at December 31, 1996 (1995 -- $1,332) to
cover these costs, as disclosed in the table below.
(b) Certain of the Company's US subsidiaries' transfer, storage and disposal
facilities are contaminated as a result of operating practices at the sites
prior to their acquisition by the Company. Investigations of these sites
have substantially characterized the nature and extent of the
contamination.
The subsidiaries, in conjunction with US federal and state environmental
regulatory agencies, have developed corrective action plans for the sites
and in some instances have commenced to remediate the sites in accordance
with approved corrective action plans. The Company estimates the remaining
liability to remediate these sites to be $26,650 and has accrued this
amount in its December 31, 1996 financial statements (1995 -- $24,322).
F-25
<PAGE> 102
PHILIP SERVICES CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS AT JUNE 30, 1997 AND 1996 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND 1996 IS UNAUDITED)
19. CONTINGENCIES (CONTINUED)
The contingent liabilities discussed under parts (a) and (b) of this note
are disclosed in the Consolidated Balance Sheets as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accounts payable and accrued liabilities........................ $ 1,405 $ 1,547
Accrued environmental and closure costs (note 10)............... 25,819 24,107
-------- --------
$ 27,224 $ 25,654
======== ========
</TABLE>
(c) The Company is named as a defendant in several lawsuits which have arisen in
the ordinary course of its business. Management believes that none of these
suits is likely to have a material adverse effect on the Company's business
or financial condition and therefore has made no provision in these
financial statements for the potential liability if any.
20. COMMITMENTS (in thousands)
Future rental payments required under operating leases for premises and
equipment are as follows:
<TABLE>
<S> <C>
1997..................................................... $9,850
1998..................................................... 8,389
1999..................................................... 5,898
2000..................................................... 4,080
2001 and thereafter...................................... 6,248
</TABLE>
Letters of credit issued in relation to various supply contracts and third
party insurance policies amounted to $18,400 as at December 31, 1996 (1995 --
$6,294).
21. SEGMENTED INFORMATION (in thousands)
The Company operates in one business segment but has a significant
component of US based revenues and earnings. The geographic segmentation of the
Company's business is as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
UNITED UNITED
CANADA STATES CANADA STATES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue................................. $ 429,037 $ 373,453 $ 434,857 $ 213,454
Gross Profit............................ $ 113,044 $ 51,738 $ 100,135 $ 42,895
Total assets............................ $ 782,230 $ 563,489 $ 705,709 $ 297,203
</TABLE>
F-26
<PAGE> 103
PHILIP SERVICES CORP.
UNAUDITED SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA PRESENTED IN U.S. GAAP
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
FISCAL YEARS ENDED DECEMBER 31,
-------------------------- ---------------------------------------
1997 1996 1996 1995 1994
----------- --------- --------- --------- ---------
(in thousands of U.S. dollars --
except share and per share amounts)
<S> <C> <C> <C> <C> <C>
U.S. GAAP
STATEMENTS OF EARNINGS DATA:
Revenue........................................... $ 623,358 $ 236,506 $ 545,344 $ 472,358 $ 358,784
Operating expenses................................ 510,282 183,991 413,013 356,699 268,606
Selling, general and administrative............... 46,254 24,460 56,063 48,496 37,522
Depreciation and amortization..................... 17,590 11,291 24,225 18,587 15,644
----------- --------- --------- --------- ---------
Income from continuing operations................. 49,232 16,764 52,043 48,576 37,012
Interest -- short-term............................ 221 417 866 1,522 1,725
-- long-term............................... 13,758 9,556 15,397 17,099 12,442
Other income and expense -- net................... (4,051) (1,799) (3,456) (2,688) (1,553)
----------- --------- --------- --------- ---------
Earnings from continuing operations before tax.... 39,304 8,590 39,236 32,643 24,398
Income taxes...................................... 11,923 1,979 10,098 9,001 6,424
----------- --------- --------- --------- ---------
Earnings from continuing operations............... 27,381 6,611 29,138 23,642 17,974
Discontinued operations (net of tax).............. -- 5,298 (716) 2,109 1,833
----------- --------- --------- --------- ---------
$ 27,381 $ 11,909 $ 28,422 $ 25,751 $ 19,807
========== ========= ========= ========= =========
Primary earnings per share:
Continuing operations........................... $ 0.39 $ 0.17 $ 0.58 $ 0.63 $ 0.50
Discontinued operations......................... $ -- $ 0.12 $ (0.01) $ 0.06 $ 0.05
----------- --------- --------- --------- ---------
$ 0.39 $ 0.29 $ 0.57 $ 0.69 $ 0.55
========== ========= ========= ========= =========
Fully diluted earnings per share:
Continuing operations........................... $ 0.38 $ 0.14 $ 0.51 $ 0.49 $ 0.40
Discontinued operations......................... $ -- $ 0.10 $ (0.01) $ 0.04 $ 0.02
----------- --------- --------- --------- ---------
$ 0.38 $ 0.24 $ 0.50 $ 0.53 $ 0.42
========== ========= ========= ========= =========
Weighted average number of common shares
outstanding (000s).............................. 70,970 40,586 50,073 37,342 36,209
========== ========= ========= ========= =========
BALANCE SHEET DATA (END OF PERIOD):
Working capital................................... $ 382,062 $ 114,698 $ 253,675 $ 78,098 $ 63,050
Fixed assets, net................................. 341,494 267,296 254,087 257,765 240,374
Total assets...................................... 1,223,387 751,802 977,236 731,234 611,213
Long-term debt (excluding current portion)........ 493,948 179,012 282,825 183,635 167,619
Convertible subordinated debentures............... -- 119,875 -- 119,875 119,875
Shareholders' equity.............................. 496,898 294,287 449,907 213,611 181,541
</TABLE>
F-27
<PAGE> 104
ALLWASTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
AUGUST 31,
1996
MAY 31, ----------
1997 (Audited)
------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................................... $ 2,017 $ 2,436
Receivables, net................................................ 86,326 75,114
Prepaid expenses................................................ 9,105 3,796
Deferred income taxes and other assets.......................... 8,208 11,170
------------ ----------
Total current assets......................................... 105,656 92,516
------------ ----------
Investments....................................................... 16,986 11,030
Property and equipment, at cost................................... 256,344 248,280
Less -- Accumulated depreciation................................ (130,288) (119,307)
------------ ----------
126,056 128,973
------------ ----------
Goodwill, net of accumulated amortization......................... 85,529 88,032
Notes receivable.................................................. 11,840 13,517
Other assets...................................................... 3,203 3,119
------------ ----------
Total assets................................................. $ 349,270 $ 337,187
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................ $ 22,394 $ 19,250
Accrued liabilities:
Income taxes payable......................................... 689 5,383
Other........................................................ 35,987 42,892
Current maturities of long-term and convertible subordinated
debt........................................................ 2,447 6,249
------------ ----------
Total current liabilities.................................... 61,517 73,774
------------ ----------
Long-term debt, net of current maturities......................... 103,045 87,971
Convertible subordinated debt, net of current maturities.......... 32,259 33,924
Deferred income taxes and other liabilities....................... 12,796 10,572
Commitments and contingencies
Shareholders' equity:
Common Stock.................................................... 404 398
Additional paid-in capital...................................... 62,196 55,699
Retained earnings............................................... 91,389 84,163
------------ ----------
153,989 140,260
Less:
Treasury Stock............................................... (13,756) (8,561)
Unearned compensation related to outstanding restricted
Common Stock................................................ (580) (753)
------------ ----------
Total shareholders' equity.............................. 139,653 130,946
------------ ----------
Total liabilities and shareholders' equity.............. $ 349,270 $ 337,187
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-28
<PAGE> 105
ALLWASTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE THREE MONTHS ENDED
------------------------------ ------------------------------
MAY 31, 1997 MAY 31, 1996 MAY 31, 1997 MAY 31, 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues........................... $295,392 $286,807 $105,374 $ 98,731
Cost of operations................. 218,690 213,901 76,236 72,237
------------ ------------ ------------ ------------
Gross profit..................... 76,702 72,906 29,138 26,494
Selling, general and administrative
expenses......................... 57,082 60,156 20,076 19,815
Interest expense................... (7,282) (7,327) (2,522) (2,506)
Interest income.................... 1,082 773 602 280
Other income (expense), net........ 1,001 1,263 158 535
------------ ------------ ------------ ------------
Income (loss) from continuing
operations before income tax
benefit (provision) and
minority interest............. 14,421 7,459 7,300 4,988
Income tax benefit (provision)..... (6,562) (3,580) (3,322) (2,443)
Minority interest, net of taxes.... (117) 62 (16) 38
------------ ------------ ------------ ------------
Income (loss) from continuing
operations.................... 7,742 3,941 3,962 2,583
Discontinued operations
Gain on sale of glass
recycling operations, net of
applicable income taxes..... -- 3,764 -- --
------------ ------------ ------------ ------------
Net income (loss)........ $ 7,742 $ 7,705 $ 3,962 $ 2,583
========== ========== ========== ==========
Net income (loss) per common share:
Continuing operations............ $ .21 $ .10 $ .10 $ .07
Discontinued operations.......... -- .10 -- --
------------ ------------ ------------ ------------
Net income (loss) per
common share........... $ .21 $ .20 $ .10 $ .07
========== ========== ========== ==========
Weighted average number of common
shares outstanding............... 37,592 39,262 38,678 39,063
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-29
<PAGE> 106
ALLWASTE, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
------------------------------
MAY 31, MAY 31,
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................................... $ 7,742 $ 7,705
Reconciliation of net income to cash provided by operating
activities:
Depreciation............................................... 20,848 21,537
Amortization............................................... 2,313 2,097
Gain on sale of glass recycling operations................. -- (3,764)
(Gain) loss on sale of property and equipment.............. 365 (821)
Common Stock received in lawsuit settlement................ (854) --
Amortization of unearned compensation -- restricted
stock.................................................... 173 95
Change in assets and liabilities, net of effect of
acquisitions accounted for as purchases:
Receivables, net......................................... (11,240) (1,176)
Prepaid expenses and other current assets................ (2,347) (2,108)
Notes receivable and other assets........................ (759) 25
Accounts payable and accrued liabilities................. (8,081) (9,361)
Deferred income taxes and other non-cash items........... 2,232 2,223
------------ ------------
Cash provided by operating activities.................... 10,392 16,452
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of glass recycling operations......... -- 41,500
Additions to property and equipment...................... (21,880) (23,265)
Purchase of long-term investment, net of debt issued..... (5,965) (2,619)
Proceeds from sale of property and equipment............. 4,903 2,893
Payments for acquisitions accounted for as purchases, net
of cash acquired...................................... -- (1,113)
------------ ------------
Cash provided by (used in) investing activities.......... (22,942) 17,396
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of Common Stock.................. 3,163 553
Net increase (decrease) in revolving credit facility..... 15,180 (28,370)
Net increase (decrease) in other long term borrowings.... 2,052 (850)
Purchases of convertible subordinated debentures......... (19) (3,264)
Increases in Treasury Stock.............................. (7,729) (5,482)
------------ ------------
Cash provided by (used in) financing activities............ 12,647 (37,413)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES................................. (516) (144)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS........................... (419) (3,709)
CASH AND CASH EQUIVALENTS, beginning of period.................. 2,436 4,029
------------ ------------
CASH AND CASH EQUIVALENTS, end of period........................ $ 2,017 $ 320
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-30
<PAGE> 107
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES --
The condensed consolidated financial statements include the accounts of
Allwaste, Inc. and its subsidiaries (the "Company"). There have been no
significant changes in the accounting policies of the Company during the periods
presented. For a description of these policies, see Note 1 of Notes to
Consolidated Financial Statements in the Company's Annual Report on Form 10-K
for the fiscal year ended August 31, 1996 and the Company's Proxy Statement
dated June 30, 1997, included in the Registration Statement on Form F-4 of
Philip Services Corp. ("Philip"), formerly Philip Environmental Inc., filed with
the SEC on April 22, 1997, in connection with the acquisition of the Company by
Philip. Certain prior period amounts have been reclassified to conform with the
current period presentation.
On March 6, 1997, the Company announced that a definitive agreement had
been reached to merge with Philip. The agreement is subject to stockholder
approval, regulatory approvals and certain other conditions. All necessary
regulatory approvals required by the agreement have been met. Upon receiving
stockholder approval and the satisfaction of certain other conditions, the
Company will become an indirect wholly-owned subsidiary of Philip. Under the
terms of the agreement, each share of Allwaste Common Stock will be exchanged
for 0.611 shares of Philip Common Stock.
(2) ACQUISITIONS AND INVESTMENTS --
On January 31, 1997, the Company exercised warrants to purchase additional
shares of the Safe Seal Company, Inc. ("Safe Seal"). Consideration for this
increase in the investment from 10% to 36.5% included three subordinated notes
totaling $3.3 million and cash of $0.6 million. The Company now owns 2,502,518
shares of common stock and 20,000 shares of redeemable Class A preferred stock
of Safe Seal for a total investment of $6.6 million (including goodwill of $2.9
million). The Company appropriately changed its method of accounting for the
investment from the cost method to the equity method. The effect of this change
on the Company's financial statements for prior periods presented is immaterial
and accordingly have not been restated. The Company's equity in losses (net of
goodwill amortization over 40 years) for the nine and three months ended May 31,
1997 was $9 thousand. The Company also guarantees $17.8 million of indebtedness
for Safe Seal and its affiliates.
(3) INCOME TAXES --
With respect to continuing operations, income tax provisions for interim
periods are estimated based on projections of the annual effective tax rates.
Certain assumptions have been made in this regard in estimating the effective
tax rate for fiscal 1997, the outcome of which may not be resolved until the end
of the fiscal year. The effective tax rate of 46% for the nine months ended May
31, 1997 reflects the estimated U.S. federal and state income taxes and foreign
taxes on the earnings of the Company's foreign subsidiaries.
F-31
<PAGE> 108
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(3) INCOME TAXES -- (CONTINUED)
Deferred tax assets and liabilities are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities. On the accompanying Condensed Consolidated Balance
Sheets, deferred tax assets and liabilities are netted within each tax
jurisdiction. The following table sets forth the gross deferred tax assets
(liabilities) recorded (in thousands):
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
--------- ----------
<S> <C> <C>
Current deferred tax assets....................................... $ 7,262 $ 8,681
Non-current deferred tax assets................................... 183 3,383
Valuation allowance............................................... (1,230) (1,230)
--------- ---------
Total deferred tax assets.................................... 6,215 10,834
Non-current deferred tax liabilities.............................. $ (12,273) $ (13,238)
--------- ---------
Net deferred tax liabilities...................................... $ (6,058) $ (2,404)
========= =========
</TABLE>
The components of the net deferred tax assets (liabilities) are as follows
(in thousands):
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1996
--------- ----------
<S> <C> <C>
Depreciation and amortization........................................ $ (17,766) $ (15,753)
Financial reserves and accruals not yet deductible................... 11,708 13,349
--------- ----------
Total........................................................... $ (6,058) $ (2,404)
========= =========
</TABLE>
(4) LONG-TERM DEBT --
The Company's long-term debt consists of a revolving credit agreement with
a group of banks. The agreement, as last amended in January 1997, provides for
an unsecured $160 million revolving line of credit to the Company through
January 31, 1999, at which time any outstanding borrowings convert to a term
loan due in equal quarterly installments through January 31, 2003. At July 10,
1997, after utilizing $33.1 million of the credit facility for letters of credit
to secure certain insurance obligations and performance bonds, available
borrowing capacity under this agreement was $24.1 million. Management believes
that the Company was in compliance with all applicable covenants under the
revolving credit agreement as of May 31, 1997. Borrowing availability is subject
to the Company maintaining certain minimum financial ratios as set forth in the
agreement.
(5) SIGNIFICANT NON-CASH FINANCING ACTIVITIES --
During March 1997, the Company issued 79,904 shares of its Common Stock and
959,277 shares of treasury stock in exchange for $7.6 million of convertible
subordinated note which were issued as partial consideration to former owners of
certain acquired businesses. At May 31, 1997 and August 31, 1996, the Company
had outstanding $1.9 million and $11.0 million, respectively, of convertible
subordinated notes issued as partial consideration to acquire certain
businesses.
(6) NET INCOME PER COMMON SHARE --
Net income per common share has been computed based on the weighted average
number of shares of Common Stock and Common Stock equivalents outstanding. The
calculation of fully-diluted net income per common share is not materially
different from the primary calculation. The following table
F-32
<PAGE> 109
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(6) NET INCOME PER COMMON SHARE -- (CONTINUED)
presents the primary weighted average number of shares outstanding for the nine
and three months ended May 31, 1997 and May 31, 1996 (in thousands).
<TABLE>
<CAPTION>
FOR THE FOR THE
NINE MONTHS ENDED THREE MONTHS ENDED
------------------ ------------------
MAY 31, MAY 31, MAY 31, MAY 31,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Common shares outstanding, beginning of fiscal period..... 39,799 39,609 39,799 39,609
Weighted average number of common shares outstanding:
Stock options, treasury stock method................. 586 73 1,321 30
Purchased companies.................................. -- 24 -- 25
Exercise of stock options............................ 140 98 396 136
Treasury stock and other, net........................ (2,933) (542) (2,838) (737)
------- ------- ------- -------
Total weighted average common shares outstanding........ 37,592 39,262 38,678 39,063
====== ====== ====== ======
</TABLE>
(7) INCENTIVE PLANS --
On October 26, 1995, the Company's Board of Directors adopted a limited
single-purpose incentive plan for certain key employees. Pursuant to this plan,
each participating key employee that purchased shares of the Company's Common
Stock, based on a designated percentage of his annual salary, was granted a
number of shares of restricted Common Stock equal to two times the number of the
shares purchased and an option to purchase a number of shares of Common Stock
equal to four times the number of shares purchased. Shares of Common Stock
issued under this incentive plan were treasury shares. At May 31, 1997, 206,826
shares of restricted Common Stock and options to purchase 423,464 shares of
Common Stock had been granted in connection with this incentive plan. The
Company does not contemplate that any additional restricted shares will be
issued under the incentive plan or that any options to purchase shares of Common
Stock will be granted in connection with the plan.
The value of restricted shares awarded under this incentive plan through
May 31, 1997 was $0.9 million. These amounts were recorded as unearned
compensation related to outstanding restricted stock and are shown as a separate
component of Shareholders' Equity. Unearned compensation is being amortized to
expense over a four-year vesting period and amounted to $0.2 million and $0.1
million for the nine and three months ended May 31, 1997, respectively.
Effective September 1, 1996, in connection with the implementation of the
Economic Value Added ("EVA(R)") integrated management system, the Compensation
Committee of the Board of Directors approved the adoption of the Allwaste EVA
Incentive Compensation Plan (the "EVA Plan"). The EVA Plan governs incentive
compensation available to the Company's executive officers and other key
employees. Under the EVA Plan, eligible participants are entitled to receive
incentive payments based on their meeting or exceeding certain thresholds as
established by the Compensation Committee in the case of executive management
and by executive management in the case of other participants. A portion of each
fiscal years awards (generally, one-third) carry forward to the following year
and are added to incentive awards earned for that succeeding fiscal year.
(8) DISCONTINUED OPERATIONS --
In September 1995, the Company sold its glass recycling operations to
Strategic Holdings, Inc. ("SHI"), a company formed by Equus II, Incorporated
("Equus"). In October 1996, the Company and Equus finalized an agreement with
respect to certain post-closing issues which were unresolved on the
F-33
<PAGE> 110
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(8) DISCONTINUED OPERATIONS -- (CONTINUED)
date of the sales transaction. The total consideration, as adjusted, was $56.1
million, including $41.5 million in cash, $8.0 million of redeemable Series A
preferred stock redeemable beginning in 2002, and a $6.6 million subordinated
note receivable due in 2002. The redeemable Series A preferred stock dividend is
$.065 per share for the period prior to September 1, 1996 and $.06 per share
thereafter. The subordinated note receivable interest rate is 11% for the period
prior to September 1, 1996 and 10.5% thereafter. The agreement also provided
that all dividends and interest due prior to August 31, 1997 will not be paid
when due, but "paid in kind" in the form of two 8.036% subordinated notes issued
September 30, 1996 and June 30, 1997 in the amounts of $1.3 million and $0.9
million, respectively. Principal on these two notes will be due on November 30,
2002. At May 31, 1997, the Company had accrued $0.9 million for dividends and
$1.4 million for interest. For the nine months ended May 31, 1997, the Company
recognized $0.6 million as interest income and $0.4 million as dividend income
which is reflected in other income (expense) in the accompanying Condensed
Consolidated Statements of Income. The Company also received warrants to
purchase shares of SHI common stock, providing the Company the right to own up
to approximately 33% of the outstanding stock of SHI. The Company may receive
additional consideration in the form of an adjustment to the purchase price in
the event that Equus' internal rate of return, as defined, exceeds certain
predetermined targets. The amount of such additional consideration, if any, is
not presently determinable. The Company recorded a gain on the sale of its glass
recycling operations of $3.8 million, net of applicable income taxes of $1.6
million, in the first quarter of fiscal 1996.
F-34
<PAGE> 111
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO ALLWASTE, INC.:
We have audited the accompanying Consolidated Balance Sheets of Allwaste,
Inc. (a Delaware corporation) and subsidiaries as of August 31, 1996 and 1995,
and the related Consolidated Statements of Operations, Shareholders' Equity and
Cash Flows for each of the three years in the period ended August 31, 1996.
These Consolidated 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 Consolidated Financial Statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the Consolidated 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 financial position of Allwaste,
Inc. and subsidiaries as of August 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
Houston, Texas ARTHUR ANDERSEN LLP
November 15, 1996
F-35
<PAGE> 112
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except shares)
<TABLE>
<CAPTION>
AUGUST 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 2,436 $ 4,029
Receivables, net of allowance for doubtful accounts............... 75,114 80,065
Prepaid expenses.................................................. 3,796 3,609
Deferred taxes and other current assets........................... 11,170 10,216
--------- ---------
Total current assets........................................... 92,516 97,919
--------- ---------
Investments......................................................... 11,030 --
Property and equipment, at cost..................................... 248,280 230,291
Less -- Accumulated depreciation.................................. (119,307) (99,193)
--------- ---------
128,973 131,098
--------- ---------
Goodwill, net of accumulated amortization........................... 88,032 88,122
Notes receivable.................................................... 13,517 4,893
Other assets........................................................ 3,119 4,050
Net assets of discontinued operations............................... -- 46,151
--------- ---------
Total assets................................................... $ 337,187 $ 372,233
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................... $ 19,250 $ 28,737
Accrued liabilities:
Payroll and related benefits...................................... 9,911 8,282
Workers' compensation insurance................................... 14,751 11,686
Other insurance................................................... 6,381 5,550
Income taxes and other current liabilities........................ 17,232 13,368
Current maturities of long-term and convertible subordinated debt... 6,249 3,371
--------- ---------
Total current liabilities...................................... 73,774 70,994
--------- ---------
Long-term debt, net of current maturities........................... 87,971 120,535
Convertible subordinated debt, net of current maturities............ 33,924 41,972
Deferred income taxes and other liabilities......................... 10,572 10,441
Commitments and contingencies
Shareholders' equity:
Preferred Stock, 500,000 shares authorized, none issued or
outstanding.................................................... -- --
Common Stock, $.01 par value, 100,000,000 shares authorized,
39,799,029 and 39,609,429 shares issued in 1996 and 1995,
respectively................................................... 398 396
Additional paid-in capital........................................ 55,699 54,958
Retained earnings................................................. 84,163 73,999
--------- ---------
140,260 129,353
Less:
Treasury Stock, at cost, 1,945,805 and 250,000 shares in 1996
and 1995, respectively........................................ (8,561) (1,062)
Unearned compensation related to outstanding restricted Common
Stock......................................................... (753) --
--------- ---------
Total shareholders' equity................................... 130,946 128,291
--------- ---------
Total liabilities and shareholders' equity................... $ 337,187 $ 372,233
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-36
<PAGE> 113
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Revenues............................................. $ 382,165 $ 344,245 $ 286,861
Cost of operations................................... 286,412 254,596 204,492
--------- --------- ---------
Gross profit....................................... 95,753 89,649 82,369
Write-downs of operating equipment................... -- 6,908 --
Selling, general and administrative expenses......... 77,011 72,976 59,020
Interest expense..................................... (9,581) (8,785) (5,617)
Interest income...................................... 1,041 402 484
Other income (expense), net.......................... 2,360 (3,499) (1,302)
--------- --------- ---------
Income (loss) from continuing operations before
income tax provision and minority interest...... 12,562 (2,117) 16,914
Income tax provision................................. (6,030) (2,170) (6,725)
Minority interest, net of taxes...................... 82 408 407
--------- --------- ---------
Income (loss) from continuing operations........... 6,614 (3,879) 10,596
Discontinued operations
Income from discontinued operations,
net of applicable income taxes................ -- 2,773 2,501
Gain on sale of glass recycling operations, net
of applicable income taxes.................... 3,764 -- --
--------- --------- ---------
Net income (loss).................................. $ 10,378 $ (1,106) $ 13,097
========= ========= =========
Net income (loss) per common share:
Continuing operations.............................. $ .17 $ (.10) $ .29
Discontinued operations............................ .10 .07 .07
--------- --------- ---------
Net income (loss) per common share............ $ .27 $ (.03) $ .36
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-37
<PAGE> 114
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL
NUMBER PAID-IN RETAINED TREASURY UNEARNED SHAREHOLDERS'
OF SHARES AMOUNT CAPITAL EARNINGS STOCK COMPENSATION EQUITY
--------- ------ ---------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1993............ 36,740 $367 $ 43,097 $61,732 $ -- $-- $ 105,196
Net income.......................... -- -- -- 13,097 -- -- 13,097
Issuance of Common Stock for
purchased businesses.............. 934 9 4,093 -- -- -- 4,102
Issuance of Common Stock pursuant to
stock option plans and related tax
benefits.......................... 67 -- 292 -- -- -- 292
Treasury Stock acquired in lawsuit
settlement........................ -- -- -- -- (1,062) -- (1,062)
Change in cumulative translation
adjustment........................ -- -- -- (407) -- -- (407)
--------- ------ ---------- -------- -------- ------------ -------------
BALANCE, AUGUST 31, 1994............ 37,741 376 47,482 74,422 (1,062) -- 121,218
Net loss............................ -- -- -- (1,106) -- -- (1,106)
Issuance of Common Stock for
acquired businesses............... 1,432 15 5,079 810 -- -- 5,904
Issuance of Common Stock pursuant to
stock option plans and related tax
benefits.......................... 436 5 2,397 -- -- -- 2,402
Change in cumulative translation
adjustment........................ -- -- -- (127) -- -- (127)
--------- ------ ---------- -------- -------- ------------ -------------
BALANCE, AUGUST 31, 1995............ 39,609 396 54,958 73,999 (1,062) -- 128,291
Net income.......................... -- -- -- 10,378 -- -- 10,378
Issuance of Common Stock for
previously acquired business...... 25 -- 128 -- -- -- 128
Issuance of Common Stock pursuant to
stock option plans and related tax
benefits.......................... 165 2 638 -- -- -- 640
Issuance of treasury shares......... -- -- (25) -- 1,714 (925) 764
Compensation expense................ -- -- -- -- -- 172 172
Purchase of Treasury Stock.......... -- -- -- -- (9,213) -- (9,213)
Change in cumulative translation
adjustment........................ -- -- -- (214) -- -- (214)
--------- ------ ---------- -------- -------- ------------ -------------
BALANCE, AUGUST 31, 1996............ 39,799 $398 $ 55,699 $84,163 $(8,561) $ (753) $ 130,946
======== ======= ========= ======== ======== ============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-38
<PAGE> 115
ALLWASTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
-----------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).......................................... $ 10,378 $ (1,106) $ 13,097
Reconciliation of net income (loss) to cash provided by
operating activities:
Depreciation............................................ 28,639 25,715 20,635
Amortization............................................ 2,909 2,611 2,824
Write-downs of operating equipment...................... -- 6,908 --
Gain on sale of glass recycling operations, net of
taxes................................................. (3,764) -- --
Allowances on notes receivable.......................... -- 1,000 790
Write-downs of investments.............................. -- 1,950 950
Amortization of unearned compensation -- restricted
stock................................................. 172 -- --
Gain on purchases of convertible subordinated
debentures............................................ (153) -- --
Gain on sales of property and equipment................. (1,081) (777) (146)
Equity in losses of unconsolidated partnership.......... -- -- 2,805
Gain on sale of Common Stock investment................. -- -- (2,688)
Common Stock received in lawsuit settlement............. -- -- (1,062)
Change in assets and liabilities, net of effect of
acquisitions accounted for as purchases:
Receivables........................................... 4,545 (10,787) (9,412)
Prepaid expenses, deferred taxes and other current
assets............................................. (112) (2,309) (2,556)
Notes receivable and other assets..................... (1,602) 722 (3,310)
Accounts payable...................................... (9,556) 8,278 (13)
Accrued liabilities................................... 2,187 7,170 (2,067)
Deferred income taxes and other liabilities........... 366 (1,259) 1,521
--------- --------- ---------
Cash provided by operating activities................. 32,928 38,116 21,368
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of glass recycling operations........... 41,500 -- --
Additions to property and equipment........................ (27,541) (47,193) (34,145)
Proceeds from sales of property and equipment.............. 3,249 2,394 2,112
Purchase of investments.................................... (3,030) -- --
Payments for acquisitions accounted for as purchases, net
of cash acquired of $123, $1,337 and $241............... (2,145) (19,320) (7,468)
Proceeds from sale of investment in marketable security.... -- -- 2,982
Cash used in discontinued operations....................... -- (4,233) (7,013)
--------- --------- ---------
Cash provided by (used in) investing activities....... 12,033 (68,352) (43,532)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of Common Stock.................... 665 2,279 292
Net increase (decrease) in revolving credit facility....... (32,309) 35,670 32,910
Net decrease in other long term borrowings................. (4,575) (6,577) (10,469)
Purchases of convertible subordinated debentures........... (908) -- --
Purchases of Treasury Stock................................ (9,213) -- --
--------- --------- ---------
Cash provided by (used in) financing activities....... (46,340) 31,372 22,733
--------- --------- ---------
EFFECT OF EXCHANGE RATE CHANGES.............................. (214) (127) (407)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............. (1,593) 1,009 162
CASH AND CASH EQUIVALENTS, beginning of year................. 4,029 3,020 2,858
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year....................... $ 2,436 $ 4,029 $ 3,020
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
F-39
<PAGE> 116
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
Description of business
Allwaste, Inc. ("Allwaste" or the "Company") provides integrated industrial
and environmental services and acts as an outsourcing provider of on-site
facility processes and services, primarily in the United States, Canada and
Mexico. The Company, through its operating subsidiaries and affiliates, provides
to its industrial and commercial customers a range of industrial and
environmental services, including: on-site industrial and waste management
services (including hydroblasting and gritblasting and air-moving and liquid
vacuuming); waste transportation and processing; wastewater services; site
remediation; maintenance services; turnaround and outage services; container
cleaning and repair services; emergency spill response services; and other
general plant support services.
Principles of consolidation and basis of presentation
The Consolidated Financial Statements include the accounts of Allwaste,
Inc. and all of its wholly-owned and majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation. For all periods presented, the Consolidated Financial Statements
and Notes to Consolidated Financial Statements reflect the Company's glass
recycling operations as a discontinued operation, as discussed in Note 3.
Additionally, certain prior year amounts have been reclassified to conform with
the fiscal 1996 presentation.
Revenue recognition
Revenues are recorded as services are performed. Revenues derived from
services provided under fixed-price contracts are recognized on a
percentage-of-completion basis, using the cost-to-cost method. If it is
determined that a contract may result in a loss, a provision for the loss is
accrued at that time.
Property and equipment
Property and equipment are carried at cost and depreciated over the
estimated useful life of the asset using the straight-line method. The costs of
major improvements are capitalized. Expenditures for maintenance, repairs and
minor improvements are expensed as incurred. When property and equipment are
sold or retired, the cost and related accumulated depreciation are removed and
the resulting gain or loss is included in results of operations.
Interest paid in connection with the construction of major facilities and
equipment is capitalized. The capitalized interest is recorded as a part of the
related asset and is depreciated over the asset's estimated useful life.
Capitalized interest related primarily to expansions and improvements at
container service facilities was $0.1 million, $0.3 million and $0.1 million for
the years ended August 31, 1996, 1995 and 1994, respectively.
Goodwill
Goodwill represents the excess of the aggregate purchase price over the net
tangible and identifiable intangible assets of acquired businesses accounted for
under the purchase method of accounting and is amortized on a straight-line
basis over a period of 40 years. Subsequent to purchase, the Company continually
evaluates whether events or circumstances have occurred that indicate the
remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company uses an
estimate of the acquired business' undiscounted future cash flows compared to
the carrying value of goodwill to determine whether goodwill is deemed to be
impaired. Management believes there have been no events or circumstances which
warrant revision to the remaining useful life or
F-40
<PAGE> 117
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
which affect the recoverability of the Company's recorded goodwill. Accumulated
amortization of goodwill as of August 31, 1996 and 1995 was $9.1 million and
$6.6 million, respectively.
Income taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards ("SFAS") No. 109 "Accounting for Income Taxes". Under SFAS
No. 109, the Company provides deferred income taxes for the tax effects of
temporary differences between the financial reporting and income tax bases of
the Company's assets and liabilities.
Environmental expenditures
Environmental expenditures are expensed or capitalized based upon their
future economic benefit. Costs which improve a property, as compared with the
condition of the property when originally constructed or acquired, and costs
which prevent future environmental contamination are capitalized. Costs related
to environmental damage resulting from operating activities subsequent to
acquisition are expensed. Liabilities for these expenditures are recorded when
it is probable that obligations have been incurred and the amounts can be
reasonably estimated.
Minority interest
The Company owns an aggregate 60% joint venture interest in each of two
companies in Mexico, and a Mexican company owns the remaining 40% interest in
each entity. One of the companies performs various industrial services,
including site remediation and aboveground storage tank cleaning services. The
primary operations of the other company are underground storage tank testing
services.
For financial reporting purposes, the joint ventures' assets and
liabilities are consolidated with those of the Company. The Mexican company's
minority interests, $0.5 million and $0.4 million at August 31, 1996 and 1995,
respectively, are included in the Company's Consolidated Balance Sheets in
deferred income taxes and other liabilities. The joint venture experienced
pretax losses of $0.3 million, $1.2 million and $0.9 million in fiscal 1996,
1995 and 1994, respectively.
Per share amounts
Per share amounts are calculated based on the weighted average number of
common and common equivalent shares outstanding for each year (see Note 13).
Foreign currency translation
The Company's Canadian and Mexican subsidiaries maintain their books and
records in Canadian dollars and Mexican pesos, respectively. Assets and
liabilities of these operations are translated into United States ("U.S.")
dollars at the exchange rate in effect at the end of each accounting period;
and, income and expense accounts are translated at the average exchange rate
prevailing during the respective period. Gains and losses resulting from such
translation are included in retained earnings. Gains and losses from
transactions in foreign currencies are credited or charged to operations
currently and are not material.
Investment activity
In September 1995, the Company sold its glass recycling operations to
Strategic Holdings, Inc. ("SHI"), a company formed by Equus II Incorporated
("Equus"). As partial consideration for the sale, the Company received $8.0
million of redeemable Series A preferred stock. The stock is redeemable by SHI
beginning in 2002. This investment is recorded using the cost method and is
included in investments in the accompanying Consolidated Balance Sheets (See
Note 3).
F-41
<PAGE> 118
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
In October 1995, the Company acquired a 10% interest in The Safe Seal
Company, Inc. ("Safe Seal") which specializes in valve repair and leak sealing.
This $2.6 million investment consists of 20,000 shares of redeemable Class A
preferred stock, 422,000 shares of common stock and warrants to purchase common
shares and is recorded using the cost method.
For most of fiscal 1994, the Company owned a 40% interest in a wastewater
pretreatment facility and recorded such investment using the equity method of
accounting. Prior to increasing its ownership interest in late fiscal 1994 to
100%, the Company's equity in losses of this partnership was $1.8 million for
the year ended August 31, 1994 and were included in other income (expense), net
in the accompanying Consolidated Statements of Operations. Additionally, in
fiscal 1994, the Company recorded $1.0 million in losses relating to its
investment in this facility which is recorded in other income (expense), net in
the accompanying Consolidated Statements of Operations.
The Company acquired 181,000 shares of Sanifill, Inc. ("Sanifill"), a
publicly traded corporation involved in the collection and disposal of solid
waste, pursuant to a private offering in 1989 at an average cost of $1.62 per
share. In November 1993, the Company sold all of its shares of Sanifill. The
sale resulted in a pretax gain for fiscal year 1994 of $2.7 million which is
reflected in other income (expense), net in the accompanying Consolidated
Statements of Operations.
Fiscal 1995 special charges
During fiscal 1995, the Company recorded special charges of $11.9 million.
Such charges include $6.9 million of charges classified as write-downs of
operating equipment in the accompanying Consolidated Statements of Operations.
These write-downs related to the permanent impairment of certain operating
equipment in Mexico and California, a wastewater pretreatment facility,
equipment relating to two small businesses exited and various owned facilities
held for sale. Included in SG&A expenses in the accompanying Consolidated
Statements of Operations are $1.1 million of charges primarily representing the
write-off of organizational expenses relating to the Mexico joint ventures. The
Consolidated Statements of Operations also reflect $0.6 million in interest
expense relating to the write-off of previously unamortized loan costs in
connection with the bank amendment to the revolving credit facility completed in
August 1995. Other income (expenses), net in the accompanying Consolidated
Statements of Operations reflects $3.6 million in charges relating to an
allowance provided for a note receivable and the write-off of the Company's
remaining investment in IAM/Environmental, Inc. ("IAM") and another
previously-owned business, as well as the settlement of a lawsuit related to the
previously discontinued asbestos abatement business. The write-off related to
IAM of $2.0 million reduced the Company's carrying value in this investment to
zero. Certain of the charges relating to the Mexico joint venture are partially
offset by the minority interest effect of such charges.
Cash flow reporting
Highly liquid debt instruments with an original maturity of three months or
less are considered to be cash equivalents. Cash payments for interest during
the years ended August 31, 1996, 1995 and 1994 were $9.6 million, $10.0 million
and $6.3 million, respectively, and cash payments for income taxes during the
years ended August 31, 1996, 1995 and 1994 were $4.9 million, $4.5 million and
$8.4 million, respectively.
New financial accounting standards
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" which is effective for years beginning after December
15, 1995 (fiscal 1997 for the Company). This statement established
F-42
<PAGE> 119
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
criteria for recognizing, measuring and disclosing impairments of long-lived
assets, identifiable intangibles and goodwill. The Company will adopt SFAS No.
121 in the first quarter of fiscal year 1997; however, management does not
expect that the adoption will have a material effect on the Company's financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation" which is effective for years
beginning after December 15, 1995 (fiscal 1997 for the Company). This statement
allows entities to choose between a new fair value based method of accounting
for employee stock options or similar equity instruments and the current
intrinsic value-based method of accounting prescribed by Accounting Principles
Board Opinion No. 25. Entities electing to remain with the accounting in APB
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value method of accounting had been applied. The Company
expects to continue accounting for employee stock options and similar equity
instruments in accordance with APB Opinion No. 25. The pro forma effect for
fiscal 1996 has not yet been determined.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from the Company's estimates.
2. ACQUISITIONS --
Under the purchase method of accounting, the results of acquired businesses
are included with the Company's results from their respective acquisition dates.
The following table summarizes the Company's business acquisitions accounted for
under the purchase method (dollars in thousands):
<TABLE>
<CAPTION>
BUSINESSES CASH AND CONVERTIBLE SHARES OF TOTAL
PURCHASED PROMISSORY NOTES SUBORDINATED NOTES COMMON STOCK CONSIDERATION
---------- ---------------- ------------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Fiscal 1996.... 4 $ 2,445 -$- -- $ 2,445
Fiscal 1995.... 13 23,231 4,985 1,426,096 36,766
Fiscal 1994.... 9 7,875 534 934,290 12,511
</TABLE>
The allocations of the purchase price to the fair market value of the net
assets acquired in the fiscal 1996 acquisitions are based on preliminary
estimates of fair market value and may be revised when additional information
concerning asset and liability valuations is obtained.
As an integral part of each of the above acquisitions, all former
shareholders signed non-compete agreements and key management entered into
agreements with the Company to continue managing these businesses.
In connection with two acquisitions made prior to fiscal 1996, the Company
agreed to make contingent payments to the former owners over periods up to five
years based on formulas in the respective acquisition agreements. At the
Company's option, these payments may be made in either cash or common stock of
the Company. At August 31, 1996, the maximum aggregate amount of contingent
payments was $3.2 million. In management's opinion, based on the current
performance levels of the individual acquisitions involved, the ultimate
settlement of these contingent payment obligations is likely to be substantially
less than the $3.2 million maximum aggregate. Approximately $0.3 million in
contingent payments were made during 1996. Amounts earned under the terms of
these agreements are recorded as additional goodwill and amortized over the
remaining amortization period.
F-43
<PAGE> 120
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. DISCONTINUED OPERATIONS --
In September 1995, the Company sold its glass recycling operations to SHI,
a company formed by Equus. In October 1996, the Company and Equus finalized an
agreement with respect to certain post-closing issues which were unresolved on
the date of the sales transaction. The total consideration, as adjusted, was
$56.1 million, including $41.5 million in cash, $8.0 million of redeemable
Series A preferred stock redeemable beginning in 2002, and a $6.6 million
subordinated note receivable due in 2002. The redeemable Series A preferred
stock dividend is $.065 per share for the period prior to September 1, 1996 and
$.06 per share thereafter. The subordinated note receivable interest rate is 11%
for the period prior to September 1, 1996 and 10.5% thereafter. The agreement
also provided that all dividends and interest due prior to August 31, 1997 will
not be paid when due, but "paid in kind" in the form of two 8.036% subordinated
notes issued September 30, 1996 and June 30, 1997 in the amounts of $1.3 million
and $0.9 million, respectively. Principal on these two notes will be due on
November 30, 2002. At August 31, 1996, the Company had accrued $0.5 million for
dividends and $0.8 million for interest which is reflected in other income
(expense) in the accompanying Consolidated Statements of Operations. The Company
also received warrants to purchase shares of SHI common stock, providing the
Company the right to own up to approximately 33% of the outstanding stock of
SHI. The Company may receive additional consideration in the form of an
adjustment to the purchase price in the event that Equus' internal rate of
return, as defined, exceeds certain predetermined targets. The amount of such
additional consideration, if any, is not presently determinable. The Company
recorded a gain on the sale of its glass recycling operations of $3.8 million,
net of estimated applicable income taxes of $1.6 million, in the first quarter
of fiscal 1996. Revenues of the glass recycling operations, net of intercompany
sales, were $70.0 million and $63.2 million for the fiscal years ended August
31, 1995 and 1994, respectively.
The net assets of the glass recycling operations consisted of the following
as of August 31, 1995 (in thousands):
<TABLE>
<S> <C>
Net working capital..................................... $ 7,726
Property and equipment, net............................. 21,335
Goodwill and other assets............................... 19,264
Long-term debt.......................................... 440
Deferred income taxes and other......................... 1,734
</TABLE>
Income from discontinued operations in the Consolidated Statements of
Operations is presented net of allocated interest expense of $1.6 million and
$1.0 million and net of applicable income taxes of $1.8 million and $1.6 million
for fiscal years 1995 and 1994, respectively. The interest was allocated based
upon the net assets of the glass recycling operations in relation to the
Company's consolidated net assets plus general corporate debt.
4. RECEIVABLES --
Receivables included in current assets consisted of the following (in
thousands):
<TABLE>
<CAPTION>
AUGUST 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Trade accounts........................................................ $ 76,378 $ 80,619
Employees............................................................. 567 996
Other................................................................. 489 2,133
-------- --------
77,434 83,748
Less -- Allowance for doubtful accounts............................... (2,320) (3,683)
-------- --------
$ 75,114 $ 80,065
======== ========
</TABLE>
F-44
<PAGE> 121
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. RECEIVABLES -- (CONTINUED)
Notes receivable recorded as non-current assets consisted of the following
(in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Notes receivable from employees....................................... $ 2,702 $ 2,483
Notes receivable from sale of discontinued asbestos abatement
operation........................................................... 2,888 2,888
Notes receivable from sale of discontinued glass recycling operations:
Subordinated note receivable..................................... 6,610 --
Accrued interest and dividends................................... 1,285 --
Notes receivable from sale of other businesses........................ 350 790
Other................................................................. 682 522
-------- --------
14,517 6,683
Less -- Loss reserves................................................. (1,000) (1,790)
-------- --------
$ 13,517 $ 4,893
======== ========
</TABLE>
5. PROPERTY AND EQUIPMENT --
The principal categories and estimated useful lives of property and
equipment were as follows (dollars in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
ESTIMATED ------------------------
USEFUL LIVES 1996 1995
------------- ---------- ---------
<S> <C> <C> <C>
Land................................................. $ 6,412 $ 6,226
Building and improvements............................ 10 - 30 years 34,421 28,127
Service equipment and related vehicles............... 2 - 20 years 188,309 178,162
Other................................................ 3 - 10 years 19,138 17,776
---------- ---------
248,280 230,291
Less: accumulated depreciation....................... (119,307) (99,193)
---------- ---------
Property and equipment, net.......................... $ 128,973 $ 131,098
========== =========
</TABLE>
6. DEBT --
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
-----------------------
1996 1995
-------- ---------
<S> <C> <C>
Revolving credit agreement......................................... $ 87,770 $ 120,079
Notes payable to individuals in connection with acquisitions of
businesses (see Note 2), banks and financial institutions,
weighted average interest rate of 8.4% at August 31, 1996,
payable in various installments through 1999..................... 385 1,142
-------- ---------
88,155 121,221
Less -- Current maturities......................................... (184) (686)
-------- ---------
$ 87,971 $ 120,535
======== =========
</TABLE>
F-45
<PAGE> 122
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT -- (CONTINUED)
Revolving credit agreement
In December 1993, the Company entered into a revolving credit agreement
with a group of banks. This agreement, as amended most recently in August 1996,
provides an unsecured $160 million revolving credit line to the Company through
January 31, 1999, at which time any outstanding borrowings convert to a term
loan due in equal quarterly installments through January 31, 2003. Interest on
outstanding borrowings is charged, at the Company's option, at the banks' prime
rate (8 1/4% at August 31, 1996), adjusted Eurodollar Rate or the banks' reserve
adjusted certificate of deposit rate (CD rate) plus 0% to 1.625% as determined
by the calculation of the debt to cash flow ratio (as defined). A commitment fee
of .25% is payable on the unused portion of the line. Three of the banks
participating in the revolving credit agreement have also extended to the
Company uncommitted, short-term lines of credit with interest rates which may be
more favorable to the Company than those available under the revolving credit
agreement. As of August 31, 1996, the Company had $87.8 million outstanding
under the revolving credit agreement and the uncommitted lines of credit and had
utilized $30.1 million of the facility for letters of credit to secure certain
insurance obligations and performance bonds. Under the terms of the agreement,
the Company must maintain a minimum fixed charge coverage ratio (as defined) and
certain other minimum financial ratios. Borrowing availability is subject to the
Company meeting minimum leverage and other ratios. Management believes it is in
compliance with all applicable covenants under the revolving credit agreement as
of August 31, 1996. As of November 15, 1996, available borrowing capacity, as
defined under the agreement, was $39.0 million. The credit agreement prohibits
the payment of cash dividends.
Maturities of long-term debt outstanding at August 31, 1996 are as follows
(in thousands):
<TABLE>
<S> <C>
For the year ending August 31 --
1997............................................................................ $ 184
1998............................................................................ 191
1999............................................................................ 10,982
2000............................................................................ 21,943
2001............................................................................ 21,943
Thereafter...................................................................... 32,912
--------
$ 88,155
========
</TABLE>
In August 1996, the Company purchased a three year interest rate cap
agreement of 7.0% on $30,000,000 from two of the banks which participate in the
Company's revolving credit agreement. Quarterly payments under the agreement are
based on the difference between a floating rate based on a three-month LIBOR and
the cap rate. The cost was $0.3 million and is being amortized over the term of
the agreement.
CONVERTIBLE SUBORDINATED DEBT
Convertible Subordinated Debentures
In June 1989, the Company completed a public offering of $30.0 million of
7.25% Convertible Subordinated Debentures due June 1, 2014 (the "Debentures");
net proceeds to the Company were $28.7 million. Direct offering costs related to
the Debentures are included in other assets in the accompanying Consolidated
Balance Sheets and are being amortized over the term of the Debentures. The
Debentures are convertible by the holder, at any time, into shares of the
Company's Common Stock at a price of $11.94 per share and are redeemable for
cash at the option of the Company. The Debentures provide for annual mandatory
sinking fund payments equal to 5% of the aggregate principal
F-46
<PAGE> 123
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. DEBT -- (CONTINUED)
amount of the Debentures issued, commencing June 1, 1999. Interest is payable
semi-annually, on June 1 and December 1. In fiscal 1996, the Company repurchased
$1.1 million of these Debentures at 85% of face value. The related gain of $0.2
million was included in interest expense in the accompanying Consolidated
Statements of Operations.
In October 1994, the Company entered into an interest rate swap agreement
through June 1997 to potentially lower the overall cost of borrowings. The
agreement modified the $30.0 million of 7.25% fixed rate debt to LIBOR plus .24%
debt, which was reset quarterly. On May 31, 1995, the Company terminated the
agreement and is amortizing the $0.5 million received as a reduction of interest
expense on a straight-line basis over the remaining term of the original swap.
Convertible Subordinated Notes
At August 31, 1996, the Company had outstanding $11.1 million of
convertible subordinated notes to former owners of certain acquired businesses
(the "Notes") which were issued as partial consideration of the acquisition
purchase price. The Notes bear interest, payable quarterly, at a weighted
average rate of 6.2% and are convertible by the holder into shares of the
Company's Common Stock at a weighted average price of $7.24 per share. The Notes
are redeemable for cash or the Company's Common Stock at the option of the
Company at any time after one year of issuance.
Maturities of the Notes outstanding at August 31, 1996 are as follows (in
thousands):
<TABLE>
<S> <C>
For the year ending August 31 --
1997............................................................................ $ 6,065
1998............................................................................ 4,985
-------
$11,050
========
</TABLE>
7. INCOME TAXES --
The Company and its U.S. subsidiaries file a consolidated federal income
tax return. Acquired entities file appropriate tax returns through their
respective acquisition dates (absent certain administrative elections) and,
thereafter, are included in the Company's consolidated return. Foreign income
taxes consist primarily of Canadian federal and provincial taxes attributable to
the Company's Canadian subsidiaries.
Foreign pretax book income (loss) net of certain intercompany interest
expense and other items was $0.5 million (consisting of a Mexican loss of $0.2
million and Canadian income of $0.7 million,) ($0.4 million) and $1.2 million
for the years ended August 31, 1996, 1995 and 1994, respectively.
F-47
<PAGE> 124
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
Federal, state and foreign income tax provisions (benefits) are as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
------------------------------------
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Federal --
Current............................................... $ 4,941 $ 6,536 $ 1,327
Deferred.............................................. 706 (6,260) 3,819
------- -------- -------
5,647 276 5,146
------- -------- -------
State --
Current............................................... 1,034 1,494 584
Deferred.............................................. (448) (430) 179
------- -------- -------
586 1,064 763
------- -------- -------
Foreign --
Current............................................... 290 667 840
Deferred.............................................. (493) 163 (24)
------- -------- -------
(203) 830 816
------- -------- -------
$ 6,030 $ 2,170 $ 6,725
====== ======== ======
</TABLE>
The differences in the income taxes provided and the amount determined by
applying the U.S. federal statutory rate to income before income taxes are
summarized as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
AUGUST 31,
-------------------------
1996 1995 1994
---- ----- ----
<S> <C> <C> <C>
Federal income tax at statutory rate............................. 35% 35% 35%
Effect of valuation allowance.................................... 1 (55) --
State income taxes, net of benefit for federal deduction......... 3 (33) 3
Effect of meals and entertainment limitation..................... 4 (21) --
Effect of other nondeductible amortization of goodwill........... 4 (16) 2
Effect of other nondeductible expenses........................... 1 (7) --
Foreign income taxes at higher rates............................. -- (3) 1
Other............................................................ -- (3) (1)
---- ----- ----
48% (103)% 40%
===== ===== =====
</TABLE>
F-48
<PAGE> 125
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES -- (CONTINUED)
Deferred income tax expense results principally from the use of different
capital recovery and revenue and expense recognition methods for tax and
financial accounting purposes. The sources of these temporary differences and
related tax effect were as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
----------------------------------
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Depreciation and amortization.............................. $ 2,417 $ 901 $ 1,361
Accruals and reserves not deductible until paid............ 1,031 (5,186) 1,926
Write-downs of assets...................................... -- (1,580) --
Sale of certain leasing operations......................... (141) (305) (222)
Sale of glass recycling operations......................... (2,932) -- --
Other, net................................................. (610) (357) 909
------- -------- -------
Total deferred income tax provision (benefit).............. $ (235) $ (6,527) $ 3,974
====== ======== ======
</TABLE>
Deferred tax assets and liabilities are determined based on the estimated
future tax effects of differences between the financial statement and tax bases
of assets and liabilities. On the accompanying Consolidated Balance Sheets,
current and non-current deferred tax assets and liabilities are netted within
each tax jurisdiction. The following table sets forth the gross deferred tax
assets (liabilities) recorded as of August 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Current deferred tax assets....................................... $ 8,681 $ 8,512
Non-current deferred tax assets................................... 3,383 5,003
Valuation allowance............................................... (1,230) (1,156)
--------- ---------
Total deferred tax assets......................................... 10,834 12,359
Non-current deferred tax liabilities.............................. (13,238) (14,998)
--------- ---------
Net deferred tax liabilities...................................... $ (2,404) $ (2,639)
========= =========
</TABLE>
The Company is required to record valuation allowances for deferred tax
assets which management believes it is more likely than not that the tax asset
will not be realized. Accordingly, the Company established valuation allowances
against certain deferred tax assets: primarily those attributable to the
Company's net operating losses of its joint ventures in Mexico.
Prepaid income taxes of $0.7 and $1.2 million are included in prepaid
expenses at August 31, 1996 and 1995, respectively.
8. SHAREHOLDERS' EQUITY --
Preferred Stock
The Company can issue up to 500,000 shares of Preferred Stock, none of
which are issued or outstanding. The Board of Directors is authorized to provide
for the issuance of the Preferred Stock in series, to establish the number of
shares to be included in each such series and to fix the designation, powers,
preferences and rights of the shares of each such series and the qualifications,
limitations or restrictions thereof. This includes, among other things, any
voting rights, conversion privileges, dividend rates, redemption rights, sinking
fund provisions and liquidation rights which shall be superior to the Common
Stock. No holder of Preferred Stock will have preemptive rights.
F-49
<PAGE> 126
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHAREHOLDERS' EQUITY -- (CONTINUED)
Stock option plans
In January 1995, the Company's stockholders approved the Amended and
Restated 1989 Replacement Non-Qualified Stock Option Plan (the "Plan"), which
increased the number of shares issuable under the Plan from 3,000,000 shares to
4,500,000 shares. Under the Plan and notwithstanding certain restrictions placed
upon grants of options to persons subject to Section 16(a) of the Securities
Exchange Act of 1934, through August 31, 1999, all forfeited, expired and
exercised options automatically become available for grants of new options under
the Plan; therefore, the number of granted option shares plus those remaining
available for grant shall remain constant at 4,500,000 through such date. Stock
options are granted under the Plan at an exercise price which equals the fair
market value of the Common Stock on the date of grant or on the date which marks
the occurrence of the event pursuant to which the options are granted.
In July 1996, the compensation committee of the Board of Directors approved
a stock option exchange offer program (the "Exchange Program"), pursuant to
which all holders of stock options under the Plan were offered the opportunity
to exchange existing outstanding option grants for new option grants with a new
exercise price of $4.81 per share, a new eight-year term and a new four-year
vesting schedule. Options to purchase an aggregate of 2,251,961 shares of Common
Stock (of which, options to purchase an aggregate of 287,526 shares were
initially granted during fiscal 1996) were exchanged under the Exchange Program.
At August 31, 1996, options to purchase 3,419,878 shares were outstanding
under the Plan at prices ranging from $3.88 to $6.75 per share, of which options
to purchase 404,568 shares were exercisable. Subsequent to August 31, 1996,
options to purchase an additional 949,950 shares were granted under the Plan at
the per share exercise price of $4.25.
In October 1992, the Company's Board of Directors adopted a supplemental
option plan ("Supplemental Plan") to enable the Company to fulfill obligations
to former employees. A total of 1,500,000 shares are issuable under the amended
Supplemental Plan. At August 31, 1996, options to purchase 1,018,812 shares were
outstanding under the Supplemental Plan at prices ranging from $4.00 to $10.88
per share, of which options to purchase 689,818 shares were exercisable.
Subsequent to August 31, 1996, there were no options granted under the
Supplemental Plan.
The following table summarizes aggregate stock option activity of both the
Company's stock option plans for each of the three years ended August 31:
<TABLE>
<CAPTION>
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Options outstanding, beginning of year... 4,220,271 3,422,925 3,153,791
Granted................................ 2,440,601 1,895,400 871,740
Exercised.............................. (164,600) (430,526) (66,377)
Forfeited and canceled................. (2,057,587) (667,528) (536,229)
------------- ------------- -------------
Options outstanding, end of year......... 4,438,685 4,220,271 3,422,925
============= ============= =============
Option prices per share:
Granted................................ $4.00 - 6.50 $4.00 - 6.25 $4.00 - 6.75
Exercised.............................. $0.50 - 4.25 $4.00 - 5.88 $4.00 - 5.63
Forfeited and canceled................. $4.00 - 10.88 $4.00 - 12.19 $4.00 - 12.19
</TABLE>
F-50
<PAGE> 127
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHAREHOLDERS' EQUITY -- (CONTINUED)
Treasury Stock
In July 1995, the Board of Directors of the Company approved a Stock
Repurchase Plan which authorizes management of the Company to repurchase up to
5,000,000 shares of Common Stock, either on the open market or in privately
negotiated transactions, at prevailing market prices over a two year period. As
of August 31, 1996, 2,075,900 shares of Common Stock had been repurchased under
the plan at an average price of $4.44 per share. During fiscal 1996, the Company
used 380,095 of these treasury shares for incentive plans, employment agreements
and various other uses. Subsequent to August 31, 1996, the Company has
repurchased 1,029,400 additional shares of its Common Stock at an average cost
of $4.67 per share. Future repurchases of the Company's Common Stock will be
dependent on prevailing market conditions and other investment opportunities.
In October 1993, the Company reached a settlement of a lawsuit with a
former owner of an acquired business and other parties. In exchange for a full
and complete release of all claims against the parties, the Company received
$1.0 million in cash and 250,000 shares of the Company's Common Stock. This
transaction resulted in a gain of $1.4 million, net of related fiscal 1994 legal
expenses, which is reflected in other income (expense), net in the Consolidated
Statements of Operations.
Stockholder Rights Plan
The Company's Stockholder Rights Plan (the "Rights Plan"), adopted in
August 1996, is designed to deter coercive or unfair takeover tactics and to
prevent a person or group from gaining control of the Company without offering a
fair price to all stockholders.
All stockholders of record on August 15, 1996 were issued, for each share
of Common Stock held, one "right" entitling them to purchase from the Company
one-thousandth of a share of Series One Junior Participating Preferred Stock of
the Company at an exercise price of $20 (the "Rights"). The Rights are
distributable on the earlier of: 10 days (the "Shares Acquisition Date") after a
public announcement that a person or group has acquired beneficial ownership of
15% or more of the Company's Common Stock (an "Acquiring Person") or 10 business
days after a person or group commences a tender or exchange offer upon
consummation of which such person or group would, if successful, beneficially
own 20% or more of the Company's outstanding Common Stock.
The Company will generally be entitled to redeem the Rights in full, at
$.01 per Right, at any time until close of business up to 10 days following the
Shares Acquisition Date. The Rights will expire on August 5, 2006, unless
redeemed earlier by the Company's Board of Directors.
If a person (and its affiliates) becomes the beneficial owner of 20% or
more of the outstanding shares of the Common Stock (a "Flip-In Triggering
Event"), each Right (other than those Rights held by an Acquiring Person or its
transferees, which Rights are void) becomes exercisable for shares of the
Company's Common Stock having a value of twice the exercise price of such
Rights. Alternatively, in the event the Company is involved in a merger or other
business combination in which the Company would not be the surviving corporation
or its Common Stock is changed or converted, or it sells 50% or more of its
assets or earning power to another person or group, each Right would entitle the
holder to purchase, at the Right's then current exercise price, common shares of
such other person or group having a value of twice the exercise price of the
Right.
F-51
<PAGE> 128
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES --
Lease commitments
The Company has entered into various operating lease agreements, primarily
for office space, service facilities and service equipment utilized for
operations. Minimum annual rental payments under noncancellable operating leases
as of August 31, 1996 were as follows (in thousands):
<TABLE>
<S> <C>
For the year ending August 31 --
1997............................................................................ $ 5,324
1998............................................................................ 4,528
1999............................................................................ 3,385
2000............................................................................ 2,268
2001............................................................................ 1,400
Thereafter...................................................................... 4,444
-------
$21,349
========
</TABLE>
Rental expense under operating leases was $16.0 million, $15.1 million and
$11.8 million for the years ended August 31, 1996, 1995 and 1994, respectively.
These amounts include a service facility leased from the Company's Chairman of
the Board of Directors, for which rental expense was $0.1 million for each of
the years ended August 31, 1996, 1995 and 1994.
Legal matters
In the normal course of its operations, the Company can become involved in
a variety of legal disputes. Currently, the Company is a defendant in several
legal proceedings, including workers' compensation matters and minor business
disputes, the majority of which are being handled or are expected to be handled
by the Company's insurance carriers. As a company that handles and transports
hazardous waste, the Company is involved in various administrative and court
proceedings under environmental laws and regulations relating to permit
applications, operating authorities and alleged liabilities related to the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended. Management of the Company believes that a decision adverse to the
Company in any one or in all of these proceedings would not have a material
effect on the financial position or the results of operations of the Company.
Insurance
The Company maintains workers' compensation insurance for its employees and
other coverages for normal business risks. A substantial portion of the
Company's current and prior year insurance coverages are "high deductible" or
retrospective policies in which the Company, in many cases, is responsible for
the payment of incurred claims up to specified individual and aggregate limits,
over which a third party insurer is contractually liable for any additional
payment of such claims. Accordingly, the Company bears significant economic
risks related to these coverages. On a continual basis, and as of each balance
sheet date, the Company records an accrual equal to the estimated costs expected
to result from incurred claims plus an estimate of claims incurred but not
reported as of such date based on the best available information at such date.
However, the nature of these claims is such that actual development of the
claims may vary significantly from the estimated accruals. All changes in the
accrual estimates are accounted for on a prospective basis and can have a
significant impact on the Company's financial position or results of operations.
Insurance for environmental accidents and pollution has historically been
expensive and difficult to obtain. The Company currently maintains insurance for
environmental accidents and pollution relating to the performance of services at
certain customer locations. To date, the Company has not incurred
F-52
<PAGE> 129
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
material fines, penalties or liabilities for pollution, environmental damage or
toxic torts. However, in the event a claim is successful against the Company for
pollution or toxic tort liability for which the Company is only partially
insured or completely uninsured, there could be a material adverse effect on the
Company's financial position or results of operations.
Environmental Proceedings
In November 1996, the West Virginia Department of Environmental Protection
(the "West Virginia DEP") issued a draft consent order against one of the
Company's subsidiaries, which order seeks to impose an aggregate of
approximately $229,000 in fines against the Company relating to a
transportation-related spill in West Virginia in November 1995. The Company
voluntarily remediated this spill in December 1995. The draft consent order
alleges that in remediating the spill, the Company did not comply with certain
technical West Virginia DEP remediation regulations relating to recordkeeping
and generator requirements. The Company believes that the West Virginia DEP
remediation regulations cited by the West Virginia DEP as the basis of this
draft consent order are not relevant in the context of an emergency spill
response. Therefore, the Company believes that it may be able to successfully
negotiate the imposition by the West Virginia DEP of significantly lower
penalties in the final consent order. The Company is actively negotiating the
draft consent order with the West Virginia DEP and does not believe that the
final consent order will have a material adverse effect on the Company's results
of operations or financial position.
Other matters
In August 1995, the Company entered into an agreement with Resource
Recovery Techniques of Arizona, Inc. ("RRT"), a start-up operation that was in
the process of constructing a wastewater treatment facility located in Phoenix,
Arizona (the "Facility"). As part of the agreement, the Company caused the
issuance of a Letter of Credit in the amount of $4.2 million for the benefit of
holders of tax exempt bonds (the "Bonds") issued to finance the construction of
the Facility. The Letter of Credit is subject to draw under the terms of a
certain Trust Indenture and Reimbursement Agreement executed in connection with
the issuance of the Bonds. As consideration, the Company was issued warrants,
with 10 year terms, to purchase 10% of the common stock of RRT and upon the
occurrence of certain conditions, an additional 15% of the common stock of RRT.
10. RETIREMENT PLANS --
Effective October 1, 1990, the Company established a defined contribution
employee benefit plan, the Allwaste Retirement Savings Plan, which covered
substantially all full-time non-union U.S. employees having at least one year of
service. On July 1, 1995, the Company adopted the Allwaste Employee Retirement
Plan (the "Retirement Plan"), which amended and restated the Allwaste Retirement
Savings Plan. Eligible employees may contribute up to 15% of their compensation,
subject to certain Internal Revenue Code limitations. The Company matches 50% of
each participant's contributions up to 3% of eligible compensation. Retirement
Plan participants may select among six investment options, one of which is the
Company's Common Stock. At August 31, 1996, the Retirement Plan held 626,723
shares of the Company's Common Stock (market value of $2.6 million) which
represented 24.3% of the Retirement Plan's assets. In addition to the Plan, the
Company maintains three other defined contribution employee benefit plans which
cover a small group of union employees. Defined contribution expense related to
all plans for the Company was $0.8 million, $0.6 million and $0.5 million for
fiscal years 1996, 1995 and 1994, respectively.
F-53
<PAGE> 130
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. INCENTIVE PLANS --
On October 26, 1995, the Company's Board of Directors adopted a limited
single-purpose incentive plan (the "Incentive Plan") for certain key employees
("Participants") of the Company. Under this plan, each Participant that
purchased shares of the Company's Common Stock, based on a designated percentage
of the Participant's annual salary (the "Qualifying Shares"), was granted a
number of shares of restricted Common Stock equal to two times the number of
Qualifying Shares purchased by the Participant. On completion of the purchases
by a Participant, the Compensation Committee, in exercise of its discretion and
under the Company's Amended and Restated 1989 Replacement Non-qualified Stock
Option Plan, granted to such Participant an option to purchase a number of
shares of Common Stock equal to four times the number of Qualifying Shares
purchased by the Participant. Shares of Common Stock issued under this Incentive
Plan are treasury shares. At August 31, 1996, 203,366 shares of restricted
Common Stock and options to purchase 423,464 shares of Common Stock have been
granted to Participants. Additionally, 3,460 shares of restricted Common Stock
were earned and not yet issued. The Company does not contemplate that any
additional restricted shares will be issued under the Incentive Plan or that any
options to purchase shares of Common Stock will be granted under the Plan in
relation to purchases of Qualifying Shares pursuant to the Incentive Plan.
The value of restricted shares awarded under this Incentive Plan during
fiscal 1996 was $0.9 million. These amounts were recorded as unearned
compensation related to outstanding restricted stock and are shown as a separate
component of Shareholders' Equity. Unearned compensation is being amortized to
expense over a predominately four year vesting period and amounted to $0.2
million for the year ended August 31, 1996.
During fiscal 1996, the Company adopted an Interim Management Bonus Plan
("Interim Plan") for eligible personnel, as defined. Under this Interim Plan,
eligible personnel may receive bonus payments contingent upon the Company
meeting or exceeding certain predetermined earnings levels, as determined by the
Compensation Committee of the Board of Directors, and individual performance. At
August 31, 1996, compensation earned and recorded in operating expense was $1.0
million.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS --
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to do so.
The Company's notes receivable are estimated by discounting the future cash
flows using the current rates at which similar loans would be made to borrowers
with similar credit ratings and for the same remaining maturities.
Long-term investments are based on the carrying value of the asset.
The Company's long-term debt and convertible subordinated debt are
estimated based on quotations obtained from broker-dealers who make markets in
these and similar securities. The bank credit facilities are based on floating
interest rates and, as such, the carrying amount is a reasonable estimate of
fair value.
Letters of credit are based on the face amount of the related obligations
and performance bonds.
Interest rate cap agreements are based on quotes from the market makers of
these instruments and represent the amounts that the Company would expect to
receive to terminate the agreements.
F-54
<PAGE> 131
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31,
-------------------------------------------------
1996 1995
--------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Notes receivable............................... $ 13,517 $ 13,120 $ 4,893 $ 4,428
Long-term investments.......................... 11,030 11,030 -- --
Long-term debt and convertible subordinated
debentures................................... 128,144 123,064 165,878 162,126
Letters of credit.............................. -- 30,090 -- 25,072
Interest Rate Cap Agreement.................... 270 377 -- --
</TABLE>
13. NET INCOME (LOSS) PER COMMON SHARE --
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of Common Stock and equivalents
outstanding during the year as shown below (in thousands, except per share
data):
<TABLE>
<CAPTION>
FOR THE YEARS ENDED AUGUST 31,
------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations, net of income
taxes................................................. $ 6,614 $ (3,879) $ 10,596
Discontinued Operations
Income from discontinued operations, net of applicable
income taxes....................................... -- 2,773 2,501
Gain on sale of glass recycling operations, net of
applicable income taxes............................ 3,764 -- --
-------- -------- --------
Net income (loss)....................................... $ 10,378 $ (1,106) $ 13,097
======== ======== ========
Shares outstanding, beginning of year................... 39,609 37,741 36,740
Weighted average number of common shares outstanding:
Stock options, treasury stock method............... 63 290 188
Purchased companies, including earnouts............ 25 816 132
Exercise of stock options.......................... 113 208 4
Treasury stock and other, net...................... (755) (250) (212)
-------- -------- --------
Total weighted average common shares outstanding........ 39,055 38,805 36,852
======== ======== ========
Net income (loss) per common share:
Continuing operations................................. $ .17 $ (.10) $ .29
Discontinued operations............................... .10 .07 .07
-------- -------- --------
Net income (loss) per common share...................... $ .27 $ (.03) $ .36
======== ======== ========
</TABLE>
Fully diluted net income per common share is not presented for any period
as it is not materially different from the above primary calculations.
Common stock equivalents include stock options to purchase Common Stock.
The convertible subordinated debt is not a common stock equivalent and does not
have a material dilutive effect on net income (loss) per common share for any of
the three years presented.
F-55
<PAGE> 132
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. BUSINESS OPERATIONS AND GEOGRAPHIC INFORMATION --
The primary business of the Company involves the provision of on-site
industrial cleaning and waste management services (including hydroblasting and
gritblasting and air moving and liquid vacuuming), waste transportation and
processing, wastewater services, site remediation, maintenance services,
turnaround and outage services, container cleaning and repair services,
emergency spill response services and other general plant support services to
the industrial customer. The Company's operations are located in the United
States, Canada and Mexico, as summarized below (in thousands):
<TABLE>
<CAPTION>
UNITED
STATES CANADA MEXICO TOTAL
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1996 --
Revenues................................... $ 347,484 $ 32,952 $ 1,729 $ 382,165
Operating income (loss).................... 16,978 2,120 (356) 18,742
Total assets............................... 320,222 16,522 443 337,187
1995 --
Revenues................................... $ 322,644 $ 20,484 $ 1,117 $ 344,245
Operating income (loss).................... 11,253 1,375 (2,863) 9,765
Total assets............................... 359,507 12,257 469 372,233
1994 --
Revenues................................... $ 263,210 $ 22,611 $ 1,040 $ 286,861
Operating income (loss).................... 22,165 2,690 (1,506) 23,349
Total assets............................... 297,063 9,578 2,622 309,263
</TABLE>
F-56
<PAGE> 133
ALLWASTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. QUARTERLY FINANCIAL DATA (UNAUDITED) --
The table below sets forth consolidated operating results by fiscal quarter
for the years ended August 31, 1996 and 1995, excluding the Company's
discontinued glass recycling operations (in thousands, except per share data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
1996 --
Revenues.................................. $ 99,798 $ 88,278 $ 98,731 $ 95,358
Gross profit.............................. 26,744 18,659 25,621 24,729
Net income (loss)
Continuing operations.................. 2,715 (1,357) 2,583 2,673
Discontinued operations................ 3,764 -- -- --
-------- -------- -------- ---------
$ 6,479 $ (1,357) $ 2,583 $ 2,673
======== ======== ======== =========
Net income (loss) per common share
Continuing operations.................. $ .07 $ (.03) $ .07 $ .07
Discontinued operations................ .09 -- -- --
-------- -------- -------- ---------
$ .16 $ (.03) $ .07 $ .07
======== ======== ======== =========
1995 --
Revenues.................................. $ 82,591 $ 78,433 $ 86,638 $ 96,583
Gross profit.............................. 22,846 20,903 23,384 22,516
Net income (loss)
Continuing operations.................. 2,926 1,507 2,170 (10,482)
Discontinued operations................ 794 825 872 282
-------- -------- -------- ---------
$3,720... $ 2,332 $ 3,042 $ (10,200)
======== ======== ======== =========
Net income (loss) per common share
Continuing operations.................. $ .08 $ .04 $ .06 $ (.27)
Discontinued operations................ .02 .02 .02 .01
-------- -------- -------- ---------
$.10..... $ .06 $ .08 $ (.26)
======== ======== ======== =========
</TABLE>
Due to changes in weighted average common shares outstanding, the sum of
the quarterly per share amounts for fiscal 1996 and 1995 do not equal earnings
(loss) per share for the respective years.
F-57
<PAGE> 134
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors of
PECHINEY (ISW), INC., PPC (ISW), INC., and INTSEL SOUTHWEST LIMITED
PARTNERSHIP
We have audited the accompanying combined statements of income and of cash
flows for the nine months ended September 26, 1996 of Pechiney (ISW), Inc., PPC
(ISW), Inc. and Intsel Southwest Limited Partnership (collectively, the
Company). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in
all material respects, the combined results of operations and cash flows of
Pechiney (ISW), Inc., PPC (ISW), Inc., and Intsel Southwest Limited Partnership
for the nine months ended September 26, 1996, in conformity with accounting
principles generally accepted in the United States of America.
PRICE WATERHOUSE LLP
Houston, Texas
April 7, 1997
F-58
<PAGE> 135
PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP
COMBINED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1996
(in thousands of U.S. dollars)
<TABLE>
<S> <C>
Revenue......................................................................... $ 99,014
Cost of sales................................................................... 84,369
--------
Gross profit.................................................................... 14,645
--------
Operating expenses:
Selling, general and administrative........................................... 5,485
Depreciation expense.......................................................... 699
--------
Total operating expenses.............................................. 6,184
--------
Operating income................................................................ 8,461
--------
Other expenses:
Management fees............................................................... 182
Net interest expense.......................................................... 150
--------
Total other expenses.................................................. 332
--------
Income before income taxes...................................................... 8,129
Provision for income taxes...................................................... 2,800
--------
Net income...................................................................... $ 5,329
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-59
<PAGE> 136
PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP
COMBINED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 26, 1996
(in thousands of U.S. dollars)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 5,329
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization................................................. 699
Gains on sale of assets....................................................... (81)
Deferred income taxes......................................................... 565
Changes in assets and liabilities:
Decrease in accounts receivable............................................ 1,267
Increase in inventories.................................................... (4,783)
Increase in prepaid expenses............................................... (94)
Increase in receivable from a related party................................ (5,761)
Decrease in deposits....................................................... 8
Decrease in accounts payable and accrued expenses.......................... (743)
Decrease in accounts payable to a related party............................ (72)
Increase in income taxes payable........................................... 2,235
Increase in accrued pension liability...................................... 3
Increase in accrued post-retirement benefits............................... 134
-------
Net cash used by operating activities.................................... (1,294)
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets........................................................ (315)
-------
Proceeds from sale of assets.................................................... 96
-------
Net cash used by investing activities......................................... (219)
-------
Net decrease in cash and cash equivalents....................................... (1,513)
Cash and cash equivalents at December 27, 1995.................................. 1,513
-------
Cash and cash equivalents at September 26, 1996................................. $ --
=======
</TABLE>
The accompanying notes are an integral part of this statement.
F-60
<PAGE> 137
PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:
Effective September 27, 1996, Philip Metals, Inc. and PEN Metals, Inc.
(subsidiaries of Philip Environmental Inc.) purchased their respective 100%
ownership interests in Pechiney (ISW), Inc. and PPC (ISW), Inc. from Pechiney
North America, Inc. (Pechiney) for $614,000 and $60,782,000, respectively.
Pechiney (ISW), Inc. owns a one-percent interest in, and is the general
partner of, Intsel Southwest Limited Partnership (Intsel).
PPC (ISW), Inc. owns a 99-percent interest in, and is the sole limited
partner of, Intsel.
Intsel is a distributor of heavy carbon steel products throughout the
Southwestern and Southeastern regions of the United States.
The combined financial statements include the accounts of Pechiney (ISW),
Inc., PPC (ISW), Inc. and Intsel (collectively referred to as the Company or the
Partnership). All significant intercompany transactions have been eliminated in
combination.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES:
The combined financial statements have been prepared on the accrual basis
using accounting principles generally accepted in the United States of America.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts of revenue and expenses at the date of
the financial statements. Actual results could differ from those estimates.
Revenue recognition
Revenue from the distribution of heavy carbon steel products is recognized
at the time of shipment.
Cash and cash equivalents
Cash and cash equivalents consist of demand deposits and term deposits in
money market instruments with original maturity dates of three months or less.
Fair market value approximates cost for cash and cash equivalents.
Inventory
Inventory is recorded at the lower of average cost or net realizable value.
Fixed assets
Fixed assets are depreciated over their estimated useful lives using the
straight-line method. Assets are depreciated beginning the month they are placed
in service. Repair and maintenance costs associated with assets are charged to
operations as incurred. The estimated useful lives of each asset class are as
follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings................................................. 5-20
Production machinery...................................... 2-10
Vehicles.................................................. 2-10
Furniture, fixtures and equipment......................... 2-7
Leasehold improvements.................................... 3
</TABLE>
F-61
<PAGE> 138
PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
The Company has adopted Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (SFAS 121), which requires accounting for impairment
of long-lived assets and certain identifiable intangibles held for sale based on
an analysis of future net cash flows for those assets. The adoption of SFAS 121
did not have a material effect on the Company's financial position or results of
operations.
Income taxes
The Company accounts for deferred income taxes using the liability method
which provides for the recognition of deferred tax assets and liabilities based
upon temporary differences between the tax basis of assets and liabilities and
their carrying value for financial reporting purposes. Deferred tax expense or
benefit is the result of changes in deferred tax assets and liabilities during
the period. In estimating future tax consequences, all expected future events
are considered other than enactments of changes in the tax law or rates.
NOTE 3 -- POST-RETIREMENT BENEFITS:
The Company participates in the post-retirement benefit plan of Pechiney
World Trade (USA). The defined benefit post-retirement plan provides certain
health care and life insurance benefits for retired employees. Substantially all
employees become eligible for these benefits if they have met certain age and
service requirements at retirement. The Partnership had fully accrued the
accumulated benefit obligation in accordance with the provisions of SFAS No.
106, "Employers' Accounting for Post-retirement Benefits Other Than Pensions",
which requires accrual of these benefits during the years an employee provides
service.
Net periodic post-retirement benefit cost for the nine months ended
September 26, 1996 was comprised of the following elements (in thousands of U.S.
dollars):
<TABLE>
<S> <C>
Current year service cost................................... $ 64
Interest accrued on post-retirement benefit obligations..... 34
----
Net periodic post-retirement benefit cost................... $ 98
====
</TABLE>
The assumed healthcare cost trend rate used in measuring the benefit
obligation is 11% pre-age 65 in 1996 and 9% post-age 65 in 1996, declining at a
rate of 1% per year to an ultimate rate of 6% in the year 2001 pre-age 65 and 5%
post-age 65. A one percent increase in this rate in each year would increase the
aggregate service and interest cost for 1996 by $51,000. The weighted average
discount rates used in determining the benefit obligation at December 31, 1996
is 8%.
F-62
<PAGE> 139
PECHINEY (ISW), INC., PPC (ISW), INC. AND
INTSEL SOUTHWEST LIMITED PARTNERSHIP
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INCOME TAXES:
The provision for income taxes (which is primarily federal) for the nine
months ended September 26, 1996 consists of the following (in thousands of U.S.
dollars):
<TABLE>
<S> <C>
Current.................................................. $ 2,235
Deferred................................................. 565
-------
$ 2,800
======
</TABLE>
The difference between income taxes at the statutory federal and effective
income tax rates for the nine months ended September 26, 1996 is as follows (in
thousands of U.S. dollars):
<TABLE>
<S> <C>
Taxes computed by applying federal statutory rate........ $ 2,845
Other.................................................... (45)
-------
$ 2,800
======
</TABLE>
NOTE 5 -- RELATED PARTIES:
During the nine months ended September 26, 1996, Pechiney funded the
Company's cash requirements in excess of operating cash flows or borrowed the
excess operating cash flow from the Company on a daily basis. The resulting
liability/receivable accrued interest at 5.656% to 6.088% during the nine months
ended September 26, 1996. During the nine months ended September 26, 1996, the
Company paid $166,000 of interest expense to Pechiney and received $16,000 of
interest income. These amounts have been netted for financial statement
purposes.
The Partnership obtains certain insurance coverages through its parent
companies. Total allocation of insurance expense for the nine months ended
September 26, 1996 was approximately $282,000. During the nine months ended
September 26, 1996, the Company incurred $182,000 of management fees to
Pechiney.
During the nine months ended September 26, 1996, eligible employees of the
Company participated in the pension plans provided by Pechiney. The Company
recorded pension expense of $200,000 and contributed $191,000 to the Pechiney
pension plans during the nine months ended September 26, 1996.
NOTE 6 -- COMMITMENTS:
Future lease payments required under operating leases for premises,
equipment and vehicles are as follows (in thousands of U.S. dollars):
<TABLE>
<S> <C>
1997....................................................... $ 246
1998....................................................... 162
1999....................................................... 38
</TABLE>
The Company incurred $255,000 in lease expense during the nine months ended
September 26, 1996.
NOTE 7 -- CONTINGENCIES:
The Company is named as a defendant in a lawsuit which has arisen in the
ordinary course of its business. Management believes that this suit is not
likely to have a material adverse effect on the Company's business or financial
condition.
F-63
<PAGE> 140
REPORT OF INDEPENDENT AUDITORS
Board of Directors
LUNTZ CORPORATION
We have audited the accompanying consolidated statements of income and cash
flows of Luntz Corporation and subsidiary for the year ended December 31, 1995.
These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated statements of income and cash flows
referred to above present fairly, in all material respects, the consolidated
results of operations and cash flows of Luntz Corporation and subsidiary for the
year ended December 31, 1995, in conformity with generally accepted accounting
principles.
Canton, Ohio Ernst & Young LLP
February 19, 1996
F-64
<PAGE> 141
LUNTZ CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of US dollars)
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31 NOVEMBER 30
1995 1996
----------- -------------
(Unaudited)
<S> <C> <C>
Revenue:
Net sales.................................................. $ 149,988 $ 123,541
Expenses:
Cost of sales.............................................. 135,588 110,301
Office and administrative expenses......................... 7,281 8,649
Interest expense........................................... 617 711
Other (income) -- net...................................... (439) (435)
----------- -------------
143,047 119,226
----------- -------------
Income before income taxes................................... 6,941 4,315
Provision for income taxes................................... 2,617 1,796
----------- -------------
Net income................................................... $ 4,324 $ 2,519
========== ============
</TABLE>
See accompanying notes.
F-65
<PAGE> 142
LUNTZ CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of US dollars)
<TABLE>
<CAPTION>
ELEVEN MONTHS
YEAR ENDED ENDED
DECEMBER 31 NOVEMBER 30
1995 1996
----------- -------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................... $ 4,324 $ 2,519
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
Depreciation and amortization.............................. 2,665 2,860
Deferred income taxes...................................... (1,382) 234
Gain on sale of equipment.................................. (12) (21)
Changes in operating assets and liabilities:
Accounts receivable..................................... (3,076) (3,393)
Inventories............................................. 2,909 (2,389)
Prepaid expenses and other assets....................... (264) (132)
Accounts payable........................................ (2,904) (35)
Accrued expenses and other liabilities.................. 6,536 56
----------- -------------
Net cash provided (used) by operating activities............. 8,796 (301)
INVESTING ACTIVITIES
Purchases of property, plant and equipment................... (8,834) (4,153)
Proceeds from sale of equipment.............................. 199 97
Change in short-term investments............................. (19) (64)
----------- -------------
Net cash used in investing activities........................ (8,654) (4,120)
FINANCING ACTIVITIES
Change in notes payable to banks -- net...................... -- 6,200
Proceeds from long-term borrowings........................... 4,299 35
Principal payments on long-term debt......................... (661) (889)
Principal payments on long-term obligations.................. (384) (284)
Dividends paid............................................... (97) (180)
Purchase of treasury stock................................... -- (171)
----------- -------------
Net cash provided by financing activities.................... 3,157 4,711
----------- -------------
Increase in cash and cash equivalents........................ 3,299 290
Cash and cash equivalents at beginning of period............. 1,575 4,874
----------- -------------
Cash and cash equivalents at end of period................... $ 4,874 $ 5,164
========== ============
</TABLE>
See accompanying notes.
F-66
<PAGE> 143
LUNTZ CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS
DECEMBER 31, 1995
1. ACCOUNTING POLICIES
Description of Business
The Corporation sells scrap metal, ferrous and non-ferrous, to industrial
steel producers located principally in Ohio, Pennsylvania and the surrounding
states. The financial statements of the Corporation are presented in U.S.
dollars and are prepared in accordance with U.S. generally accepted accounting
principles.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Corporation and its wholly-owned subsidiary. Significant intercompany accounts
and transactions have been eliminated upon consolidation.
Cash Equivalents
The Corporation considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Concentration of Credit Risk
Credit is extended based on an evaluation of the customer's financial
condition and generally collateral is not required. Credit terms are consistent
with the industry and losses from credit sales are provided for in the financial
statements.
Inventories
Inventories are valued at the lower of cost or market principally by the
last-in, first-out (LIFO) method. In 1995, inventory quantities were reduced,
resulting in a liquidation of LIFO inventory quantities carried at lower costs
prevailing in prior years as compared with the current costs. The effect of this
liquidation was to increase 1995 net income by approximately $400,000.
Property, Plant and Equipment
Expenditures for repairs and maintenance are charged to operations as
incurred, while expenditures for additions and improvements are capitalized.
Depreciation is computed principally by the straight-line method over the
estimated useful lives of the assets. Useful lives range from 5 to 40 years for
buildings and improvements, 5 to 20 years for machinery and equipment and 5 to
10 years for furniture and fixtures.
Intangible Assets
Amortization is computed using the straight-line method over the estimated
useful life of the intangible assets -- 4 to 15 years.
Revenue Recognition
Revenue from the sale/brokerage of ferrous and non-ferrous scrap metal is
recognized at the time of shipment.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-67
<PAGE> 144
LUNTZ CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS -- (CONTINUED)
1. ACCOUNTING POLICIES (CONTINUED)
Interim Financial Information
The accompanying unaudited consolidated statements of income and cash flows
for the eleven months ended November 30, 1996, have been prepared by the
Corporation in accordance with generally accepted accounting principles for
interim financial information and with Article 10 of Regulation S-X.
Accordingly, these statements do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation of
the results of the interim period have been included.
2. INCOME TAXES
The provision for income taxes consists of the following for the year ended
December 31, 1995:
<TABLE>
<S> <C>
Current:
Federal............................................ $3,238,000
State and local.................................... 761,000
----------
3,999,000
Deferred (credit).................................... (1,382,000)
----------
$2,617,000
==========
</TABLE>
The effective income tax rate varied from the statutory federal income tax
rate as follows:
<TABLE>
<CAPTION>
1995
------
<S> <C>
Statutory federal income tax rate......................... 34.0%
Adjustments:
State and local taxes, net of federal tax benefit....... 7.2
Other items............................................. (3.5)
------
Effective income tax rate................................. 37.7%
======
</TABLE>
3. RETIREMENT PLANS
The Corporation sponsors noncontributory trusteed retirement plans which
cover certain hourly employees. These plans provide defined benefits based on
years of credited service. The Corporation's funding policy is to contribute
amounts to the plans sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, plus additional
amounts as the Corporation may determine to be appropriate.
Assumptions used in accounting for defined benefit retirement plans for the
year ended December 31, 1995 are as follows:
<TABLE>
<S> <C>
Expected long-term rate of return on assets................ 8.0%
Discount rate.............................................. 7.5%
</TABLE>
F-68
<PAGE> 145
LUNTZ CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED STATEMENTS OF INCOME AND CASH FLOWS -- (CONTINUED)
3. RETIREMENT PLANS (CONTINUED)
The periodic pension expense for these plans for the year ended December
31, 1995 include the following:
<TABLE>
<S> <C>
Service cost -- benefits earned during the period..... $ 81,000
Interest cost on projected benefit obligation......... 173,000
Actual return on plan assets.......................... (677,000)
Net amortization and deferral......................... 424,000
---------
Total pension expense................................. $ 1,000
==========
</TABLE>
At December 31, 1995, approximately 95 percent of the plans' assets were
invested in listed stocks and bonds.
The Corporation also sponsors a defined contribution 401(k) plan and a
profit-sharing plan for its salaried employees. The 401(k) plan allows
participants to make contributions, by salary reduction, pursuant to Section
401(k) of the Internal Revenue Code. The Corporation currently contributes 3% of
an employee's compensation and also matches employees' contributions, limited to
the lesser of 6% of total compensation or the statutory limit, at a rate of 50%.
Employees vest immediately in their contributions and over a seven year period
for the Corporation's contribution. The Corporation's contribution to the plan
was $227,000 in 1995. The profit-sharing plan provides for an annual
contribution of profits, at the discretion of the Board Directors, subject to
the limitations of the plan. The Corporation expensed $250,000 in 1995 related
to the profit-sharing plan.
4. DEFERRED COMPENSATION AGREEMENTS
The Corporation has provided deferred compensation agreements to certain
retired executives. A liability equal to the present value of expected future
payments has been accrued relating to these agreements. Office and
administrative expenses included approximately $259,000 for 1995 relating to the
deferred compensation agreements.
5. RELATED PARTY TRANSACTIONS
Rental expense amounted to approximately $359,000 in 1995, which included
$261,000, paid to affiliates under short-term leases for facilities.
6. COMMITMENTS AND CONTINGENCIES
The Corporation is subject to legal proceedings and claims which arise in
the ordinary course of their business. The Corporation is also involved in
environmental claims relating to cleanup costs with environmental protection
agencies with respect to certain sites.
The Corporation, together with other parties, has been designated a
potentially responsible party (PRP) under federal and state environmental
protection laws for the remediation of alleged hazardous materials at
third-party sites and one corporate owned site. Also, third parties have sought
to have the Corporation designated as a PRP for certain other sites. In general,
environmental protection laws provide that PRPs may be held jointly and
severally liable for investigation and remediation costs regardless of fault.
The Corporation has been aggressive in its continued pursuit of claims for
reimbursement against the parties responsible for such environmental liabilities
pursuant to the federal and state environmental laws that also allow such
third-party claims and has aggressively defended itself against the above
referenced environmental claims. Further, the Corporation has pursued claims
against third-parties that are responsible for either causing such damages or
paying for such claims, or both. Accordingly, the Corporation believes that any
liabilities which may result from the resolution of these matters, will not have
a material adverse effect on the financial condition, liquidity or cash flow of
the Corporation.
F-69
<PAGE> 146
INSIDE BACK COVER
<TABLE>
<C> <C> <S>
Photograph: Heat exchanger bundle being removed by an extractor unit at a refinery.
Caption: Philip is a North American leader in providing "turnaround", or
scheduled maintenance services, to the petrochemical industry.
Photograph: Man dressed in complete protection suit gritblasting the inside of a
tank.
Caption: Philip provides gritblasting services to clean surfaces on
electrostatic precipitators and boilers.
Photograph: Man painting blue truck in assembly plant.
Caption: Philip's EPOC paint overspray recovery process eliminates the
landfilling of paint sludge, a significant waste stream generated in
automobile production.
Photograph: Mill scale being transported by grab hook at steel mill.
Caption: Mill scale, a high iron-bearing by-product of steel manufacturing, is
processed by Philip for reuse as a raw material in steel production.
Photograph: Liquid aluminum pouring from furnace and cast into ingots.
Caption: Philip is a large processor of aluminum dross, a by-product of aluminum
smelting, and recovers aluminum for reuse by refiners.
</TABLE>
[DESCRIPTION OF BACKGROUND: CLOSE UP PHOTO OF ALUMINUM DEOXIDIZING PRODUCTS,
WHICH ARE CONE SHAPED AND GOLD TONED IN COLOR.]
[PHILIP LOGO]
F-70
<PAGE> 147
NO DEALER, SALES PERSON, OR ANY
OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN
20,000,000 SHARES
THOSE CONTAINED IN THIS PROSPECTUS
IN CONNECTION WITH THE OFFER MADE BY
THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY OR ANY OF THE
UNDERWRITERS. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNPHILIP SERVICES CORP.
DER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE AS OF
WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS
COMMON SHARES
NOT AUTHORIZED OR IN WHICH THE
PERSON MAKING
(NO PAR VALUE)
SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON
TO WHOM IT IS UNLAWFUL TO MAKE SUCH
SOLICITATION.
- --------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Enforceability of Certain Civil
Liabilities.......................... 5
Forward-Looking Statements............. 5
Presentation of Financial
Information.......................... 5
Exchange Rate Information.............. 6
Prospectus Summary..................... 7
</TABLE>
[LOGO]
<TABLE>
<S> <C>
Risk Factors........................... 14
Use of Proceeds........................ 18
Dividend Policy and Record............. 18
Price Range and Trading Volume of the
Common Shares........................ 19
Consolidated Capitalization............ 20
Unaudited Pro Forma Consolidated
Financial Information................ 21
Selected Consolidated Historical
Financial Data....................... 31
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 33
</TABLE>
SALOMON BROTHERS INC
<TABLE>
<S> <C>
Business............................... 40
Recent Acquisitions.................... 60
</TABLE>
MERRILL LYNCH & CO.
<TABLE>
<S> <C>
Management............................. 62
Certain Transactions................... 66
Security Ownership of Certain
Beneficial Owners and Management..... 66
Share Capital of the Company........... 68
Description of Certain Indebtedness.... 68
Material Income Tax Considerations..... 69
Underwriting........................... 72
Legal Matters.......................... 74
</TABLE>
PROSPECTUS
<TABLE>
<S> <C>
Experts................................ 75
Available Information.................. 75
</TABLE>
DATED , 1997
<TABLE>
<S> <C>
Index to Financial Statements.......... F-1
</TABLE>
I,2
<PAGE> 148
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................. $ 134,446
NASD fee............................................................. 30,500
*NYSE, TSE and ME listing fees....................................... 140,000
*Printing and engraving expenses..................................... 350,000
*Legal fees and expenses............................................. 1,200,000
*Accounting fees and expenses........................................ 450,000
*Transfer agent fees and expenses.................................... 20,000
*Miscellaneous....................................................... 175,054
--------
Total................................................................ $ 2,500,000
========
</TABLE>
- ---------------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the Business Corporations Act (Ontario), the Registrant may indemnify
a present or former director or officer or a person who acts or acted at the
Registrant's request as a director or officer of another company of which the
Registrant is or was a stockholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he is made a party by reason of such position, and provided that the director or
officer acted honestly and in good faith with a view to the best interests of
the Registrant and, in the case of a criminal or administrative action or
proceeding that is enforced by a monetary penalty, had reasonable grounds for
believing that his conduct was lawful. Such indemnification may, with the
approval of the court, be made in connection with the procuring of a judgment in
favor of the Registrant or such other company if the conditions set forth above
have been fulfilled. A director or officer is entitled to indemnification from
the Registrant as a matter of right if he was substantially successful on the
merits and fulfilled the conditions set forth above.
In accordance with the Business Corporations Act (Ontario), the By-laws of
the Registrant provide that the Registrant shall indemnify a director or
officer, a former director or officer, or a person who acts or acted at the
Registrant's request as a director or officer of a company in which the
Registrant is or was a shareholder or creditor, and his heirs and legal
representatives, against all costs, charges and expenses, including an amount
paid to settle an action or satisfy a judgment, reasonably incurred by him in
respect of any civil, criminal or administrative action or proceeding to which
he was made a part by reason of his being or having been a director or officer
of the Registrant or such other company, if he acted honestly and in good faith
with a view to the best interests of the Registrant and, in the case of a
criminal or administrative action or proceeding that is enforced by monetary
penalty, he had reasonable grounds for believing that his conduct was lawful.
The By-laws also provide that the Registrant shall indemnify the above described
persons in such other circumstances as the Business Corporations Act (Ontario)
permits or requires. The By-laws do not limit the right of a person entitled to
indemnity to claim indemnity apart from the provisions of the By-laws.
The Registrant has the benefit of an insurance policy for itself and its
directors and officers against liability incurred by them in the performance of
their duties as directors or officers of the Registrant. The aggregate amount of
coverage under the policy is Cdn$25 million per policy year.
The form of Underwriting Agreements governing the offering registered under
this Registration Statement contains provisions by which the underwriters agree
to indemnify the Registrant, each person who controls the Registrant within the
meaning of the Securities Act of 1933, as amended
II-1
<PAGE> 149
(the "Securities Act"), and each officer and director of the Registrant, with
respect to information furnished by the underwriters for use in this
Registration Statement.
Reference is made to Item 17 for the undertakings of the Registrant with
respect to indemnification for liabilities arising under the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) Securities Issued Pursuant to Acquisitions:
(i) On September 11, 1997, the Registrant issued 354,430 Common Shares in
connection with the acquisition of certain assets of A-C-I Holdings
Inc., a Canadian corporation. The transactions were exempt under
Regulation S under the Securities Act.
(ii) On August 11, 1997, the Registrant issued 2,684,371 Common Shares to
shareholders of Intermetco Limited outside the United States in
connection with the acquisition of Intermetco. The transactions were
exempt under Regulation S under the Securities Act.
(iii) On July 31, 1997, the Registrant issued 286,418 Common Shares in
connection with the acquisition of the stock of D&L, Inc. The
transaction was exempt under Section 4(2) of the Securities Act.
(iv) On July 3, 1997, the Registrant issued 422,331 Common Shares in
connection with the acquisition of the stock of Roth Bros. Smelting
Corp. The transaction was exempt under Section 4(2) of the Securities
Act.
(v) On June 2, 1997, the Registrant issued 42,412 Common Shares in
connection with the acquisition of Uniflo Utilities Management Corp., a
Canadian company. The transaction was exempt under Regulation S under
the Securities Act.
(vi) On May 2, 1997, the Registrant issued 256,792 Common Shares in
connection with the acquisition of Lynx Environmental Services Limited,
a Canadian corporation. The transaction was exempt under Regulation S
under the Securities Act.
(vii) On February 12, 1997, the Registrant issued 556,390 Common Shares in
connection with the acquisitions of Conversion Resources, Inc. and
Warrenton Resources, Inc. The transactions were exempt under Section
4(2) of the Securities Act.
(viii) On February 7, 1997, the Registrant issued 222,165 Common Shares in
connection with the acquisition of RMF Global, Inc. The transaction was
exempt under Section 4(2) of the Securities Act.
(ix) On January 7, 1997, the Registrant issued 2,222,222 Common Shares in
connection with the acquisition of Luntz Corporation. The transaction
was exempt under Section 4(2) of the Securities Act.
(x) On June 3, 1996, the Registrant issued 720,850 Common Shares in
connection with the acquisition of Delsan Environmental Group Inc., a
Canadian corporation. The transaction was exempt under Regulation S
under the Securities Act.
(xi) On February 15, 1996, the Registrant issued 64,209 Common Shares in
connection with the acquisition of Citadel Environmental Services, a
Canadian corporation. The transaction was exempt under Regulation S
under the Securities Act.
(xii) On September 28, 1995, the Registrant issued 79,293 Common Shares in
connection with the acquisition of Thorburn-Penny Limited, a Canadian
corporation. The transaction was exempt under Regulation S under the
Securities Act.
(xiii) On May 26, 1995, the Registrant issued 114,823 Common Shares in
connection with the acquisition of Thomas Environmental Management Inc.,
a Canadian corporation. The transaction was exempt under Regulation S
under the Securities Act.
II-2
<PAGE> 150
(xiv) On March 31, 1995, the Registrant issued 1,174,566 Common Shares in
connection with the acquisition of Nortru, Inc. The transaction was
exempt under Section 4(2) of the Securities Act.
(xv) On January 5, 1995, the Registrant issued 32,985 Common Shares in
connection with the acquisition of 836750 Ontario Inc., a Canadian
corporation. The transaction was exempt under Regulation S under the
Securities Act.
(xvi) On November 10, 1994, the Registrant issued 919,842 Common Shares in
connection with the acquisition of Entreprises Delcapitale Limitee
Ontario Inc., a Canadian corporation. The transaction was exempt under
Regulation S under the Securities Act.
(b) Securities issued pursuant to the exercise of stock options:
(i) For the fiscal year ended December 31, 1995, the Registrant issued
23,614 Common Shares in connection with exercise of employee stock
options by officers and employees in Canada. The transactions were
exempt under Regulation S under the Securities Act.
(ii) Between September 1, 1994 and December 31, 1994, the Registrant
issued 180,000 Common Shares in connection with exercise of employee
stock options by officers and employees in Canada. The transactions were
exempt under Regulation S under the Securities Act.
(c) Other securities issued:
(i) On November 10, 1994, the Registrant issued 13,326 Common Shares as
settlement for an account payable to a Canadian person. The transaction
was exempt under Regulation S under the Securities Act.
II-3
<PAGE> 151
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
The following exhibits are attached hereto:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------ -----------------------------------------------------------------------------
<C> <S>
*1.1 Form of U.S. Underwriting Agreement
3.1 Articles of Amalgamation of Lincoln Waste Management Inc. (previous name of
the Registrant), dated April 15, 1991 (filed as Exhibit 1.2 to the
Registration Statement on Form 20-F of the Registrant dated January 14, 1993
(File No. 0-20854) and incorporated herein by reference)
3.2 By-Laws of Lincoln Waste Management Inc. (previous name of the Registrant),
dated August 16, 1990 (filed as Exhibit 1.3 to the Registration Statement on
Form 20-F of the Registrant dated January 14, 1993 (File No. 0-20854) and
incorporated herein by reference)
*5.1 Opinion of Stikeman, Elliott as to certain Canadian tax matters and the
legality of the securities offered hereby
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain U.S.
Federal tax matters
10.1 Stock Purchase Agreement dated December 20, 1996 among Pechiney North
America, Inc., Philip Metals (Delaware), Inc. and PEN Metals (Delaware), Inc.
relating to the acquisition of Instel Southwest Limited Partnership (filed as
Exhibit 10.1 to the Registration Statement on Form F-4 of the Registrant
(File No. 333-6834) and incorporated herein by reference)
10.2 Agreement and Plan of Reorganization dated December 30, 1996 among Philip
Environmental Inc., Philip Environmental Delaware Acquisition Corp. and Luntz
Corporation (filed as Exhibit 10.2 to the Registration Statement on Form F-4
of the Registrant (File No. 333-6834) and incorporated herein by reference)
10.3 Agreement and Plan of Merger, dated as of March 5, 1997, by and among Philip
Environmental Inc., Taro Aggregates Ltd., an Ontario corporation and a wholly
owned subsidiary of the Registrant ("Taro"), Philip/Atlas Merger Corp., a
Delaware corporation and a wholly owned subsidiary of Taro, and Allwaste,
Inc., a Delaware corporation (attached as Annex A to the Proxy
Statement/Prospectus included in the Registration Statement on Form F-4 of
the Registrant (File No. 332-6272) and incorporated herein by reference)
10.4 Agreement and Plan of Merger dated March 5, 1997, among Philip Environmental
Inc., Taro Aggregates Ltd., ST Acquisition Corporation and Serv-Tech, Inc.
(included as Appendix A to the Proxy Statement/Prospectus in Part I of the
Registration Statement on Form F-4 of the Registrant (File No. 333-6834) and
incorporated herein by reference)
10.5 Credit Agreement, dated as of August 11, 1997, among Philip Services Corp.,
Philip Environmental (Delaware), Inc., Canadian Imperial Bank of Commerce,
Bankers Trust Company, Dresdner Bank of Canada, Dresdner Bank AG/New York
Branch), Royal Bank of Canada and the various persons from time to time
subject to the Credit Agreement as Lenders
21.1 Subsidiaries of the Registrant
*23.1 Consent of Stikeman, Elliott (included in Exhibit 5.1)
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.1)
23.3 Consent of Deloitte & Touche with respect to the financial statements of the
Registrant
23.4 Consent of Arthur Andersen LLP with respect to the financial statements of
Allwaste
23.5 Consent of Price Waterhouse LLP with respect to the combined statements of
income and of cash flows of Pechiney (ISW), Inc., PPC (ISW), Inc. and Intsel
Southwest Limited Partnership for the nine months ended September 26, 1996
</TABLE>
II-4
<PAGE> 152
<TABLE>
<CAPTION>
EXHIBIT
NUMBER TITLE
------ -----------------------------------------------------------------------------
<C> <S>
23.6 Consent of Ernst & Young LLP with respect to the financial statements of
Luntz
24.1 Powers of Attorney (contained on the signature pages of this Registration
Statement)
</TABLE>
- ---------------
* To be supplied by amendment.
B. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules of the Registrant are filed
herewith:
SCHEDULES
II. Valuation and Qualifying Accounts
III. Valuation and Qualifying Accounts
IV. Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes that:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
For purposes of determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of Prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE> 153
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Hamilton, Province of
Ontario, Canada, on September 29, 1997
PHILIP SERVICES CORP.
By: /s/ ALLEN FRACASSI
----------------------------------
ALLEN FRACASSI
President and Chief Executive
Officer
II-6
<PAGE> 154
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each officer or director of Philip
Services Corp. whose signature appears below constitutes and appoints Allen
Fracassi and Marvin Boughton, and each of them, with full power to act without
the other, his true and lawful attorneys-in-fact and agents, with full and
several power of substitution, for him and in his name, place and stead, in any
and all capacities, to execute any or all amendments, including post-effective
amendments, and supplements to this Registration Statement and any subsequent
Registration Statement for the same offering which may be filed under Rule
462(b), and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as they or he might or could do
in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by or on behalf of the following
persons in the capacities and on September 29, 1997
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- ------------------------------------------
<C> <S>
/s/ ALLEN FRACASSI
- -----------------------------------------------
ALLEN FRACASSI President, Chief Executive Officer and
Director (Principal Executive Officer)
/s/ MARVIN BOUGHTON
- -----------------------------------------------
MARVIN BOUGHTON Executive Vice-President and Chief
Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
/s/ HOWARD L. BECK
- -----------------------------------------------
HOWARD L. BECK Director
/s/ ROY CAIRNS
- -----------------------------------------------
ROY CAIRNS Director
/s/ PHILIP FRACASSI
- -----------------------------------------------
PHILIP FRACASSI Director
- -----------------------------------------------
NORMAN FOSTER Director
/s/ WILLIAM E. HAYNES
- -----------------------------------------------
WILLIAM E. HAYNES Director
/s/ ROBERT L. KNAUSS
- -----------------------------------------------
ROBERT L. KNAUSS Director
- -----------------------------------------------
FELIX PARDO Director
/s/ DERRICK ROLFE
- -----------------------------------------------
DERRICK ROLFE Director
</TABLE>
II-7
<PAGE> 155
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ----------------------------------------------- ------------------------------------------
<C> <S>
/s/ HERMAN TURKSTRA
- -----------------------------------------------
HERMAN TURKSTRA Director
/s/ ROBERT WAXMAN
- -----------------------------------------------
ROBERT WAXMAN Director
</TABLE>
II-8
<PAGE> 156
AUTHORIZED REPRESENTATIVE
Pursuant to the requirements of the Securities Act of 1933, the undersigned
certifies that it is the duly authorized United States representative of Philip
Services Corp. and has duly caused this Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Hamilton, Province of Ontario, Canada on September 29, 1997
Philip Environmental (New York) Inc.
(Authorized United States
Representative)
By: /s/ COLIN H. SOULE
Name: COLIN H. SOULE
Title: Secretary
II-9
<PAGE> 157
AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of
PHILIP SERVICES CORP.:
We have audited the consolidated balance sheets of Philip Services Corp. as
at December 31, 1996 and 1995, and the consolidated statements of earnings,
retained earnings, and changes in financial position for each of the years in
the three year period ended December 31, 1996, and have issued our report
thereon; such consolidated financial statements and our report thereon are
included elsewhere herein. Our examination also comprehended the Schedule of
Additional Disclosures Required Under Regulation 210.12-09 of Regulation S-X of
the Securities Exchange Act of 1934 as at December 31, 1996 and 1995, and for
each of the years in the three year period ended December 31, 1996. In our
opinion, this schedule, when considered in relation to the basic consolidated
financial statements as at and for each of the years in the three year period
ended December 31, 1996 referred to above, presents fairly, in all material
respects, the information shown therein.
Deloitte & Touche
Chartered Accountants
Mississauga, Ontario
September 24, 1997
II-10
<PAGE> 158
PHILIP SERVICES CORP.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN B COLUMN C -- ADDITIONS COLUMN E
COLUMN A ----------------- --------------------------------------- COLUMN D -------------
- ------------- BALANCE AT CHARGED TO CHARGED TO ------------- BALANCE AT
DESCRIPTION DECEMBER 31, 1996 COSTS AND EXPENSES OTHER ACCOUNTS(1) DEDUCTIONS(2) JUNE 30, 1997
- ------------- ----------------- ------------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Allowance for
Doubtful
Accounts... (8,091,568) (2,100,566) (1,128,768) 290,587 (11,130,315)
</TABLE>
- ---------------
(1) Opening balances in companies acquired during the six months ended June 30,
1997.
(2) Write-off of uncollectible accounts.
II-11
<PAGE> 159
PHILIP SERVICES CORP.
SCHEDULE III -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN B COLUMN C -- ADDITIONS COLUMN E
COLUMN A ----------------- --------------------------------------- COLUMN D -----------------
- ------------------- BALANCE AT CHARGED TO CHARGED TO ------------- BALANCE AT
DESCRIPTION DECEMBER 31, 1995 COSTS AND EXPENSES OTHER ACCOUNTS(1) DEDUCTIONS(2) DECEMBER 31, 1996
- ------------------- ----------------- ------------------ ----------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Allowance for
Doubtful
Accounts......... (5,528,041) (2,667,425) (998,369) 1,102,267 (8,091,568)
</TABLE>
- ---------------
(1) Opening balances in companies acquired during the year.
(2) Write-off of uncollectible accounts.
II-12
<PAGE> 160
PHILIP SERVICES CORP.
SCHEDULE IV -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN B COLUMN C -- ADDITIONS COLUMN E
COLUMN A ----------------- ------------------------------------ COLUMN D -----------------
- --------------------- BALANCE AT CHARGED TO CHARGED TO ------------- BALANCE AT
DESCRIPTION DECEMBER 31, 1994 COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS(1) DECEMBER 31, 1995
- --------------------- ----------------- ------------------ -------------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Allowance for
Doubtful
Accounts........... (4,969,903) (1,866,299) -- 1,308,161 (5,528,041)
</TABLE>
- ---------------
(1) Write-off of uncollectible accounts.
II-13
<PAGE> 161
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------ -------------------------------------------------------------------- --------
<C> <S> <C>
*1.1 Form of U.S. Underwriting Agreement.................................
3.1 Articles of Amalgamation of Lincoln Waste Management Inc. (previous
name of the Registrant), dated April 15, 1991 (filed as Exhibit 1.2
to the Registration Statement on Form 20-F of the Registrant dated
January 14, 1993 (File No. 0-20854) and incorporated herein by
reference)..........................................................
3.2 By-Laws of Lincoln Waste Management Inc. (previous name of the
Registrant), dated August 16, 1990 (filed as Exhibit 1.3 to the
Registration Statement on Form 20-F of the Registrant dated January
14, 1993 (File No. 0-20854) and incorporated herein by reference)...
*5.1 Opinion of Stikeman, Elliott as to certain Canadian tax matters and
the legality of the securities offered hereby.......................
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP as to certain
U.S. Federal tax matters............................................
10.1 Stock Purchase Agreement dated December 20, 1996 among Pechiney
North America, Inc., Philip Metals (Delaware), Inc. and PEN Metals
(Delaware), Inc. relating to the acquisition of Instel Southwest
Limited Partnership (filed as Exhibit 10.1 to the Registration
Statement on Form F-4 of the Registrant (File No. 333-6834) and
incorporated herein by reference)...................................
10.2 Agreement and Plan of Reorganization dated December 30, 1996 among
Philip Environmental Inc., Philip Environmental Delaware Acquisition
Corp. and Luntz Corporation (filed as Exhibit 10.2 to the
Registration Statement on Form F-4 of the Registrant (File No.
333-6834) and incorporated herein by reference).....................
10.3 Agreement and Plan of Merger, dated as of March 5, 1997, by and
among Philip Environmental Inc., Taro Aggregates Ltd., an Ontario
corporation and a wholly owned subsidiary of the Registrant
("Taro"), Philip/Atlas Merger Corp., a Delaware corporation and a
wholly owned subsidiary of Taro, and Allwaste, Inc., a Delaware
corporation (attached as Annex A to the Proxy Statement/Prospectus
included in the Registration Statement on Form F-4 of the Registrant
(File No. 332-6272) and incorporated herein by reference)...........
10.4 Agreement and Plan of Merger dated March 5, 1997,among Philip
Environmental Inc., Taro Aggregates Ltd., ST Acquisition Corporation
and Serv-Tech, Inc. (included as Appendix A to the Proxy
Statement/Prospectus in Part I of the Registration Statement on Form
F-4 of the Registrant (File No. 333-6834) and incorporated herein by
reference)..........................................................
10.5 Credit Agreement, dated as of August 11, 1997, among Philip Services
Corp., Philip Environmental (Delaware), Inc., Canadian Imperial Bank
of Commerce, Bankers Trust Company, Dresdner Bank of Canada,
Dresdner Bank AG/New York Branch), Royal Bank of Canada and the
various persons from time to time subject to the Credit Agreement as
Lenders.............................................................
21.1 Subsidiaries of the Registrant......................................
*23.1 Consent of Stikeman, Elliott (included in Exhibit 5.1)..............
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in
Exhibit 8.1)........................................................
23.3 Consent of Deloitte & Touche with respect to the financial
statements of the Registrant........................................
23.4 Consent of Arthur Andersen LLP with respect to the financial
statements of Allwaste..............................................
23.5 Consent of Price Waterhouse LLP with respect to the combined
statements of income and of cash flows of Pechiney (ISW), Inc., PPC
(ISW), Inc. and Intsel Southwest Limited Partnership for the nine
months ended September 26, 1996.....................................
</TABLE>
II-14
<PAGE> 162
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
------ -------------------------------------------------------------------- --------
<C> <S> <C>
23.6 Consent of Ernst & Young LLP with respect to the financial
statements of Luntz.................................................
24.1 Powers of Attorney (contained on the signature pages of this
Registration Statement).............................................
</TABLE>
- ---------------
* To be supplied by amendment.
II-15
<PAGE> 1
EXHIBIT 8.1
[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM]
September 26, 1997
Philip Services Corp.
100 King Street
P.O. Box 2440 LCD1
Hamilton, Ontario
Canada L8N 4J6
Ladies and Gentlemen:
We are acting as your United States counsel in connection with
the Registration Statement on Form S-1 (the "Registration Statement") filed with
the United States Securities and Exchange Commission by Philip Services Corp.
(the "Company") relating to the public offering of the Company's common shares.
We hereby confirm, in all material respects, our opinion with
respect to United States federal income tax laws contained in Part I of the
Registration Statement under the caption "Material Income Tax Considerations -
Material United States Federal Income Tax Considerations" subject to the
assumptions and limitations set forth therein.
We hereby consent to the use of our name under the caption "Legal
Matters" in the Registration Statement and to the filing, as an exhibit to the
Registration Statement, of this letter. In giving such consent, we do not admit
that we come within the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
Very truly yours,
/s/ Skadden, Arps, Slate,
Meagher and Flom LLP
<PAGE> 1
EXHIBIT 10.5
PHILIP SERVICES CORP.
and
PHILIP ENVIRONMENTAL (DELAWARE), INC.
as Borrowers
CANADIAN IMPERIAL BANK OF COMMERCE
as Administrative Agent
BANKERS TRUST COMPANY
as Syndication Agent
CANADIAN IMPERIAL BANK OF COMMERCE
and
BANKERS TRUST COMPANY
as Co-Arrangers
DRESDNER BANK CANADA,
DRESDNER BANK AG
NEW YORK BRANCH
and
ROYAL BANK OF CANADA
as Documentation Agents
THE VARIOUS PERSONS
FROM TIME TO TIME PARTIES TO THIS AGREEMENT
as Lenders
----------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF AUGUST 11, 1997
----------------------------------------------------------------
BLAKE, CASSELS & GRAYDON
<PAGE> 2
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS AND INTERPRETATION
<TABLE>
<S> <C> <C>
1.01 Definitions ................................................... 1
1.02 Headings, Etc. ................................................ 40
1.03 Financial Terms ............................................... 40
1.04 Number, Gender and Expressions ................................ 43
1.05 Time .......................................................... 43
1.06 Non-Business Days ............................................. 43
1.07 Conflicts ..................................................... 43
1.08 Statutory References .......................................... 44
1.09 Actions by Restricted Parties ................................. 44
1.10 Severability .................................................. 44
1.11 Entire Agreement .............................................. 44
1.12 Permitted Liens ............................................... 45
1.13 Interest Payments and Calculations ............................ 45
1.14 Governing Law ................................................. 45
1.15 Waiver of Jury Trial .......................................... 46
1.16 Currency ...................................................... 47
1.17 Senior Indebtedness ........................................... 47
1.18 Schedules ..................................................... 47
</TABLE>
ARTICLE TWO
THE CREDIT
<TABLE>
<S> <C> <C>
2.01 Establishment of the Credit ................................... 48
Tranche 1 ..................................................... 48
Tranche 2 ..................................................... 49
Tranche 3 ..................................................... 50
Cdn. Operating Line ........................................... 50
U.S. Operating Line ........................................... 50
U.S. Operating Line ........................................... 51
LC Line ....................................................... 51
2.02 Purpose of the Credit ......................................... 52
2.03 Borrowings Under Tranches ..................................... 52
</TABLE>
<PAGE> 3
-2-
<TABLE>
<S> <C> <C>
2.04 Notice of Borrowing .............................................. 56
2.05 Bankers' Acceptances ............................................. 58
2.06 Letters of Credit ................................................ 61
2.07 Overdrafts under the Operating Lines ............................. 65
2.08 Lenders' Accounts ................................................ 66
2.09 LIBOR Loans ...................................................... 67
2.10 Optional Reduction of Limit of Tranches .......................... 68
2.11 Certain Pre-existing Accommodation ............................... 68
</TABLE>
ARTICLE THREE
INTEREST AND FEES
<TABLE>
<S> <C> <C>
3.01 Loans ............................................................ 71
3.02 Overdue Principal and Interest ................................... 72
3.03 Interest on Other Amounts ........................................ 73
3.04 Interest Payment Dates ........................................... 73
3.05 LIBOR Period Determination ....................................... 73
3.06 Failure of the LIBOR ............................................. 75
3.07 Determination of Rates and Basis of Calculation of Interest ...... 76
3.08 Maximum Return ................................................... 76
3.09 Fees for Bankers' Acceptances and BA Equivalent Notes ............ 77
3.10 Fees for Letters of Credit ....................................... 78
3.11 Standby Fee ...................................................... 79
3.12 Agency Fees ...................................................... 80
</TABLE>
ARTICLE FOUR
REPAYMENT OF ACCOMMODATION
<TABLE>
<S> <C> <C>
4.01 Optional Repayment ............................................... 80
4.02 Mandatory Repayment .............................................. 81
4.03 Surplus Additional Debt .......................................... 82
4.04 Excess Property Sales Proceeds ................................... 82
4.05 Currency Fluctuations ............................................ 83
4.06 Illegality ....................................................... 83
</TABLE>
<PAGE> 4
-3-
ARTICLE FIVE
PAYMENTS AND INDEMNITIES
<TABLE>
<S> <C> <C>
5.01 Method and Place of Payments .................................... 84
5.02 Currency of Payment ............................................. 88
5.03 Taxes ........................................................... 88
5.04 Increased Costs ................................................. 91
5.05 Indemnities ..................................................... 92
</TABLE>
ARTICLE SIX
SECURITY
<TABLE>
<S> <C> <C>
6.01 Form of Security ................................................ 95
6.02 Satisfactory to Administrative Agent ............................ 97
6.03 General Provisions Relating to the Security ..................... 97
6.04 Registration .................................................... 97
6.05 Release of Security ............................................. 98
</TABLE>
ARTICLE SEVEN
REPRESENTATIONS AND WARRANTIES
<TABLE>
<S> <C> <C>
7.01 Delivery of Representations and Warranties ...................... 98
7.02 Repetition of Representations and Warranties .................... 107
</TABLE>
ARTICLE EIGHT
COVENANTS
<TABLE>
<S> <C> <C>
8.01 Affirmative Covenants ........................................... 107
(a)Financial Statements ......................................... 108
(b)Certificates; Other Information .............................. 111
(c)Payment of Obligations ....................................... 113
(d)Conduct of Business and Maintenance of Existence ............. 113
(e)Maintenance of Property and Insurance ........................ 114
</TABLE>
<PAGE> 5
- 4 -
<TABLE>
<S> <C> <C>
(f)Inspection of Property: Books and Records; Discussions....... 114
(g)Notices....................................................... 114
(h)Permits and Requirements of Law............................... 116
(i)Use of Accommodation.......................................... 117
(j)Environmental Clean-Up........................................ 117
(k)No Environmental Damage....................................... 117
(l)Security...................................................... 117
(m)Permitted Liens............................................... 118
(n)Appointment of Consultants.................................... 118
(o)Reserves for Environmental Liabilities........................ 118
(p)Payment of Taxes.............................................. 118
(q)Independent Subsidiaries - Delivery of Agreements............. 118
(r)Independent Subsidiaries - Conduct of Business................ 119
(s)Expenses...................................................... 119
(t)Further Assurances............................................ 120
(u)Margin Stock.................................................. 120
(v)Acquisition................................................... 121
(w)Non Material Restricted Subsidiaries.......................... 121
8.02 Negative Covenants............................................... 122
(a)Debt.......................................................... 122
(b)Liens......................................................... 123
(c)Amalgamation, etc............................................. 123
(d)Dispositions of Property...................................... 123
(e)Investments................................................... 126
(f)Restricted Payments........................................... 126
(g)Transfers of Shares........................................... 127
(h)No Share Issuance............................................. 127
(i)Transactions with Affiliates.................................. 127
(j)Sale and Leaseback............................................ 128
(k)Acquisitions.................................................. 128
(l)Limitation of Financial Assistance............................ 129
(m)No Change of Fiscal Year...................................... 129
(n)No Hostile Take-Over Bids..................................... 130
(o)No Change of Name............................................. 130
(p)No Breaches................................................... 130
(q)Arrangements with Independent Subsidiaries.................... 130
(r)Hedging Arrangements.......................................... 130
8.03 Financial Covenants.............................................. 130
8.04 Interpretation of Certain Covenants.............................. 131
</TABLE>
<PAGE> 6
-5-
ARTICLE NINE
EVENTS OF DEFAULT
<TABLE>
<S> <C> <C>
9.01 Events of Default ............................................... 131
(a)Default in Principal ......................................... 131
(b)Default in Interest, etc. .................................... 131
(c)Certain Defaults under Credit Agreement ...................... 131
(d)Other Defaults under Credit Documents ........................ 131
(e)Representations and Warranties ............................... 132
(f)Default under Other Agreements with Lenders .................. 132
(g)Default in other Indebtedness ................................ 132
(h)Credit Documents ............................................. 132
(i)Winding-up etc. .............................................. 133
(j)Voluntary Insolvency Actions ................................. 133
(k)Insolvency Proceedings ....................................... 133
(l)Appointment of Receiver ...................................... 133
(m)Bankruptcy Statutes .......................................... 133
(n)Judgments .................................................... 134
(o)Encumbrances ................................................. 134
(p)Cease to carry on Business ................................... 134
(q)Qualified Auditor's Report ................................... 134
(r)Reorganization ............................................... 134
(s)Material Adverse Effect ...................................... 134
(t)Change of Control of a Restricted Party ...................... 134
(u)Pension Plans ................................................ 135
9.02 Remedies ........................................................ 136
9.03 Benefit of Security; Set-Off; Sharing of Payments ............... 136
9.04 Remedies Cumulative ............................................ 139
9.05 Appropriation of Moneys Received ................................ 139
9.06 Non-Merger ...................................................... 139
</TABLE>
ARTICLE TEN
CONDITIONS PRECEDENT TO BORROWINGS
<TABLE>
<S> <C> <C>
10.01 Conditions Precedent to the Initial Borrowing ................... 139
10.02 Conditions Precedent to Subsequent Borrowings ................... 143
</TABLE>
<PAGE> 7
-6-
ARTICLE ELEVEN
THE ADMINISTRATIVE AGENT AND OTHER AGENTS
<TABLE>
<S> <C> <C>
11.01 Appointment ..................................................... 144
11.02 Indemnity from Lenders .......................................... 145
11.03 Exculpation ..................................................... 145
11.04 Reliance on Information ......................................... 146
11.05 Knowledge and Required Action ................................... 146
11.06 Request for Instructions ........................................ 147
11.07 Exchange of Information ......................................... 147
11.08 The Administrative Agent and the Other Agents, Individually ..... 147
11.09 Resignation and Termination ..................................... 148
11.10 Actions by Lenders .............................................. 148
11.11 Provisions for Benefit of Lenders Only .......................... 150
</TABLE>
ARTICLE TWELVE
MISCELLANEOUS
<TABLE>
<S> <C> <C>
12.01 Participations, Assignments and Transfers ....................... 151
12.02 Waiver .......................................................... 157
12.03 Further Assurances .............................................. 157
12.04 Notices ......................................................... 158
12.05 Domicile of Accommodation ....................................... 158
12.06 Confidentiality ................................................. 158
12.07 Confirmation to Creditors of Independent Subsidiaries ........... 159
12.08 Survival ........................................................ 159
12.09 Quantities of Documents ......................................... 159
12.10 Reproduction of Documents ....................................... 160
12.11 Language ........................................................ 160
12.12 Counterparts and Effectiveness .................................. 160
12.13 Facsimile Copies ................................................ 160
12.14 Benefit of Agreement ............................................ 161
</TABLE>
<PAGE> 8
-7-
SCHEDULES
<TABLE>
<S> <C> <C>
Schedule 1 - Commitments of the Lenders under Tranches 1, 2 and 3
Schedule 2 - Form of Corporate Separateness Covenant and Assurance
Agreement
Schedule 3 - Form of Acknowledgement and Agreement from Eligible
Affiliates of the Administrative Agent, an Other Agent or a
Lender
Schedule 4 - List of Independent Subsidiaries
Schedule 5 - Form of Non Recourse Acknowledgement and Undertaking
Schedule 6 - List of Permitted Liens
Schedule 7 - Description of Permitted Indebtedness
Schedule 8 - Description of Pre-existing Accommodation
Schedule 9 - Form of Tax Sharing Agreement
Schedule 10 - Form of Notice of Borrowing
Schedule 11 - Form of Note of Conversion/Renewal
Schedule 12 - Minimum Amounts of Borrowings under Tranches
Schedule 13 - Notice Periods for Borrowing of Types of Accommodation under
Tranches
Schedule 14 - Form of BA Equivalent Note
Schedule 15 - Form of Non Bank Certificate for U.S. Withholding Tax Purposes
Schedule 16 - Listing of Particulars of Shares and Other Securities to be
Pledged under the Security
Schedule 17 - Litigation
Schedule 18 - Corporate Chart
Schedule 19 - Disclosure Schedule
Schedule 20 - List of Material Contracts
Schedule 21 - Form of Quarterly Reporting Compliance Certificate
Schedule 22 - Form of Quarterly Environmental Compliance Certificate
Schedule 23 - Insurance Requirements
Schedule 24 - Form of Undertaking relative to Assignments by Lenders
Schedule 25 - Form of Assignment and Assumption Agreement relative to
Assignments by Lenders
Schedule 26 - List of Non Material Restricted Subsidiaries
Schedule 27 - Commitments of the Lenders under the LC Line
</TABLE>
<PAGE> 9
THIS IS A CREDIT AGREEMENT dated as of August 11, 1997 among PHILIP SERVICES
CORP., a corporation existing under the laws of Ontario, as a borrower in
Canada, PHILIP ENVIRONMENTAL (DELAWARE), INC., a corporation existing under the
laws of Delaware, as a borrower in the United States of America, CANADIAN
IMPERIAL BANK OF COMMERCE, as administrative agent for the Lenders in the
manner and to the extent described in Article Eleven, BANKERS TRUST COMPANY as
syndication agent, CANADIAN IMPERIAL BANK OF COMMERCE and BANKERS TRUST COMPANY
as co-arrangers of the Credit, DRESDNER BANK CANADA, DRESDNER BANK AG NEW YORK
BRANCH and ROYAL BANK OF CANADA as documentation agents, and the various
Persons from time to time parties to this Agreement as lenders.
THIS CREDIT AGREEMENT WITNESSES that, for valuable consideration (the
receipt and sufficiency of which are acknowledged by each of the parties to
this Agreement) the parties to this Agreement agree as follows:
ARTICLE ONE
DEFINITIONS AND INTERPRETATION
1.011 DEFINITIONS
In this Agreement, unless the context otherwise requires:
"ACCOMMODATION" shall mean Loans, Bankers' Acceptances, BA Equivalent
Notes and Letters of Credit made, accepted, purchased or issued, as the case
may be, by the Lenders or, where so indicated, by an individual Lender, and
shall refer to any one or more Loans, Bankers' Acceptances, BA Equivalent Notes
or Letters of Credit where the context requires, and "TYPE" of Accommodation
shall refer to whether any particular Accommodation is a Prime Rate Loan, a
U.S. Base Rate Loan, a U.S. Reference Rate Loan, a LIBOR Loan, a Bankers'
Acceptance (including a BA Equivalent Note) or a Letter of Credit.
"ACQUISITION" shall mean, with respect to any Person, any purchase or
other acquisition, regardless of how accomplished or effected (including any
such purchase or other acquisition effected by way of amalgamation, merger or
other form or corporate reorganization), of (a) any other Person (including any
purchase or acquisition of such number of the issued and outstanding securities
of, or such portion of an equity interest in, such other Person that such other
Person becomes a Subsidiary of the purchaser or of any of its Affiliates) or of
all or substantially all of the property of any other Person, or (b) any
division, business, operation or undertaking of any
<PAGE> 10
SECTION 1.01
- 2 -
other Person or of all or substantially all of the property of any division,
business, operation or undertaking of any other Person.
"ADDITIONAL DEBT" shall mean
(a) Debt (other than Debt under this Agreement) incurred by a Borrower
after the date of this Agreement from any other Person provided that
(i) such Debt is unsecured and is not guaranteed by the Cdn. Borrower
or any Subsidiary of the Cdn. Borrower which is not a Guarantor
Subsidiary (with any such guarantee to contain provision for the
automatic release of such guarantee if the Guarantor Subsidiary is
sold or if the guarantee from such Subsidiary under the Credit
Documents is released), (ii) the Debt of the Borrowers and their
Subsidiaries to the Administrative Agent, the Other Agents, the
Lenders and their respective Eligible Affiliates under the Credit
Documents and the Lender/Borrower Hedging Arrangements will always
rank at least pari passu as to the right of payment with such Debt,
and will not rank subordinate as to the right of payment to any such
Debt,(iii) the representations, warranties, covenants, agreements,
obligations, liabilities, defaults, acceleration rights and other
terms and provisions of such Debt will in the opinion of the Required
Lenders be no more favourable to the holder of such Debt, and no more
restrictive on the Borrowers or any of their Subsidiaries, than
the representations, warranties, covenants, agreements, obligations,
liabilities, defaults, acceleration rights and other terms and
provisions of the Credit Documents, (iv) the maturity of such Debt
shall be at least one year beyond the Maturity Date, there shall be
no mandatory repayment, redemption or repurchase obligations under
such Debt prior to one year beyond the Maturity Date and payment of
such Debt shall not be capable of being accelerated prior to an
acceleration of Debt under this Agreement, and (v) interest, fees
and the other terms and provisions relative to such Debt shall in
the opinion of the Required Lenders be consistent with then
current market rates and terms and conditions; and
(b) Debt of a Person assumed or acquired by a Restricted Subsidiary as
part of an Acquisition provided that (i) such assumed or acquired
Debt was not incurred in connection with, for the purpose of, or in
anticipation or contemplation of, such Acquisition, (ii) such
assumed or acquired Debt is unsecured and is not guaranteed by any
Person which is not both a Guarantor Subsidiary and a Subsidiary of
the Person acquired (with any such guarantee to contain provision
for the automatic release of such guarantee if the Guarantor
Subsidiary is sold or if the guarantee from such Subsidiary under
the Credit Documents is released), (iii) the Debt of the Borrowers
and their Subsidiaries to the Administrative Agent, the Other Agents,
the Lenders and their respective Eligible Affiliates under the
<PAGE> 11
SECTION 1.01
- 3 -
Credit Documents and the Lender/Borrower Hedging Arrangements will always
rank at least pari passu as to the right of payment with such assumed or
acquired Debt, and will not rank subordinate as to the right of payment
to any such assumed or acquired Debt, (iv) the representations,
warranties, covenants, agreements, obligations, liabilities, defaults,
acceleration rights and other terms and provisions of such assumed or
acquired Debt will in the opinion of the Required Lenders be no more
favourable to the holder of such assumed or acquired Debt, and no more
restrictive on the Borrowers or any of their Subsidiaries, than the
representations, warranties, covenants, agreements, obligations,
liabilities, defaults, acceleration rights and other terms and provisions
of the Credit Documents, (v) the maturity of such assumed or acquired
Debt shall be at least one year beyond the Maturity Date, there shall be
no mandatory repayment, redemption or repurchase obligations under such
assumed or acquired Debt prior to one year beyond the Maturity Date and
payment of such Debt shall not be capable of being accelerated prior to
an acceleration of Debt under this Agreement, and (vi) interest, fees and
the other terms and provisions relative to such assumed or acquired Debt
shall in the opinion of the Required Lenders be consistent with then
current market rates and terms and conditions.
"ADMINISTRATIVE AGENT" shall mean Canadian Imperial Bank of Commerce in
its capacity as administrative agent under the Credit Documents or such other
financial institution as may be appointed as the successor Administrative Agent
in the manner and to the extent described in Section 11.09.
"ADMINISTRATIVE AGENT'S CDN. PAYMENT BRANCH" shall mean the main branch of
the Administrative Agent at Commerce Court, Toronto, Ontario or such other
branch of the Administrative Agent in Canada as the Administrative Agent may
from time to time designate in writing to the Borrowers.
"ADMINISTRATIVE AGENT'S U.S. PAYMENT BRANCH" shall mean the office of CIBC
Inc., 7th Floor, 425 Lexington Avenue, New York, New York, 10017 or such other
office or branch of the Administrative Agent or one of its Affiliates in the
United States of America as the Administrative Agent may from time to time
designate in writing to the Borrower.
"AFFILIATE" shall mean an "affiliate" as defined by the Business
Corporations Act (Ontario).
"AFFILIATED" shall mean:
(a) in describing a Cdn. Cross Border Lender and its Affiliated U.S.
Cross Border Lender or a U.S. Cross Border Lender and its
Affiliated Cdn. Cross Border
<PAGE> 12
SECTION 1.01
- 4 -
Lender, as the case may be, a Cdn. Cross Border Lender and a U.S.
Cross Border Lender which are each Affiliates of the other; and
(b) in describing a Cdn. LC Lender and its Affiliated U.S. LC Lender
or a U.S. LC Lender and its Affiliated Cdn. LC Lender, as the
case may be, a Cdn. LC Lender and a U.S. LC Lender which are each
Affiliates of the other.
"ALLWASTE" shall mean Allwaste, Inc. , a corporation existing under the
laws of Delaware.
"ALLWASTE AGREEMENT AND PLAN OF MERGER" shall mean the Agreement and Plan
of Merger dated as of March 5, 1997 among the Cdn. Borrower, Taro Aggregates
Ltd., Philip/Atlas Merger Corp. and Allwaste.
"ALLWASTE ACQUISITION" shall mean the Acquisition of Allwaste by the Cdn.
Borrower by way of the merger of a wholly-owned Subsidiary of the Cdn. Borrower
with and into Allwaste, with Allwaste being the surviving corporation from such
merger, pursuant to the Allwaste Agreement and Plan of Merger.
"ANNIVERSARY" relative to a Disposition shall have the meaning specified
in subsection 8.02(d).
"APPLICABLE INTEREST PRICING ADJUSTMENT" shall have the meaning specified
in Section 3.01.
"APPLICABLE LAW" shall mean, at any time, in respect of any Person,
property, transaction, event or other matter, as applicable, all laws
(including all Environmental Laws), rules, statutes, regulations, treaties,
orders, judgments and decrees and all official directives, rules, guidelines,
orders, policies and other requirements of any Governmental Authority (whether
or not having the force of law) (collectively the "LAW") relating or applicable
at such time to such Person, property, transaction, event or other matter, and
shall also include any interpretation of the Law or any part of the Law by any
Person having jurisdiction over it or charged with its administration or
interpretation.
"APPLICABLE LC FEE PRICING RATE" shall have the meaning specified in
Section 3.10.
"APPLICABLE REFERENCE RATE" for a type of Loan shall mean (a) with respect
to Prime Rate Loans, the Prime Rate in effect from time to time, (b) with
respect to U.S. Base Rate Loans, the U.S. Base Rate in effect from time to
time, (c) with respect to U.S. Reference Rate Loans, the U.S. Reference Rate in
effect from time to time, and (d) with respect to LIBOR Loans and any
applicable LIBOR Period, the LIBOR determined for such LIBOR Period in
accordance with the provisions of this Agreement. With respect to Prime Rate
Loans (and other amounts in respect of which interest is to be calculated under
this Agreement on the basis of the Prime Rate), U.S. Base Rate Loans (and other
amounts in respect
<PAGE> 13
SECTION 1.01
- 5 -
of which interest is to be calculated under this Agreement on the basis of the
U.S. Base Rate) and U.S. Reference Rate Loans (and other amounts in respect of
which interest is to be calculated under this Agreement on the basis of the
U.S. Reference Rate), the Applicable Reference Rate will change automatically
without notice to the Borrowers as and when the Prime Rate, the U.S. Base Rate
and the U.S. Reference Rate, as the case may be, shall change so that at all
times interest payable under this Agreement on Prime Rate Loans (and other
amounts in respect of which interest is to be calculated under this Agreement
on the basis of the Prime Rate) shall be based on the Prime Rate then in
effect, interest payable on U.S. Base Rate Loans (and other amounts in respect
of which interest is to be calculated under this Agreement on the basis of the
U.S. Base Rate) shall be based on the U.S. Base Rate then in effect and
interest payable on U.S. Reference Rate Loans (and other amounts in respect of
which interest is to be calculated under this Agreement on the basis of the
U.S. Reference Rate) shall be based on the U.S. Reference Rate then in effect.
"APPLICABLE STAMPING FEE" shall have the meaning specified in Section
3.09.
"APPLICABLE STANDBY FEE PRICING RATE" shall have the meaning specified in
Section 3.11.
"ASSOCIATE" shall mean an "associate" as defined by the Business
Corporations Act (Ontario).
"BA DISCOUNT PROCEEDS" shall mean, with respect to any Bankers' Acceptance
or BA Equivalent Note, an amount calculated on the applicable Borrowing Date
which is (rounded to the nearest full cent) equal to the face amount of such
Bankers' Acceptance or BA Equivalent Note divided by the sum of one plus the
product of (a) the BA Discount Rate applicable to such Bankers' Acceptance or
BA Equivalent Note multiplied by (b) a fraction, the numerator of which is the
term of such Bankers' Acceptance or BA Equivalent Note and the denominator of
which is 365.
"BA DISCOUNT RATE" shall mean, (i) with respect to any Bankers'
Acceptances to be purchased by a BA Lender on any Borrowing Date, the annual
discount rate (rounded upward to the nearest whole multiple of 1/100 of 1%)
notified to the Administrative Agent by such BA Lender as of 10:00 a.m. on such
Borrowing Date as the discount rate of interest at which such BA Lender is then
offering to purchase bankers' acceptances accepted by it having a comparable
aggregate face amount and identical maturity date to the aggregate face amount
and maturity date of the Bankers' Acceptances to be purchased by such BA Lender
on such Borrowing Date, and (ii) with respect to any BA Equivalent Notes to be
accepted by a Non BA Lender on any Borrowing Date, the annual interest rate
(rounded upward to the nearest whole multiple of 1/100 of 1%) notified to the
Administrative Agent by such Non BA Lender as being the best estimate
<PAGE> 14
SECTION 1.01
- 6 -
of such Non BA Lender of the cost to it of obtaining Cdn. Dollars to fund such
purchase, but in no event shall the interest rate determined pursuant to this
clause (ii) for any Non BA Lender be greater than the discount rate for the
Administrative Agent in its capacity as a BA Lender determined pursuant to
clause (i) of this definition. If any rate to be determined by the
Administrative Agent pursuant to clause (i) or (ii) of this definition is not
available on any day, there shall be substituted for such rate the CDOR in
effect on such day for bankers' acceptances having a maturity most nearly
comparable to the applicable Bankers' Acceptance or BA Equivalent Note.
"BA EQUIVALENT NOTE" shall have the meaning specified in subsection
2.05(1) and, for greater certainty, shall include all Pre-existing BA
Equivalent Notes as provided for in Section 2.11.
"BA LENDER" shall mean any Cdn. Only Lender, Cdn. Cross Border Lender or
Cdn. Operating Lender which is a bank chartered under the Bank Act (Canada).
"BANKERS' ACCEPTANCE" shall mean a Draft denominated in Cdn. Dollars drawn
by the Cdn. Borrower and accepted by a BA Lender as provided in Section 2.05
and, for greater certainty, shall include all Pre-existing BAs as provided for
in Section 2.11.
"BASE LIBOR" shall mean, with respect to each LIBOR Period for each LIBOR
Loan, an annual interest rate per annum, expressed on the basis of a 360 day
year, equal to:
(a) (i) in the case of Accommodation (other than Accommodation under an
Operating Line) the interest rate at which the Administrative
Agent is offered deposits of U.S. Dollars by leading banks in
the London interbank market as of 11:00 a.m. (London time) on
the second Business Day prior to the commencement of such
LIBOR Period, for delivery on the first day of such LIBOR
Period for the number of months comprised in such LIBOR Period
and in an amount equal to the amount of such LIBOR Loan;
(ii) in the case of Accommodation under the Cdn. Operating Line,
the interest rate at which the Cdn. Operating Lender is
offered deposits of U.S. Dollars by leading banks in the
London interbank market as of 11:00 a.m. (London time) on the
second Business Day prior to the commencement of such LIBOR
Period, for delivery on the first day of such LIBOR Period
for the number of months comprised in such LIBOR Period and
in an amount equal to the amount of such LIBOR Loan; and
<PAGE> 15
SECTION 1.01
- 7 -
(iii) in the case of Accommodation under a U.S. Operating Line,
the interest rate at which the applicable U.S. Operating
Lender is offered deposits of U.S. Dollars by leading banks
in the London interbank market as of 11:00 a.m. (London
time) on the second Business Day prior to the commencement of
such LIBOR Period, for delivery on the first day of such
LIBOR Period for the number of months comprised in such LIBOR
Period and in an amount equal to the amount of such LIBOR
Loan; and
(b) if any such rate is not available on any day, there shall be
substituted for such rate the annual interest rate for deposits of
U.S. Dollars for a maturity most nearly comparable to such LIBOR
Period which appears on page Q LIBOR 01 of the Reuters Screen as of
11:00 a.m. (London time) on the second Business Day prior to the
commencement of such LIBOR Period or, if such Reuters Screen rate is
not available on such day, there shall be substituted for such rate
the annual interest rate for deposits of U.S. Dollars for a maturity
most nearly comparable to such LIBOR Period which appears on the
LIBO page of the Reuters Screen as of 11:00 a.m. (London time) on
the second Business Day prior to the commencement of such LIBOR
Period.
"bps" shall mean basis points, each basis point being 1/100 of 1%.
"BORROWERS" shall mean the Cdn. Borrower and the U.S. Borrower, and
"BORROWER" shall mean either one of the Borrowers.
"BORROWING" shall mean the aggregate Accommodation of the same type
obtained or to be obtained by a Borrower under the Credit, or any Tranche of
the Credit, on any Borrowing Date (for greater certainty including any Bankers'
Acceptances or BA Equivalent Notes obtained or to be obtained on the maturity
of any outstanding Bankers' Acceptances or BA Equivalent Notes and any
Accommodation obtained or to be obtained on the conversion of any outstanding
Accommodation into another type of Accommodation and any conversion of the
interest rate on Loans in U.S. Dollars or the renewal of the LIBOR Period
applicable to any LIBOR Loan pursuant to a Notice of Conversion/Renewal).
"BORROWING DATE" shall have the meaning specified in subsection 2.04(1)
and shall include, in connection with the calculation of interest on
Pre-existing Accommodation, the Closing Date.
"BUSINESS DAY" shall mean any day, other than a Saturday or Sunday, on
which Canadian chartered banks are open for domestic and foreign exchange
business in Toronto, Canada; provided that with respect to any LIBOR Loan
"BUSINESS DAY" shall mean any day, other than a Saturday or Sunday, on which
dealings in U.S. Dollars may be carried on by and between prime
<PAGE> 16
SECTION 1.01
- 8 -
banks in the London interbank market, except any such day on which banks are
lawfully closed for business in New York, New York, United States of America,
London, England or Toronto, Canada and that with respect to any U.S. Base Rate
Loan and any U.S. Reference Rate Loan "BUSINESS DAY" shall mean any day, other
than a Saturday or Sunday, on which banks are open for domestic and foreign
exchange business in New York, New York, United States of America and Toronto,
Canada.
"CAPITAL EXPENDITURES" of any Person shall mean any expenditures by such
Person made in connection with the purchase, lease, acquisition, erection or
construction of property (including any such property acquired pursuant to a
Capitalized Lease Obligation) or any other expenditures, in any such case which
are required to be capitalized in accordance with GAAP, and for greater
certainty does not include an Acquisition.
"CAPITALIZED LEASE OBLIGATION" shall mean, for any Person, any payment
obligation of such Person under an agreement for the lease or rental of, or
providing such Person with the right to use, property that, in accordance with
GAAP, is required to be capitalized.
"CDN. BORROWER" shall mean Philip Services Corp. a corporation existing
under the laws of the Province of Ontario, and its successors by amalgamation,
merger or otherwise.
"CDN. CROSS BORDER LENDERS" shall mean those Lenders listed in Column 3 of
Schedule 1 to this Agreement, together with each other Person which from time
to time becomes a party to this Agreement and a Lender in Canada to the Cdn.
Borrower under Tranche 2 in accordance with Section 12.01, in their capacity as
Lenders in Canada to the Cdn. Borrower under Tranche 2, in each case together
with their respective successors and assigns, and "CDN. CROSS BORDER LENDER"
shall mean any one of the Cdn. Cross Border Lenders.
"CDN. DOLLARS" and "CDN. $" shall mean lawful currency of Canada.
"CDN. LC COMMITMENT" shall have the meaning specified in subsection
2.01(g).
"CDN. LC ISSUER" shall mean Canadian Imperial Bank of Commerce in its
capacity as issuer of Letters of Credit to the Cdn. Borrower under the LC Line
together with its successors and assigns in such capacity.
"CDN. LC LENDERS" shall mean the Cdn. LC Issuer and those other Lenders
listed in Column 1 of Schedule 27 to this Agreement, together with each other
Person which from time to time becomes a party to this Agreement and a Lender
in Canada to the Cdn. Borrower under the LC Line in accordance with Section
12.01, in their capacity as Lenders in Canada to the Cdn. Borrower under the LC
Line, in each case together with their respective successors and assigns, and
"CDN. LC LENDER" shall mean any one of the Cdn. LC Lenders.
<PAGE> 17
SECTION 1.01
- 9 -
"CDN. OPERATING LENDER" shall mean Royal Bank of Canada in its capacity as
the operating credit lender to the Cdn. Borrower in Canada under the Cdn.
Operating Line together with its successors and assigns in such capacity.
"CDN. OPERATING LINE" shall have the meaning specified in subsection
2.01(d).
"CDN. ONLY LENDERS" shall mean those Lenders listed in Column 1 of
Schedule 1 to this Agreement, together with each other Person which from time
to time becomes a party to this Agreement and a Lender in Canada to the Cdn.
Borrower under Tranche 1 in accordance with Section 12.01, in their capacity as
Lenders in Canada to the Cdn. Borrower under Tranche 1, in each case together
with their respective successors and assigns, and "CDN. ONLY LENDER" shall mean
any one of the Cdn. Only Lenders.
"CDOR" shall mean, for any day and relative to Cdn. Dollar bankers'
acceptances having any specified term, the average of the annual rates for Cdn.
Dollar bankers' acceptances having such specified term (or a term as closely as
possible comparable to such specified term) of the Schedule I chartered banks
of Canada that appears on the Reuters Screen CDOR page as of at 10:00 a.m. on
such day (or, if such day is not a Business Day, as of 10:00 a.m. on the next
preceding Business Day), provided that if such rate does not appear on the
Reuters Screen CDOR page at such time on such date, the rate for such date will
be the average of the BA Discount Rates quoted by the BA Lenders for Canadian
dollar bankers' acceptances having such specified term at such time and on such
date.
"CLOSING DATE" shall mean the earlier of (i) the initial Borrowing Date,
and (ii) the date on which the Administrative Agent delivers written notice to
the Cdn. Borrower that all of the conditions set forth in Section 10.01 have
been satisfied.
"CO-ARRANGERS" shall mean Canadian Imperial Bank of Commerce and Bankers
Trust Company in their capacity as co-arrangers of the Credit.
"CODE" shall mean the United States Internal Revenue Code of 1986, and the
regulations promulgated and rulings issued thereunder.
"COMBINED LC COMMITMENT" shall mean, with respect to each Cdn. LC Lender
and its Affiliated U.S. LC Lender at any time, the U.S. Dollar Amount set forth
for such Lenders at such time in the Registry of Commitments as such Lenders'
combined commitment under the LC Line (which amount on the date of this
Agreement is set forth opposite such Lenders' names in Column 5 of Schedule 27)
(as such amount may from time to time be adjusted pursuant to Section 2.03 or
as otherwise provided for pursuant to the provisions of this Agreement and as
the Registry of Commitments may from time to time be amended as provided for in
Section 12.01 or in any other applicable provision of this Agreement).
<PAGE> 18
SECTION 1.01
- 10 -
"COMMITMENT" shall mean:
(a) with reference to any Cdn. Only Lender and Tranche 1, such Lender's
Tranche 1 Commitment;
(b) with reference to any Cdn. Cross Border Lender and Tranche 2, such
Lender's Tranche 2 Cdn. Borrowing Commitment, with reference to any
U.S. Cross Border Lender and Tranche 2, such Lender's Tranche 2 U.S.
Borrowing Commitment, and with reference to any Cdn. Cross Border
Lender and its Affiliated U.S. Cross Border Lender and Tranche 2,
such Lenders' Tranche 2 Combined Commitment;
(c) with reference to any U.S. Only Lender and Tranche 3, such Lender's
Tranche 3 Commitment;
(d) with respect to the Cdn. Operating Lender, the limit of the Cdn.
Operating Line;
(e) with respect to each of the U.S. Operating Lenders, the limit of the
U.S. Operating Line from such Lender; and
(f) with reference to any Cdn. LC Lender and the LC Line, such Lender's
Cdn. LC Commitment, with reference to any U.S. LC Lender and the LC
Line, such Lender's U.S. LC Commitment, and with reference to any
Cdn. LC Lender and its Affiliated U.S. LC Lender and the LC Line,
such Lenders' Combined LC Commitment;
provided that as of the acceleration of amounts outstanding under the Credit
the calculation of the "COMMITMENT" will be based on the amount of
Accommodation then outstanding from the Lenders under the Credit or the
Tranches of the Credit, as the case may be, as of the date of acceleration (as
adjusted to reflect cheques issued under the Operating Lines prior to such
date).
"COMMITMENT PERCENTAGE" shall mean, at any time with reference to any
Lender and the Credit or any Tranche, that number, expressed as a percentage,
obtained by dividing such Lender's Commitment for the Credit or such Tranche,
as the case may be, at such time by the aggregate Commitments of all Lenders
for the Credit or such Tranche, as the case may be, at such time.
"CONTAMINANT" shall mean (a) any pollutant, toxic substance, chemical,
hazardous waste, hazardous material, hazardous substance, petroleum product,
oil, or radioactive material; (b) any substance, gas, material or chemical
which is or may be defined as or included in the definition of "hazardous
substances", "toxic substances", "hazardous materials", "hazardous wastes" or
words of similar import under any Environmental Law; (c) any other chemical,
material, gas or
<PAGE> 19
SECTION 1.01
- 11 -
substance, the exposure or release of which is or may be prohibited, limited or
regulated by any Environmental Law; or (d) any chemical, material, gas or
substance that does or may pose a hazard to health and/or safety of Persons or
the Natural Environment.
"CONTESTED" shall mean contested in good faith by appropriate proceedings
promptly initiated and diligently conducted.
"CONTINGENT OBLIGATION" shall mean, as to any Person, any obligation,
whether secured or unsecured, of such Person guaranteeing or in effect
guaranteeing any indebtedness, leases, dividends, letters of credit or other
monetary obligations (the "PRIMARY OBLIGATIONS") of any other Person (the
"PRIMARY OBLIGOR") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person as an account party in
respect of a letter of credit issued to assure payment by the primary obligor
of any such primary obligation and any obligation of such Person, whether or
not contingent, (i) to purchase any such primary obligation or any property
constituting direct or indirect security therefor, (ii) to advance or supply
funds for the purchase or payment of any such primary obligation or to maintain
working capital or equity capital of the primary obligor or otherwise to
maintain the net worth or solvency of the primary obligor, (iii) to purchase
property, securities or services primarily for the purpose of assuring the
obligee under any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation, or (iv) otherwise to assure or hold
harmless the obligee under such primary obligation against loss in respect of
such primary obligation; provided, however, that the term Contingent
Obligation:
(a) shall not include endorsements of instruments for deposit or
collection in the ordinary course of business;
(b) shall not include assurances or obligations given by such Person to
a third party who has in turn provided assurances (the "THIRD PARTY
ASSURANCES") in support or in respect of primary obligations of such
Person but only to the extent of such third party assurances and
only to the extent that such assurances or obligations from such
Person have not been demanded or called upon by, or otherwise become
due and payable to, the applicable third party; and
(c) when used with respect to a Restricted Party, shall not include
assurances or obligations given by such Restricted Party to another
Person (the "ASSURANCE BENEFICIARY") in support of any obligations
of an Independent Subsidiary to provide or perform services (the
"BONDED SERVICES") under a contract, in all such cases to the
extent, and only to the extent, that:
<PAGE> 20
SECTION 1.01
- 12 -
(i) (x) such assurances or obligations from such Restricted
Party have not been demanded or called upon by, or
otherwise become due and payable to, the applicable
Assurance Beneficiary, or
(y) having been demanded or called upon, or otherwise
having become due or payable, such assurances or
obligations at the relevant time, in the good faith
reasonable opinion of the Cdn. Borrower, would
not be accrued as a liability of such Restricted
Party in accordance with GAAP provided that (A) the
Cdn. Borrower has notified the Administrative Agent in
writing of all relevant details respecting such
demand, call or other event pursuant to which such
assurances or obligations have become due or payable
and the basis on which the Cdn. Borrower has made its
determination that such assurances or obligations
would not be accrued as a liability of such Restricted
Party in accordance with GAAP and has updated such
notice from time to time as required under subsection
8.01(b), and (B) the Administrative Agent, acting
reasonably, has given its written approval to such
assurances or obligations continuing to be subject to
this clause and has not subsequently, acting
reasonably, withdrawn such approval by written notice
to the Canadian Borrower;
(ii) the Independent Subsidiary for whose benefit such assurances
or obligations are provided has fully indemnified the
Restricted Party providing such assurances or obligations for
all payments, losses, damages and expenses which such
Restricted Party may pay or incur in respect of such
assurances or obligations; and
(iii) the aggregate amount of:
(x) all such assurances and obligations at any time from
such Restricted Party and all other Restricted Parties
relative to all Independent Subsidiaries and all
Bonded Services;
less
(y) the aggregate amount of all guarantees and
performance or other similar bonds (to a maximum
amount relative to any Bonded Services of
the assurances and obligations of the Restricted
Parties relative to such Bonded Services) then issued
and outstanding from financially sound and reputable
bonding or surety companies
<PAGE> 21
SECTION 1.01
- 13 -
licensed to provide such guarantees or bonds in the
jurisdiction where the applicable Bonded Services are
to be provided and provided in favour of the
Independent Subsidiary for whose benefit such
assurances or obligations are provided (and also, for
any such assurances or obligations provided after the
date of this Agreement, in favour of the Restricted
Party providing such assurances or obligations);
do not exceed U.S. $150,000,000 (or the Equivalent Amount
in any other currency or currencies).
"CONTRACTUAL OBLIGATION" shall mean, with respect to any Person, any
provision of any Lien issued by, or otherwise applicable to any of the property
of, such Person or of any contract, agreement, instrument or undertaking to
which such Person is a party or by which it or any of its property is bound.
"CORPORATE SEPARATENESS COVENANT AND ASSURANCE AGREEMENT" shall mean an
agreement in substantially the form of Schedule 2, or in such other form as the
Administrative Agent, acting reasonably, may request in the future having
regard to any judicial or statutory developments respecting the principle of
substantive consolidation, from an Independent Subsidiary in favour of the
Borrowers and the Secured Parties providing agreements, undertakings and
covenants from the Independent Subsidiary respecting such Independent
Subsidiary's separate and independent operations and creditors for the purpose
of assuring that such Independent Subsidiary conducts its business and
operation in all respects so as, to the extent possible, to assure that a court
would not apply the principle of substantive consolidation so as to permit the
creditors of such Independent Subsidiary or its Subsidiaries to have Recourse
Against any of the Restricted Parties.
"CREDIT" shall have the meaning specified in Section 2.01.
"CREDIT DOCUMENTS" shall mean this Agreement, all present and future
Security, all present and future Corporate Separateness Covenant and Assurance
Agreements and Tax Sharing Agreements, and all other present and future
documents, certificates and instruments delivered by a Restricted Party to the
Administrative Agent or the Lenders pursuant to, or in respect of, any such
documents, in each case as the same may from time to time be supplemented,
amended or restated, and "CREDIT DOCUMENT" shall mean any one of the Credit
Documents.
"CROSS BORDER LENDERS" shall mean the Cdn. Cross Border Lenders and the
U.S. Cross Border Lenders, and "CROSS BORDER LENDER" shall mean any one of the
Cross Border Lenders.
<PAGE> 22
SECTION 1.01
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"CURRENT ASSETS" shall mean, at any time, all current assets of the
Restricted Parties determined as of such time on a Modified Consolidated basis
and otherwise in accordance with GAAP.
"CURRENT LIABILITIES" shall mean, at any time, all current liabilities of
the Restricted Parties determined as of such time on a Modified Consolidated
basis and otherwise in accordance with GAAP.
"DEBT" shall mean, at any time, all items which would, on a Modified
Consolidated basis and otherwise in accordance with GAAP, then be classified as
a liability on a balance sheet of the Restricted Parties or in the notes
thereto (provided that, for greater certainty, the only items included in the
notes thereto which are intended to be treated as debt would include letters of
credit, guarantees, performance bonds or assurances and other similar forms of
contingent liabilities) and to the extent not otherwise included pursuant to
the preceding provisions of this definition shall include, without limitation
and without duplication, any item which is (i) an obligation of any Restricted
Party in respect of borrowed money or for the deferred purchase price of
property or services or an obligation of any Restricted Party which is
evidenced by a note, bond, debenture or other similar instrument, (ii) a
transfer with recourse or with an obligation to repurchase, to the extent of
the liability of any Restricted Party with respect thereto, (iii) an obligation
secured by any Lien on any property of any Restricted Party to the extent
attributable to its respective interest in such property, even though it has
not assumed or become liable for the payment thereof, (iv) all Capitalized
Lease Obligations of the Restricted Parties, (v) an obligation arising in
connection with an acceptance facility or letter of credit or letter of
guarantee issued for the account of any Restricted Party, (vi) a Contingent
Obligation of any Restricted Party, (vii) the aggregate amount at which any
shares in the capital of any Restricted Party which are redeemable or
retractable at the option of the holder of such shares may be redeemed or
retracted, or (viii) Debt or Contingent Obligations of another Person assumed
or acquired by any Restricted Party, or in respect of which a Restricted Party
otherwise becomes liable, in connection with, or as a result of, any
Acquisition; provided, however, that there shall not be included for the
purpose of this definition any item which is on account of reserves for general
contingencies or on account of reserves for environmental compliance or
liabilities or which constitutes a trade payable or other payables incurred in
the ordinary course of business.
"DEBT TO EBITDA COVENANT RATIO" shall mean, on any day, the ratio of (a)
Debt on such day to (b) EBITDA for the Reference Financial Period for such day.
"DEBT TO EBITDA PRICING ADJUSTMENT RATIO" shall mean:
(a) on any Pricing Adjustment Date, the ratio of (i) Debt on the last
day of the Reference Financial Period for such Pricing Adjustment
Date to (ii) EBITDA for the Reference Financial Period for such
Pricing Adjustment Date (by way of
<PAGE> 23
SECTION 1.01
- 15 -
example the Reference Financial Period for the Pricing Adjustment
Date which occurs on January 1, 1998 is the four Financial Quarters
ending September 30, 1997 and, accordingly, the Debt to EBITDA
Pricing Adjustment Ratio on such Pricing Adjustment Date is the
ratio of Debt on September 30, 1997 to EBITDA for the four
Financial Quarters ending September 30, 1997); and
(b) on September 1, 1997, the ratio of (i) June 30 Pro Forma Debt to
(ii) June 30 Pro Forma EBITDA.
"DEEMED PROCEEDS OF DISPOSITION AMOUNT" relative to any Disposition shall
have the meaning specified in subsection 8.02(d).
"DEEMED EXCESS PROCEEDS OF DISPOSITION AMOUNT" relative to any Disposition
shall have the meaning specified in subsection 8.02(d).
"DEFAULT" shall mean any event, act, omission or condition which with the
giving of notice or the passage of time, or both, would result in an Event of
Default.
"DEPRECIATION EXPENSE" shall mean, with respect to any period,
depreciation, amortization, depletion and other like reductions to income of
the Restricted Parties for such period not involving any outlay of cash,
determined on a Modified Consolidated basis and otherwise in accordance with
GAAP.
"DISCHARGE" when used as a verb, includes add, deposit, leak or emit and,
when used as a noun includes addition, deposit, emission or leak.
"DISPOSITION" shall mean any sale, assignment, transfer, conveyance or
other disposition of any nature or kind whatsoever of any property or of any
right, title or interest in or to any property, and the verb "DISPOSE" shall
have a correlative meaning.
"DOCUMENTATION AGENTS" shall mean Dresdner Bank Canada, Dresdner Bank AG
New York Branch and Royal Bank of Canada in their capacity as documentation
agents under this Agreement.
"DRAFT" shall have the meaning specified in subsection 2.05(1).
"EBITDA" shall mean, for any period, Net Income for such period:
(a) increased by the sum of (i) Interest Expense for such period,
(ii) Income Tax Expense for such period, (iii) Depreciation Expense
for such period, and (iv) unusual or non-recurring non-cash charges
incurred during such period in
<PAGE> 24
SECTION 1.01
- 16 -
connection with corporate restructurings which require an accrual
for any future period in accordance with GAAP, in each such case
to the extent that such amounts were included in the calculation of
Net Income for such period; and
(b) decreased by all cash payments during such period relating to
non-cash charges that were added back under clause (a)(iv) above in
determining EBITDA in any prior period;
provided that EBITDA shall be adjusted from time to time as provided for in
Section 1.03.
"ELIGIBLE AFFILIATE" of the Administrative Agent, any Other Agent or a
Lender shall mean an Affiliate of any such Person which has executed and
delivered to the Administrative Agent an acknowledgement and agreement in the
form of Schedule 3 agreeing to be bound by the provision of Sections 6.05 and
9.03 and Article Eleven of this Agreement in connection with any
Lender/Borrower Hedging Arrangement to which such Person is from time to time a
party.
"ENVIRONMENTAL ACTIVITY" shall mean any past, present or future activity,
event or circumstance in respect of a Contaminant, including, without
limitation, its storage, use, holding, collection, purchase, accumulation,
assessment, generation, manufacture, construction, processing, treatment,
stabilization, disposition, handling or transportation, or its Release, escape,
leaching, dispersal or migration into or movement through the Natural
Environment.
"ENVIRONMENTAL LAW" shall mean at any time any and all of the then
applicable international, federal, provincial, state, municipal or local Laws,
statutes, regulations, codes, rules, treaties, orders, judgments, decrees,
resolutions, guidelines, policies, ordinances, official directives and all
authorizations relating to the Natural Environment or any Environmental
Activity.
"EQUIVALENT AMOUNT" shall mean, with respect to any two currencies, the
amount obtained in one such currency when an amount in the other currency is
translated into the first currency using the spot wholesale transactions buying
rate of the Bank of Canada for the purchase of the applicable amount of the
first currency with the other currency in effect as of 12:00 noon on the
Business Day with respect to which such computation is required for the purpose
of this Agreement or, in the absence of such a buying rate on such date, using
such other rate as the Administrative Agent may reasonably select.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.
<PAGE> 25
SECTION 1.01
- 17 -
"ERISA AFFILIATE" shall mean any corporation, trade or business that is,
along with a Restricted Party, a member of a controlled group of corporations
or a controlled group of trades or businesses, as described in section 414 of
the Code, or section 4001 of ERISA.
"EVENT OF DEFAULT" shall mean an event specified in Section 9.01.
"EXCLUDED TAXES" shall mean, in relation to any Person, those Taxes which
are imposed or levied by any jurisdiction or any political subdivision of such
jurisdiction solely as a result of such Person (a) being organized under the
laws of such jurisdiction or any political subdivision of such jurisdiction,
(b) having its principal office or lending office in such jurisdiction, or (c)
not dealing at arm's length (as defined for the purposes of any taxing statute
in the applicable jurisdiction) with a Borrower, or which would not have been
imposed had such Person satisfied a relevant authority that such Person was not
a Person mentioned in clause (a), (b) or (c) above; but for greater certainty
shall not include any sales, goods or services, or harmonized sales and goods
and services taxes payable under the laws of such jurisdiction or any political
subdivision of such jurisdiction with respect to any goods or services made
available by the Administrative Agent or any Lender to any Restricted Party
under any Credit Document.
"EXISTING ALLWASTE AND SERV TECH BANK CREDIT AGREEMENTS" shall mean (a)
the November 30, 1993 credit agreement between Allwaste, as borrower, Texas
Commerce Bank National Association as agent and the various financial
institutions parties to such agreement as lenders as such agreement may have
been amended, and (b) the May 18, 1995 credit agreement between Serv Tech, as
borrower, Texas Commerce Bank National Association as agent and the parties to
such agreement as lenders as such agreement may have been amended.
"EXISTING BANK DEBT" shall mean:
(a) all debts and liabilities of the Borrowers under or in connection
with the Existing Philip Bank Credit Agreement and the security and
other documents delivered under or in connection with the Existing
Philip Bank Credit Agreement other than the Pre-existing
Accommodation which is deemed to be outstanding Accommodation under
this Agreement pursuant to Section 2.11; and
(b) all debts and liabilities of Allwaste and its Subsidiaries and Serv
Tech and its Subsidiaries under or in connection with the Existing
Allwaste and Serv Tech Bank Credit Agreements and the security and
other documents delivered under or in connection with the Existing
Allwaste and Serv Tech Bank Credit Agreements.
"EXISTING PHILIP BANK CREDIT AGREEMENT" shall mean the September 30, 1996
credit agreement, as amended, among the Cdn. Borrower and the U.S. Borrower, as
borrowers, Canadian Imperial Bank of Commerce, as administrative agent, Bankers
Trust, BT Bank of
<PAGE> 26
SECTION 1.01
- 18 -
Canada, Dresdner Bank AG New York and Grand Cayman Branches, Dresdner Bank
Canada and Royal Bank of Canada, as managing agents, and the various financial
institutions party to such credit agreement as lenders.
"FEDERAL FUNDS RATE" shall mean, for any day, an annual interest rate,
expressed on the basis of a year of 360 days, equal to the weighted average of
the rates on overnight United States federal funds transactions with members of
the Federal Reserve System arranged by United States federal funds brokers, as
published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Bank of New York, or for any
Business Day on which such rate is not so published, the arithmetic average of
the quotations for such day on such transactions received by the Administrative
Agent from three United States federal funds brokers of recognized standing
selected by it.
"FINANCIAL ASSISTANCE" given by any Person (the "FINANCIAL ASSISTANCE
PROVIDER") to or for the account or benefit of any other Person (the "FINANCIAL
ASSISTANCE RECIPIENT") shall mean any direct or indirect financial assistance
of any nature, kind or description whatsoever of or from such Financial
Assistance Provider, or of or from any other Person with Recourse Against such
Financial Assistance Provider or any of its property, to or for the account or
benefit of the Financial Assistance Recipient (including Investments in a
Financial Assistance Recipient, Contingent Obligations for the benefit of a
Financial Assistance Recipient, Acquisitions from a Financial Assistance
Recipient, and gifts or gratuities to or for the account or benefit of a
Financial Assistance Recipient).
"FINANCIAL QUARTER" shall mean one of the financial quarters of the
Restricted Parties being the period of (a) January, February and March, (b)
April, May and June, (c) July, August and September, and (d) October, November
and December.
"FINANCIAL YEAR" shall mean a financial year of the Restricted Parties
being the period from and including January 1 in a calendar year to and
including December 31 in the same calendar year.
"FIXED CHARGE RATIO" on any day shall mean the ratio of (a) EBITDA for the
Reference Financial Period for such day decreased by the amount of all Capital
Expenditures made by the Restricted Parties during such Reference Financial
Period to (b) Interest Expense for such Reference Financial Period plus
Restricted Payments on preferred shares of the Cdn. Borrower made during such
Reference Financial Period.
"GAAP" shall mean (a) with respect to all financial terms defined in this
Agreement, the calculation of the interest rates, Bankers' Acceptance fees,
Letter of Credit fees and standby fees set forth in Article Three and the
various financial covenants under Section 8.03, those accounting principles
which are recognized as being generally accepted in Canada as set out in
<PAGE> 27
SECTION 1.01
- 19 -
the handbook published by the Canadian Institute of Chartered Accountants as in
effect on December 31, 1996, and (b) for all other purposes under this
Agreement, those accounting principles which are recognized as being generally
accepted in Canada as set out in the handbook published by the Canadian
Institute of Chartered Accountants as in effect from time to time.
"GOVERNMENTAL AUTHORITY" shall mean any government, parliament,
legislature, regulatory authority, agency, commission, tribunal, department,
commission, board, instrumentality, court, arbitration board or arbitrator or
other law, regulation or rule making entity (including a Minister of the Crown)
having or purporting to have jurisdiction on behalf of, or pursuant to the laws
of, any country in which any Restricted Party is incorporated, continued,
amalgamated, merged or otherwise created or established or in which any
Restricted Party carries on business or holds property, or any province,
territory, state, municipality, district or political subdivision of any such
country or of any such state, province or territory of such country.
"GUARANTOR SUBSIDIARY" shall mean, at any time, a Restricted Subsidiary
which is at such time party to a valid and enforceable guarantee under which
such Subsidiary has guaranteed the due payment and performance of all of the
present and future debts and liabilities of either or both of the Borrowers to
the Administrative Agent, the Other Agents, the Lenders and their respective
Eligible Affiliates under or in respect of the Credit Documents and the
Lender/Borrower Hedging Arrangements, and "GUARANTOR SUBSIDIARIES" shall mean
all of the Guarantor Subsidiaries.
"HEDGING ARRANGEMENT" shall mean any arrangement or transaction between a
Restricted Party and any other Person which is a rate swap transaction, basis
swap, forward rate transaction, commodity swap, interest rate option, forward
foreign exchange transaction, cap transaction, floor transaction, collar
transaction, currency swap transaction, cross-currency rate swap transaction,
currency option or any other similar transaction (including any option with
respect to any of such transactions or arrangements).
"HOSTILE TAKE-OVER BID" shall mean a Take-Over Bid by a Restricted Party
or in which a Restricted Party is involved, in respect of which the board of
directors of the corporation whose securities are subject to such Take-Over Bid
has recommended rejection of such Take-Over Bid.
"IN WRITING" or "WRITTEN" shall mean any form of written communication or
a communication by means of facsimile or telex device.
"INCLUDING" shall mean "including without limitation", and "INCLUDES"
shall mean "includes without limitation".
"INCOME TAX EXPENSE" shall mean, with respect to any period, the aggregate
of all taxes on the income of the Restricted Parties for such period, whether
current or deferred (net of any
<PAGE> 28
SECTION 1.01
- 20 -
incentive tax credits or other similar credits) determined on a Modified
Consolidated basis and otherwise in accordance with GAAP.
"INDEPENDENT SUBSIDIARY" shall mean:
(a) those existing Subsidiaries of the Cdn. Borrower designated by the
Cdn. Borrower and the Co-Arrangers as Independent Subsidiaries and
referred to in Schedule 4;
(b) each Person which becomes a Subsidiary of the Cdn. Borrower after
the date of this Agreement as a result of an Acquisition and
(i) in respect of which such Acquisition has been financed
entirely from, or from any combination of, the proceeds of
an issuance of common share equity of the Cdn. Borrower,
property of Independent Subsidiaries and any Investments
permitted under subsection 8.02(e), provided that such
Acquisition has been completed, and the ongoing business and
operations of such Subsidiary have been structured so as to
continue, without any Financial Assistance from any
Restricted Party and without Recourse Against any Restricted
Party by any creditors of such Subsidiary or any of its
Subsidiaries (other than in either case pursuant to any such
Financial Assistance permitted under subsection 8.02(l)),
and
(ii) which is designated as an Independent
Subsidiary by written notice from the Cdn. Borrower to the
Administrative Agent at the time of such Acquisition, and
(c) each future Subsidiary of the Cdn. Borrower which is designated as
an Independent Subsidiary by the Cdn. Borrower and consented to in
writing as such by the Administrative Agent and the Required Lenders
in each case subject to the terms and conditions, if any, on which
such consent is provided by the Administrative Agent and the
Required Lenders.
In all events any Subsidiary of an Independent Subsidiary shall be deemed to
also be an Independent Subsidiary and any Subsidiary of the Cdn. Borrower
(other than Phencorp International Finance Inc.) which in the opinion of the
Required Lenders is unable to deliver a valid and enforceable unlimited
guarantee of all of the present and future debts and liabilities of one or both
of the Borrowers under the Credit Documents shall, on delivery of written
notice to such effect to the Cdn. Borrower from the Required Lenders (or from
the Administrative Agent with the consent of the Required Lenders), also be
deemed to be an Independent Subsidiary.
<PAGE> 29
SECTION 1.01
- 21 -
"INTEREST COVERAGE RATIO" shall mean on any day the ratio of (a) EBITDA
for the Reference Financial Period for such day to (b) Interest Expense for the
Reference Financial Period for such day.
"INTEREST EXPENSE" shall mean, for any period, the aggregate amount of
interest and other financing charges, whether capitalized or expensed by the
Restricted Parties, on account of such period with respect to Debt including
interest, discount and financing fees, commissions, discounts, the interest or
time value of money component of costs related to factoring or securitizing
receivables or monetizing inventory and other fees and charges payable with
respect to letters of credit and bankers' acceptance financing, standby fees,
the interest component of Capitalized Lease Obligations and net payments (if
any) pursuant to Hedging Arrangements involving interest, but excluding any
amount, such as amortization of debt discount and expenses, which would qualify
as Depreciation Expense and the amount reflected in income for such period in
respect of gains (or losses) attributable to translation of Debt from one
currency to another currency, all as determined on a Modified Consolidated
basis and otherwise in accordance with GAAP, provided that Interest Expense
shall be adjusted from time to time as provided for in Section 1.03.
"INVESTMENT" shall mean, with respect to any Person, any direct or
indirect investment in or purchase or other acquisition of the securities of or
an equity interest in any other Person, any loan or advance to, or arrangement
for the purpose of providing funds or credit to (excluding extensions of trade
credit in the ordinary course of business in accordance with customary
commercial terms), or capital contribution to (whether by means of a transfer
of cash or other property or any payment for property or services for the
account or use of) any other Person. For greater certainty an Acquisition
shall not be treated as an Investment.
"INVESTMENT GRADE RATING" shall mean a rating of the long term debt of the
Cdn. Borrower of both BBB- or higher by S&P (or the equivalent rating if S&P
should change its rating categories) and Baa3 or higher by Moody's (or the
equivalent rating if Moody's should change its rating categories).
"JUNE 30 PRO FORMA DEBT" shall mean the pro forma Debt of the Restricted
Parties shown on the balance sheet of the Restricted Parties (including
Allwaste and its Subsidiaries, Serv Tech and its Subsidiaries, and all
Acquisitions made by the Restricted Parties up to and including July 31, 1997)
forming part of the June 30 Pro Forma Financial Statements.
"JUNE 30 PRO FORMA EBITDA" shall mean EBITDA for the four Financial
Quarters ending June 30, 1997 determined on a pro forma basis to include and
take into account the financial performance of Allwaste and its Subsidiaries,
Serv Tech and its Subsidiaries, and all other Acquisitions made by the
Restricted Parties up to and including July 31, 1997, in each case
<PAGE> 30
SECTION 1.01
- 22 -
during the four financial quarters for each such corporation ending as of the
date of the most recent publicly available financial statements for such
corporation.
"JUNE 30 PRO FORMA FINANCIAL STATEMENTS" shall mean Modified Consolidated
quarterly financial statements for the Restricted Parties for the Financial
Quarter ending June 30, 1997 prepared on a pro forma basis to include and take
into account
(a) the financial position on such date, and the financial performance
during the period ended on such date, of Allwaste and its
Subsidiaries, Serv Tech and its Subsidiaries, and all other
Acquisitions made by the Restricted Parties up to and including July
31, 1997; and
(b) all Debt incurred or assumed by the Restricted Parties after June
30, 1997 in connection with the Acquisitions referred to in clause
(a) of this definition (including Debt of the Targets of such
Acquisitions and their Subsidiaries which has not been repaid as at
the date of delivery of such financial statements).
"LAWS" shall have the meaning specified in the definition of the term
"Applicable Law".
"LC ISSUERS" shall mean the Cdn. LC Issuer and the U.S. LC Issuer, and "LC
ISSUER" shall mean either one of the LC Issuers.
"LC LENDERS" shall mean (a) the Cdn. LC Lenders, (b) the U.S. LC Lenders
and (c) only in connection with the Pre-existing Lcs, the Cdn. Operating Lender
and the U.S. Operating Lenders in their respective capacities as issuers of the
Pre-existing Lcs, and "LC LENDER" shall mean any one of the LC Lenders.
"LC LINE" shall have the meaning specified in subsection 2.01(g).
"LENDER/BORROWER HEDGING ARRANGEMENT" shall mean a Hedging Arrangement
which is (a) otherwise permitted pursuant to subsection 8.02(r), (b) entered
into by a Borrower and any of the Administrative Agent, any Other Agent, a
Lender or an Eligible Affiliate of any such Person, and (c) in respect of which
the Administrative Agent has received written notice from the applicable Other
Agent, Lender or Eligible Affiliate providing the Administrative Agent with
particulars of such Hedging Agreement and "LENDER/BORROWER HEDGING
ARRANGEMENTS" shall mean all of the Lender/Borrower Hedging Arrangements from
time to time.
"LENDERS" shall mean the Cdn. Only Lenders, the Cross Border Lenders, the
U.S. Only Lenders, the Cdn. Operating Lender, the U.S. Operating Lenders and
the LC Lenders and "LENDER" shall mean any one of the Lenders.
<PAGE> 31
SECTION 1.01
- 23 -
"LETTER OF CREDIT" shall mean a letter of credit issued under the LC Line
as provided in Section 2.06 by the Cdn. LC Issuer on behalf of the Cdn. LC
Lenders for the account of the Cdn. Borrower or a standby letter of credit
issued under the LC Line as provided for in Section 2.06 by the U.S. LC Issuer
on behalf of the U.S. LC Lenders for the account of the U.S. Borrower and, for
greater certainty, shall include all Pre-existing Lcs as provided for in
Section 2.11.
"LIBOR" shall mean, with respect to any LIBOR Period:
(a) for each LIBOR Loan from a Cdn. Only Lender, a Cdn. Cross Border
Lender or the Cdn. Operating Lender, the Base LIBOR for such LIBOR
Loan for such LIBOR Period, and
(b) for each LIBOR Loan from a U.S. Only Lender, a U.S. Cross Border
Lender or a U.S. Operating Lender, the rate obtained by dividing (i)
the Base LIBOR for such LIBOR Loan for such LIBOR Period by (ii) a
percentage equal to 1 minus the stated maximum rate (stated as a
decimal and rounded upwards to the nearest 1/16 of 1%) of all
reserves required to be maintained against Eurocurrency liabilities
as specified in Regulation D (or against any other category of
liabilities which includes deposits by reference to which the
interest rate on LIBOR Loans is determined or any category of
extensions of credit or other assets which includes loans by a
non-United States office of any Lender to United States residents).
"LIBOR LOAN" shall mean any Loan in U.S. Dollars with respect to which
interest is calculated under this Agreement for the time being on the basis of
the LIBOR and, for greater certainty, shall include all Pre-existing LIBOR
Loans as provided for in Section 2.11.
"LIBOR PERIOD" shall mean, from time to time with respect to a LIBOR Loan,
the applicable interest period of one, three or six months, as selected in
accordance with Section 3.05 and any other applicable provision of this
Agreement.
"LIEN" shall mean any mortgage, charge, pledge, hypothecation, lien
(statutory or otherwise), security interest or other encumbrance of any nature
however arising, or any other agreement or arrangement creating in favour of
any creditor a right in respect of any particular property that is prior to the
right of any other creditor in respect of such property, and includes the right
of a lessor under a Capitalized Lease Obligation.
"LOAN" shall mean the principal amount of Cdn. Dollars or U.S. Dollars
advanced by a Lender to a Borrower on any Borrowing Date pursuant to a Notice
of Borrowing or made or deemed to have been made by an Operating Lender by way
of overdraft pursuant to Section 2.07 (which, for greater certainty, shall
include all Pre-existing Prime Rate Overdraft Loans, all Pre-existing U.S. Base
Rate Overdraft Loans and all Pre-existing U.S. Reference Rate Overdraft
<PAGE> 32
SECTION 1.01
- 24 -
Loans as provided for in Section 2.11) or made or deemed to have been made by a
Lender pursuant to subsection 2.05(7) or subsection 2.06(3), and "TYPE" of Loan
shall refer to whether a particular Loan is a Prime Rate Loan, a U.S. Base Rate
Loan, a U.S. Reference Rate Loan or a LIBOR Loan.
"MARGIN STOCK" shall have the meaning given to such term under Regulation
U (12 CFR Part 221).
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a) the
business, operations, properties, assets, condition (financial or otherwise) or
prospects of the Restricted Parties considered as a whole, or (b) the ability
of any of the Restricted Parties to pay or perform any of their respective
liabilities or obligations under any of the Credit Documents, or (c) the right,
entitlement or ability of the Administrative Agent or the Lenders to enforce
any of the debts, liabilities or obligations of any of the Restricted Parties
under, or to exercise or enforce any of their respective rights, entitlements
or benefits under, any of the Credit Documents.
"MATERIAL RESTRICTED PARTIES" shall mean, at any time, the Borrowers and
all Restricted Subsidiaries which are not at such time Non Material Restricted
Subsidiaries, and "MATERIAL RESTRICTED PARTY" shall mean any one of the
Material Restricted Parties.
"MATURITY DATE" shall mean August 12, 2002.
"MODIFIED CONSOLIDATED" shall mean, when used with respect to any
financial term, financial covenant or financial statements, the consolidation
of the applicable financial position, financial performance or financial
statements of the Restricted Parties without regard to any other Person which
is not a Restricted Party, irrespective of whether or not such other Person is
a Subsidiary of a Restricted Party or is a Person in which a Restricted Party
has an equity or ownership interest.
"MOODY'S" shall mean Moody's Investors Service, Inc. and its successors.
"NATURAL ENVIRONMENT" shall mean the air, land, subsoil, surface water,
ground water, and property or any combination or part thereof in any
jurisdiction in which a Borrower or any of its Subsidiaries carries on
business.
"NET INCOME" shall mean, for any period, the net income (loss) of the
Restricted Parties for such period, determined on a Modified Consolidated basis
after allowance for minority interests and otherwise in accordance with GAAP
provided that, when used in the definition of EBITDA, "Net Income" shall mean
Net Income as so determined but excluding, in each case net of applicable
taxes, (a) any gain or loss arising from the Disposition of capital assets
(other than any Disposition of capital assets made in the ordinary course of
business) or the closure of plants
<PAGE> 33
SECTION 1.01
- 25 -
or undertakings, (b) any gain or loss arising from any write-up or write-down
of assets or goodwill, (c) any earnings or losses of any other Person
substantially all of the assets of which have been acquired by a Restricted
Party in any manner to the extent that such earnings or losses were realized by
such other Person prior to the effective date of such acquisition, (d) net
earnings of any Person (other than a Restricted Party) in which a Restricted
Party has an ownership or equity interest unless such earnings have actually
been received by such Restricted Party in the form of cash distributions, (e)
the earnings or losses of any Person to which assets of a Restricted Party have
been Disposed of or into or with which a Restricted Party has merged or
amalgamated, to the extent that such earnings or losses arose prior to the date
of such transaction, and (f) any gains or losses arising from the Disposition
of any securities owned by a Restricted Party (other than securities held by
Philip Barbados and Phencorp International Finance Inc.).
"NON ARM'S LENGTH PERSON" shall mean any director, officer, employee,
Affiliate or Associate of the Cdn. Borrower or any of its Subsidiaries or
Affiliates or any other Person who does not deal at arm's length with the Cdn.
Borrower or any of its Subsidiaries or Affiliates within the meaning of such
concept as used in the Income Tax Act (Canada).
"NON BA LENDER" shall mean any Lender which is a Cdn. Only Lender, a Cdn.
Cross Border Lender or the Cdn. Operating Lender, and which is not a BA Lender.
"NON MATERIAL RESTRICTED SUBSIDIARIES" shall mean, at any time, those
Restricted Subsidiaries (together with their Restricted Subsidiaries) listed in
Schedule 26, as such Schedule may be amended from time to time as provided in
subsection 8.01(w) provided that:
(a) no such Restricted Subsidiary shall be a Non Material Restricted
Subsidiary at any time if:
(i) the revenue of such Restricted Subsidiary and its Subsidiaries
(other than Independent Subsidiaries) for the most recently
completed four Financial Quarters exceeded 1% of the aggregate
revenue of all of the Restricted Parties for such four
Financial Quarters; or
(ii) the book value of the property of such Restricted Subsidiary
and its Subsidiaries (other than Independent Subsidiaries) at
such time exceeds 1% of the book value at such time of all
property of all of the Restricted Parties; or
(iii) such Restricted Subsidiary or any of its Subsidiaries owns,
leases, licenses or otherwise holds at such time any property
which is material to the undertaking, business, operation or
property of any Material Restricted Party; and
<PAGE> 34
SECTION 1.01
- 26 -
(b) none of such Restricted Subsidiaries shall be Non Material
Restricted Subsidiaries at such time if:
(i) the aggregate revenue of all such Restricted Subsidiaries
and their Subsidiaries (other than Independent Subsidiaries)
for the most recently completed four Financial Quarters
exceeded 15% of the aggregate revenue of all of the
Restricted Parties for such four Financial Quarters; or
(ii) the book value of the property of all such Restricted
Subsidiaries and their Subsidiaries (other than Independent
Subsidiaries) at such time exceeds 15% of the book value at
such time of all property of all of the Restricted Parties.
"NON RECOURSE ACKNOWLEDGEMENT AND UNDERTAKING" shall mean an agreement in
the form of Schedule 5 from a creditor of an Independent Subsidiary in favour
of the Secured Parties acknowledging and agreeing that (a) such Independent
Subsidiary is separate and independent from the Restricted Parties, (b) such
creditor has granted credit to such Independent Subsidiary without regard to or
reliance on any of the Restricted Parties or any of their property or financial
positions, and (c) such creditor will not have or claim Recourse Against any
Restricted Party with respect to any of the present or future debts or
liabilities of such Independent Subsidiary to such creditor.
"NON-U.S. PENSION PLAN" shall mean any plan, fund (including, without
limitation, any superannuation or pension fund) or other similar program
established or maintained outside the United States of America by any
Restricted Party or to which any Restricted Party or any Affiliate of a
Restricted Party may have any liability primarily for the benefit of employees
or former employees of such Restricted Party residing outside the United States
of America, which plan, fund or other similar program provides, or results in,
retirement income, a deferral of income in contemplation of retirement or
payments to be made upon termination of employment, and which plan is not
subject to ERISA or the Code.
"NON-U.S. WELFARE PLAN" shall mean any plan, fund or other similar program
other than a Non-U.S. Pension Plan established or maintained outside the United
States of America by any Restricted Party or to which any Restricted Party or
any Affiliate of a Restricted Party may have any liability primarily for the
benefit of employees or former employees of such Restricted Party residing
outside the United States of America, or results in health, medical,
disability, life insurance and other employee benefits, and which plan, fund or
other similar program is not subject to ERISA or the Code.
"NOTICE OF BORROWING" shall have the meaning specified in subsection
2.04(1).
<PAGE> 35
SECTION 1.01
- 27 -
"NOTICE OF CONVERSION/RENEWAL" shall have the meaning specified in
subsection 2.04(1).
"OFFICER'S CERTIFICATE" shall mean a certificate in form satisfactory to
the Administrative Agent (a) in the case of any such certificate of a Borrower
delivered under subsections 8.01(a), 8.01(b), 8.01(g), 8.02(k) and 10.01(j),
signed by the President or the Chief Financial Officer of such Borrower (or in
the case of the environmental compliance certificate to be delivered under
subsection 8.01(b), the Executive Vice President, Corporate and Regulatory
Affairs of the Cdn. Borrower), and (b) in all other cases, of the applicable
corporation required to provide such certificate signed by the president or
vice president of such corporation or by such other of its senior officers as
may be acceptable to the Administrative Agent.
"OPERATING LENDERS" shall mean the Cdn. Operating Lender and the U.S.
Operating Lenders, and "OPERATING LENDER" shall mean any one of the Operating
Lenders.
"OPERATING LINES" shall mean the Cdn. Operating Line and the U.S.
Operating Lines, and "OPERATING LINE" shall mean any one of the Operating
Lines.
"OTHER AGENTS" shall mean the Syndication Agent, the Co-Arrangers and the
Documentation Agents, and "OTHER AGENT" shall mean any one of the Other Agents.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PENSION PLAN" shall mean a "pension plan", as such term is defined in
section 3(2) of ERISA, which is subject to title I of ERISA (other than a
multiemployer plan as defined in section 4001(a)(3) of ERISA), and to which any
Restricted Party or any ERISA Affiliate may have any liability, including any
liability by reason of having been a substantial employer within the meaning of
section 4063 of ERISA at any time during the preceding five years, or by reason
of being deemed to be a contributing sponsor under section 4069 of ERISA.
"PERMANENT DISPOSITION REDUCTION AMOUNT" relative to any Disposition shall
have the meaning specified in subsection 8.02(d).
"PERMITS" shall mean all permits, licenses, approvals, franchises,
rights-of-way, easements and entitlements which any Restricted Party requires,
or is required to have, to own, lease or license its property or operate or
carry on the business conducted by it.
"PERMITTED LIENS" shall mean Liens referred to in Schedule 6.
"PERMITTED INDEBTEDNESS" shall mean the indebtedness referred to in
Schedule 7.
<PAGE> 36
SECTION 1.01
- 28 -
"PERSON" is to be broadly interpreted and shall include an individual, a
corporation, a partnership, a trust, an unincorporated organization, a joint
venture, the government of a country or any political subdivision of a country,
or an agency or department of any such government, any other Governmental
Authority and the executors, administrators or other legal representatives of
an individual in such capacity.
"PHILIP DISCLOSURE DOCUMENTS" shall mean the Proxy Statement of Allwaste
and Prospectus of the Cdn. Borrower dated June 30, 1997 and filed by the Cdn.
Borrower with the United States Securities and Exchange Commission and the
Proxy Statement of Serv Tech and Prospectus of the Cdn. Borrower dated June 24,
1997 and filed by the Cdn. Borrower with the United States Securities and
Exchange Commission.
"PRE-EXISTING ACCOMMODATION" shall mean all Pre-existing BA Equivalent
Notes, Pre-existing Bas, Pre-existing Lcs, Pre-existing LIBOR Loans,
Pre-existing Prime Rate Overdraft Loans, Pre-existing U.S. Base Rate Overdraft
Loans and Pre-existing U.S. Reference Rate Overdraft Loans.
"PRE-EXISTING ACCOMMODATION LENDERS" shall mean, (a) in the case of the
Pre-existing Lcs, the LC Lenders, the Cdn. Operating Lender and the U.S.
Operating Lenders, (b) in the case of Pre-existing Prime Rate Overdraft Loans
and Pre-existing U.S. Base Rate Overdraft Loans, the Cdn. Operating Lender, (c)
in the case of Pre-existing U.S. Reference Rate Overdraft Loans, the U.S.
Operating Lenders, and (d) in the case of any other Pre-existing Accommodation
the applicable Lenders listed in Schedule 8 as the lender relative to such
Pre-existing Accommodation.
"PRE-EXISTING BA EQUIVALENT NOTES" shall mean the BA Equivalent Notes (as
defined in the Existing Philip Bank Credit Agreement) purchased by a
Pre-existing Accommodation Lender under the Existing Philip Bank Credit
Agreement and described in Part I of Schedule 8, all of which BA Equivalent
Notes are deemed, pursuant to the provisions of Section 2.11, to be BA
Equivalent Notes purchased by such Lender, and outstanding, under this
Agreement under the applicable Tranche specified in Schedule 8.
"PRE-EXISTING BAS" shall mean the bankers' acceptances accepted by a
Pre-existing Accommodation Lender under the Existing Philip Bank Credit
Agreement and described in Part II of Schedule 8, all of which bankers'
acceptances are deemed, pursuant to the provisions of Section 2.11, to be
Bankers' Acceptances accepted by such Lender, and outstanding, under this
Agreement under the applicable Tranche specified in Schedule 8.
"PRE-EXISTING LCS" shall mean the letters of credit issued by a
Pre-existing Accommodation Lender under the Existing Philip Bank Credit
Agreement and described in Part
<PAGE> 37
SECTION 1.01
- 29 -
IV of Schedule 8, all of which letters of credit are deemed, pursuant to
the provisions of Section 2.11, to be (a) in the case of any such letters of
credit issued by Canadian Imperial Bank of Commerce, Letters of Credit issued
by the Cdn. LC Issuer on behalf of the Cdn. LC Lenders, and outstanding, under
this Agreement under the LC Line, (b) in the case of any such letters of credit
issued by Canadian Imperial Bank of Commerce, New York Agency, Letters of
Credit issued by the U.S. LC Issuer on behalf of the U.S. LC Lenders, and
outstanding, under this Agreement under the LC Line, (c) in the case of any
such letters of credit issued by the Cdn. Operating Lender, Letters of Credit
from the Cdn. Operating Lender issued, and outstanding, under this Agreement
under the Cdn. Operating Line, and (d) in the case of any such Letters of
Credit issued by a U.S. Operating Lender, Letters of Credit from such U.S.
Operating Lender issued, and outstanding, under this Agreement under the U.S.
Operating Line from such U.S. Operating Lender.
"PRE-EXISTING LIBOR LOANS" shall mean the libor loans made by a
Pre-existing Accommodation Lender under the Existing Philip Bank Credit
Agreement and described in Part III of Schedule 8, all of which libor loans are
deemed, pursuant to the provisions of Section 2.11, to be LIBOR Loans made by
such Lender, and outstanding, under this Agreement under the applicable Tranche
specified in Schedule 8.
"PRE-EXISTING PRIME RATE OVERDRAFT LOANS" shall mean the aggregate amount
of Cdn. Dollar prime rate loans outstanding by way of overdraft under Tranche
A-4 of the Existing Philip Bank Credit Agreement on the Closing Date, all of
which amounts are deemed, pursuant to the provisions of Section 2.11, to be
Prime Rate Loans made by way of overdraft by the Cdn. Operating Lender, and
outstanding, under this Agreement under the Cdn. Operating Line.
"PRE-EXISTING U.S. BASE RATE OVERDRAFT LOANS" shall mean the aggregate
amount of U.S. Dollar base rate loans outstanding by way of overdraft under
Tranche A-4 of the Existing Philip Bank Credit Agreement on the Closing Date,
all of which amounts are deemed, pursuant to the provisions of Section 2.11, to
be U.S. Base Rate Loans made by way of overdraft by the Cdn. Operating Lender,
and outstanding, under this Agreement under the Cdn. Operating Line.
"PRE-EXISTING U.S. REFERENCE RATE OVERDRAFT LOANS" shall mean the
aggregate amount of U.S. Dollar reference rate loans outstanding by way of
overdraft under Tranche A-5 of the Existing Philip Bank Credit Agreement on the
Closing Date, all of which amounts are deemed, pursuant to the provisions of
Section 2.11, to be U.S. Reference Rate Loans made by way of overdraft by the
applicable U.S. Operating Lender, and outstanding, under this Agreement under
the U.S. Operating Line from such U.S. Operating Lender.
"PRICING ADJUSTMENT DATE" shall mean the first day of each Financial
Quarter.
<PAGE> 38
SECTION 1.01
- 30 -
"PRIME RATE" shall mean a fluctuating rate of interest per annum,
expressed on the basis of a year of 365 or 366 days, as applicable, which is
equal at all times to the greater of:
(i) (x) in the case of Accommodation under the Credit (other than under
the Cdn. Operating Line) or other amounts in respect of which
interest is to be calculated under this Agreement on the basis of
the Prime Rate, the reference rate of interest (however designated)
of the Administrative Agent for determining interest chargeable by
it on Cdn. Dollar commercial loans made in Canada, and (y) in the
case of Accommodation under the Cdn. Operating Line, the reference
rate of interest (however designated) of the Cdn. Operating Lender
for determining interest chargeable by it on Cdn. Dollar
commercial loans made in Canada; and
(ii) 0.75% above CDOR from time to time for 30 day bankers' acceptances.
"PRIME RATE LOAN" shall mean any Loan in Cdn. Dollars with respect to
which interest is calculated under this Agreement for the time being on the
basis of the Prime Rate.
"PRO FORMA FINANCIAL STATEMENTS" shall mean the Modified Consolidated
quarterly financial statements of the Restricted Parties for the period ending
on March 31, 1997 prepared on a pro forma basis to add and take into account
the initial Borrowing and the financial position on such date, and the
financial performance during the period ending on such date, of all
Acquisitions made by the Restricted Parties up to and including July 31, 1997.
"PROPERTY" shall include any asset or property of any nature, kind or
description whatsoever (whether real, personal or intellectual and whether
tangible or intangible) and any cash, receivables, revenue or undertaking,
whether or not shown on a balance sheet in accordance with GAAP.
"PURCHASE MONEY OBLIGATION" shall mean an obligation of a Restricted Party
incurred or assumed to finance the purchase price of any tangible personal
property acquired by such Restricted Party in the ordinary course of business,
provided that such obligation is incurred or assumed within 30 days after the
acquisition of such property and does not exceed the purchase price payable by
such Restricted Party for such property, and includes any extension, renewal or
refunding of any such obligation so long as the principal amount thereof
outstanding on the date of such extension, renewal or refunding is not
increased.
"RATEABLY" shall mean, at any time:
(a) for purposes other than Sections 9.03 and 11.02, as nearly as
practical in the opinion of the Administrative Agent, in accordance
with the proportion that the aggregate amounts owing under all
Credit Documents to the Administrative
<PAGE> 39
SECTION 1.01
- 31 -
Agent, to any Other Agent or to any particular Lender at such time
is of the aggregate amounts owing under all Credit Documents to the
Administrative Agent, the Other Agents and all Lenders at such time,
or in accordance with the proportion that the outstanding
Accommodation from any particular Lender at such time from a
particular Borrower or from both Borrowers, as the case may be,
under a particular Tranche or Tranches is of the outstanding
Accommodation from all Lenders at such time from such Borrower or
from both Borrowers, as the case may be, under such Tranche or
Tranches; and
(b) in the case of Sections 9.03 (subject to the provisions of subsection
9.03(5)) and 11.02, in accordance with the proportion that the
aggregate amounts owing under all Secured Party Documents to any
Secured Party at such time is of the aggregate amounts owing under
all Secured Party Documents to all Secured Parties at such time;
and "RATEABLE" shall have an analogous meaning.
"RECOURSE AGAINST " any Person shall mean any direct or indirect right,
entitlement or recourse of any kind, nature or description whatsoever (whether
by agreement, pursuant to statute, at law, in equity or otherwise) to or
against such Person or any of such Person's property or credit.
"REFERENCE FINANCIAL PERIOD" shall mean:
(a) when used to determine any pricing adjustments for interest, Bankers'
Acceptance fees, Letter of Credit fees or standby fees under Article
Three, in each case, for any Pricing Adjustment Date, the four
consecutive Financial Quarters ending on the last day of the second
immediately preceding completed Financial Quarter (by way of
example, for the Pricing Adjustment Date which occurs on January 1,
1998, the Reference Financial Period is the four Financial Quarters
ending September 30, 1997 and for the Pricing Adjustment Date which
occurs on April 1, 1998, the Reference Financial Period is the four
Financial Quarters ending on December 31, 1997); and
(b) when used for any other purpose for any day
(i) if such day is the last day of a Financial Quarter, the four
consecutive Financial Quarters ending on such day; and
(ii) if such day is not the last day of a Financial Quarter, the
then most recently completed four Financial Quarters.
<PAGE> 40
SECTION 1.01
- 32 -
"REGISTRY OF COMMITMENTS" shall have the meaning specified in subsection
2.08(2).
"REGULATION D", "REGULATION G", "REGULATION T", "REGULATION U" and
"REGULATION X" shall mean Regulation D, Regulation G, Regulation T, Regulation
U and Regulation X of the Board of Governors of the United States Federal
Reserve System.
"REINVESTED" in the Restricted Parties, when used in connection with all
or any portion of any Deemed Excess Proceeds of Disposition Amount, shall mean
the use of funds by the Restricted Parties in an amount equal to, or to such
portion of, such Deemed Excess Proceeds of Disposition Amount to acquire
property, or to acquire a business or Person (in which case such Person may not
be an Independent Subsidiary) which results in the indirect acquisition by the
Restricted Parties of property, which has a fair market value at least equal to
such Deemed Excess Proceeds of Disposition Amount or such portion of such
Deemed Excess Proceeds of Disposition Amount, as the case may be, and which are
to be used in, and are required for use in, the operation of the business of
the Restricted Parties.
"RELATED BUSINESS" shall mean any business similar to the resource
recovery and industrial services business carried on at the date of this
Agreement by the Restricted Parties or any other resource recovery and
industrial services business.
"RELEASE" is to be broadly interpreted and shall include deposit, leak,
emit, add, spray, inject, inoculate, abandon, spill, seep, pour, empty, throw,
dump, place and exhaust, and when used as a noun has a similar meaning.
"REPORTABLE EVENT" shall mean an event described in Section 4043(c) of
ERISA with respect to a Pension Plan that is subject to Title IV of ERISA other
than those events as to which the 30-day notice period is waived under
subsection .22, .23, .25, .27 or .28 of PBGC Regulation Section 4043.
"REQUIRED LENDERS" shall mean, at any time, (a) for the purpose of Section
9.02, the Lenders which are entitled to vote in respect of at least 66 and 2/3%
of the aggregate U.S. Dollar Amount of all Accommodation then outstanding, and
(b) for all other purposes of this Agreement, the Lenders whose Commitments (or
after the termination of the Commitments, U.S. Dollar Amount of outstanding
Accommodation) are at such time, in the aggregate, at least 66 and 2/3% of the
aggregate amount of all Commitments (or after the termination of the
Commitments, the U.S. Dollar Amount of all outstanding Accommodation) at such
time.
"REQUIREMENTS OF LAW" shall mean, as to any Person, the certificate of
incorporation and by-laws or other organizational or governing documents of
such Person, and any Applicable Law, or determination of a Governmental
Authority, in each case applicable to or binding upon such Person or any of its
property or to which such Person or any of its property is subject.
<PAGE> 41
SECTION 1.01
- 33 -
"RESTRICTED PARTIES" shall mean at any time the Borrowers and all
Restricted Subsidiaries at such time, and "RESTRICTED PARTY" shall mean any one
of the Restricted Parties.
"RESTRICTED PAYMENT" shall mean, with respect to any Person, any payment
by such Person (a) of any dividends on any shares of its capital, (b) on
account of, or for the purpose of setting apart any property for a sinking or
other analogous fund for, the purchase, redemption, retirement or other
acquisition of any shares of its capital or any warrants, options or rights to
acquire any such shares, or the making by such Person of any other distribution
in respect of any shares of its capital, (c) of any principal of or interest or
premium on or of any amount in respect of a sinking or analogous fund or
defeasance fund for any indebtedness or liability of such Person ranking in
right of payment subordinate to any liability of such Person under the Credit
Documents, or (d) of any management, consulting or similar fee or any bonus
payment or comparable payment, or by way of gift or other gratuity, to any Non
Arm's Length Person.
"RESTRICTED SUBSIDIARIES" shall mean all present and future Subsidiaries
of the Cdn. Borrower other than any such Subsidiary which is at the relevant
time an Independent Subsidiary, and "RESTRICTED SUBSIDIARY" shall mean any one
of the Restricted Subsidiaries.
"ROLLING STOCK" shall mean relative to the Restricted Parties all
automobiles, trucks and other motorized vehicles of, or used by or for the
benefit of, or used in the operation of the business of, any Restricted Party,
provided that the term "ROLLING STOCK" shall not include any machinery,
equipment or other property (a) which is installed on or affixed to any such
automobile, truck or other motorized vehicle, and (b) which (i) uses technology
or intellectual property rights which are owned or licensed (other than only as
part of a license arrangement with the owner of such vehicle) by any of the
Restricted Parties, or (ii) consists of all or part of one or more units which
enables such automobile, truck or other motorized vehicle to deliver or perform
the services of any Restricted Party in respect of which such vehicle is being
used.
"SECURED PARTIES" shall have the meaning specified in Section 9.03, and
"SECURED PARTY" shall mean any one of the Secured Parties.
"SECURED PARTY DOCUMENTS" shall have the meaning specified in Section
9.03, and "SECURED PARTY DOCUMENT" shall mean any one of the Secured Party
Documents.
"SECURITY" shall have the meaning specified in Section 6.01.
"SERV TECH" shall mean Serv-Tech, Inc. a corporation existing under the
laws of Texas.
"SERV TECH AGREEMENT AND PLAN OF MERGER" shall mean the Agreement and Plan
of Merger dated as of March 5, 1997 among the Cdn. Borrower, Taro Aggregates
Ltd., ST Acquisition Corporation and Serv Tech.
<PAGE> 42
SECTION 1.01
- 34 -
"SERV TECH ACQUISITION" shall mean the Acquisition of Serv Tech by the
Cdn. Borrower by way of the merger of a wholly-owned Subsidiary of the Cdn.
Borrower with and into Serv Tech, with Serv Tech being the surviving
corporation from such merger, pursuant to the Serv Tech Agreement and Plan of
Merger.
"S&P" shall mean Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc. and its successors.
"SUBSIDIARY" shall mean, as to any Person, (i) any corporation, if
securities of such corporation having by the terms thereof ordinary voting
power to elect a majority of the directors of such corporation are at the time
owned by such Person and/or one or more Subsidiaries of such Person and (ii)
any partnership, association, joint venture or other entity in which such
Person and/or one or more Subsidiaries of such Person owns more than 50% of the
equity at the time.
"SURPLUS ADDITIONAL DEBT AND COMMITMENTS" shall mean at any time the
amount, if any, by which (x) the sum of, without duplication, all Additional
Debt outstanding at such time and all Additional Debt which any Restricted
Party is entitled to obtain at such time (or would be entitled to obtain at
such time subject to delivery of notices or requests and compliance with other
normal course conditions to borrowing) pursuant to any agreements or
commitments with any other Person, in the aggregate exceeds (y) U.S.
$250,000,000 (or the equivalent amount in any other currency or currencies).
"TAKE-OVER BID" shall mean either (a) an offer to acquire outstanding
voting or equity securities of a class of a corporation where the securities
that are the subject of such offer, together with the offeror's securities,
constitute at least 20% of the outstanding securities of that class of
securities on the date the offer is made, or (b) any other event which is a
take-over bid within the meaning attributed to such term by any law, treaty,
rule, regulation, or requirement of any stock exchange or securities
commission, or determination of any arbitrator, court, stock exchange,
securities commission or other Governmental Authority, in each case, applicable
to or binding on any Restricted Party.
"TAX SHARING AGREEMENT" shall mean an agreement in the form of Schedule 9
from an Independent Subsidiary respecting such Independent Subsidiary's
agreement to indemnify any Restricted Party from and reimburse any Restricted
Party for any United States income, corporate or other taxes payable by such
Independent Subsidiary which have been paid by, or in respect of which a claim
or demand by a Governmental Authority has been made against, such Restricted
Party or one of its Subsidiaries.
"TAXES" has the meaning specified in Section 5.03.
<PAGE> 43
SECTION 1.01
- 35 -
"TARGET" shall mean any company, division, business, undertaking or
operation acquired by way of an Acquisition.
"TRANCHE 1" shall have the meaning specified in subsection 2.01(a).
"TRANCHE 1 COMMITMENT" shall have the meaning specified in subsection
2.01(a).
"TRANCHE 2" shall have the meaning specified in subsection 2.01(b).
"TRANCHE 2 CDN. BORROWING COMMITMENT" shall have the meaning specified in
subsection 2.01(b).
"TRANCHE 2 COMBINED COMMITMENT" shall have the meaning specified in
subsection 2.01(b).
"TRANCHE 2 U.S. BORROWING COMMITMENT" shall have the meaning specified in
subsection 2.01(b).
"TRANCHE 3" shall have the meaning specified in subsection 2.01(c).
"TRANCHE 3 COMMITMENT" shall have the meaning specified in subsection
2.01(c).
"TRANCHES" shall mean, collectively, Tranche 1, Tranche 2, Tranche 3, the
Cdn. Operating Line, the U.S. Operating Lines and the LC Line, and "TRANCHE"
shall mean any one of the Tranches.
"TWO-STEP PERMITTED ACQUISITION" shall mean an Acquisition by a Borrower
or any Wholly-Owned Restricted Party otherwise permitted under this Agreement
and constituting the Acquisition of 100% of the capital stock of any Target not
already a Subsidiary of the Cdn. Borrower by way of (x) a tender offer for the
shares of such Target, and (y) a subsequent amalgamation or merger of the
Target with a Borrower or any Wholly-Owned Restricted Party (provided that in
the case of an amalgamation or merger with a Borrower, such Borrower is the
surviving corporation from such amalgamation or merger) or a subsequent
compulsory acquisition of all remaining outstanding shares of the Target,
provided that:
(a) the subsequent merger or compulsory share acquisition to be effected
as part of such Two-Step Permitted Acquisition shall be consummated
as soon as possible after the consummation of the tender offer
portion thereof but in any event within 135 days thereafter;
<PAGE> 44
SECTION 1.01
- 36 -
(b) upon the consummation of the tender offer portion of any Two-Step
Permitted Acquisition, the applicable Borrower or Wholly-Owned
Restricted Party shall have acquired sufficient shares of the
outstanding capital of the applicable Target to effect (without any
vote by any other shareholders of the Target) the subsequent
amalgamation or merger (as a result of which the Target shall be
amalgamated with or merged into the applicable Borrower or become a
Wholly-Owned Restricted Party) or compulsory share acquisition
within 135 days after the consummation of such tender offer; and
(c) prior to the consummation of the tender offer portion of any
Two-Step Permitted Acquisition, the applicable Borrower shall have
available to it sufficient committed financing to effect such
Two-Step Permitted Acquisition (and to make all payments owing in
connection with both steps thereof).
"UNDISBURSED COMMITMENT" shall mean, at any time with respect to any
Lender and any Tranche, the excess, if any, of the Commitment of such Lender at
such time under such Tranche over the U.S. Dollar Amount of Accommodation then
outstanding from such Lender under such Tranche.
"UNDISBURSED CREDIT" shall mean, at any time, the excess, if any, of the
limit of the Credit over the U.S. Dollar Amount of Accommodation then
outstanding under the Credit.
"UNDISBURSED TRANCHE" shall mean, at any time with respect to any Tranche,
the excess, if any, of the limit of such Tranche over the U.S. Dollar Amount of
Accommodation then outstanding under such Tranche, and "UNDISBURSED TRANCHE 1",
"UNDISBURSED TRANCHE 2", "UNDISBURSED TRANCHE 3", "UNDISBURSED CDN. OPERATING
LINE", "UNDISBURSED U.S. OPERATING LINE" and "UNDISBURSED LC LINE" shall have
analogous meanings.
"UNFUNDED CURRENT LIABILITY" of any Pension Plan shall mean the amount, if
any, by which the actuarial present value of the accumulated plan benefits
under the Pension Plan as of the close of its most recent plan year, determined
in accordance with actuarial assumptions at such time consistent with Statement
of Financial Accounting Standards No. 87, exceeds the market value of the
assets allocable thereto.
"U.S. BASE RATE" shall mean a fluctuating rate of interest per annum,
expressed on the basis of a year of 365 or 366 days, as applicable, which is
equal at all times to the greater of:
(i) (x) in the case of Accommodation under the Credit (other than under
the Cdn. Operating Line) or other amounts in respect of which
interest is to be calculated under this Agreement on the basis of
the U.S. Base Rate, the reference rate of interest (however
designated) of the Administrative Agent for determining interest
<PAGE> 45
SECTION 1.03
- 37 -
chargeable by it on U.S. Dollar commercial loans made in Canada,
and (y) in the case of Accommodation under the Cdn. Operating
Line, the reference rate of interest (however designated) of the
Cdn. Operating Lender for determining interest chargeable by it on
U.S. Dollar commercial loans made in Canada; and
(ii) 0.75% above the USD-LIBOR-Reuters from time to time.
"U.S. BASE RATE LOAN" shall mean any Loan in U.S. Dollars with respect to
which interest is calculated under this Agreement for the time being on the
basis of the U.S. Base Rate.
"U.S. BORROWER" shall mean Philip Environmental (Delaware), Inc., a
corporation existing under the laws of Delaware, and its successors by
amalgamation, merger or otherwise.
"U.S. CROSS BORDER LENDERS" shall mean those Lenders listed in Column 5 of
Schedule 1 to this Agreement, together with each other Person which from time
to time becomes a party to this Agreement and a Lender in the United States of
America to the U.S. Borrower under Tranche 2 in accordance with Section 12.01,
in their capacity as Lenders in the United States of America to the U.S.
Borrower under Tranche 2, in each case together with their respective
successors and assigns, and "U.S. CROSS BORDER LENDER" shall mean any one of
the U.S. Cross Border Lenders.
"U.S. DOLLAR AMOUNT" shall mean, at any time, relative to the Credit, any
Tranche, any Commitment or any Person, the sum of (a) the aggregate amount of
all Accommodation outstanding at such time under the Credit, under such
Tranche, under such Commitment or from such Person, as the case may be, that is
denominated in U.S. Dollars, and (b) the aggregate of the Equivalent Amounts at
such time, expressed in U.S. Dollars, of all Accommodation outstanding at such
time under the Credit, under such Tranche, under such Commitment or from such
Person, as the case may be, that is not denominated in U.S. Dollars.
"U.S. DOLLARS", "U.S. $" and "$" shall mean lawful currency of the United
States of America.
"U.S. LC COMMITMENT" shall have the meaning specified in subsection
2.01(g).
"U.S. LC ISSUER" shall mean Canadian Imperial Bank of Commerce, New York
Agency in its capacity as issuer of Letters of Credit to the U.S. Borrower
under the LC Line together with its successors and assigns in such capacity.
"U.S. LC LENDERS" shall mean the U.S. LC Issuer and those other Lenders
listed in Column 3 of Schedule 27 to this Agreement, together with each other
Person which from time to time becomes a party to this Agreement and a Lender
in the United States of America to the U.S.
<PAGE> 46
SECTION 1.01
- 38 -
Borrower under the LC Line in accordance with Section 12.01, in their capacity
as Lenders in the United States of America to the U.S. Borrower under the LC
Line, in each case together with their respective successors and assigns, and
"U.S. LC LENDER" shall mean any one of the U.S. LC Lenders.
"U.S. LENDERS" shall have the meaning specified in subsection 5.03(3), and
"U.S. LENDER" shall mean any one of the U.S. Lenders.
"U.S. ONLY LENDERS" shall mean those Lenders listed in Column 8 of
Schedule 1 to this Agreement, together with each other Person which from time
to time becomes a party to this Agreement and a Lender in the United States of
America to the U.S. Borrower under Tranche 3 in accordance with Section 12.01,
in their capacity as Lenders in the United States of America to the U.S.
Borrower under Tranche 3, in each case together with their respective
successors and assigns, and "U.S. ONLY LENDER" shall mean any one of the U.S.
Only Lenders.
"U.S. OPERATING LENDERS" shall mean the U.S. Operating Line A Lender and
the U.S. Operating Line B Lender, and "U.S. OPERATING LENDER" shall mean either
one of the U.S. Operating Lenders.
"U.S. OPERATING LINE A" shall have the meaning specified in subsection
2.01(e).
"U.S. OPERATING LINE A LENDER" shall mean Comerica Bank in its capacity as
the operating credit lender to the U.S. Borrower in the United States of
America under U.S. Operating Line A together with its successors and assigns in
such capacity.
"U.S. OPERATING LINE B" shall have the meaning specified in subsection
2.01(f).
"U.S. OPERATING LINE B LENDER" shall mean Texas Commerce Bank National
Association in its capacity as the operating credit lender to the U.S. Borrower
in the United States of America under U.S. Operating Line B together with its
successors and assigns in such capacity.
"U.S. OPERATING LINES" shall mean U.S. Operating Line A and U.S. Operating
Line B, and "U.S. OPERATING LINE" shall mean either one of the U.S. Operating
Lines.
"U.S. REFERENCE RATE" shall mean a fluctuating rate of interest per annum,
expressed on the basis of a year of 360 days, which is equal at all times to
the higher of:
(i) (x) in the case of Accommodation under the Credit (other than under
the U.S. Operating Lines) or other amounts in respect of which
interest is to be calculated under this Agreement on the basis of
the U.S. Reference Rate, the reference rate
<PAGE> 47
SECTION 1.01
- 39 -
of interest (however designated) quoted by the Administrative
Agent for determining interest chargeable by it or its Affiliates
on U.S. Dollar commercial loans made in the United States of
America, and (y) in the case of Accommodation under a U.S.
Operating Line, the reference rate of interest (however
designated) of the applicable U.S. Operating Lender for
determining interest chargeable by it on U.S. Dollar commercial
loans made in the United States of America; and
(ii) 0.5% above the Federal Funds Rate from time to time.
"U.S. REFERENCE RATE LOAN" shall mean any Loan in U.S. Dollars with
respect to which interest is calculated under this Agreement for the time being
on the basis of the U.S. Reference Rate.
"USD-LIBOR-REUTERS" on any day, shall mean the rate for deposits in U.S.
Dollars for a period of one month which appears on page Q LIBOR 01 as of 11:00
a.m. (London, England time) on such day (or if such rate does not appear on
such page of the Reuters Screen at such time on such day, then such rate which
appears on such page of the Reuters Screen as of 11:00 a.m. (London, England
time) on the immediately preceding Business Day) or, if such Reuters Screen
rate is not available on either such day, the rate for deposits of U.S. Dollars
for a period of one month which appears on the LIBO page of the Reuters Screen
as of 11:00 a.m. (London, England time) on such day (or if such rate does not
appear on the LIBO page at such time on such day, then such rate which appears
on the LIBO page of the Reuters Screen as of 11:00 a.m. (London, England time)
on the immediately preceding Business Day).
"WHOLLY-OWNED RESTRICTED PARTY" shall mean any Restricted Party of which
all of the issued and outstanding shares are owned beneficially and of record
by any one or more of the Cdn. Borrower and the Wholly-Owned Restricted
Parties.
"WORKING CAPITAL RATIO" shall mean, at any time, the ratio of (a) Current
Assets at such time to (b) Current Liabilities at such time.
1.012 HEADINGS, ETC.
The division of this Agreement into Articles, Sections, subsections,
paragraphs and clauses and the insertion of headings are for convenience of
reference only and will not affect the construction or interpretation of this
Agreement. The terms "this Agreement", "hereof", "hereunder" and similar
expressions refer to this Agreement and not to any particular Article, Section,
subsection, paragraph, clause or other portion of this Agreement. Unless
something in the subject matter or context is inconsistent with any such
reference, references in
<PAGE> 48
SECTION 1.02
- 40 -
this Agreement to Articles, Sections, subsections, paragraphs, clauses and
Schedules are to Articles, Sections, subsections, paragraphs, clauses and
Schedules of this Agreement.
1.013 FINANCIAL TERMS
(1) All accounting terms not otherwise defined in this Agreement will have
the meanings assigned to such terms by GAAP. The Borrowers acknowledge and
agree that the various financial terms defined and used in this Agreement, and
the availability of Accommodation, and the interest rates, Bankers' Acceptance
fees, Letter of Credit fees and stand-by fees set forth in Article Three and
the various financial covenants under Section 8.03, have all been established
and agreed upon on the basis of the accounting policies, practices, principles
and calculation methods or components thereof adopted and applied by the Cdn.
Borrower in the preparation of the Cdn. Borrower's December 31, 1996 annual
consolidated audited financial statements (the "FINANCIAL STATEMENTS").
Accordingly, although the Cdn. Borrower shall be entitled to implement any
change or modification in accordance with GAAP to any such accounting policies,
practices, principles or calculation methods or components thereof, for the
purpose of this Agreement, all accounting terms defined or used in this
Agreement (including, without limitation, those specifically referred to above)
shall at all times be interpreted in accordance with, and all financial
statements delivered or supplied under this Agreement shall be accompanied by a
reconciliation so as to show the financial position, performance and results of
the Restricted Parties in accordance with, GAAP (on a Modified Consolidated
basis where required by this Agreement) using, and shall at all times be
applied in accordance with GAAP (on a Modified Consolidated basis where
required by this Agreement) in a manner consistent with, the policies,
practices, principles and calculation methods or components thereof adopted by
the Cdn. Borrower with respect to the Financial Statements, irrespective of any
change or modification thereto implemented by the Cdn. Borrower (provided
however that if the Cdn. Borrower changes such policies, practices, principles
or calculation methods, the Cdn. Borrower may for the purpose of the accounting
terms defined in this Agreement (a) implement any such change which is neither
material in nature nor could have a material impact on the interpretation or
calculation of the financial terms or covenants set forth in this Agreement,
provided that the Cdn. Borrower has given the Administrative Agent prior
written notice of the applicable change, and (b) implement any such change
which is material in nature or which could have a material impact on the
interpretation or calculation of the financial terms or covenants set forth in
this Agreement provided that the Cdn. Borrower has given the Administrative
Agent 30 days' prior written notice of such change and the Required Lenders
have given their prior written approval to the Cdn. Borrower implementing such
change).
(2) If there is a Disposition of, or a closure of, any business,
undertaking or operation of a Restricted Party (collectively a "SALE"),
Interest Expense prior to the date of such Sale ("SALE RELATED HISTORICAL
INTEREST EXPENSE") will be adjusted downwards, effective as of the date of such
Sale, so that any Sale Related Historical Interest Expense for any period used
in any
<PAGE> 49
SECTION 1.03
- 41 -
calculations of financial terms or covenants under this Agreement after the
date of such Sale is reduced on a proportionate basis to reflect a reasonable
estimate of what such Sale Related Historical Interest Expense for such period
would have been if such Sale had been completed at the beginning of such
period. Any such adjustment to Sale Related Historical Interest Expense over
any period shall be calculated based on the formula set forth below. The
number of completed calendar months immediately preceding such Sale occurring
during the respective four Financial Quarter period will be determined and is
referred to as "N". Sale Related Historical Interest Expense will be adjusted
downward for such period by an amount equal to:
N/12 x (NSP x ACOB)
where:
NSP = the net cash sales proceeds received from such Sale or,
in the case of a Sale which is a closure, the book value at
the date of such Sale of the business or undertaking closed
ACOB = the average rate for the applicable period for Debt of the
Cdn. Borrower under this Agreement.
(3) If there is an Acquisition by a Restricted Party, Interest Expense
prior to the date of such Acquisition ("ACQUISITION RELATED HISTORICAL INTEREST
EXPENSE") will be adjusted upwards, effective as of the date of such
Acquisition, so that any Acquisition Related Historical Interest Expense for
any period used in any calculation of financial terms or covenants under this
Agreement after the date of such Acquisition is increased to reflect the
incremental Debt issued, incurred or assumed by the Restricted Parties to
effect such Acquisition calculated at a rate per annum equal to the rate of
interest applicable to such Debt at the date of such Acquisition (in the case
of Debt which was issued or incurred in connection with such Acquisition and at
the average rate of interest on such Debt for such period in the case of Debt
assumed in connection with such Acquisition) as if such incremental Debt had
been issued, incurred or assumed at the beginning of such period.
(4) If there is a Sale, EBITDA prior to the date of such Sale ("SALE
RELATED HISTORICAL EBITDA") will be adjusted downwards, effective as of the
date of such Sale, so that any Sale Related Historical EBITDA for any period
used in any calculations of financial terms or covenants under this Agreement
after the date of such Sale is reduced on a proportionate basis to reflect a
reasonable estimate of what Sale Related Historical EBITDA for such period
would have been if such Sale had been completed at the beginning of such
period. For greater certainty, any adjustment to EBITDA under this subsection
in connection with any Sale will be made without duplication of any adjustment
made to Interest Expense under subsection 1.03(2) in connection with such Sale.
<PAGE> 50
SECTION 1.03
- 42 -
(5) If there is an Acquisition by a Restricted Party of a new division,
business, undertaking or operation, EBITDA prior to the date of such
Acquisition ("ACQUISITION RELATED HISTORICAL EBITDA") will be adjusted upward,
effective as of the date of such Acquisition, so that any Acquisition Related
Historical EBITDA for any period used in any calculations of financial terms or
covenants under this Agreement after the date of such Acquisition is increased
to reflect a reasonable estimate of what Acquisition Related Historical EBITDA
for such period would have been had such Acquisition been completed at the
beginning of such period (and for greater certainty such upward adjustment will
not include any expected synergies). For greater certainty, any adjustment to
EBITDA under this subsection in connection with any Acquisition will be made
without duplication of any adjustment made to Interest Expense under subsection
1.03(3) in connection with such Acquisition.
1.014 NUMBER, GENDER AND EXPRESSIONS
Words importing the singular number only will include the plural and vice
versa, words importing gender will include all genders and words importing any
type or category of Persons will include all types and categories of Persons.
Where any term or expression is defined in this Agreement, derivations of such
term or expression will have a corresponding meaning.
1.015 TIME
Unless otherwise expressly stated, any reference in this Agreement to a
time will mean Toronto, Ontario local time. Time shall be of the essence of
this Agreement and each of its provisions.
1.016 NON-BUSINESS DAYS
Unless otherwise expressly provided in this Agreement, whenever any
payment is stated to be due on a day other than a Business Day, the payment
will be made on the immediately following Business Day. Notwithstanding the
foregoing, if with respect to any payment of principal or interest on a LIBOR
Loan the succeeding Business Day falls in the next calendar month, the due date
for payment of such principal or interest shall be the next preceding Business
Day. In the case of interest or fees payable pursuant to the terms of this
Agreement, the extension or contraction of time will be considered in
determining the amount of interest and fees. Unless otherwise expressly
provided in this Agreement, whenever any action to be taken is stated or
scheduled to be required to be taken on, or (except with respect to the
calculation of interest or fees) any period of time is stated or scheduled to
commence or terminate on, a day other than a Business Day, the action will be
taken or the period of time will commence or terminate, as the case may be, on
the immediately following Business Day.
1.017 CONFLICTS
<PAGE> 51
SECTION 1.07
- 43 -
In the event of a conflict, discrepancy, difference or ambiguity in or
between the provisions of this Agreement and the provisions of any of the other
Credit Documents, then, unless such Credit Document or an acknowledgment from
the Cdn. Borrower relative to such Credit Document expressly states that this
Section is not applicable thereto, notwithstanding anything else contained in
such other Credit Document, the provisions of this Agreement will prevail and
the provisions of such other Credit Document will be deemed to be amended to
the extent necessary to eliminate such conflict, discrepancy, difference or
ambiguity.
1.018 STATUTORY REFERENCES
Any reference in this Agreement to any act or statute, or to any section of
or any definition in any act or statute, will be deemed to be a reference to
such act or statute or section or definition as amended, supplemented,
substituted or re-enacted from time to time.
1.019 ACTIONS BY RESTRICTED PARTIES
If any provision in the Credit Documents refers to any action taken or to
be taken by any Restricted Party or any Independent Subsidiary, or which a
Restricted Party or an Independent Subsidiary is prohibited from taking, such
provision will be interpreted to include any and all means, direct or indirect,
of taking, or not taking, such action, provided however, for greater certainty,
the provisions of this Section are not intended to impose any obligation on a
Restricted Party or an Independent Subsidiary to effect any action by any means
prohibited by then existing Applicable Laws.
1.101 SEVERABILITY
If any term, covenant, obligation or agreement contained in this Agreement,
or the application of any such term, covenant, obligation or agreement to any
Person or circumstance, shall, to any extent, be invalid or unenforceable, the
remainder of this Agreement or the application of such term, covenant,
obligation or agreement to Persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected by such invalidity or
unenforceability and each term, covenant, obligation or agreement contained in
this Agreement shall be separately valid and enforceable to the fullest extent
permitted by law.
1.11 ENTIRE AGREEMENT
This Agreement and all other Credit Documents constitute the entire
agreement between the parties to this Agreement with respect to the Credit and
the other matters contemplated in this Agreement as of the date of this
Agreement, and (except for any fee letter or fee letters between the
Co-Arrangers and the Cdn. Borrower or the Administrative Agent and the Cdn.
Borrower)
<PAGE> 52
SECTION 1.11
- 44 -
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, with respect to the Credit including, without
limitation, those contained in the May 28, 1997 arrangement letter from the
Co-Arrangers to the Cdn. Borrower.
1.12 PERMITTED LIENS
The inclusion of reference to Permitted Liens in any Credit Document is
not intended to and shall not subordinate and shall not be interpreted as
subordinating any Lien created by any of the Security to any Permitted Lien.
1.13 INTEREST PAYMENTS AND CALCULATIONS
(1) All interest payments to be made under this Agreement will be paid
without allowance or deduction for deemed re-investment or otherwise, both
before and after maturity and before and after default and/or judgment, if any,
until payment of the amount on which such interest is accruing, and interest
will accrue on overdue interest, if any.
(2) Unless otherwise stated, wherever in this Agreement reference is made
to a rate of interest or rate of fees "per annum" or a similar expression is
used, such interest or fees will be calculated on the basis of a calendar year
of 365 days or 366 days, as the case may be, and using the nominal rate method
of calculation, and will not be calculated using the effective rate method of
calculation or on any other basis that gives effect to the principle of deemed
re-investment of interest.
(3) For the purposes of the Interest Act (Canada) and disclosure under
such act, whenever interest to be paid under this Agreement is to be calculated
on the basis of a year of 365 days or 360 days or any other period of time that
is less than a calendar year, the yearly rate of interest to which the rate
determined pursuant to such calculation is equivalent is the rate so determined
multiplied by the actual number of days in the calendar year in which the same
is to be ascertained and divided by either 365, 360 or such other period of
time, as the case may be.
1.14 GOVERNING LAW
THIS AGREEMENT AND, UNLESS OTHERWISE SPECIFIED IN SUCH CERTIFICATE OR
OTHER DOCUMENT, ALL CERTIFICATES AND OTHER DOCUMENTS DELIVERED TO THE
ADMINISTRATIVE AGENT AND THE LENDERS UNDER THIS AGREEMENT SHALL BE CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE PROVINCE OF ONTARIO AND THE
LAWS OF CANADA APPLICABLE IN THE PROVINCE OF ONTARIO. EACH OF THE BORROWERS
VOLUNTARILY AND IRREVOCABLY SUBMITS ITSELF TO THE
<PAGE> 53
SECTION 1.14
- 45 -
JURISDICTION OF ANY COMPETENT FEDERAL OR PROVINCIAL COURT OR TRIBUNAL IN THE
PROVINCE OF ONTARIO TO ENABLE THE ADMINISTRATIVE AGENT OR THE LENDERS OR ANY OF
THEM TO COMMENCE AND CARRY TO A CONCLUSION ANY SUIT, ACTION OR PROCEEDING FOR
THE COLLECTION OF ANY AND ALL AMOUNTS PAYABLE BY SUCH BORROWER UNDER THE CREDIT
DOCUMENTS AND/OR THE ENFORCEMENT OF ANY OTHER RIGHT OR SECURITY GIVEN TO THE
ADMINISTRATIVE AGENT OR THE LENDERS OR ANY OF THEM BY SUCH BORROWER IN
CONNECTION WITH ANY AMOUNT PAYABLE UNDER ANY CREDIT DOCUMENT. Each of the
Borrowers further agrees that any final judgment or decree against such
Borrower and/or its property in any such suit, action or proceeding shall be
conclusive on such Borrower and such property and all parties in interest, and
may be enforced in any court or tribunal in any other country, province or
state by suit on the judgment or decree, a certified copy of which shall be
conclusive evidence of judgement or decree, as the case may be. Nothing in
this Section shall be deemed or operate to preclude the Administrative Agent or
any Lender from bringing suit or taking other legal action in any other
jurisdiction to collect the obligations of any Restricted Party or to realize
on the Security, or to enforce a judgment or other court order in favour of the
Administrative Agent or any Lender. Each of the Borrowers expressly submits
and consents in advance to such jurisdiction in any action or suit commenced in
any such court, and hereby waives any objection which such Person may have
based upon lack of personal jurisdiction, improper venue or forum non
conveniens and hereby consents to the granting of such legal or equitable
relief as is deemed appropriate by such court. Each of the Borrowers hereby
waives personal service of the summons, complaint and other process issued in
any such action or suit and agrees that service of such summons, complaints and
other process may be made by registered or certified mail addressed to such
Person at the address of the Cdn. Borrower set forth on the signature page of
this Agreement.
1.15 WAIVER OF JURY TRIAL
BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS
ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON
AND THE PARTIES WISH APPLICABLE PROVINCIAL AND FEDERAL LAWS TO APPLY (RATHER
THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A
JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION
OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO
WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO
RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN
THE PARTIES ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THE CREDIT DOCUMENTS OR
THE TRANSACTIONS UNDER THE CREDIT DOCUMENTS.
<PAGE> 54
SECTION 1.16
- 46 -
1.16 CURRENCY
Unless otherwise specified in this Agreement, all statements of or
references to dollar amounts (without further description) mean U.S. Dollars.
1.17 SENIOR INDEBTEDNESS
All of the debts, obligations and liabilities of the Cdn. Borrower under
or in respect of this Agreement and all of the other Credit Documents and all
Lender/Borrower Hedging Arrangements constitutes "Senior Indebtedness" (as
defined in the January 1, 1989 indenture (the "ALLWASTE TRUST INDENTURE"), as
supplemented, delivered by Allwaste to Texas Commerce Trust Company of New York
as trustee) and shall rank in right of payment in priority to all debts,
obligations and liabilities of the Cdn. Borrower under or in respect of the
Allwaste Trust Indenture or any debentures issued thereunder.
<TABLE>
<S> <C> <C> <C>
1.18 SCHEDULES
The Schedules attached to, and forming part of, this Agreement are as
follows:
Schedule 1 - Commitments of the Lenders under Tranches 1, 2 and 3
Schedule 2 - Form of Corporate Separateness Covenant and Assurance
Agreement
Schedule 3 - Form of Acknowledgement and Agreement from Eligible
Affiliates of the Administrative Agent, an Other Agent or
a Lender
Schedule 4 - List of Independent Subsidiaries
Schedule 5 - Form of Non Recourse Acknowledgement and Undertaking
Schedule 6 - List of Permitted Liens
Schedule 7 - Description of Permitted Indebtedness
Schedule 8 - Description of Pre-existing Accommodation
Schedule 9 - Form of Tax Sharing Agreement
Schedule 10 - Form of Notice of Borrowing
Schedule 11 - Form of Note of Conversion/Renewal
Schedule 12 - Minimum Amounts of Borrowings under Tranches
Schedule 13 - Notice Periods for Borrowing of Types of Accommodation under
Tranches
Schedule 14 - Form of BA Equivalent Note
Schedule 15 - Form of Non Bank Certificate for U.S. Withholding Tax
Purposes
Schedule 16 - Listing of Particulars of Shares and Other Securities to
be Pledged under the Security
Schedule 17 - Litigation
Schedule 18 - Corporate Chart
</TABLE>
<PAGE> 55
SECTION 1.17
- 47 -
<TABLE>
<S> <C>
Schedule 19 - Disclosure Schedule
Schedule 20 - List of Material Contracts
Schedule 21 - Form of Quarterly Reporting Compliance Certificate
Schedule 22 - Form of Quarterly Environmental Compliance Certificate
Schedule 23 - Insurance Requirements
Schedule 24 - Form of Undertaking relative to Assignments by Lenders
Schedule 25 - Form of Assignment and Assumption Agreement relative to
Assignments by Lenders
Schedule 26 - List of Non Material Restricted Subsidiaries
Schedule 27 - Commitments of the Lenders under the LC Line
</TABLE>
ARTICLE TWO
THE CREDIT
1.021 ESTABLISHMENT OF THE CREDIT
Subject to and upon the terms and conditions set forth in this Agreement,
the Lenders (severally and not jointly or jointly and severally) establish in
favour of the Borrowers a revolving credit facility (the "CREDIT"), subdivided
into seven Tranches, pursuant to which one or more of the Borrowers shall be
entitled from time to time prior to the Maturity Date to obtain from one or
more of the Lenders Accommodation of various types in an aggregate U.S. Dollar
Amount which does not at any time exceed U.S. $1,500,000,000 (as such limit may
from time to time be reduced pursuant to the provisions of this Agreement) all
as more particularly described below:
TRANCHE 1
(a) a tranche ("TRANCHE 1") under which each Cdn. Only Lender severally
(and not jointly or jointly and severally) agrees to make available
to the Cdn. Borrower in Canada Accommodation by way of Prime Rate
Loans, U.S. Base Rate Loans, LIBOR Loans and Bankers' Acceptances
(or BA Equivalent Notes), in an aggregate U.S. Dollar Amount not
exceeding at any time the U.S. Dollar Amount set forth for such
Lender in the Registry of Commitments (which amount on the date of
this Agreement is set forth opposite such Lender's name in Column 2
of Schedule 1) (as such amount may from time to time be adjusted as
provided for pursuant to the provisions of this Agreement and as
the Registry of Commitments may from time to time be amended as
provided for in Section 12.01 or in any other applicable provision
of this Agreement) (for each such Lender, its "TRANCHE 1 COMMITMENT"
and for all such Lenders the "TRANCHE 1 COMMITMENTS"); and
<PAGE> 56
SECTION 2.01
- 48 -
TRANCHE 2
(b) a tranche ("TRANCHE 2") under which each Cdn. Cross Border Lender
and its Affiliated U.S. Cross Border Lender severally (and not
jointly or jointly and severally):
(i) in the case of the Cdn. Cross Border Lenders, agrees to make
available to the Cdn. Borrower in Canada Accommodation by
way of Prime Rate Loans, U.S. Base Rate Loans, LIBOR Loans
and Bankers' Acceptances (or BA Equivalent Notes) in an
aggregate U.S. Dollar Amount not exceeding at any time the
U.S. Dollar Amount set forth for such Lender in the Registry
of Commitments (which amount on the date of this Agreement
is set forth opposite such Lender's name in Column 4 of
Schedule 1) (as such amount may from time to time be
adjusted pursuant to Section 2.03 or as otherwise provided
for pursuant to the provisions of this Agreement and as the
Registry of Commitments may from time to time be amended as
provided for in Section 12.01 or in any other applicable
provision of this Agreement) (for each such Cdn. Cross
Border Lender its "TRANCHE 2 CDN. BORROWING COMMITMENT" and
for all such Cdn. Cross Border Lenders the "TRANCHE 2 CDN.
BORROWING COMMITMENTS"); and
(ii) in the case of the U.S. Cross Border Lenders, agrees to make
available to the U.S. Borrower in the United States of
America Accommodation by way of U.S. Reference Rate Loans
and LIBOR Loans, in an aggregate U.S. Dollar Amount not
exceeding at any time the U.S. Dollar Amount set forth for
such Lender in the Registry of Commitments (which amount on
the date of this Agreement is set forth opposite such
Lender's name in Column 6 of Schedule 1) (as such amount may
from time to time be adjusted pursuant to Section 2.03 or as
otherwise provided for pursuant to the provisions of this
Agreement and as the Registry of Commitments may from time
to time be amended as provided for in Section 12.01 or in
any other applicable provision of this Agreement) (for each
such U.S. Cross Border Lender its "TRANCHE 2 U.S. BORROWING
COMMITMENT" and for all such U.S. Cross Border Lenders the
"TRANCHE 2 U.S. BORROWING COMMITMENTS");
and provided further that the aggregate U.S. Dollar Amount of all such
Accommodation made available by each Cdn. Cross Border Lender and its
Affiliated U.S. Cross Border Lender at any time will not exceed the
U.S. Dollar Amount set forth for such Lenders in the Registry of
Commitments (which
<PAGE> 57
SECTION 2.01
- 49 -
amount on the date of this Agreement is set forth opposite such
Lenders' names in Column 7 of Schedule 1) (as such amount may from
time to time be adjusted pursuant to Section 2.03 or as otherwise
provided for pursuant to the provisions of this Agreement and as
the Registry of Commitments may from time to time be amended as
provided for in Section 12.01 or in any other applicable provision
of this Agreement) (for each such Cdn. Cross Border Lender and its
Affiliated U.S. Cross Border Lender, their "TRANCHE 2 COMBINED
COMMITMENT" and for all such Lenders the "TRANCHE 2 COMBINED
COMMITMENTS");
TRANCHE 3
(c) a tranche ("TRANCHE 3") under which each U.S. Only Lender severally
(and not jointly or jointly and severally) agrees to make available
to the U.S. Borrower in the United States of America Accommodation
by way of U.S. Reference Rate Loans and LIBOR Loans in an aggregate
U.S. Dollar Amount not exceeding at any time the U.S. Dollar Amount
set forth for such Lender in the Registry of Commitments (which
amount on the date of this Agreement is set forth opposite such
Lender's name in Column 9 of Schedule 1) (as such amount may from
time to time be adjusted as provided for pursuant to the provisions
of this Agreement and as the Registry of Commitments may from time
to time be amended as provided for in Section 12.01 or in any other
applicable provision of this Agreement) (for each such Lender, its
"TRANCHE 3 COMMITMENT" and for all such Lenders the "TRANCHE 3
COMMITMENTS");
CDN. OPERATING LINE
(d) a tranche (the "CDN. OPERATING LINE") under which the Cdn.
Operating Lender agrees to make available to the Cdn. Borrower in
Canada Accommodation by way of Prime Rate Loans, U.S. Base Rate
Loans, LIBOR Loans and Bankers' Acceptances (or BA Equivalent
Notes), and only in connection with Pre-existing LCs as provided for
in Section 2.11 Letters of Credit, in an aggregate U.S. Dollar
Amount not exceeding at any time U.S. $30,000,000 (as such limit may
from time to time be adjusted pursuant to Section 2.03 or as
otherwise provided for pursuant to the provisions of this
Agreement);
U.S. OPERATING LINE A
(e) a tranche ("U.S. OPERATING LINE A") under which the U.S. Operating
Line A Lender agrees to make available to the U.S. Borrower in the
United States of America Accommodation by way of U.S. Reference Rate
Loans and LIBOR Loans in an aggregate U.S. Dollar Amount not
exceeding at any time
<PAGE> 58
SECTION 2.01
- 50 -
U.S. $25,000,000 (as such limit may from time to time be adjusted
pursuant to Section 2.03 or as otherwise provided for pursuant to
the provisions of this Agreement);
U.S. OPERATING LINE B
(f) a tranche ("U.S. OPERATING LINE B") under which the U.S. Operating
Line B Lender agrees to make available to the U.S. Borrower in the
United States of America Accommodation by way of U.S. Reference Rate
Loans and LIBOR Loans in an aggregate U.S. Dollar Amount not
exceeding at any time U.S. $20,000,000 (as such limit may from time
to time be adjusted pursuant to Section 2.03 or as otherwise
provided for pursuant to the provisions of this Agreement); and
LC LINE
(g) a tranche (the "LC LINE") under which each Cdn. LC Lender and its
Affiliated U.S. LC Lender severally (and not jointly or jointly and
severally):
(i) in the case of the Cdn. LC Lenders, agrees that the Cdn. LC
Issuer will make available on behalf of the Cdn. LC Lenders
to the Cdn. Borrower Accommodation by way of Letters of
Credit in an aggregate U.S. Dollar Amount not exceeding at
any time the aggregate of the U.S. Dollar Amounts set forth
for each Cdn. LC Lender in the Registry of Commitments
(which amount for each such Lender on the date of this
Agreement is set forth opposite such Lender's name in Column
2 of Schedule 27) (as such amount may from time to time be
adjusted pursuant to Section 2.03 or as otherwise provided
for pursuant to the provisions of this Agreement and as the
Registry of Commitments may from time to time be amended as
provided for in Section 12.01 or in any other applicable
provision of this Agreement) (for each such Cdn. LC Lender
its "CDN. LC COMMITMENT" and for all such Cdn. LC Lenders
the "CDN. LC COMMITMENTS"); and
(ii) in the case of the U.S. LC Lenders, agrees that the U.S. LC
Issuer will make available on behalf of the U.S. LC Lenders
to the U.S. Borrower Accommodation by way of standby Letters
of Credit in an aggregate U.S. Dollar Amount not exceeding
at any time the aggregate of the U.S. Dollar Amounts set
forth for each U.S. LC Lender in the Registry of Commitments
(which amount for each such Lender on the date of this
Agreement is set forth opposite such Lender's name in Column
4 of
<PAGE> 59
SECTION 2.01
- 51 -
Schedule 27) (as such amount may from time to time be adjusted
pursuant to Section 2.03 or as otherwise provided for pursuant
to the provisions of this Agreement and as the Registry of
Commitments may from time to time be amended as provided for
in Section 12.01 or in any other applicable provision of this
Agreement) (for each such U.S. LC Lender its "U.S. LC
COMMITMENT" and for all such U.S. LC Lenders the "U.S. LC
COMMITMENTS");
and provided further that the aggregate U.S. Dollar Amount of all
such Accommodation made available by both LC Issuers on behalf of
the LC Lenders at any time will not exceed U.S. $75,000,000 (as
such limit may from time to time be adjusted pursuant to Section
2.03 or as otherwise provided for pursuant to the provisions of
this Agreement).
1.022 PURPOSE OF THE CREDIT
The Borrowers shall use Accommodation obtained by them under the Credit to
refinance all Existing Bank Debt, to finance working capital requirements, the
cost of Acquisitions and Capital Expenditures permitted by this Agreement and
for general corporate purposes. The Credit may not be used to finance a
Hostile Take-Over Bid without the consent of all of the Lenders.
1.023 BORROWINGS UNDER TRANCHES
(1) The Cdn. Borrower, not more than 30 days and not less than 5 Business
Days prior to the last day of each Financial Quarter, shall give written notice
to the Administrative Agent either (x) requesting an adjustment, effective as
of the first day of the immediately following Financial Quarter (the "QUARTERLY
COMMITMENT ADJUSTMENT DATE") to either or both of (A) Tranche 2 by way of an
increase or decrease in the Tranche 2 Cdn. Borrowing Commitments (with any such
increase or decrease resulting in a pro rata increase or decrease to the
Tranche 2 Cdn. Borrowing Commitment of each Cdn. Cross Border Lender) with a
corresponding decrease or increase, as the case may be, in the Tranche 2 U.S.
Borrowing Commitments (with any such decrease or increase resulting in a pro
rata decrease or increase to the Tranche 2 U.S. Borrowing Commitment of each
U.S. Cross Border Lender) (collectively a "TRANCHE 2 COMMITMENT ADJUSTMENT"),
and (B) the LC Line by way of an increase or decrease in the Cdn. LC
Commitments (with any such increase or decrease resulting in a pro rata
increase or decrease to the Cdn. LC Commitment of each Cdn. LC Lender) with a
corresponding decrease or increase, as the case may be, in the U.S. LC
Commitments (with any such decrease or increase resulting in a pro rata
decrease or increase to the U.S. LC Commitment of each U.S. LC Lender)
(collectively a "LC COMMITMENT ADJUSTMENT"), or (y) confirming that there will
be no Tranche 2 Commitment Adjustment or LC Commitment Adjustment as at the
applicable
<PAGE> 60
SECTION 2.03
- 52 -
Quarterly Commitment Adjustment Date, provided that failure by the Cdn.
Borrower to deliver any such written notice to the Administrative Agent within
the period required above will be deemed to be delivery by the Cdn. Borrower to
the Administrative Agent of a written notice that there will be no Tranche 2
Commitment Adjustment or LC Commitment Adjustment as at the applicable
Quarterly Commitment Adjustment Date. Any such Tranche 2 Commitment Adjustment
and LC Commitment Adjustment will become effective on the applicable Quarterly
Commitment Adjustment Date provided that:
(a) the sum of the Tranche 2 Cdn. Borrowing Commitments and the Tranche
2 U.S. Borrowing Commitments after any such Tranche 2 Commitment
Adjustment must always equal the Tranche 2 Combined Commitments
immediately prior to such Tranche 2 Commitment Adjustment,
(b) the sum of the Cdn. LC Commitments and the U.S. LC Commitments after
any such LC Commitment Adjustment must always equal the Combined LC
Commitments immediately prior to such LC Commitment Adjustment,
(c) any such increase or decrease under Tranche 2 must be in a minimum
amount of U.S. $10,000,000 or any larger amount which is a whole
multiple of U.S. $5,000,000,
(d) any such increase or decrease under the LC Line must be in a minimum
amount of U.S. $2,000,000 or any larger amount which is a whole
multiple of U.S. $100,000,
(e) the Borrowers must prior to the applicable Quarterly Commitment
Adjustment Date repay sufficient outstanding Accommodation under
Tranche 2 in accordance with the terms of this Agreement so that,
immediately after such Tranche 2 Commitment Adjustment on such
Quarterly Commitment Adjustment Date, the aggregate U.S. Dollar
Amount of all Accommodation outstanding under Tranche 2 from the
Cdn. Cross Border Lenders does not exceed the adjusted Tranche 2
Cdn. Borrowing Commitments (and the aggregate U.S. Dollar Amount of
all Accommodation outstanding under Tranche 2 from each Cdn. Cross
Border Lender does not exceed its adjusted Tranche 2 Cdn. Borrowing
Commitment) and the aggregate U.S. Dollar Amount of all
Accommodation outstanding under Tranche 2 from the U.S. Cross Border
Lenders does not exceed the adjusted Tranche 2 U.S. Borrowing
Commitments (and the aggregate U.S. Dollar Amount of all
Accommodation outstanding under Tranche 2 from each U.S. Cross
Border Lender does not exceed its adjusted Tranche 2 U.S. Borrowing
Commitment).
<PAGE> 61
SECTION 2.03
- 53 -
(f) the Borrowers must prior to the applicable Quarterly Commitment
Adjustment Date repay sufficient outstanding Accommodation under the
LC Line in accordance with the terms of this Agreement so that,
immediately after such LC Commitment Adjustment on such Quarterly
Commitment Adjustment Date, the aggregate U.S. Dollar Amount of all
Accommodation outstanding under the LC Line from the Cdn. LC Lenders
does not exceed the adjusted Cdn. LC Commitments and the aggregate
U.S. Dollar Amount of all Accommodation outstanding under the LC
Line from the U.S. LC Lenders does not exceed the adjusted U.S. LC
Commitments.
For greater certainty, no Tranche 2 Commitment Adjustment will result in an
increase or decrease to the overall Tranche 2 Combined Commitments of all of
the Cross Border Lenders or to the Tranche 2 Combined Commitment of any
particular Cdn. Cross Border Lender and its Affiliated U.S. Cross Border
Lender. Rather, any such Tranche 2 Commitment Adjustment will only result in
an increase or decrease, as the case may be, in the Tranche 2 Cdn. Borrowing
Commitment of each Cdn. Cross Border Lender with a corresponding decrease or
increase, as the case may be, in the Tranche 2 U.S. Borrowing Commitment of its
respective Affiliated U.S. Cross Border Lender. In addition, no LC Commitment
Adjustment will result in an increase or decrease to the overall LC Combined
Commitments of all of the LC Lenders or to the LC Combined Commitment of any
particular Cdn. LC Lender and its Affiliated U.S. LC Lender. Rather any such
LC Commitment Adjustment will only result in an increase or decrease, as the
case may be, in the Cdn. LC Commitment of each Cdn. LC Lender with a
corresponding decrease or increase, as the case may be, in the U.S. LC
Commitment of its respective Affiliated U.S. LC Lender.
(2) The Cdn. Operating Lender, the U.S. Operating Lenders or the LC
Lenders may from time to time, with notice to and the consent of the
Administrative Agent and the Cdn. Borrower, and will from time to time at the
request of the Cdn. Borrower and the Administrative Agent, adjust their
Commitments under the Credit (such adjustment to be effective on the date
agreed to by the Administrative Agent and the Cdn. Borrower) by:
(a) increasing or reducing their respective Commitments under the Cdn.
Operating Line (in the case of the Cdn. Operating Lender), the
applicable U.S. Operating Line (in the case of a U.S. Operating
Lender) and the LC Line (in the case of the LC Lenders) and
(b) making a corresponding decrease or increase, as the case may be, in
(x) such Lender's Tranche 1 Commitment (if such Lender is also a
Cdn. Only Lender), (y) the Tranche 2 Combined Commitment of such
Lender and its Affiliated Cross Border Lender (if such Lender is
also a Cross Border Lender), or (z) such Lender's Tranche 3
Commitment (if such Lender is also a U.S. Only Lender) provided
that:
<PAGE> 62
SECTION 2.03
- 54 -
(i) the sum of the aggregate Commitments of such Lenders (and
where applicable their Affiliated Cross Border Lenders)
under the Credit shall not increase or decrease as a result
of any such adjustment, and
(ii) any such increase or decrease must be in a minimum amount of
U.S. $500,000 or any larger amount which is a whole multiple
of U.S. $100,000, and
(iii) the Borrowers must prior to the applicable adjustment date
repay sufficient outstanding Accommodation under the affected
Tranches in accordance with the terms of this Agreement so
that, immediately after giving effect to such adjustment on
such date, the aggregate U.S. Dollar Amount of all
Accommodation outstanding under each of the affected Tranches
does not exceed the adjusted Commitments of the applicable
Lender (or the Applicable Lender and its Affiliated Cross
Border Lender, as the case may be, or the Applicable Lender
and its Affiliated LC Lender, as the case may be) under the
affected Tranches.
(3) Except as otherwise specifically stated in this Agreement:
(a) each Borrowing by the Cdn. Borrower under Tranche 1 and Tranche 2
(x) will be made available to the Cdn. Borrower by the Cdn. Only
Lenders and the Cdn. Cross Border Lenders simultaneously and pro
rata based on their respective Undisbursed Commitments under Tranche
1 and Tranche 2 respectively, and (y) will be comprised of the same
type of Accommodation, with identical maturity dates and LIBOR
Periods, if applicable, from each such Lender; and
(b) each Borrowing by the U.S. Borrower under Tranche 2 and Tranche 3
(x) will be made available to the U.S. Borrower by the U.S. Only
Lenders and the U.S. Cross Border Lenders simultaneously and pro
rata based on their respective Undisbursed Commitments under Tranche
2 and Tranche 3 respectively, and (y) will be comprised of the same
type of Accommodation, with identical maturity dates and LIBOR
Periods, if applicable, from each such Lender.
(4) No Lender will be responsible for any default by any other Lender in
its obligation to make Accommodation available to a Borrower nor will the
Commitment of any Lender be increased as a result of any such default, except
as provided in this subsection. If any Lender fails to make available any
Accommodation under Tranche 1, Tranche 2 or Tranche 3 when required under its
Commitment relative to such Tranche, the Administrative Agent will promptly
notify the other Lenders of such failure, and any Lender which has a Commitment
to such Borrower under any of such Tranches, upon notice to the applicable
Borrower, the
<PAGE> 63
SECTION 2.03
- 55 -
Administrative Agent and the other Lenders, may make available to such Borrower
within two Business Days after the applicable Borrowing Date the amount (or if
more than one Lender so elects, its pro rata share of the amount as nearly as
practicable in the opinion of the Administrative Agent) of the failed
Accommodation. The maturity date of the LIBOR Period applicable to all LIBOR
Loans and the maturity date of all Bankers' Acceptances and BA Equivalent Notes
included in the additional Accommodation so made available shall be identical
to the respective maturity dates of the LIBOR Period for any LIBOR Loans, and
of any Bankers' Acceptances and BA Equivalent Notes, that would have been
included in the failed Accommodation and that were included in the
Accommodation made available by the non-defaulting Lenders on the applicable
Borrowing Date. The Lenders, the Borrowers and the Administrative Agent shall
thereupon enter into documentation, in form and substance satisfactory to the
Administrative Agent, as may be appropriate to evidence the adjustment of the
Commitments relative to the Tranches necessitated by the additional
Accommodation made by any Lender and thereafter the Administrative Agent in its
discretion may adjust the manner in which any Lender or group or groups of
Lenders share in any new Borrowings to ensure that the applicable Lenders or
group of Lenders hold outstanding Accommodation as soon as possible thereafter
on a pro rata basis as contemplated under the other provisions of this
Agreement. Nothing in this subsection shall be deemed to relieve any Lender of
its obligation to make available any Accommodation when required to do so under
this Agreement, or to prejudice any rights which any Borrower, the
Administrative Agent or any other Lender may have against a defaulting Lender.
1.024 NOTICE OF BORROWING
(1) Whenever a Borrower desires to obtain a Borrowing (other than a
Borrowing under one of the Operating Lines which will be made available by the
applicable Operating Lender pursuant to arrangements from time to time entered
into between the Cdn. Borrower and the Cdn. Operating Lender and between the
U.S. Borrower and each of the U.S. Operating Lenders), it shall give
irrevocable prior written notice to the Administrative Agent in substantially
the form of Schedule 10 (a "NOTICE OF BORROWING") specifying the identity of
the Borrower; the Tranche or Tranches under which the Borrowing is to be
obtained; the types and amounts of Accommodation desired; the term of any
Bankers' Acceptances or BA Equivalent Notes to be included in such
Accommodation; the LIBOR Period to be applicable to any LIBOR Loans to be
included in such Accommodation; and the date (which shall be a Business Day) on
which such Borrowing is to be obtained (a "BORROWING DATE" which date shall
include the date on which any Accommodation is obtained under subsection
2.05(7), subsection 2.06(3) or Section 2.07 and the date on which the basis on
which interest is calculated on a Loan in U.S. Dollars is converted or renewed
pursuant to a Notice of Conversion/Renewal). Whenever a Borrower desires to
convert the basis on which interest is calculated on a Loan in U.S. Dollars
from LIBOR (provided that the LIBOR Period for such LIBOR Loan is then
expiring) to the U.S. Base Rate or the U.S. Reference Rate, as the case may be,
(provided that no conversion of a
<PAGE> 64
SECTION 2.04
- 56 -
part only of any LIBOR Loans will be permitted if such conversion would reduce
the outstanding amount of such LIBOR Loans to less than the applicable minimum
borrowing amount for LIBOR Loans provided for in this Agreement) or from the
U.S. Base Rate or the U.S. Reference Rate, as the case may be, to LIBOR, or to
renew the LIBOR Period for a LIBOR Loan for which the then existing LIBOR
Period is then expiring, it shall give irrevocable prior written notice to the
Administrative Agent in substantially the form of Schedule 11 (a "NOTICE OF
CONVERSION/RENEWAL") specifying the identity of the Borrower; the Tranche or
Tranches under which the conversion or renewal is to be made; the types and
amounts of Accommodation in respect of which the conversion or renewal is to be
made; the LIBOR Period to be applicable to any LIBOR Loans to be included in
such conversion or renewal and the date (which shall be a Business Day and
shall be at the expiry of any LIBOR Period relative to any LIBOR Loan which is
the subject matter of any such conversion or renewal) on which such conversion
or renewal is to take place. No Accommodation will be included in any
Borrowing if the term of such Accommodation, or any LIBOR Period applicable to
such Accommodation, would mature beyond the Maturity Date. Without limitation
of any of the conditions precedent set forth in Section 10.02, no Borrower
shall be entitled to obtain (or in the case of an outstanding LIBOR Loan renew
the LIBOR Period therefor), and the Lenders will not be obliged to make
available, Accommodation by way of LIBOR Loans (or renew the outstanding LIBOR
Periods for outstanding LIBOR Loans), Bankers' Acceptances or BA Equivalent
Notes or Letters of Credit at any time that a Default or an Event of Default
has occurred and is continuing. Except for Accommodation under the Operating
Lines (which will be made available by the applicable Operating Lender pursuant
to arrangements from time to time entered into between the Cdn. Borrower and
the Cdn. Operating Lender and between the U.S. Borrower and each of the U.S.
Operating Lenders), the Lenders will not be obliged to make available on any
Borrowing Date Loans under any Tranche or Tranches in an aggregate amount less
than the applicable minimum amounts set forth in Schedule 12 with respect to
such Tranche or Tranches. The Administrative Agent will promptly notify the
applicable Lenders of the proposed Borrowing and the particulars of the
Accommodation to be made available by each Lender.
(2) A Notice of Borrowing requesting any Accommodation under the Credit
and a Notice or Conversion/Renewal shall be given not later than 10:00 a.m. on
the date which is that number of Business Days preceding the applicable
Borrowing Date set forth in Schedule 13 with respect to such type of
Accommodation.
1.025 BANKERS' ACCEPTANCES
(1) To facilitate the procedures contemplated in this Agreement, the Cdn.
Borrower will from time to time as required by the applicable Lender provide to
the BA Lenders and the Non BA Lenders an appropriate number of executed drafts
drawn by the Cdn. Borrower upon each BA Lender, in the form prescribed by such
BA Lender for bankers' acceptances (each such executed draft being referred to
as a "DRAFT"), and an appropriate number of executed non
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interest-bearing promissory notes of the Cdn. Borrower in favour of each Non BA
Lender, in the form of Schedule 14 (each such promissory note being referred to
as a "BA EQUIVALENT NOTE"). The dates, the maturity dates and the principal
amounts of all Drafts and BA Equivalent Notes delivered by the Cdn. Borrower
shall be left blank, to be completed by the Lenders as required by this
Agreement. The Drafts or BA Equivalent Notes shall be held by each Lender
subject to the same degree of care as if they were such Lender's own property
kept at the place at which the Drafts or BA Equivalent Notes are ordinarily
kept by such Lender. No Lender shall be liable for its failure to accept a
Draft or purchase a BA Equivalent Note as required by this Agreement if the
cause of such failure is, in whole or in part, due to the failure of the Cdn.
Borrower to provide Drafts or BA Equivalent Notes to the applicable Lender on a
timely basis.
(2) The Administrative Agent, promptly following receipt of a Notice of
Borrowing requesting Bankers' Acceptances, shall (i) advise each BA Lender of
the face amount and term of each Draft to be accepted by it, (ii) advise each
Non BA Lender of the face amount and term of the BA Equivalent Note to be
purchased by it, and (iii) advise each BA Lender whether the BA Lenders are
required by such Notice of Borrowing to purchase the Bankers' Acceptances
accepted by them. The term of all Bankers' Acceptances and BA Equivalent Notes
issued pursuant to any Notice of Borrowing shall be identical. The face amount
of each Bankers' Acceptance and BA Equivalent Note shall be Cdn. $100,000 or
any whole multiple of Cdn. $100,000, and the aggregate face amount of Bankers'
Acceptances and BA Equivalent Notes issued pursuant to any Notice of Borrowing
under any Tranche or Tranches shall not be less than the applicable amounts set
forth in Schedule 12 with respect to such Tranche or Tranches, as the case may
be. Each Bankers' Acceptance and BA Equivalent Note shall be dated the
Borrowing Date on which it is issued, and shall be for a term of one, two,
three or six months provided that in no event shall the term of a Bankers'
Acceptance or a BA Equivalent Note extend beyond the Maturity Date. The
aggregate face amount of the Drafts to be accepted at any time by a BA Lender,
and the face amount of the BA Equivalent Note to be purchased at any time by a
Non BA Lender, shall be determined by the Administrative Agent based upon the
amounts of the respective Commitments under the Tranche or Tranches under which
such Drafts and BA Equivalent Notes are being issued, except that, if the face
amount of any Draft to be accepted by a BA Lender or of the BA Equivalent Note
to be purchased by a Non BA Lender, determined as provided for above, would not
be Cdn. $100,000 or a whole multiple of Cdn. $100,000, the Administrative Agent
in its sole discretion may increase such face amount to the nearest whole
multiple of Cdn. $100,000 or may reduce such face amount to the nearest whole
multiple of Cdn. $100,000.
(3) Each BA Lender shall complete and accept on the applicable Borrowing
Date Drafts having the face amounts and term advised by the Administrative
Agent pursuant to subsection 2.05(2). If the BA Lenders are required to
purchase the Bankers' Acceptances accepted by them, each BA Lender shall
purchase on the applicable Borrowing Date the Bankers' Acceptances accepted by
it, for an aggregate price equal to the BA Discount Proceeds of such
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Bankers' Acceptances. In all other cases, it shall be the responsibility
of the Cdn. Borrower to arrange in accordance with normal market practice for
the sale on each Borrowing Date of the Bankers' Acceptances issued by it on
such Borrowing Date, and for such purpose the Cdn. Borrower shall advise the
Administrative Agent (which shall promptly give the relevant particulars to
each BA Lender) as soon as possible and in any event not later than 11:00 a.m.
on such Borrowing Date of the price for each Bankers' Acceptance payable by the
purchaser of such Bankers' Acceptance and the identity of the Person who will
pay such price to, and take delivery of such Bankers' Acceptance from, the
applicable BA Lender, and such BA Lender is authorized to release such Bankers'
Acceptance to such Person on receipt of a certified cheque or bank draft in an
amount equal to such price.
(4) Each Non BA Lender, in lieu of accepting Drafts or purchasing Bankers'
Acceptances on any Borrowing Date, will complete and purchase from the Cdn.
Borrower on such Borrowing Date a BA Equivalent Note in a face amount and for a
term identical to the aggregate face amount and term of the Drafts which such
Non BA Lender would have been required to accept on such Borrowing Date if it
were a BA Lender, for a price equal to the BA Discount Proceeds of such BA
Equivalent Note. Each Non BA Lender shall be entitled without charge to
exchange any BA Equivalent Note held by it for two or more BA Equivalent Notes
of identical date and aggregate face amount (subject to the minimum face amount
specified in Subsection 2.05(2)), and the Cdn. Borrower will execute and
deliver to the Administrative Agent such BA Equivalent Notes upon not less than
five Business Days prior written request for the same to the Cdn. Borrower and
the Administrative Agent shall arrange for delivery of such replacement BA
Equivalent Notes to such Non BA Lender and the return by such Non BA Lender to
the Administrative Agent for delivery to the Cdn. Borrower of the original BA
Equivalent Note for cancellation.
(5) Upon acceptance of each Draft or purchase of each BA Equivalent Note,
the Cdn. Borrower shall pay to the applicable Lender the related fee specified
in Section 3.09, and to facilitate payment such Lender shall be entitled to
deduct and retain for its own account the amount of such fee from the amount to
be transferred by such Lender to the Administrative Agent for the account of
such Borrower pursuant to subsection 5.01(1) in respect of the sale of the
related Bankers' Acceptance or of such BA Equivalent Note.
(6) If the Administrative Agent determines in good faith, which
determination shall be final, conclusive and binding upon the Cdn. Borrower,
and so notifies the Cdn. Borrower, that there does not exist at the applicable
time a normal market in Canada for the purchase and sale of bankers'
acceptances, any right of the Cdn. Borrower to require the Lenders to purchase
Bankers' Acceptances and BA Equivalent Notes under this Agreement shall be
suspended until the Administrative Agent determines that such market does exist
and gives notice thereof to the Cdn. Borrower, and any Notice of Borrowing
requesting Bankers' Acceptances shall be deemed to be a Notice of Borrowing
requesting Prime Rate Loans in a similar aggregate principal amount.
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(7) On the date of maturity of each Bankers' Acceptance or BA Equivalent
Note, the Cdn. Borrower shall pay to the Administrative Agent, for the account
of the holder of such Bankers' Acceptance or BA Equivalent Note, Cdn. Dollars
in an amount equal to the face amount of such Bankers' Acceptance or BA
Equivalent Note, as the case may be. The obligation of the Cdn. Borrower to
make such payment shall not be prejudiced by the fact that the holder of any
such Bankers' Acceptance is the Lender that accepted such Bankers' Acceptance.
No days of grace shall be claimed by the Cdn. Borrower for the payment at
maturity of any Bankers' Acceptance or BA Equivalent Note. If the Cdn.
Borrower does not make such payment, from the proceeds of Accommodation
obtained under this Agreement or otherwise, the Lender that accepted such
Bankers' Acceptance or initially purchased such BA Equivalent Note may (but
shall not be obliged to), without receipt of a Notice of Borrowing,
irrespective of whether any applicable conditions precedent under this
Agreement have been met and without waiver of the Default or the Event of
Default constituted by the Cdn. Borrower's failure to make such payment, make a
Prime Rate Loan to the Cdn. Borrower under the Tranche under which such
Bankers' Acceptance was issued or such BA Equivalent Note was purchased in the
face amount of such Bankers' Acceptance or BA Equivalent Note, as the case may
be, and shall promptly give notice of such Loan to the Cdn. Borrower and the
Administrative Agent (which shall promptly give similar notice to the other
Lenders). The Cdn. Borrower agrees to accept each such Prime Rate Loan and
irrevocably authorizes and directs the applicable Lender to apply the proceeds
of each such Loan in payment of the liability of the Cdn. Borrower with respect
to the related Bankers' Acceptance or BA Equivalent Note. Notwithstanding any
other provision of this Agreement, all Prime Rate Loans made as contemplated by
this subsection shall be payable on demand by the Administrative Agent or the
applicable Lender.
(8) If any Bankers' Acceptance or BA Equivalent Note is outstanding on the
Maturity Date or at any time that an Event of Default occurs, the Cdn. Borrower
will immediately, in the case of any Bankers' Acceptance or BA Equivalent Note
outstanding on the Maturity Date, and otherwise immediately upon demand by the
Administrative Agent, pay to the Administrative Agent, for the account of the
holder of such Bankers' Acceptance or BA Equivalent Note, Cdn. Dollars in an
amount equal to the face amount of such Bankers' Acceptance or BA Equivalent
Note, as the case may be. Such funds (together with interest on such funds)
shall be held by the Agent, subject to Section 9.03, for payment of the
liability of the Cdn. Borrower in respect of such Bankers' Acceptance or BA
Equivalent Note, and shall bear interest for such terms as are selected from
time to time by the Administrative Agent at the wholesale money market rate of
the Administrative Agent for deposits of similar amounts and maturities. Any
balance of such funds and interest shall be held by the Administrative Agent as
security for the remaining liabilities of the Cdn. Borrower under the Credit
Documents.
(9) The signature of any duly authorized officer of the Cdn. Borrower on a
Draft or a BA Equivalent Note may be mechanically reproduced in facsimile, and
all Drafts and BA Equivalent Notes bearing such facsimile signature shall be
binding upon the Cdn. Borrower as if they had been manually signed by such
officer, notwithstanding that such Person whose manual
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or facsimile signature appears on such Draft or BA Equivalent Note may no
longer hold office at the date of such Draft or BA Equivalent Note or at the
date of acceptance of such Draft by a BA Lender or at any time thereafter.
(10) Notwithstanding any other provision of this Agreement, the number of
different maturity dates for all Bankers' Acceptances and BA Equivalent Notes
outstanding at any time under Tranches 1, 2 and 3 shall not exceed 100 less the
number of LIBOR Periods for all LIBOR Loans outstanding at such time under such
Tranches, and there shall not at any time be more than that number of different
maturity dates for all Bankers' Acceptances and BA Equivalent Notes outstanding
at that time under the Cdn. Operating Line as may have been agreed to prior to
such time by the Cdn. Borrower and the Cdn. Operating Lender.
(11) For the purpose of calculating the undisbursed Credit or any
applicable Undisbursed Commitment or Undisbursed Tranche and for any other
relevant provision of this Agreement, the amount of Accommodation constituted
by any Bankers' Acceptance or BA Equivalent Note shall be the face amount of
such Bankers' Acceptance or BA Equivalent Note, as the case may be.
1.026 LETTERS OF CREDIT
(1) Each Letter of Credit requested by the Cdn. Borrower shall be made
available under the LC Line by the Cdn. LC Issuer on behalf of the Cdn. LC
Lenders and each Letter of Credit requested by the U.S. Borrower shall be made
available under the LC Line by the U.S. LC Issuer on behalf of the U.S. LC
Lenders. Each Letter of Credit (including all documents and instruments
required to be presented under such Letter of Credit) shall be satisfactory in
form and substance to the applicable LC Issuer. No Letter of Credit shall be
issued (or shall be renewable) for a term in excess of one year or for a term
which would extend beyond the Maturity Date, or shall require payment in any
currency other than Cdn. Dollars or U.S. Dollars in the case of a Letter of
Credit issued by the Cdn. LC Issuer or U.S. Dollars in the case of a Letter of
Credit issued by the U.S. LC Issuer.
(2) As a condition of the issuance or renewal of any Letter of Credit, the
Cdn. Borrower or the U.S. Borrower, as the case may be, shall pay to the
applicable LC Issuer and shall pay to the Administrative Agent for the account
of the applicable the applicable LC Lenders on the date of such issuance or
renewal the related fees specified in Section 3.10 and shall, if requested by
such LC Issuer, execute and deliver to such LC Issuer such LC Issuer's then
current standard form letter of credit application, reimbursement and
indemnification agreements (all of which shall constitute Credit Documents).
The Cdn. Borrower or the U.S. Borrower, as the case may be, shall also pay to
such LC Issuer its customary cable charges and other administrative charges in
respect of the issue of such Letter of Credit, the amendment or transfer of
such Letter of Credit, each renewal of such Letter of Credit and each drawing
made under such Letter of Credit.
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SECTION 2.06
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(3) The Cdn. Borrower or the U.S. Borrower, as the case may be, will pay
to the applicable LC Issuer sufficient funds in the currency of each Letter of
Credit, either immediately on demand by such LC Issuer, to reimburse such LC
Issuer for any payment made by it pursuant to such Letter of Credit, or at the
option of such LC Issuer by prior written notice to the applicable Borrower, on
or prior to the date on which any payment is to be made by such LC Issuer
pursuant to such Letter of Credit, to fund such payment by such LC Issuer. If
a Borrower does not make any payment required by the preceding sentence, from
the proceeds of Accommodation obtained under this Agreement or otherwise, the
applicable LC Issuer may (but shall not be obliged to), without receipt of a
Notice of Borrowing, irrespective of whether any applicable conditions
precedent under this Agreement have been met and without waiver of the Default
or the Event of Default constituted by such Borrower's failure to make such
required payment, make a Prime Rate Loan or U.S. Base Rate Loan to the Cdn.
Borrower (in the case of the Cdn. LC Issuer) or a U.S. Reference Rate Loan to
the U.S. Borrower (in the case of the U.S. LC Issuer), as the case may be, in
the amount and currency of such required payment, and shall promptly give
notice of such Loan to the applicable Borrower and the Administrative Agent
(which shall promptly give similar notice to the other LC Lenders). Each
Borrower agrees to accept each such Loan and irrevocably authorizes and directs
the applicable LC Issuer to apply the proceeds of each such Loan in payment of
the liability of such Borrower with respect to such required payment.
Notwithstanding any other provision of this Agreement, all Loans made as
contemplated by this subsection shall be payable on demand by the
Administrative Agent or the applicable LC Issuer.
(4) Each of the Cdn. LC Lenders, other than the Cdn. LC Issuer, agrees
that it will purchase from the Cdn. LC Issuer, and the Cdn. LC Issuer shall
sell to such Lenders, for cash, at par, without representation or warranty from
or Recourse Against the Cdn. LC Issuer and irrespective of whether a Default or
Event of Default has occurred and is continuing at the relevant time and
irrespective of whether the Credit has been terminated or any acceleration of
outstanding Accommodation has occurred pursuant to Section 9.02, pro rata based
on their respective Cdn. LC Commitments, an undivided interest in any Prime
Rate Loan or U.S. Base Rate Loan made by the Cdn. LC Issuer pursuant to
subsection 2.06(3), immediately upon such Prime Rate Loan or U.S. Base Rate
Loan being made, or if no such Loan has then been made an undivided interest in
any reimbursement right of the Cdn. LC Issuer from the Cdn. Borrower pursuant
to subsection 2.06(3) for any payment made by the Cdn. LC Issuer pursuant to a
Letter of Credit immediately on request by the Cdn. LC Issuer. Each of the
U.S. LC Lenders, other than the U.S. LC Issuer, agrees that it will purchase
from the U.S. LC Issuer, and the U.S. LC Issuer shall sell to such Lenders, for
cash, at par, without representation or warranty from or Recourse Against the
U.S. LC Issuer and irrespective of whether a Default or Event of Default has
occurred and is continuing at the relevant time and irrespective of whether the
Credit has been terminated or any acceleration of outstanding Accommodation has
occurred pursuant to Section 9.02, pro rata based on their respective U.S. LC
Commitments, an undivided interest in any U.S. Reference Rate Loan made by the
U.S. LC Issuer pursuant to
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subsection 2.06(3), immediately upon such U.S. Reference Rate Loan being made,
or if no such Loan has then been made an undivided interest in any
reimbursement right of the U.S. LC Issuer from the U.S. Borrower pursuant to
subsection 2.06(3) for any payment made by the U.S. LC Issuer pursuant to a
Letter of Credit immediately on request by the U.S. LC Issuer. The
Administrative Agent, upon consultation with the applicable Lenders, shall have
the power to settle any documentation required to evidence any such purchase
and, if deemed advisable by the Administrative Agent, to execute any document
as attorney for any Lender in order to complete any such purchase. The
Borrowers and the Lenders acknowledge that the foregoing arrangements are to be
settled by the applicable LC Issuer and the applicable LC Lenders among
themselves, and the Borrowers expressly consent to the foregoing arrangements
among the LC Issuers and the LC Lenders.
(5) If any Letter of Credit is outstanding on the Maturity Date or at any
time that an Event of Default occurs or that a domestic or foreign court issues
any judgement or order restricting or prohibiting payment by the applicable LC
Issuer under such Letter of Credit or extending the liability of such LC Issuer
to make payment under such Letter of Credit beyond the expiry date specified in
such Letter of Credit, the applicable Borrower shall immediately, in the case
of any Letter of Credit outstanding on the Maturity Date, and otherwise
immediately upon demand by the Administrative Agent, pay to the Administrative
Agent, for the account of such LC Issuer, funds in the currency of such Letter
of Credit and in the amount of the Accommodation constituted by such Letter of
Credit. Such funds (together with interest on such funds) shall be held by the
Administrative Agent, subject to Section 9.03, for payment of the liability of
such Borrower pursuant to subsection 2.06(3) or otherwise in respect of such
Letter of Credit so long as such LC Issuer has or may in any circumstance have
any liability under such Letter of Credit, and shall bear interest for such
terms as are selected from time to time by the Administrative Agent at the
wholesale money market rate of the Administrative Agent for deposits of similar
currency, amounts and maturities. Any balance of such funds and interest
remaining at such time as the applicable LC Issuer does not have and may never
have any liability under such Letter of Credit shall nevertheless continue to
be held by the Administrative Agent, if and so long as any Event of Default is
continuing, as security for the remaining liabilities of such Borrower under
the Credit Documents.
(6) Each Borrower agrees that neither LC Issuer nor any LC Lender nor any
of their respective officers, directors or correspondents shall assume
liability for, or be responsible for, the use which may be made of any Letter
of Credit; any acts or omissions of the beneficiary of any Letter of Credit
including the application of any payment made to such beneficiary; the form,
validity, sufficiency, correctness, genuineness or legal effect of any document
or instrument relating to any Letter of Credit, even if such document or
instrument should in fact prove to be in any respect invalid, insufficient,
inaccurate, fraudulent or forged; payment by an LC Issuer of any draft which
does not comply with the terms of any Letter of Credit, unless such payment
results from the gross negligence or wilful misconduct of such LC Issuer; the
failure of any
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document or instrument to bear any reference or adequate reference to any
Letter of Credit; any failure to note the amount of any draft on any Letter of
Credit or on any related document or instrument; any failure of the beneficiary
of any Letter of Credit to meet the obligations of such beneficiary to any
Borrower or any other Person; any errors, inaccuracies, omissions,
interruptions or delays in transmission or delivery of any messages, directions
or correspondence by mail, facsimile or otherwise, whether or not they are in
cipher; any inaccuracies in the translation of any messages, directions or
correspondence or for errors in the interpretation of any technical terms; or
any failure by an LC Issuer to make payment under any Letter of Credit as a
result of any law, control or restriction rightfully or wrongfully exercised or
imposed by any Governmental Authority or as a result of any other cause beyond
the control of such LC Issuer or its officers, directors or correspondents.
(7) The obligations of the Borrowers under this Section with respect to
any Letter of Credit shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of this Agreement
under all circumstances including, without limitation, any matter referred to
in subsection 2.06(5); any invalidity of any obligation secured by any Letter
of Credit; any incapacity, disability or lack or limitation of status or of
power of a Borrower or the beneficiary of any Letter of Credit; any lack of
validity or enforceability of any Letter of Credit; the existence of any claim,
set-off, defense or other right which a Borrower or any other Restricted Party
or any of their Affiliates may have at any time against an LC Issuer, the
Administrative Agent, the Other Agents, any Lender, the beneficiary of any
Letter of Credit or any other Person; or any breach of contract or other
dispute between a Borrower or any other Restricted Party or any of their
Affiliates and an LC Issuer, the Administrative Agent, the Other Agents, any
Lender, the beneficiary of any Letter of Credit or any other Person.
(8) An LC Issuer may accept as complying with the terms of any Letter of
Credit any document or instrument required by such Letter of Credit to be
completed, signed, presented or delivered by or on behalf of any beneficiary
under such Letter of Credit which
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has been completed, signed, presented or delivered by a receiver, trustee in
bankruptcy, assignee for the benefit of creditors, secured party or other like
person believed in good faith by such LC Issuer to be lawfully entitled to the
property of such beneficiary, and such LC Issuer may make payments under such
Letter of Credit to such Person. The provisions of this subsection are for the
sole benefit of the LC Issuers, the Administrative Agent and the Lenders, and
may not be relied on by any other Person.
(9) Each Letter of Credit, except as specifically provided in such Letter
of Credit, and subject to any provision of this Agreement to the contrary,
shall be subject to the Uniform Customs and Practice for Documentary Credits of
the International Chamber of Commerce current at the time of issuance of such
Letter of Credit.
(10) For the purpose of calculating the Undisbursed Credit, any applicable
Undisbursed Commitment or the Undisbursed LC Line and for any other relevant
provision of this Agreement, the amount of Accommodation constituted by any
Letter of Credit shall be the maximum amount in U.S. Dollars (for which purpose
any amount payable in a currency other than U.S. Dollars shall be deemed to be
the Equivalent Amount of U.S. Dollars) which the applicable LC Issuer may in
all circumstances be required to pay pursuant to the terms of such Letter of
Credit. In addition, for the purpose of calculating the principal amount of
outstanding Accommodation that has been made available at any time by any LC
Lender (including any LC Issuer in its capacity as an LC Lender), each Letter
of Credit issued by the Cdn. LC Issuer shall be deemed to have been made
available by the Cdn. LC Lenders pro rata based on their respective Cdn. LC
Commitments and each Letter of Credit issued by the U.S. LC Issuer shall be
deemed to have been made available by the U.S. LC Lenders pro rata based on
their respective U.S. LC Commitments.
1.027 OVERDRAFTS UNDER THE OPERATING LINES
(1) The Cdn. Borrower shall open a Cdn. Dollar operating account and a
U.S. Dollar operating account with the Cdn. Operating Lender. Subject to the
limitations set forth in this Agreement, the Cdn. Borrower shall be entitled to
obtain Prime Rate Loans under the Cdn. Operating Line by way of overdraft in
such Cdn. Dollar operating account and to obtain U.S. Base Rate Loans by way of
overdraft under the Cdn. Operating Line in such U.S. Dollar operating account.
The aggregate amount of all cheques drawn on such Cdn. Dollar operating account
and honoured by the Cdn. Operating Lender on each day together with the
aggregate amount of all other withdrawals debited to such account during such
day, net of the credit balance of such account at the beginning of such day (if
any) and all deposits or credits to such account during such day, shall be
deemed to be a Prime Rate Loan by way of overdraft made by the Cdn. Operating
Lender to the Cdn. Borrower under the Cdn. Operating Line on such day. The
aggregate amount of all cheques drawn on such U.S. Dollar operating account and
honoured by the Cdn. Operating Lender on each day together with the aggregate
amount of all other
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withdrawals debited to such account during such day, net of the credit balance
of such account at the beginning of such day (if any) and all deposits or
credits to such account during such day, shall be deemed to be a U.S. Base Rate
Loan by way of overdraft made by the Cdn. Operating Lender to the Cdn. Borrower
under the Cdn. Operating Line on such day.
(2) The U.S. Borrower shall open a U.S. Dollar operating account with each
of the U.S. Operating Lenders. Subject to the limitations set forth in this
Agreement, the U.S. Borrower shall be entitled to obtain U.S. Reference Rate
Loans by way of overdraft under each of the U.S. Operating Lines in such U.S.
Dollar operating account maintained with the applicable U.S. Operating Lender.
The aggregate amount of all cheques drawn on any such U.S. Dollar operating
account and honoured by the applicable U.S. Operating Lender on each day
together with the aggregate amount of all other withdrawals debited to such
account during such day, net of the credit balance of such account at the
beginning of such day (if any) and all deposits or credits to such account
during such day, shall be deemed to be a U.S. Reference Rate Loan by way of
overdraft made by such U.S. Operating Lender to the U.S. Borrower under the
U.S. Operating Line from such U.S. Lender on such day.
1.028 LENDERS' ACCOUNTS
(1) Each Lender will open and maintain an account or accounts evidencing
(i) the indebtedness and obligations of the applicable Borrower to such Lender
under this Agreement in respect of outstanding Accommodation and accrued
interest, fees and other amounts payable under this Agreement, (ii) the types
of Accommodation outstanding from such Lender to the applicable Borrower from
time to time and the date or dates on which such Accommodation was made
available to such Borrower, and (iii) the amounts from time to time paid by
such Borrower to such Lender under this Agreement on account of Accommodation,
interest, fees and other amounts. Each Borrower acknowledges, confirms and
agrees that all such accounts kept by the Lenders will constitute prima facie
evidence of the matters referred to above; provided, however, that the failure
of any Lender to make any entry or recording in any such account shall not
limit or otherwise affect the obligations of any Borrower under this Agreement
or with respect to any Accommodation, interest, fees or other amounts owed to
such Lender.
(2) The Administrative Agent will maintain a register (the "REGISTRY OF
COMMITMENTS") on which the Administrative Agent will record the nature and
amount of all Commitments from time to time of each of the Lenders, the
Accommodation made from time to time by each of the Lenders (other than the
Operating Lenders) and each repayment in respect of the principal amount of
such Accommodation of each such Lender (other than the Operating Lenders). The
Administrative Agent will open the Registry of Commitments on the date of this
Agreement and will enter into and record on the Registry of Commitments on such
date the Commitments of all of the Lenders as set forth in Schedules 1 and 27
and the Commitments of each of the Operating Lenders on the date of this
Agreement. Thereafter the Administrative
<PAGE> 74
SECTION 2.08
- 66 -
Agent will enter into and record on the Registry of Commitments any and all
changes to the Commitments of any one or more Lenders made pursuant to the
provisions of this Agreement, the addition of new Lenders and the removal of
Lenders as a result of assignments and transfers made pursuant to Section 12.01
and all assignments and transfers of Commitments made pursuant to Section
12.01. Failure to make any such recordation, or any error in such recordation
shall not affect either of the Borrower's obligations in respect of any
Accommodation or otherwise under or in respect of any Credit Document. The
transfer of any Commitment of any Lender and the rights to the principal of,
interest on and fees with respect to any Accommodation outstanding pursuant to
such Commitment shall not be effective as between any Borrower, the
Administrative Agent and the transferee until such transfer is recorded on the
Registry of Commitments. The registration of any assignment or transfer of any
Commitment and Accommodation outstanding thereunder shall be recorded by the
Administrative Agent on the Registry of Commitments only upon the acceptance by
the Administrative Agent of a properly executed and delivered Undertaking and a
properly executed and delivered assignment and assumption agreement pursuant to
paragraph 12.01(b)(iii). The Borrowers agree to indemnify and save harmless
the Administrative Agent from and against any losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, served against or
incurred by the Administrative Agent in performing its duties under this
subsection. In the event of any conflict between the Registry of Commitments
and any account maintained by any Lender pursuant to subsection 2.08(1), the
Registry of Commitments shall prevail. Each of the Borrower's designates the
Administrative Agent to also serve as such Borrower's agent solely for the
purposes of this subsection for the purpose of maintaining the Registry of
Commitments.
1.029 LIBOR LOANS
(1) Each LIBOR Loan shall be U.S. $100,000 or any whole multiple of U.S.
$100,000, and the aggregate amount of all LIBOR Loans advanced pursuant to any
Notice of Borrowing under any Tranche or Tranches shall not be less than the
applicable amounts set forth in Schedule 12 with respect to such Tranche or
Tranches.
(2) The aggregate face amount of LIBOR Loans from a Lender on any
Borrowing Date shall be determined by the Administrative Agent based upon the
amounts of the respective Commitments under the Tranche or Tranches under which
such LIBOR Loans are being made, except that, if the amount of any LIBOR Loan
to be made by a Lender, determined as provided for above, would not be U.S.
$100,000 or a whole multiple of U.S. $100,000, the Administrative Agent in its
sole discretion may increase such face amount to the nearest whole multiple of
U.S. $100,000 or may reduce such face amount to the nearest whole multiple of
U.S. $100,000.
<PAGE> 75
SECTION 2.10
- 67 -
1.201 OPTIONAL REDUCTION OF LIMIT OF TRANCHES
The Cdn. Borrower shall have the right at any time and from time to time,
on behalf of the Borrowers, upon not less than 30 days prior written notice to
the Administrative Agent, to permanently reduce the limit of any Tranche
(provided that in the case of any of Tranches 1, 2 and 3 such reduction must be
made pro rata among all such Tranches then in effect) (and accordingly the
limit of each Commitment under such Tranche) by all or any part of the
Undisbursed Tranche of such Tranche; provided, however, that no such reduction
of the limit of a Tranche shall be in (x) an aggregate amount less than U.S.
$1,000,000 (or the entire amount of such Tranche if lesser), or (y) an
aggregate amount in excess of U.S. $1,000,000 which is not a whole multiple of
U.S. $100,000 (or the entire amount of such Tranche if lesser).
1.21 CERTAIN PRE-EXISTING ACCOMMODATION
(1) From and after the Closing Date:
(a) Pre-existing BA Equivalent Notes: Each Pre-existing BA Equivalent
Note shall be, and shall be deemed for all purposes to be, a BA
Equivalent Note purchased from the Cdn. Borrower by the applicable
Pre-existing Accommodation Lender indicated in Schedule 8, and
outstanding, under this Agreement under the applicable Tranche
specified in Schedule 8 as being applicable to such Pre-existing BA
Equivalent Note;
(b) Pre-existing BAs: Each Pre-existing BA shall be, and shall be
deemed for all purposes to be, a Bankers' Acceptance accepted by the
applicable Pre-existing Accommodation Lender indicated in Schedule 8
for the account of the Cdn. Borrower, and outstanding, under this
Agreement under the applicable Tranche specified in Schedule 8 as
being applicable to such Pre-existing BA;
(c) Pre-existing LCs: Each Pre-existing LC shall be, and shall be
deemed for all purposes (including for the purposes of Sections 2.06
and 3.10) to be, (a) in the case of any such Pre-existing LC issued
by the Cdn. LC Issuer, a Letter of Credit issued by the Cdn. LC
Issuer on behalf of the Cdn. LC Lenders for the account of the Cdn.
Borrower, and outstanding, under this Agreement under the LC Line,
(b) in the case of any such Pre-existing LC issued by the U.S. LC
Issuer, a Letter of Credit issued by the U.S. LC Issuer on behalf of
the U.S. LC Lenders for the account of the U.S. Borrower, and
outstanding, under this Agreement under the LC Line, (c) in the case
of any such Pre-existing LC issued by the Cdn. Operating Lender, a
Letter of Credit from the Cdn. Operating Lender issued for the
account of the Cdn. Borrower, and outstanding, under this Agreement
under the Cdn. Operating Line, and (d) in the case of any such
Pre-existing LC issued by a U.S.
<PAGE> 76
SECTION 2.11
- 68 -
Operating Lender, a Letter of Credit from such U.S. Operating
Lender issued for the account of the U.S. Borrower, and outstanding,
under this Agreement under the U.S. Operating Line from such U.S.
Operating Lender;
(d) Pre-existing LIBOR Loans: Each Pre-existing LIBOR Loan shall be,
and shall be deemed for all purposes to be, a LIBOR Loan made by the
applicable Pre-existing Accommodation Lender indicated in Schedule 8
to the applicable Borrower indicated in Schedule 8, and outstanding,
under this Agreement under the applicable Tranche specified in
Schedule 8 as being applicable to such Pre-existing LIBOR Loan;
(e) Pre-existing Prime Rate Overdraft Loans: Each Pre-existing Prime
Rate Overdraft Loan shall be, and shall be deemed for all purposes
to be, a Prime Rate Loan made by the Cdn. Operating Lender by way of
overdraft to the Cdn. Borrower, and outstanding, under this
Agreement under the Cdn. Operating Line;
(f) Pre-existing U.S. Base Rate Overdraft Loans: Each Pre-existing U.S.
Base Rate Overdraft Loan shall be, and shall be deemed for all
purposes to be, a U.S. Base Rate Loan made by the Cdn. Operating
Lender by way of overdraft to the Cdn. Borrower, and outstanding,
under this Agreement under the Cdn. Operating Line;
(g) Pre-existing U.S. Reference Rate Overdraft Loans: Each Pre-existing
U.S. Reference Rate Overdraft Loan from a U.S. Operating Lender
shall be, and shall be deemed for all purposes to be, a U.S.
Reference Rate Loan made by such U.S. Operating Lender by way of
overdraft to the U. S. Borrower, and outstanding, under this
Agreement under the U.S. Operating Line from such U.S. Operating
Lender; and
(h) Pre-existing Accommodation: All of the Pre-existing Accommodation
(a) will constitute outstanding indebtedness and liabilities of the
applicable Borrower to the applicable Pre-existing Accommodation
Lender in its capacity as a Lender under this Agreement, (b) will be
subject to all of the terms and provisions of this Agreement and any
other applicable Credit Documents including, without limitation, in
the case of Pre-existing LIBOR Loans, Pre-existing Prime Rate
Overdraft Loans, Pre-existing U.S. Base Rate Overdraft Loans and
Pre-existing U.S. Reference Rate Overdraft Loans the payment of
interest from and after the Closing Date at the rates, in the manner
and at the times provided for in this Agreement, and (c) will be
secured by the Security.
(2) Each of the Borrowers acknowledges to and agrees with each of the
applicable Pre-existing Accommodation Lenders that each such Borrower is
indebted to each such Pre-
<PAGE> 77
SECTION 2.11
- 69 -
existing Accommodation Lender for, and agrees to pay to each such Pre-existing
Accommodation Lender on the first interest payment date under Article Three
following the Closing Date, all interest which is, at the Closing Date, accrued
and unpaid under the Existing Philip Bank Credit Agreement in respect of the
Pre-existing LIBOR Loans, Pre-existing Prime Rate Overdraft Loans, Pre-existing
U.S. Base Rate Overdraft Loans and Pre-existing U.S. Reference Rate Overdraft
Loans outstanding from such Lender to such Borrower.
(3) All of the provisions of Section 2.06 and subsection 5.05(2) shall
apply to each of the Pre-existing LCs as if reference in such Section to the LC
Issuer were deemed to be reference to the applicable Pre-existing Accommodation
Lender and, with respect to the Cdn. Operating Lender and each U.S. Operating
Lender in their capacities as Pre-existing Accommodation Lenders, reference in
such Section to the LC Line was deemed to be reference to the Cdn. Operating
Line or the applicable U.S. Operating Line, as the case may be. For greater
certainty, Pre-existing LCs from the Cdn. Operating Lender and the U.S.
Operating Lenders may not be renewed but will, on expiry, be replaced by a new
Letter of Credit issued by the applicable LC Issuer under the LC Line. The
Cdn. Borrower, the Cdn. Operating Lender, the U.S. Operating Lenders and the LC
Lenders will co-operate with a view to replacing all Pre-existing LCs from the
Cdn. Operating Lender and the U.S. Operating Lenders as soon as possible
following the Closing Date (in a manner which will not cause duplication of
Letters of Credit or inconvenience to the Borrowers) with new Letters of Credit
issued by the LC Issuers under the LC Line.
(4) Notwithstanding any other provision of this Agreement which would
require that Borrowings be made on a pro rata basis by any Lenders or group or
groups of Lenders, (a) each of the Pre-existing Accommodation Lenders, subject
to subsection 2.11(3), will continue to hold after the Closing Date, until
their respective maturity or expiry dates, all Pre-existing Accommodation held
by such Lenders on the Closing Date, (b) subject to clause (c) of this
subsection and to the limit of each Lender's applicable Commitment, all new
Borrowings under this Agreement will be made pro rata by the applicable Lenders
or group or groups of Lenders as otherwise required under this Agreement
without regard to the Pre-existing Accommodation held by any such Lenders, and
(c) the Administrative Agent may from time to time in its discretion adjust the
manner in which any Lenders or group or groups of Lenders share in any new
Borrowings under this Agreement having regard to the outstanding Pre-existing
Accommodation at such time and with a view to ensuring that all applicable
Lenders or groups of Lenders hold outstanding Accommodation as soon as possible
after the Closing Date on a pro rata basis as contemplated under the other
provisions of this Agreement.
ARTICLE THREE
INTEREST AND FEES
<PAGE> 78
SECTION 3.01
- 70 -
1.031 LOANS
Each Prime Rate Loan, U.S. Base Rate Loan, U.S. Reference Rate Loan and
LIBOR Loan, as the case may be, under the Credit shall bear interest, in the
case of Prime Rate Loans, U.S. Base Rate Loans and U.S. Reference Rate Loans,
from the Borrowing Date for such Loan to the date of repayment of such Loan
and, in the case of LIBOR Loans, during each LIBOR Period applicable to such
Loan, on the unpaid amount of such Loan calculated (but not compounded) daily
at a nominal rate per annum for each such Loan equal to the Applicable
Reference Rate for such type of Loan in effect from time to time plus an
additional pricing adjustment (the "APPLICABLE INTEREST PRICING ADJUSTMENT")
determined in accordance with the provisions of this Section. On the date of
this Agreement the Applicable Interest Pricing Adjustment under this Section
for Prime Rate Loans, U.S. Base Rate Loans and U.S. Reference Rate Loans is 25
bps and the Applicable Interest Pricing Adjustment under this Section for LIBOR
Loans is 125 bps. The Applicable Interest Pricing Adjustment for each type of
Loan will change based on changes to the Debt to EBITDA Pricing Adjustment
Ratio. The Applicable Interest Pricing Adjustment for each type of Loan will
be reset (a) on September 1, 1997 to that amount indicated below as applying to
such type of Loan where the Debt to EBITDA Pricing Adjustment Ratio on such day
is as set forth below, and (b) on each Pricing Adjustment Date which occurs on
or after January 1, 1998 to that amount indicated below as applying to such
type of Loan where the Debt to EBITDA Pricing Adjustment Ratio on such Pricing
Adjustment Date is as set forth below:
<TABLE>
<S> <C> <C> <C> <C>
DEBT TO PRIME RATE U.S. BASE U.S. REFERENCE LIBOR LOANS
EBITDA PRICING LOANS RATE LOANS RATE LOANS
ADJUSTMENT
RATIO
Prime U.S. Base U.S. Reference LIBOR +
Rate + Rate + Rate +
< 2.0:1 0 bps 0 bps 0 bps 45 bps
< 2.5:1 0 bps 0 bps 0 bps 60 bps
< 3.0:1 0 bps 0 bps 0 bps 75 bps
< 3.5:1 0 bps 0 bps 0 bps 95 bps
< 4.0:1 25 bps 25 bps 25 bps 125 bps
= or > 4.0:1 37.5 bps 37.5 bps 37.5 bps 137.5 bps
</TABLE>
1.032 OVERDUE PRINCIPAL AND INTEREST
(1) If all or part of any Prime Rate Loan, U.S. Base Rate Loan or U.S.
Reference Rate Loan shall not be paid when due (whether at its stated maturity,
by acceleration or otherwise), such overdue amount shall bear interest (as well
after as before judgment), payable on demand, at a rate per annum equal to the
rate of interest applicable under this Agreement from time to time to such Loan
from the date of such non-payment until paid in full. If any LIBOR Loan shall
not
<PAGE> 79
SECTION 3.02
- 71 -
be paid when due (whether at its stated maturity, by acceleration or
otherwise), such amount shall bear interest (as well after as before judgment),
payable on demand, at a rate per annum equal to the rate of interest applicable
under this Agreement from time to time to:
(a) U.S. Base Rate Loans in the case of any LIBOR Loan under Tranche 1
or the Cdn. Operating Line or any LIBOR Loan from a Cdn. Cross
Border Lender under Tranche 2; and
(b) U.S. Reference Rate Loans in the case of any LIBOR Loan under
Tranche 3 or either U.S. Operating Line or any LIBOR Loan from a
U.S. Cross Border Lender under Tranche 2;
in each case from the date of such non-payment until paid in full.
(2) If all or part of any interest in respect of any Prime Rate Loan, U.S.
Base Rate Loan or U.S. Reference Rate Loan shall not be paid when due (whether
at its stated maturity, by acceleration or otherwise), such overdue interest
shall, to the extent permitted by law, bear interest (as well after as before
judgment), payable on demand, at a rate per annum equal to the rate of interest
applicable under this Agreement from time to time to the type of Loan in
respect of which such interest was not paid from the date of such non-payment
until paid in full. If all or part of any interest in respect of any LIBOR
Loan shall not be paid when due (whether at its stated maturity, by
acceleration or otherwise), such overdue interest shall bear interest (as well
after as before judgment), payable on demand, at a rate per annum equal to the
rate of interest applicable under this Agreement from time to time to:
(a) U.S. Base Rate Loans in the case of overdue interest on any LIBOR
Loan under Tranche 1 or the Cdn. Operating Line or any LIBOR Loan
from a Cdn. Cross Border Lender under Tranche 2; and
(b) U.S. Reference Rate Loans in the case of overdue interest on any
LIBOR Loan under Tranche 3 or either U.S. Operating Line or any
LIBOR Loan from a U.S. Cross Border Lender under Tranche 2;
in each case from the date of such non-payment until paid in full.
1.033 INTEREST ON OTHER AMOUNTS
If any amount owed by a Restricted Party to the Administrative Agent or to
any Lender under any of the Credit Documents is not paid when due and payable,
and there is no other provision in any Credit Document specifying the interest
payable on such overdue amount, such overdue amount shall bear interest (as
well after as before judgement), payable (a) on demand in
<PAGE> 80
SECTION 3.03
- 72 -
Cdn. Dollars at a rate per annum equal at all times to the Prime Rate plus 2%
(in the case of any such amount payable in Cdn. Dollars), or (b) on demand in
U.S. Dollars at a rate per annum equal at all times to the U.S. Base Rate plus
2% (in the case of any such amount payable in U.S. Dollars to the
Administration Agent, a Cdn. Only Lender, a Cdn. Cross Border Lender, the Cdn.
Operating Lender or a Cdn. LC Lender) or the U.S. Reference Rate plus 2% (in
the case of any such amount payable in U.S. Dollars to a U.S. Only Lender, a
U.S. Cross Border Lender, either U.S. Operating Lender or a U.S. LC Lender), in
each such case from the date of non-payment until paid in full (which rate per
annum, in each case, shall change automatically without notice to the
Restricted Parties as and when the Prime Rate or the U.S. Base Rate or the U.S.
Reference Rate, as the case may be, shall change so that at all times the
interest payable under this Section shall be based on the Prime Rate or the
U.S. Base Rate or the U.S. Reference Rate, as the case may be, then in effect).
1.034 INTEREST PAYMENT DATES
(1) Except as specified in subsections 3.02(1) and (2), interest in
respect of Prime Rate Loans, U.S. Base Rate Loans and U.S. Reference Rate Loans
shall be payable in arrears on the first Business Day in each month with
respect to interest which has accrued to and including the last day of the
immediately preceding month.
(2) Except as specified in subsection 3.02(2), interest in respect of each
LIBOR Loan shall be payable on the last day of each LIBOR Period applicable to
such LIBOR Loan and also, with respect to each LIBOR Period of a term longer
than three months, at the end of each three-month period included in such LIBOR
Period.
1.035 LIBOR PERIOD DETERMINATION
Each Borrower shall select the term of each LIBOR Period with respect to
each LIBOR Loan made or to be made available to it by telephone notice (to be
confirmed the same day by way of a Notice of Conversion/Renewal) or facsimile
received by the Administrative Agent not later than 10:00 a.m. on the third
Business Day prior to the commencement of such LIBOR Period. The first LIBOR
Period for any LIBOR Loan shall commence on (and include) the Borrowing Date
for such LIBOR Loan, and each LIBOR Period occurring after such first LIBOR
Period for such LIBOR Loan shall commence on (and include) the last day of the
immediately preceding LIBOR Period for such LIBOR Loan. In each case, a LIBOR
Period shall end on the day in the last calendar month included in such Libor
Period that numerically corresponds to the first day of such LIBOR Period.
Notwithstanding the foregoing:
(a) If the Administrative Agent shall not have received due notice of
renewal of the LIBOR Period with respect to any outstanding LIBOR
Loan in accordance with the first sentence of this Section, or if a
Default or Event of Default is continuing
<PAGE> 81
SECTION 3.05
- 73 -
the expiry of any LIBOR Period with respect to any outstanding LIBOR
Loan, such LIBOR Loan shall be automatically converted on the expiry
of such existing LIBOR Period to:
(i) a U.S. Base Rate Loan under the same Tranche as the Tranche
under which such LIBOR Loan was outstanding in the case of
any LIBOR Loan under Tranche 1 or the Cdn. Operating Line
or any LIBOR Loan from a Cdn. Cross Border Lender under
Tranche 2; or
(ii) a U.S. Reference Rate Loan under the same Tranche as the
Tranche under which such LIBOR Loan was outstanding in the
case of any LIBOR Loan under Tranche 3 or either U.S.
Operating Line or any LIBOR Loan from a U.S. Cross Border
Lender under Tranche 2.
(b) Any LIBOR Period that begins on the last Business Day in a calendar
month, or on a day for which there is no numerically corresponding
day in the calendar month in which such LIBOR Period would otherwise
end, shall end on the last Business Day in the calendar month in
which such LIBOR Period would otherwise end.
(c) If any LIBOR Period would otherwise end on a day which is not a
Business Day, such LIBOR Period shall end on the next succeeding
Business Day, provided, however, that if such next succeeding
Business Day falls in the next calendar month, such LIBOR Period
shall end on the next preceding Business Day.
(d) No LIBOR Period may extend beyond the Maturity Date.
(e) The number of different LIBOR Periods for all LIBOR Loans
outstanding at any time under Tranches 1, 2 and 3 shall not exceed
100 less the number of maturity dates for all Bankers' Acceptances
and BA Equivalent Notes outstanding at that time under such
Tranches, and there shall not at any time be more than that number
of different LIBOR Periods for all LIBOR Loans outstanding at that
time under an Operating Line as may have been agreed to prior to
such time by the applicable Borrower and Operating Lender under such
Operating Line.
1.036 FAILURE OF THE LIBOR
If at any time a Lender (or in the case of clause (i) below and any Lender
under Tranche 1, 2 or 3, the Administrative Agent) shall determine (which
determination shall be conclusive and binding) that by reason of circumstances
affecting the London interbank market or any other relevant financial market or
the position of such Lender (or in the case of clause (i) below and
<PAGE> 82
SECTION 3.06
- 74 -
any Lender under Tranche 1, 2 or 3, the Administrative Agent) in any such
market (i) adequate and reasonable means do not exist for ascertaining the
LIBOR to be applicable during any LIBOR Period, or (ii) the LIBOR does not
adequately reflect the effective cost to such Lender of the funds to be used by
it to make or continue the applicable LIBOR Loan for any LIBOR Period, or (iii)
U.S. Dollars in the amount of the applicable LIBOR Loan are not readily
available to such Lender for any LIBOR Period in the London interbank market,
then such Lender shall give notice of such event (by telephone to be confirmed
the same day in writing) or by facsimile to the applicable Borrower and the
Administrative Agent (which shall promptly give a copy of such notice to the
other Lenders). On the last day of the LIBOR Period then applicable to each
such LIBOR Loan, the interest on each LIBOR Loan then outstanding from such
Lender as a LIBOR Loan shall cease to be calculated under this Agreement on the
basis of the LIBOR and shall commence to be calculated under this Agreement on
the basis of:
(a) the U.S. Base Rate in the case of any such LIBOR Loan under Tranche
1 or the Cdn. Operating Line or any such LIBOR Loan from a Cdn.
Cross Border Lender under Tranche 2; or
(b) the U.S. Reference Rate in the case of any such LIBOR Loan under
Tranche 3 or either U.S. Operating Line or any such LIBOR Loan from
a U.S. Cross Border Lender under Tranche 2.
Any Notice of Borrowing which has been delivered to such Lender requesting a
LIBOR Loan on a Borrowing Date on or subsequent to such notification date shall
be deemed to request:
(a) a U.S. Base Rate Loan in the same amount in the case of any such
LIBOR Loan under Tranche 1 or the Cdn. Operating Line or any such
LIBOR Loan from a Cdn. Cross Border Lender under Tranche 2; or
(b) a U.S. Reference Rate Loan in the same amount in the case of any
such LIBOR Loan under Tranche 3 or either U.S. Operating Line or any
such LIBOR Loan from a U.S. Cross Border Lender under Tranche 2.
The Borrowers shall not be entitled to obtain any LIBOR Loan from such Lender
so long as any such condition shall continue to exist, and any Loan that would
otherwise have been made by such Lender as a LIBOR Loan shall instead be made
by such Lender as:
(a) a U.S. Base Rate Loan in the same amount in the case of any such
LIBOR Loan under Tranche 1 or the Cdn. Operating Line or any such
LIBOR Loan from a Cdn. Cross Border Lender under Tranche 2; or
<PAGE> 83
SECTION 3.06
- 75 -
(b) a U.S. Reference Rate Loan in the same amount in the case of any
such LIBOR Loan under Tranche 3 or either U.S. Operating Line or any
such LIBOR Loan from a U.S. Cross Border Lender under Tranche 2.
1.037 DETERMINATION OF RATES AND BASIS OF CALCULATION OF INTEREST
(1) The BA Discount Rate, Federal Funds Rate, LIBOR, Prime Rate, U.S. Base
Rate and U.S. Reference Rate shall be determined by the Administrative Agent
whenever such determination is required for any purpose of this Agreement, and
such determination by the Administrative Agent, and each determination by a
Lender of a rate to be notified to the Administrative Agent pursuant to the
definition of "BA Discount Rate" in Section 1.01, or in connection with any
rates or fees applicable to any Operating Line, shall be prima facie evidence
of such rate. The Administrative Agent shall, at the request of either
Borrower, promptly notify such Borrower of any of the rates notified to the
Administrative Agent by the Lenders with respect to the "BA Discount Rate" or
any Operating Line.
(2) All interest in respect of Prime Rate Loans shall be payable in Cdn.
Dollars and all interest in respect of U.S. Base Rate Loans, U.S. Reference
Rate Loans and LIBOR Loans shall be payable in U.S. Dollars.
(3) In calculating interest or fees payable under this Agreement for any
period, unless otherwise specifically stated, the first day of such period
shall be included and the last day of such period shall be excluded.
1.038 MAXIMUM RETURN
Notwithstanding any provision of this Agreement, in no event shall the
aggregate "interest" (as defined in section 347 of the Criminal Code (Canada))
payable under this Agreement exceed the effective annual rate of interest on
the "credit advanced" (as defined in that section) under this Agreement
lawfully permitted by that section, nor shall the interest payable under this
Agreement exceed the rate of interest which may be lawfully charged under this
Agreement by any other Applicable Law having application to interest payable
under this Agreement, and, if any payment, collection or demand pursuant to
this Agreement in respect of "interest" (as defined in that section) or under
any such other Applicable Law is determined to be contrary to the provisions of
that section or such other Applicable Law, such payment, collection or demand
shall be deemed to have been made by mutual mistake of the applicable Borrower
and the applicable Lender and the amount of such payment or collection shall be
refunded to such Borrower. For the purposes of this Agreement, the effective
annual rate of interest shall be determined in accordance with generally
accepted actuarial practices and principles over the term of the Credit and, in
the event of dispute, a certificate of a Fellow of the
<PAGE> 84
SECTION 3.08
- 76 -
Canadian Institute of Actuaries appointed by the Administrative Agent will be
prima facie evidence of such rate.
1.039 FEES FOR BANKERS' ACCEPTANCES AND BA EQUIVALENT NOTES
The Cdn. Borrower shall pay to each BA Lender in respect of each Draft
tendered by such Borrower to and accepted by such BA Lender, and to each Non BA
Lender in respect of each BA Equivalent Note tendered to and purchased by such
Non BA Lender, as a condition of such acceptance or purchase, a fee in Cdn.
Dollars calculated on the basis of the face amount and the term of such
Bankers' Acceptance or BA Equivalent Note and at a rate per annum equal to the
stamping fee (the "APPLICABLE STAMPING FEE") in effect on the date of such
acceptance or purchase as determined in accordance with the provisions of this
Section. On the date of this Agreement the Applicable Stamping Fee is 125 bps.
The Applicable Stamping Fee will change based on changes to the Debt to EBITDA
Pricing Adjustment Ratio. The Applicable Stamping Fee will be reset (a) on
September 1, 1997 to that amount indicated below as applying where the Debt to
EBITDA Pricing Adjustment Ratio on such day is as set forth below, and (b) on
each Pricing Adjustment Date which occurs on or after January 1, 1998 to that
amount indicated below as applying where the Debt to EBITDA Pricing Adjustment
Ratio on such Pricing Adjustment Date is as set forth below:
<TABLE>
<S> <C>
DEBT TO EBITDA
PRICING ADJUSTMENT APPLICABLE STAMPING
RATIO FEE
< 2.0:1 45 bps
< 2.5:1 60 bps
< 3.0:1 75 bps
< 3.5:1 95 bps
< 4.0:1 125 bps
= or > 4.0:1 137.5 bps
</TABLE>
1.301 FEES FOR LETTERS OF CREDIT
The applicable Borrower, in respect of each Letter of Credit to be issued
or renewed by an LC Issuer under the LC Line, as a condition of such issuance
or renewal:
(a) shall pay to the applicable LC Issuer for its own account a fee (the
"FRONTING FEE") in the currency of the Letter of Credit calculated
at the rate of 0.125% per annum on the basis of the maximum amount
and term of such Letter of Credit, and
<PAGE> 85
SECTION 3.10
- 77 -
(b) shall pay the Administrative Agent for the Ratable account of the
applicable LC Lenders (including the applicable LC Issuer in its
capacity as an LC Lender) a fee (the "ISSUANCE FEE") in the currency
of the Letter of Credit calculated at a rate per annum equal to the
rate (the "APPLICABLE LC FEE PRICING RATE") in effect on the date of
such issuance or renewal, as the case may be, as determined in
accordance with the provisions of this Section, on the basis of the
maximum amount and term of such Letter of Credit.
On the date of this Agreement the Applicable LC Fee Pricing Rate is 125 bps.
The Applicable LC Fee Pricing Rate will change based on changes to the Debt to
EBITDA Pricing Adjustment Ratio. The Applicable LC Fee Pricing Rate will be
reset (a) on September 1, 1997 to that amount indicated below as applying where
the Debt to EBITDA Pricing Adjustment Ratio on such day is as set forth below,
and (b) on each Pricing Adjustment Date which occurs on or after January 1,
1998 to that amount indicated below as applying where the Debt to EBITDA
Pricing Adjustment Ratio on such Pricing Adjustment Date is as set forth below:
<TABLE>
<S> <C>
DEBT TO EBITDA APPLICABLE LC FEE
PRICING ADJUSTMENT PRICING RATE
RATIO
< 2.0:1 45 bps
< 2.5:1 60 bps
< 3.0:1 75 bps
< 3.5:1 95 bps
< 4.0:1 125 bps
= or > 4.0:1 137.5 bps
</TABLE>
The Administrative Agent will promptly distribute the Issuance Fee among the
applicable LC Lenders (including the applicable LC Issuer in its capacity as an
LC Lender). For greater certainty, on the Closing Date, (a) the Cdn. Borrower
shall pay to the Cdn. LC Issuer a Fronting Fee for each Pre-existing LC issued
by the Cdn. LC Issuer calculated in the manner referred to above on the basis
of the maximum amount and the balance of the term of such Pre-existing LC on
such date, (b) the U.S. Borrower shall pay to the U.S. LC Issuer a Fronting Fee
for each Pre-existing LC issued by the U.S. LC Issuer calculated in the manner
referred to above on the basis of the maximum amount and the balance of the
term of such Pre-existing LC on such date, and (c) each LC Issuer shall pay to
the Administrative Agent for distribution to the applicable LC Lenders such LC
Lenders' share of the Issuance Fee for each of the Pre-existing LCs calculated
in the manner referred to above on the basis of the maximum amount and the
balance of the term of such Pre-existing LC on such date.
<PAGE> 86
SECTION 3.11
- 78 -
1.31 STANDBY FEE
The Borrowers shall pay to the Administrative Agent for distribution to
each Lender a standby fee in U.S. Dollars, for the period commencing on the
Closing Date and ending on the Maturity Date (or on such earlier date as the
Commitments are terminated), calculated on the daily amount of each Undisbursed
Tranche at a rate per annum equal to the rate (the "APPLICABLE STANDBY FEE
PRICING RATE") as determined in accordance with the provisions of this Section.
On the date of this Agreement the Applicable Standby Fee Pricing Rate is 35
bps. The Applicable Standby Fee Pricing Rate will be reset (a) on September 1,
1997 to that amount indicated below as applying where the Debt to EBITDA
Pricing Adjustment Ratio on such day is as set forth below, and (b) on each
Pricing Adjustment Date which occurs on or after January 1, 1998 to that amount
indicated below as applying where the Debt to EBITDA Pricing Adjustment Ratio
on such Pricing Adjustment Date is as set forth below:
<TABLE>
<S> <C>
DEBT TO EBITDA APPLICABLE STANDBY
PRICING ADJUSTMENT FEE PRICING RATE
RATIO
< 2.0:1 15 bps
< 2.5:1 20 bps
< 3.0:1 25 bps
< 3.5:1 30 bps
< 4.0:1 35 bps
= or > 4.0:1 40 bps
</TABLE>
Accrued Standby fees shall be due and payable on the first Business Day of each
Financial Quarter in respect of the immediately preceding Financial Quarter and
on the Maturity Date (or with respect to any applicable Lender, on such earlier
date as its Commitments are terminated).
1.32 AGENCY FEES
In consideration of the Administrative Agent acting as agent under the
Credit Documents, the Cdn. Borrower shall pay to the Administrative Agent an
agency fee in an amount, and on the terms and conditions, set out in any agency
fee letter from time to time entered into by the Administrative Agent and the
Cdn. Borrower, or as otherwise agreed to in writing from time to time by the
Administrative Agent and the Cdn. Borrower. All such written arrangements
between the Administrative Agent and the Cdn. Borrower shall constitute Credit
Documents.
<PAGE> 87
SECTION 4.01
- 79 -
ARTICLE FOUR
REPAYMENT OF ACCOMMODATION
1.041 OPTIONAL REPAYMENT
(1) Each Borrower shall have the right to repay from time to time on any
Business Day (an "OPTIONAL REPAYMENT DATE") any Accommodation outstanding to
it, without premium but subject to Section 5.05, on the terms and conditions
that, except in the case of any repayments under an Operating Line which shall
be subject to arrangements from time to time entered into between the Cdn.
Borrower and the Cdn. Operating Lender and between the U.S. Borrower and each
of the U.S. Operating Lenders:
(a) such Borrower shall give to the Administrative Agent not less than 3
Business Days' irrevocable prior written notice (other than with
respect to repayments by way of renewal or conversions of
Accommodation which shall require the applicable notice for
Borrowings referred to in Section 2.04) specifying the amount and
the type of Accommodation to be repaid (which shall be the same type
from each applicable Lender), the Tranche under which such
Accommodation is outstanding, and the applicable Optional Repayment
Date;
(b) each repayment of Accommodation pursuant to this subsection shall be
allocated (as to both amount, type, and applicable maturity, of
Accommodation) to the Lenders under the applicable Tranche (or in
the case of Tranches 1, 2 and 3 under all of such Tranches) having
Commitments under such Tranche or Tranches, as the case may be, to
the Borrower making the repayment on a Rateable basis;
(c) the aggregate U.S. Dollar Amount of Accommodation repaid pursuant to
this subsection at any time shall be not less than U.S. $10,000,000
or an amount in excess of U.S. $10,000,000 which is a whole multiple
of U.S. $100,000 (or all Accommodation then outstanding under the
applicable Tranche, if lesser);
(d) no repayment of any LIBOR Loan shall be made otherwise than upon the
expiration of a LIBOR Period applicable to such LIBOR Loan and no
repayment of any Bankers' Acceptance or BA Equivalent Note shall be
made otherwise than on the maturity date of such Bankers' Acceptance
or BA Equivalent Note, as the case may be; and
(e) on the applicable Optional Repayment Date such Borrower shall repay
outstanding Accommodation in accordance with the notice given
pursuant to clause (a) above and for such purpose shall pay to the
Administrative Agent the
<PAGE> 88
SECTION 4.01
- 80 -
amount of any Loans, Bankers' Acceptances and BA Equivalent Notes
included in such repayment together with all interest and other
fees and other amounts accrued and unpaid under this Agreement, and
any amounts payable under Section 5.05, with respect to any such
Accommodation that is repaid. For greater certainty, however, a
repayment of outstanding Accommodation under a Tranche pursuant to
this subsection shall not reduce the limit of such Tranche then in
effect and additional Accommodation may from time to time be
obtained by the Borrowers under such Tranche in accordance with and
subject to the applicable provisions of this Agreement.
(2) The Administrative Agent shall promptly notify the applicable Lenders
of any proposed repayment of Accommodation pursuant to subsection 4.01(1) and
the amount and type of such Accommodation to be repaid to each such Lender.
The amount received by the Administrative Agent in respect of any Loans,
Bankers' Acceptances and BA Equivalent Notes included in the repayment shall be
distributed by the Administrative Agent to the applicable Lenders on a Rateable
basis and any accrued and unpaid interest, fees and other amounts (other than
amounts payable under Section 5.05 which shall be for the account of the Lender
entitled to the same) received by the Administrative Agent with respect thereto
shall be distributed by the Administrative Agent to the applicable Lenders on
the basis of their respective entitlements thereto.
1.042 MANDATORY REPAYMENT
Each Borrower shall repay all Accommodation outstanding to it, together
with all accrued interest, fees and other amounts then unpaid by it with
respect to such Accommodation and the Credit, on the Maturity Date, and the
Credit and all of the Commitments shall be automatically terminated on the
Maturity Date.
1.043 SURPLUS ADDITIONAL DEBT AND COMMITMENTS
If:
(a) the Cdn. Borrower does not have an Investment Grade Rating on the
date that any Surplus Additional Debt and Commitments is assumed,
created or otherwise arises; or
(b) the Cdn. Borrower has an Investment Grade Rating on the date that
any Surplus Additional Debt and Commitments is assumed, created or
otherwise arises but loses such Investment Grade Rating within the
period of 90 days following such date;
<PAGE> 89
SECTION 4.03
- 81 -
(the date on which such Surplus Additional Debt and Commitments is assumed,
created or otherwise arises as described in subsection (a) of this Section or
the date on which the Cdn. Borrower loses its Investment Grade Rating as
described in subsection (b) of this Section, whichever is applicable, being
referred to as the "ADDITIONAL DEBT CREDIT REDUCTION DATE"), the limit of the
Credit (on a pro rata basis among Tranches 1, 2 and 3 on the basis of the
aggregate Commitments under such Tranches until the limit of such Tranches is
reduced to 0 and thereafter on a pro rata basis among the remaining Tranches on
the basis of the aggregate Commitments under such Tranches), effective on such
Additional Debt Credit Reduction Date, will be permanently reduced by an amount
equal to 75% of the amount of such Surplus Additional Debt and Commitments so
assumed, created or otherwise arising and each of the Borrowers, within 5
Business Days of any such date referred to in subsection (a) of this Section
and within 15 Business Days of any such date referred to in subsection (b) of
this Section, will repay sufficient Accommodation under the affected Tranches
so that, after giving effect to such repayment and any concurrent repayments
made by the other Borrower, the U.S. Dollar Amount of the Accommodation then
outstanding under each such Tranche does not exceed the reduced limit of such
Tranche.
1.044 EXCESS PROPERTY SALES PROCEEDS
(1) On the Business Day following the date of the closing of any
Disposition, the Borrowers shall pay to the Administrative Agent (to be applied
on a Rateable basis to the Lenders under Tranches 1, 2 and 3 until all
Accommodation under such Tranches has been repaid and then on Rateable basis to
the Lenders under the remaining Tranches) an amount equal to that portion, if
any, of the Deemed Proceeds of Disposition Amount relative to such Disposition
which was not Reinvested in the Restricted Parties on the date of the closing
of such Disposition (provided that no such repayment shall reduce the limit of
the Credit).
(2) On the Anniversary of each Disposition the limit of the Credit (on a
pro rata basis among Tranches 1, 2 and 3 until the limit of such Tranches is
reduced to 0 and thereafter on a pro rata basis among the remaining Tranches)
will be permanently reduced by an amount equal to the Permanent Disposition
Reduction Amount, if any, relative to such Disposition and each of the
Borrowers will repay sufficient Accommodation under the affected Tranches so
that, after giving effect to such repayment and any concurrent repayments made
by the other Borrower, the U.S. Dollar Amount of the Accommodation then
outstanding under each such Tranche does not exceed the reduced limit of such
Tranche.
1.045 CURRENCY FLUCTUATIONS
If at any time the U.S. Dollar Amount of the Accommodation then
outstanding under any Tranche exceeds the limit of such Tranche then in effect,
each Borrower shall repay in accordance with subsection 4.01(1) within 10 days
of receipt of a demand for such repayment from the Administrative Agent such
Accommodation outstanding to it so that, after giving effect
<PAGE> 90
SECTION 4.05
- 82 -
to such repayment and any concurrent repayments made by the other Borrower, the
U.S. Dollar Amount of the Accommodation then outstanding under such Tranche
does not exceed the limit of such Tranche then in effect.
1.046 ILLEGALITY
Notwithstanding any other provision of this Agreement, if the making or
continuation of any type of Accommodation by any Lender, or the receipt by any
Lender of any amount payable under this Agreement by a Borrower in respect of
any such Accommodation, shall have been made unlawful or impracticable due to
compliance by such Lender in good faith (as determined by such Lender, which
determination shall be conclusive and binding) with any Applicable Law or with
any request or directive (whether or not having the force of law) by any
Governmental Authority (including any central bank, Superintendent of Financial
Institutions or other comparable authority or agency) having jurisdiction, such
Lender shall give notice of such event to such Borrower and the Administrative
Agent (which shall promptly give similar notice to the other Lenders) and:
(a) in the case of a LIBOR Loan, on the last day of the LIBOR Period
then applicable to such LIBOR Loan, or on such earlier date as may
be required by such event, the interest on such Loan shall cease to
be calculated under this Agreement on the basis of the LIBOR and
shall commence to be calculated under this Agreement on the basis
of:
(i) the U.S. Base Rate in the case of any such LIBOR Loan under
Tranche 1, the Cdn. Operating Line or any such LIBOR Loan
from a Cdn. Cross Border Lender under Tranche 2 and provided
that such Lender is then obliged to make U.S. Base Rate
Loans under this Agreement; or
(ii) the U.S. Reference Rate in the case of any such LIBOR Loan
under Tranche 3, or any such LIBOR Loan under either U.S.
Operating Line or any such LIBOR Loan from a U.S. Cross
Border Lender under Tranche 2;
(b) in the case of a U.S. Base Rate Loan or a U.S. Reference Rate Loan,
on such date thereafter as may be required by such Lender, the
interest on such Loan shall cease to be calculated under this
Agreement on the basis of the U.S. Base Rate or the U.S. Reference
Rate, as the case may be, and shall commence to be calculated under
this Agreement on the basis of the LIBOR (and such Borrower shall
select the term of each applicable LIBOR Period in accordance with
Section 3.05) (provided that such Lender is then obliged to make
LIBOR Loans under this Agreement); and
<PAGE> 91
SECTION 4.06
- 83 -
(c) in any other case, such Borrower shall repay to such Lender all
Accommodation of such type on such date thereafter as may be
required by such Lender, and for such purpose shall be entitled to
obtain from such Lender any type of Accommodation that such Lender
is then obliged to make available under this Agreement in a U.S.
Dollar Amount equal to the U.S. Dollar Amount of the Accommodation
required to be repaid by it.
During the continuation of any such event such Lender shall have no obligation
under this Agreement to make available any Accommodation of such type, but
shall make available its pro rata share of each Borrowing by way of such other
type of Accommodation as it is then obliged to make available under this
Agreement that is requested by the applicable Borrower.
ARTICLE FIVE
PAYMENTS AND INDEMNITIES
1.051 METHOD AND PLACE OF PAYMENTS
(1) Each Lender (other than the Operating Lenders which shall make
arrangements directly with the applicable Borrowers respecting the advance of
proceeds of Accommodation under the Operating Lines) shall transfer for value
by 11:00 a.m. on each applicable Borrowing Date:
(a) immediately available Cdn. Dollars in an aggregate amount equal to:
(i) the amount of any Prime Rate Loan to be made
by it on such Borrowing Date; and
(ii) the amount of all BA Discount Proceeds in respect of any
Bankers' Acceptance or BA Equivalent Note purchased by it on
such Borrowing Date and the amount of all proceeds received
by it as contemplated by subsection 2.05(3) in respect of
any Bankers' Acceptance accepted by it and purchased by a
third party on such Borrowing Date, in each case net of the
related fee payable to such Lender pursuant to Section 3.09;
to the Administrative Agent's Cdn. Dollar Asset Distribution
Suspense Account in Canada, Account No. 09-21416, Transit No.
00002, Main Branch, Commerce Court, Toronto, Canada; and
(b) immediately available U.S. Dollars in an aggregate amount equal to
the amount of any U.S. Base Rate Loan and any LIBOR Loan from a Cdn.
Cross Border Lender
<PAGE> 92
SECTION 5.01
- 84 -
or a Cdn. Only Lender to be made by it on such Borrowing Date to the
Agent's U.S. Dollar Asset Distribution Suspense
in Canada, Account No. 02-13616, Transit No. 00002, Main
Commerce Court, Toronto, Canada; and
(c) immediately available U.S. Dollars in an aggregate amount equal to
the amount of any U.S. Reference Rate Loan and any LIBOR Loan from a
U.S. Cross Border Lender or a U.S. Only Lender to be made by it on
such Borrowing Date to the Administrative Agent's account in the
United States of America, at Morgan Guaranty Trust Company of New
York in New York, New York, ABA 021-000-238 for further credit to
the account of CIBC New York Agency, Account No. 630-004-80 for
further credit to agented loans, Account No. 07-09611 - Attention
Agency Services - Reference Philip.
Provided that no costs in excess of costs associated with a transfer to the
accounts specified in the preceding sentence would be incurred by the Borrowers
or any of the Lenders, the Administrative Agent may designate such other
accounts and offices as it may see fit for the purposes referred to in the
preceding sentence. Subject to any direction given to the Administrative Agent
by the applicable Borrower, the Administrative Agent shall make all such
amounts received by it from the Lenders as aforesaid available to the
applicable Borrower by depositing the same for value on the applicable
Borrowing Date (a) in the case of the Cdn. Borrower to such account in Canada
in the name of such Borrower as such Borrower shall have previously designated
by timely notice in writing to the Administrative Agent, and (b) in the case of
the U.S. Borrower, to such account in the United States of America as such
Borrower shall have previously designated by timely notice in writing to the
Administrative Agent.
(2) Notwithstanding subsection 5.01(1), the Administrative Agent shall be
entitled to assume that each Lender has made or will make available to the
Administrative Agent all funds required to be made available by such Lender as
specified in subsection 5.01(1), and the Administrative Agent may (but shall
not be obliged to), in reliance upon such assumption, make available to the
applicable Borrower a corresponding amount. If such funds are in fact not
received by the Administrative Agent from such Lender on any Borrowing Date and
the Administrative Agent has made available the corresponding amount to the
applicable Borrower on such Borrowing Date, such corresponding amount shall not
be a Loan or the proceeds of any Bankers' Acceptances or BA Equivalent Note
made available or purchased by such Lender to or from such Borrower and the
Administrative Agent shall be entitled (in its capacity as Administrative
Agent) to recover from such Borrower, on demand, the corresponding amount made
available by the Administrative Agent to such Borrower as aforesaid together
with interest on such amount at the rate applicable under this Agreement to
Prime Rate Loans, if such amount is in Cdn. Dollars, or U.S. Base Rate Loans,
if such amount is in U.S. Dollars and was made available to the Cdn. Borrower,
or U.S. Reference Rate Loans, if such amount was made available to the U.S.
Borrower. If, after the applicable Borrowing Date but prior to such time as
<PAGE> 93
SECTION 5.01
- 85 -
the Administrative Agent has demanded repayment from a Borrower as permitted by
the preceding sentence, the funds required to be made available by the
applicable Lender are in fact received by the Administrative Agent, the
Administrative Agent shall be entitled to retain such funds for its own account
and the corresponding amount made available by the Administrative Agent to such
Borrower on such Borrowing Date shall, notwithstanding the preceding sentence,
be deemed to have been a Loan or the proceeds of Bankers' Acceptances or a BA
Equivalent Note, as the case may be, made available by such Lender to such
Borrower on such Borrowing Date and such Lender shall pay to the Administrative
Agent on demand, as reimbursement for expenses incurred by the Administrative
Agent, an amount equal to the product of (i) the standard interbank reference
rate then in effect in Canada (with respect to such amounts made available by
any Cdn. Only Lender or any Cdn. Cross Border Lender) or in the United States
of America (with respect to such amounts made available by any U.S. Only Lender
or any U.S. Cross Border Lender) multiplied by (ii) the corresponding amount
made available by the Administrative Agent, multiplied by (iii) a fraction, the
numerator of which is the number of days that have elapsed from and including
such Borrowing Date to the date on which such funds are received by the
Administrative Agent from such Lender and the denominator of which is the
number of days in the calendar year in which the same is to be determined. A
certificate of the Administrative Agent with respect to any amount owing by a
Lender under this subsection shall be binding and conclusive in the absence of
manifest error.
(3) The Cdn. Borrower undertakes at all times that any Accommodation is
outstanding to it or any other amount is owed by it under any Credit Document
to maintain at the Administrative Agent's Cdn. Payment Branch an account in
Cdn. Dollars and an account in U.S. Dollars which the Administrative Agent
shall be entitled to debit with such amounts as are from time to time required
to be paid by such Borrower under the Credit Documents, as and when such
amounts are due, and that each such account will contain sufficient funds for
such purpose. All payments by the Cdn. Borrower under the Credit Documents
(except for payments prior to the Maturity Date to the Cdn. Operating Lender
under the Cdn. Operating Line which shall be made directly to the Cdn.
Operating Lender in accordance with arrangements entered into between the Cdn.
Borrower and the Cdn. Operating Lender from time to time), unless otherwise
expressly provided in such Credit Document, shall be made to the Administrative
Agent at the Administrative Agent's Cdn. Payment Branch for the Rateable
account of the Lenders entitled to such payment not later than 12:00 noon for
value on the date when due, and shall be made in immediately available funds
without set-off or counterclaim. All payments by the U.S. Borrower under the
Credit Documents (except for payments prior to the Maturity Date to a U.S.
Operating Lender under a U.S. Operating Line which shall be made directly to
such U.S. Operating Lender in accordance with arrangements entered into between
the U.S. Borrower and such U.S. Operating Lender from time to time), unless
otherwise expressly provided in such Credit Document, shall be made to the
Administrative Agent at the Administrative Agent's U.S. Payment Branch for the
Rateable account of the Lenders entitled to such payment not later than 12:00
noon for value on the date when due, and shall be made in immediately available
funds without set-off or counterclaim. Unless the Administrative Agent shall
have been notified by a
<PAGE> 94
SECTION 5.01
- 86 -
Borrower not later than the Business Day prior to the date on which any payment
to be made by such Borrower under a Credit Document is due that such Borrower
does not intend to remit such payment, the Administrative Agent shall be
entitled to assume that such Borrower has remitted or will remit such payment
when so due and the Administrative Agent may (but shall not be obliged to), in
reliance upon such assumption, make available to each applicable Lender on such
payment date an amount equal to such Lender's Rateable share of such assumed
payment. If such Borrower does not in fact remit such payment to the
Administrative Agent as required by the Credit Documents, each applicable
Lender shall immediately repay to the Administrative Agent on demand the amount
so made available to such Lender, together with interest on such amount at the
interbank reference rate then in effect in Canada (with respect to amounts paid
to the Cdn. Only Lenders, the Cdn. Operating Lender, the Cdn. LC Lenders or the
Cdn. Cross Border Lenders) or in the United States of America (with respect to
amounts paid to the U.S. Only Lenders, the U.S. Operating Lenders, the U.S.
Cross Border Lenders or the U.S. LC Lenders) in respect of each day from and
including the date such amount was made available by the Administrative Agent
to such Lender to the date such amount is repaid in immediately available funds
to the Administrative Agent, and such Borrower shall immediately pay to the
Administrative Agent on demand such amounts as are sufficient to compensate the
Administrative Agent and the Lenders for all costs and expenses (including,
without limitation, any interest paid to lenders of funds) which the
Administrative Agent may sustain in making any such amounts available to the
Lenders or which any Lender may sustain in receiving any such amount from and
in repaying any such amount to the Administrative Agent or in compensating the
Administrative Agent as aforesaid. A certificate of the Administrative Agent
as to any amounts payable by a Borrower pursuant to the preceding sentence and
containing reasonable details of the calculation of such amounts shall be,
absent manifest error, prima facie evidence of the amounts so payable. If any
amount which has been received by the Administrative Agent not later than 12:00
noon on any Business Day as provided above is not paid by the Administrative
Agent to a Lender on such Business Day as required under this Agreement, the
Administrative Agent shall immediately pay to such Lender on demand interest on
such amount at the interbank reference rate then in effect in Canada (with
respect to amounts payable to the Cdn. Only Lenders, the Cdn. Operating Lender,
the Cdn. LC Lenders or the Cdn. Cross Border Lenders) or in the United States
of America (with respect to amounts payable to the U.S. Only Lenders, the U.S.
Operating Lenders, the U.S. Cross Border Lenders or the U.S. LC Lenders) in
respect of each day from and including the day such amount was required to be
paid by the Administrative Agent to such Lender to the day such amount is so
paid.
1.052 CURRENCY OF PAYMENT
Accommodation shall be repaid by each Borrower as required under this
Agreement in the currency in which such Accommodation was obtained by such
Borrower. Any payment on account of an amount payable under any Credit
Document in a particular currency (the "PROPER CURRENCY") made to or for the
account of the Administrative Agent, an Other Agent or a Lender in a currency
(the "OTHER CURRENCY") other than the proper currency, whether pursuant to a
<PAGE> 95
SECTION 5.02
- 87 -
judgement or order of any court or tribunal or otherwise and whether arising
from the conversion of any amount denominated in one currency into any other
currency for the purpose of making or filing a claim, obtaining an order or
judgement, enforcing an order or judgement or otherwise, shall constitute a
discharge of the applicable Borrower's obligation under such Credit Document
only to the extent of the amount of the proper currency which the
Administrative Agent, such Other Agent or such Lender is able, in the normal
course of its business within one Business Day after receipt by it of such
payment, to purchase with the amount of the other currency so received. If the
amount of the proper currency which the Administrative Agent, such Other Agent
or such Lender is so able to purchase is less than the amount of the proper
currency originally due to it under such Credit Document, such Borrower shall
indemnify and save the Administrative Agent, such Other Agent or such Lender,
as the case may be, harmless from and against any loss or damage arising as a
result of such deficiency. This indemnity shall constitute an obligation
separate and independent from any other obligation contained in any Credit
Document, shall give rise to a separate and independent cause of action, shall
apply irrespective of any indulgence granted by the Administrative Agent, any
Other Agent or any Lender from time to time, shall continue in full force and
effect notwithstanding any judgement or order for a liquidated sum in respect
of an amount due under any Credit Document or under any judgement or order and
shall not merge in any order of foreclosure made in respect of any Security or
other security given to or for the benefit of the Administrative Agent, the
Other Agents and the Lenders.
1.053 TAXES
(1) All payments by a Borrower under the Credit Documents shall be made
free and clear of, and without reduction for or on account of, any present or
future income, capital, large corporations, stamp or other taxes, levies,
imposts, duties, charges, fees, deductions or withholdings of any kind or
nature whatsoever or any installments, interest or penalties payable with
respect thereto now or in the future imposed, levied, collected, withheld or
assessed by any country or any political subdivision of any country
(collectively "TAXES"); provided, however, that subject to subsection 5.03(2),
if any Taxes which are not Excluded Taxes are required by Applicable Law to be
withheld from any interest or other amount payable to the Administrative Agent,
any Other Agent or any Lender under any Credit Document, the amount so payable
to the Administrative Agent, such Other Agent or such Lender shall be increased
to the extent necessary to yield to the Administrative Agent, such Other Agent
or such Lender, on a net basis after payment of all Taxes other than Excluded
Taxes (including all Taxes other than Excluded Taxes imposed on any additional
amounts payable under this subsection) and after payment of all Excluded Taxes
imposed by any relevant jurisdiction on any additional amounts payable under
this subsection, interest or any such other amount payable under such Credit
Document at the rate or in the amount specified in such Credit Document. Each
Borrower shall be fully liable and responsible for and shall, promptly
following receipt of a request from the Administrative Agent, pay to the
Administrative Agent any and all sales, goods and services and harmonized sales
and goods and services taxes payable under the laws of Canada, any Province of
Canada, the United
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States of America, any State of the United States of America or any other
country or jurisdiction with respect to any and all goods and services made
available under the Credit Documents to such Borrower by the Administrative
Agent, the Other Agents and the Lenders, and such taxes shall be included in
the definition of "Taxes" for all purposes of this Agreement. Whenever any
Taxes are payable by a Borrower, as promptly as possible thereafter it shall
send to the Administrative Agent, for the account of the Administrative Agent
and each affected Other Agent and Lender, a certified copy of an original
official receipt showing payment of such Taxes. If a Borrower fails to pay any
Taxes when due or if a Borrower fails to remit to the Administrative Agent the
required documentary evidence of such payment, such Borrower shall indemnify
and save harmless the Administrative Agent, the Other Agents and the Lenders
from any incremental taxes, interest, penalties or other liabilities that may
become payable by the Administrative Agent, by any Other Agent or by any Lender
or to which the Administrative Agent, any Other Agent or any Lender may be
subjected as a result of any such failure. A certificate of the Administrative
Agent, any Other Agent or any Lender as to the amount of any such taxes,
interest or penalties and containing reasonable details of the calculation of
such taxes, interest or penalties shall be, absent manifest error, prima facie
evidence of the amount of such taxes, interest or penalties, as the case may
be.
(2) If a Borrower makes any payment to any Lender pursuant to subsection
5.03(1) and such Lender shall receive any tax benefit which it would not have
received if there had been no such payment, such Lender agrees to pay to such
Borrower the amount of such tax benefit (to a maximum of the payment made by
such Borrower) after the same has been obtained; provided, however, that (i)
this subsection shall place such Lender in no worse position than it would have
been if such Borrower had not been required to make such payment; (ii) no Event
of Default shall have occurred and be continuing; and (iii) any subsequent
disallowance, elimination, reduction, deferral, disqualification or recapture
of all or any part of a tax benefit of a Lender for which a payment by such
Lender to a Borrower has been made (or is due) pursuant to this subsection
shall be treated as a Tax subject to indemnification hereunder. Each Lender
shall have sole discretion as to whether or not it will seek any tax benefit
and as to the allocation of its income, and no Lender shall be obliged to
disclose any information to any Borrower regarding its income or taxes.
(3) Each U.S. Only Lender, U.S. Cross Border Lender, U.S. Operating Lender
and U.S. LC Lender (collectively the "U.S. LENDERS") that is not a United
States person (as such term is defined in Section 7701(a)(30) of the Code) for
U.S. Federal income tax purposes agrees to deliver to the U.S. Borrower and the
Administrative Agent on or prior to the Closing Date, or in the case of a
Lender that is an assignee or transferee of an interest of a U.S. Lender under
this Agreement pursuant to Section 12.01 (unless the respective Lender was
already a U.S. Lender immediately prior to such assignment or transfer) or
otherwise becomes a U.S. Lender after the Closing Date, on the date of such
assignment or transfer to such Lender or the date on which such Lender becomes
a U.S. Lender, as the case may be:
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(a) two accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001 (or successor forms) certifying to such
Lender's entitlement to a complete exemption from United States
withholding tax with respect to payments to be made under this
Agreement; or
(b) if the Lender is not a "bank" within the meaning of Section
881(c)(3)(A) of the Code and cannot deliver either Internal Revenue
Service Form 4224 or 1001 pursuant to paragraph (a) above:
(i) a certificate substantially in the form of Schedule 15 (any
such certificate being a "NON-BANK CERTIFICATE"); and
(ii) two accurate and complete original signed copies of Internal
Revenue service Form W-8 (or successor form) certifying to
such Lender's entitlement to a complete exemption from United
States withholding tax with respect to payments of interest
to be made under this Agreement.
In addition, each U.S. Lender agrees that from time to time after the Closing
Date or after such Lender becomes a U.S. Lender (whether because of an
assignment or transfer or otherwise), when a lapse in time or change in
circumstances renders the previous certification obsolete or inaccurate in any
material respect, it will deliver to the U.S. Borrower and the Administrative
Agent two new accurate and complete original signed copies of Internal Revenue
Service Form 4224 or 1001, or Form W-8 and a Non-Bank Certificate, as the case
may be, and such other forms as may be required in order to confirm or
establish the entitlement of such Lender to a continued exemption from or
reduction in United States withholding tax with respect to payments under this
Agreement, or it shall immediately notify the U.S. Borrower and the
Administrative Agent of its inability to deliver any such Form or Certificate,
in which case such U.S. Lender shall not be required to deliver any such Form
or Certificate pursuant to this subsection. Notwithstanding anything to the
contrary contained in subsection 5.03(1), but subject to the last sentence of
this subsection:
(c) the U.S. Borrower shall be entitled, to the extent it is required to
do so by Applicable Law, to deduct or withhold income or similar
Taxes imposed by the United States (or any political subdivision or
taxing authority thereof or therein) from interest, fees or other
amounts payable under this Agreement for the account of any U.S.
Lender which is not a United States person (as such term is defined
in Section 7701(a)(30) of the Code) for U.S. Federal income tax
purposes to the extent that such Lender has not provided to the U.S
Borrower U.S. Internal Revenue Service Forms that establish a
complete exemption from such deduction or withholding; and
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(d) the U.S. Borrower shall not be obligated pursuant to subsection
5.03(1) to gross-up payments to be made to a U.S. Lender in respect
of income or similar Taxes imposed by the United States if (i) such
Lender has not provided to the U.S. Borrower the Internal Revenue
Service Forms required to be provided to the U.S. Borrower pursuant
to this subsection or (ii) in the case of a payment, other than
interest, to a U.S. Lender described in paragraph (b) above, to the
extent that such Forms do not establish a complete exemption from
withholding of such Taxes.
Notwithstanding anything to the contrary contained in the preceding sentence or
elsewhere in this Section, the U.S. Borrower agrees to pay any additional
amounts and to indemnity each U.S. Lender in the manner set forth in subsection
5.03(1) (without regard to the identity of the jurisdiction requiring the
deduction or withholding) in respect of any Taxes deducted or withheld by it as
described in the immediately preceding sentence as a result of any changes
after the Closing Date in any Applicable Law, or in the interpretation thereof,
relating to the deducting or withholding of such Taxes.
1.054 INCREASED COSTS
If subsequent to the date of this Agreement any change in or introduction
of any Applicable Law or of any administrative policy or practice of any
Governmental Authority, or compliance by any Lender with any request or
directive (whether or not having the force of law) by any Governmental
Authority (including any central bank, Superintendent of Financial Institutions
or other comparable authority or agency) having jurisdiction shall:
(a) subject the Administrative Agent, such Other Agent or such Lender to
any Tax of any kind whatsoever including Excluded Taxes with respect
to this Agreement or any other Credit Document, any Commitment or
any Accommodation made by such Lender, or change the basis of
taxation of payments to the Administrative Agent, such Other Agent
or such Lender of principal, interest, fees or any other amount
payable under any Credit Document (except for changes in the rate of
Tax on the overall net income of the Administrative Agent, such
Other Agent or such Lender imposed by its jurisdiction of
incorporation, the jurisdiction of its principal office or
applicable lending office, or any political subdivision of any such
jurisdiction);
(b) impose, modify or make applicable any capital maintenance or capital
adequacy requirement, reserve requirement, special deposit
requirement or other similar requirement against assets held by, or
deposits or other liabilities in or for the account of, or any
Accommodation or Commitment made available or established by, or any
other acquisition of funds by, such Lender; or
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(c) impose on the Administrative Agent, such Other Agent or such Lender
or the London interbank market any other condition, restriction or
limitation;
and the result of any of the foregoing is to increase the cost to the
Administrative Agent, such Other Agent or such Lender of making or maintaining
any Accommodation or Commitment or to reduce any amount otherwise receivable by
it under this Agreement or any other Credit Document with respect to any
Accommodation or Commitment or otherwise, then provided that such additional
cost or reduced amount receivable is not fully offset at all relevant times by
an increase in the applicable interest rate or rates or fees under this
Agreement or other applicable Credit Document, the Borrowers (or each
applicable Borrower in the case of any Commitment to, or any Accommodation
outstanding to, such Borrower) shall promptly pay to the Administrative Agent,
such Other Agent or such Lender, upon demand, such additional amounts necessary
to compensate the Administrative Agent, such Other Agent or such Lender, after
taking into account all applicable Taxes and Excluded Taxes, for such
additional cost or reduced amount receivable which the Administrative Agent,
such Other Agent or such Lender deems to be material as are determined in good
faith by the Administrative Agent, such Other Agent or such Lender. If the
Administrative Agent, an Other Agent or a Lender becomes entitled to claim any
additional amount pursuant to this Section, it shall notify the Borrowers,
through the Administrative Agent, of the event by reason of which it has become
so entitled promptly upon the Administrative Agent, such Other Agent or such
Lender becoming aware of such event. A certificate of the Administrative
Agent, an Other Agent or a Lender as to any such additional amount payable to
it and containing reasonable details of the calculation of such amount shall
be, absent manifest error, prima facie evidence of such amount.
1.055 INDEMNITIES
(1) Each Borrower shall indemnify and save harmless the Administrative
Agent, each Other Agent and each Lender from all claims, demands, liabilities,
damages, losses, costs, charges and expenses (including the reasonable fees and
expenses of counsel for the Administrative Agent, the Other Agents and the
Lenders), including any loss or expense arising from interest or fees payable
by the Administrative Agent, such Other Agent or such Lender to lenders of
funds obtained by it in order to make or maintain any Accommodation and any
loss or expense incurred in liquidating or re-employing deposits from which
such funds were obtained, which may be incurred by the Administrative Agent,
such Other Agent or such Lender as a consequence of (i) default by such
Borrower in the payment when due of any amount payable under any Credit
Document, (ii) default by such Borrower in obtaining a Borrowing on the date
specified in any applicable notice relative to such Borrowing after such
Borrower has given such notice under this Agreement that it desires to obtain
such Borrowing, (iii) default by such Borrower in making any optional repayment
of outstanding Accommodation after such Borrower has given notice under this
Agreement that it desires to make such repayment, (iv) the repayment by such
Borrower of any LIBOR Loan otherwise than on the expiration of any applicable
LIBOR Period or the repayment of any other Accommodation otherwise than on the
maturity date of
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SECTION 5.05
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such Accommodation (including without limitation any such payment pursuant to
any of the provisions of Article Four or upon acceleration pursuant to Section
9.02), (v) the entering into by the Administrative Agent, such Other Agent or
such Lender of this Agreement and the other Credit Documents to which the
Administrative Agent, such Other Agent or such Lender is a party and any
amendment, waiver or consent relating hereto or thereto, and, otherwise than
are determined by a court of competent jurisdiction to be attributable
primarily to the gross negligence or wilful misconduct of the Administrative
Agent, such Other Agent or such Lender, the performance by the Administrative
Agent, such Other Agent or such Lender of its obligations under this Agreement
and the other Credit Documents, and (vi) the application by any Borrower of any
Accommodation or any proceeds of any Accommodation. A certificate of the
Administrative Agent, an Other Agent or any Lender as to any such loss or
expense and containing reasonable details of the calculation of such loss or
expense shall be, absent manifest error, prima facie evidence of the amount of
such loss or expense, as the case may be.
(2) The Borrowers shall indemnify and save harmless each LC Lender from
all claims, demands, liabilities, damages, losses, costs, charges and expenses
which may be asserted against or incurred by such LC Lender, otherwise than as
are determined by a court of competent jurisdiction to be attributable
primarily to the gross negligence or wilful misconduct of such LC Lender, as a
direct or indirect consequence of the issuance or renewal of any Letter of
Credit at the request of such Borrower or of any failure by any LC Issuer to
make any payment under any Letter of Credit issued at the request of such
Borrower as a result of any law, control or restriction rightfully or
wrongfully exercised or imposed by any Governmental Authority.
(3) Each Borrower shall indemnify and save harmless the Administrative
Agent, each Other Agent and each Lender and their respective Affiliates,
agents, officers, directors and employees (each an "INDEMNIFIED PARTY") from
all claims, demands, liabilities, damages, losses, costs, charges and expenses
(including without limitation any investigatory, remedial, clean-up, compliance
or preventative costs, charges and expenses) which may be asserted against or
incurred by such Indemnified Party, otherwise than as are determined by a court
of competent jurisdiction to be attributable primarily to the gross negligence
or wilful misconduct of such Indemnified Party, whether upon realization of the
Security, or as a lender to the Cdn. Borrower or the U.S. Borrower, or as
successor to or assignee of any right or interest of the applicable Borrower,
or any of the Cdn. Borrower's Subsidiaries or as a result of any order,
investigation or action by any Governmental Authority relating to any one of
its or their business or property, or as mortgagee in possession or successor
or successor-in-interest to any one of the Borrowers, their respective
Subsidiaries, or as a result of any taking of possession of all or any real
property by foreclosure, deed or deed in lieu of foreclosure or by any other
means relating to the Borrowers, or any of their Subsidiaries under or on
account of any applicable Environmental Law, (including the assertion of any
Lien thereunder) with respect to:
(a) the Release of a Contaminant, the threat of the Release of any
Contaminant, or the presence of any Contaminant affecting the real
or personal property of a Borrower
<PAGE> 101
SECTION 5.05
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or any of its Subsidiaries, whether or not the Contaminant
or emanates from a Borrower's property or any other
property or personal property located thereon (unless such
property or property is under the control of a Lender due to
relationship with a third party), including any loss of value
the property of a Borrower or any of its Subsidiaries as a
result of any of the foregoing;
(b) the Release of a Contaminant owned by, or under the charge,
management or control of, a Borrower or any of its Subsidiaries or
any predecessors or assignors thereof;
(c) any costs of removal or remedial action incurred by any Governmental
Authority or any costs incurred by any other Person or damages from
injury to, destruction of, or loss of natural resources in relation
to, the real property or personal property of a Borrower or any of
its Subsidiaries or any contiguous real property or elsewhere or
personal property located thereon, including reasonable costs of
assessing such injury, destruction or loss incurred pursuant to
Environmental Law;
(d) liability for personal injury or property damage arising by reason
of any civil law offenses or quasi-criminal offenses or under any
statutory or common tort law theory and any and all other third
party claims of any and every nature whatsoever, including, without
limitation, damages assessed for the maintenance of a public or
private nuisance or for the carrying on of a dangerous activity at,
near, or with respect to the real or personal property of a
Borrower, or any of its Subsidiaries or elsewhere; and/or
(e) any other matter relating to the Natural Environment and
Environmental Law affecting the property or the operations and
activities of a Borrower or any of its Subsidiaries within the
jurisdiction of any Governmental Authority.
The Borrowers' obligations shall arise both on the discovery of the
presence of any Contaminant that has not been dealt with in accordance
with Environmental Law and shall also arise where any Governmental
Authority has taken or threatened any action in connection with the
presence of, or any Environmental Activity respecting, any Contaminant.
Each Borrower acknowledges that the Lenders have agreed to make the
Credit available in reliance on the Borrowers' representations,
warranties and covenants, including the delivery of this indemnity. This
indemnity supersedes any other provisions of this Agreement or any other
Credit Document which in any way limits the liability of a Borrower. The
obligations of the Borrowers arising under this indemnity will be
absolute and unconditional and shall not be affected by any act,
omission, or circumstances whatsoever, whether or not occasioned by the
fault of the Administrative Agent, the Other Agents or the Lenders except
as determined by a court of competent jurisdiction to
<PAGE> 102
SECTION 5.05
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be primarily due to gross negligence or wilful misconduct of the
Administrative Agent, the Other Agents or the Lenders. The foregoing
indemnities will survive the Disposition of any or all right, title and
interest in and to the real property and personal property of the
Restricted Parties and their Subsidiaries to any Person, including,
without limitation, whether or not affiliated with the Restricted Parties
and their Subsidiaries.
ARTICLE SIX
SECURITY
1.061 FORM OF SECURITY
As general and continuing security for the due payment and performance of
all present and future indebtedness and liability of the Borrowers to (x) the
Administrative Agent, the Other Agents and the Lenders under the Credit
Documents, and (y) the Administrative Agent, the Other Agents, the Lenders and
their respective Eligible Affiliates under all Lender/Borrower Hedging
Arrangements, the following security (collectively the "SECURITY") will be
provided to the Administrative Agent on behalf of the Administrative Agent, the
Other Agents, the Lenders and their respective Eligible Affiliates:
(a) a first specific hypothecation and pledge of all of the issued and
outstanding securities now or hereafter held by either of the
Borrowers in any and all of their Subsidiaries which are Material
Restricted Parties, whether wholly or partially owned, acknowledged
by such Subsidiaries, together with such resolutions and consents as
the Administrative Agent may determine are legally required or
advisable and the security certificates duly issued by each of such
Subsidiaries evidencing such pledge of securities duly endorsed in
blank for transfer;
(b) an unlimited guarantee and postponement of claim by each Borrower
whereby it guarantees to (x) the Administrative Agent, the Other
Agents and the Lenders the due payment and performance of all
present and future indebtedness and liability owing under the Credit
Documents by the other Borrower and (y) the Administrative Agent,
the Other Agents, the Lenders and their respective Eligible
Affiliates the due payment and performance of all present and future
indebtedness and liability owing under the Lender/Borrower Hedging
Arrangements by the other Borrower;
(c) an unlimited guarantee and postponement of claim by each Restricted
Subsidiary (other than Phencorp International Finance Inc.) whereby
it guarantees (x) to the Administrative Agent and the Lenders the
due payment and performance of all present and future indebtedness
and liability now or in the future owing under the
<PAGE> 103
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Credit Documents by the Borrowers (or if agreed to by the
Administrative Agent by either one of the Borrowers) (including any
indebtedness or liability of the Borrowers pursuant to the
guarantees referred to in subsection 6.01(b)) and (y) the
Administrative Agent, the Other Agents, the Lenders and their
respective Eligible Affiliates the due payment and performance
of all present and future indebtedness and liability owing under the
Lender/Borrower Hedging Arrangements by the Borrowers (or if agreed
to by the Administrative Agent by either one of the Borrowers);
(d) a first specific hypothecation and pledge of all of the issued and
outstanding securities now or hereafter held by any of the
Restricted Subsidiaries in any and all of their respective
Subsidiaries which are Material Restricted Parties, whether wholly
or partially owned, acknowledged by such Subsidiaries, together with
such resolutions and consents as the Administrative Agent may
determine are legally required or advisable and the security
certificates duly issued by each of such Subsidiaries evidencing
such pledge of securities duly endorsed in blank for transfer; and
(e) a postponement and subordination from Phencorp International Finance
Inc. subordinating all debts and liabilities owing to it by the
Restricted Parties to all debts and liabilities owing to the
Administrative Agent, the Other Agents, the Lenders and their
respective Eligible Affiliates by the Restricted Parties under or in
respect of the Credit Documents and the Lender/Borrower Hedging
Arrangements.
For convenience, Schedule 16 lists all Restricted Parties which are required to
deliver securities pledge agreements and a description of all securities, and
all issuers of such securities, to be pledged to the Administrative Agent by
each such Restricted Party.
1.062 SATISFACTORY TO ADMINISTRATIVE AGENT
The Security will be in such form or forms, and will be registered in such
jurisdictions, as the Administrative Agent and its legal counsel may from time
to time reasonably require.
1.063 GENERAL PROVISIONS RELATING TO THE SECURITY
Nothing in this Agreement or in any Security now held or acquired in the
future by or on behalf of the Administrative Agent, the Other Agents or the
Lenders, nor any act or omission of the Administrative Agent, any Other Agent
or any of the Lenders with respect to any such Security, will in any way
prejudice or affect the rights, remedies or powers of the Administrative Agent,
any Other Agent or any of the Lenders with respect to any other Security at any
time held by or on behalf of the Administrative Agent, the Other Agents or the
Lenders.
<PAGE> 104
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1.064 REGISTRATION
The Administrative Agent may, at the reasonable expense of the Borrowers,
register, file or record the Security or notices in respect of the Security in
all offices where such registration, filing or recording is, in the opinion of
the Administrative Agent or its counsel, necessary or of advantage to the
creation, perfection and preservation of the Liens arising pursuant to the
Security. The Administrative Agent may, at the Borrowers' reasonable expense,
renew such registrations, filings and recordings from time to time as and when
required to keep them in full force and effect. The Borrowers acknowledge that
the forms of Security have been prepared based upon Applicable Law in effect at
the date of execution of the Security and that such laws may change, and that
the laws of other jurisdictions may require the execution and delivery of
different forms of security instruments in order to grant to the Administrative
Agent, the Other Agents, the Lenders and their respective Eligible Affiliates
the rights intended to be granted by the Security. The Borrowers will, and
will cause the other Restricted Parties to, on request from the Administrative
Agent from time to time, execute and deliver to the Administrative Agent such
additional security instruments and will amend or supplement, and will cause
the other Restricted Parties to amend or supplement, any Security theretofore
provided to the Administrative Agent:
(a) to reflect any changes in such laws, whether arising as a result of
statutory amendments, court decisions or otherwise;
(b) to facilitate the registration of appropriate forms of
Security in all appropriate jurisdictions; or
(c) if any Person having delivered Security amalgamates or merges with
any other Person or enters into any corporate reorganization;
in each case in order to confer upon the Administrative Agent, the Other
Agents, the Lenders and their respective Eligible Affiliates such Liens with
such priority as are intended to be created by the Security. The Borrowers
will pay or indemnify the Administrative Agent, the Other Agents, the Lenders
and their respective Eligible Affiliates against any and all stamp duties,
registration fees and similar taxes or charges which may be payable or
determined to be payable in connection with the execution, delivery,
performance, registration or enforcement of any Credit Document or any of the
transactions contemplated by any Credit Document.
1.065 RELEASE OF SECURITY
Following termination of all of the Commitments and the due payment in
full of all debts, obligations and liabilities of the Restricted Parties to the
Administrative Agent, the Lenders and the Other Agents under or in respect of
the Credit Documents, the Administrative Agent will, at
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SECTION 6.05
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the cost and expense of the Cdn. Borrower, release and discharge the Restricted
Parties and their property from the Security.
ARTICLE SEVEN
REPRESENTATIONS AND WARRANTIES
1.071 DELIVERY OF REPRESENTATIONS AND WARRANTIES
Each Borrower (with respect to itself only) and the Cdn. Borrower (with
respect to itself and the other Restricted Parties and other Subsidiaries)
represents and warrants to the Administrative Agent, the Other Agents and each
of the Lenders as follows:
(a) each of the Restricted Parties has been duly incorporated,
amalgamated, merged or continued, as the case may be, and is validly
subsisting as a corporation under the laws of its jurisdiction of
incorporation, amalgamation, merger or continuance, as the case may
be, (or in the case of Restricted Parties which are not corporations
has been duly created or established as a partnership or other
applicable entity and validly exists under and is governed by the
law of the jurisdiction in which it has been created or established)
and is duly qualified to carry on its business in each jurisdiction
in which the nature of its business requires qualification except to
the extent that any such failures to be so qualified individually or
in the aggregate do not have, and do not have any reasonable
likelihood of having, a Material Adverse Effect;
(b) each of the Restricted Parties has the power and authority to enter
into and perform its obligations under the Credit Documents to which
it is a party and all other instruments and agreements delivered
pursuant to any of the Credit Documents and to own its property and
carry on its business as currently conducted;
(c) the execution, delivery and performance of the Credit Documents and
every other instrument or agreement delivered pursuant to the Credit
Documents has been duly authorized by all requisite action and each
of such documents has been duly executed and delivered and
constitutes a valid and binding obligation of each of the Restricted
Parties, as the case may be, enforceable in accordance with its
terms subject to (x) applicable bankruptcy, insolvency, moratorium
and similar laws at the time in effect affecting the rights of
creditors generally, and (y) equitable remedies such as injunctions
and specific performance which may only be granted in the discretion
of the court before which they are sought;
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SECTION 7.01
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(d) none of the Restricted Parties is a party to any agreement or
instrument which has, or has any reasonable likelihood of having, a
Material Adverse Effect;
(e) none of the Restricted Parties is subject to any judgment, order,
writ, injunction, decree or award, or to any restriction, rule or
regulation (other than customary or ordinary course restrictions,
rules and regulations consistent or similar with those imposed on
other Persons engaged in similar businesses) which has a Material
Adverse Effect, or in the future may have a Material Adverse Effect;
(f) none of the Restricted Parties is in default under any guarantee,
bond, debenture, note or other instrument evidencing any
indebtedness or under the terms of any instrument pursuant to which
any of the foregoing has been issued or made and delivered in the
aggregate for all Restricted Parties in excess of U.S. $10,000,000
(or the Equivalent Amount in any other currency or currencies), and
there exists no state of facts which after notice or lapse of time
or both or otherwise would constitute such a default;
(g) except as disclosed on Schedule 17 or 19 or with respect to matters
not individually in excess of U.S. $10,000,000 (or the Equivalent
Amount in any other currency or currencies) or in an aggregate
amount which if all such actions were successful would have any
reasonable likelihood of having a Material Adverse Effect, there are
no actions, suits or proceedings pending or threatened against or
affecting any of the Restricted Parties at law or in equity or
before or by any Governmental Authority of any kind nor are any of
the Restricted Parties aware of any existing ground on which any
such action, suit or proceeding might be commenced with any
reasonable likelihood of success; and there have been no material
adverse developments since the date of this Agreement respecting any
of the matters disclosed on Schedules 17 or 19; and no Restricted
Party is in default with respect to any judgment, order, writ,
injunction, decree, award, rule or regulation of any court,
arbitrator or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, which, either
separately or in the aggregate, would represent an amount in excess
of U.S. $5,000,000 (or the Equivalent Amount in any other currency
or currencies);
(h) the Cdn. Borrower has furnished the Administrative Agent with its
most recent annual and quarterly consolidated financial statements;
all such financial statements have been prepared in accordance with
GAAP, except as stated in such financial statements or in the notes
to such financial statements; each balance sheet contained in such
financial statements, when read with the deconsolidation and
reconciliation accompanying such financial statements, presents
fairly the Modified Consolidated financial position of the Cdn.
Borrower as at the date of such balance sheet; and each statement of
profit and loss contained in such
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financial statements when read with the deconsolidation and
reconciliation accompanying such financial statements, presents
fairly the Modified Consolidated results of the Cdn. Borrower's
operations for the periods indicated; the Cdn. Borrower has also
furnished the Administrative Agent with the Pro Forma Financial
Statements and such Pro Forma Financial Statements have been, and
on delivery of the same the June 30 Pro Forma Financial Statements
will have been, prepared in accordance with GAAP, expressly state
all of the underlying assumptions on which they have been prepared
all of which assumptions are reasonable in the circumstances, and
constitute a reasonably true and accurate description of the combined
financial position and financial performance of the Restricted
Parties (including all Acquisitions made on or prior July 31, 1997)
as of the date of, and for the financial period ending on the date
of, such Pro Forma Financial Statements;
(i) since December 31, 1996, (x) there has been no change in the
Modified Consolidated financial condition of the Restricted Parties
as shown on the balance sheet of the Restricted Parties as at that
date read with the deconsolidation and reconciliation accompanying
such balance sheet which change has had, or has any reasonable
likelihood of having, a Material Adverse Effect, and (y) the
business, operations, properties, assets, condition (financial or
otherwise) or prospects of the Restricted Parties have not been
materially adversely affected as a result of any act or event
including, without limitation, fire, explosion, casualty, flood,
drought, riot, storm, condemnation, act of God, accident, labour
trouble, expropriation or act of any government;
(j) neither the financial statements referred to above, any statement or
report furnished under the Credit Documents after the date of this
Agreement nor, to the best of the Cdn. Borrower's knowledge, the
Philip Disclosure Documents nor the June, 1997 confidential offering
memorandum respecting the Credit circulated by the Co-Arrangers in
connection with the initial syndication of the Credit contain, as at
the time such statements, other statement or report, disclosure
documents or confidential offering memorandum were furnished, any
untrue statement of a material fact or any omission of a material
fact necessary to make the statements contained in such financial
statements, in such other statement or report, in any Philip
Disclosure Document or in the confidential offering memorandum not
misleading in any material respect, and all such statements and
reports, taken as a whole together with the Credit Documents and the
Philip Disclosure Documents and the confidential offering memorandum
do not contain any untrue statement of a material fact or omit a
material fact necessary to make the statements contained in the
Credit Documents, the Philip Disclosure Documents, the confidential
offering memorandum or in such financial statements, other statement
or report not misleading in any material respect;
<PAGE> 108
SECTION 7.01
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(k) there is no fact known to a Borrower which such Borrower has not
disclosed to the Administrative Agent or the Lenders in writing
which affects, or so far as it can now reasonably foresee, will
affect the property, liabilities, affairs, business, prospects,
operations or condition, financial or otherwise, of any Restricted
Party or the ability of any Restricted Party to perform its
obligations under any of the Credit Documents or any agreements or
instruments delivered pursuant to the Credit Documents or the
ability of the Cdn. Borrower to complete the Allwaste Acquisition
and which could reasonably be expected to be material to a
prospective lender providing credit of the size and nature
contemplated by this Agreement;
(l) neither the execution nor delivery of the Credit Documents, or any
agreements or instruments delivered pursuant to the Credit
Documents, the consummation of the transactions contemplated in the
Credit Documents, nor compliance with the terms, conditions and
provisions of the Credit Documents conflicts with or will conflict
with, or results or will result in any breach of, or constitutes a
default under or contravention of, any Requirement of Law applicable
to, or any Contractual Obligation of, any Restricted Party, or
results or will result in the creation or imposition of any Lien
upon any Restricted Party's properties;
(m) each of the Restricted Parties has obtained, made or taken all
consents, approvals, authorizations, declarations, registrations,
filings, notices and other actions whatsoever required as at the
date of this Agreement in connection with the execution and delivery
by any Restricted Party of any of the Credit Documents and all other
agreements or instruments delivered pursuant to the Credit
Documents, and the consummation of the transactions contemplated by
the Credit Documents;
(n) no consent, approval or authorization of any Governmental Authority
is required in connection with the enforcement of any of the Credit
Documents or any agreements or instruments delivered pursuant to the
Credit Documents;
(o) each of the Restricted Parties has paid or made adequate provision
for the payment of all Taxes levied on it or on its property or
income which are due and payable, including interest and penalties,
or has accrued such amounts in its financial statements for the
payment of such Taxes except for charges, fees or dues which are not
material in amount, which are not delinquent or if delinquent are
being contested, and in respect of which non-payment would not have,
or have any reasonable likelihood of having, a Material Adverse
Effect, and there is no material action, suit, proceeding,
investigation, audit or claim now pending, or to the knowledge of
any Restricted Party, threatened by any Governmental Authority
<PAGE> 109
SECTION 7.01
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regarding any Taxes nor has any Restricted Party agreed to waive or
extend any statute of limitations with respect to the payment or
collection of Taxes;
(p) no Restricted Party will incur any material Tax liability with
respect to the Allwaste Acquisition, the Serv Tech Acquisition or
any other transaction contemplated under any of the Credit
Documents;
(q) no event or omission has occurred which constitutes a Default or an
Event of Default;
(r) no Restricted Party is in material default and, to the best of the
knowledge of each Borrower after due enquiry, no event or omission
has occurred which, with the passage of time or the giving of notice
or both, would constitute a material default pursuant to any
material order, writ, decree or demand of any Governmental Authority
or a material default on any material Permits;
(s) each Restricted Party is the sole beneficial owner of its property
with good and marketable title to such property, subject only to
Permitted Liens, with the leases for any leased property to which it
is a lessee being in good standing and in full force and effect;
(t) the corporate structure of the Cdn. Borrower and its Subsidiaries is
as set out in Schedule 18, which Schedule also contains:
(x) a list of the Cdn. Borrower and each of the other Restricted
Parties and the Independent Subsidiaries;
(y) a complete and accurate list of
(A) each such Person's full and
correct name (including any French and English forms
of name), and
(B) the full address (including
postal code or zip code) of each such Person's chief
executive office; and
(z) details of the authorized and issued share capital of each of
the Restricted Parties and their Subsidiaries (other than the
Cdn. Borrower) and the name of the registered and beneficial
owner of all of the issued and outstanding securities of each
such Restricted Party;
(u) security certificates with powers of attorney representing all of
the issued and outstanding shares of each of the Material Restricted
Parties (other than the Cdn.
<PAGE> 110
SECTION 7.01
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Borrower) have been delivered and pledged to the Administrative
Agent pursuant to the Security and the Liens created thereunder
continue to constitute a first priority perfected Lien in all such
security certificates and the shares represented by such security
certificates;
(v) except as disclosed on Schedule 19, none of the Restricted Parties
or any of their respective Subsidiaries is subject to any material
civil, criminal, regulatory proceeding or governmental or regulatory
investigation arising under, related to or with respect to
Environmental Law or is subject to any such material proceeding
which is with respect to laws relating to occupational health and
safety nor is a Borrower aware of any threatened material
proceedings or investigations. Each of the Restricted Parties and
their respective Subsidiaries is actively and diligently proceeding
to use its respective best efforts to comply in all material
respects with all Environmental Law and laws relating to
occupational health and safety, and all such steps are being
completed in a manner consistent with a prudent and responsible
professional resource recovery and industrial service company;
(w) all real property owned or leased by a Restricted Party may be used
in all material respects by the Restricted Parties pursuant to
Applicable Law for the present use and operation of the material
elements of the business conducted on such real property;
(x) each of the Restricted Parties has obtained all necessary material
Permits (including Permits under Environmental Law), which are all
in good standing in all material respects and unrevoked, necessary
for the operations being conducted or intended to be conducted on
the applicable Restricted Party's property, and there are no
existing circumstances which might give rise to the revocation of
any such material Permits;
(y) except as disclosed in Schedule 17, none of the Restricted Parties
has received any notice of any material liens within the meaning of
the Construction Lien Act of Ontario or similar legislation
prevailing in any other jurisdiction;
(z) Schedule 20 lists all material contracts to which a Restricted Party
is a party and in respect of which the performance or
non-performance of such contract could have a Material Adverse
Effect;
(aa) no steps have been taken to terminate any Pension Plan or Non-U.S.
Pension Plan which, in either case, could result in any material
liability being incurred by any Restricted Party and no contribution
failure has occurred with respect to any Pension Plan sufficient to
give rise to a lien for any material amount under section 302(f) of
ERISA and no contribution failure has occurred with respect to any
<PAGE> 111
SECTION 7.01
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Non-U.S. Pension Plan sufficient to give rise to a lien or deemed
trust for any material amount under Applicable Law and no Pension
Plan has an Unfunded Current Liability which when added to the
amount of Unfunded Current Liabilities with respect to all other
Pension Plans exceeds the aggregate amount of Unfunded Current
Liabilities that existed on the initial Borrowing Date by U.S.
$10,000,000 (or the Equivalent Amount in any other currency or
currencies), and using actuarial assumptions and computation
methods consistent with Part 1 of subtitle E of Title IV of ERISA,
the aggregate liabilities of the Restricted Parties and their ERISA
Affiliates to all Pension Plans which are multiemployer plans (as
defined in Section 4001(a)(3) of ERISA) in the event of a complete
withdrawal therefrom, as of the close of the most recent fiscal
year of each such Pension Plan ended prior to the date of the most
recent Borrowing Date would not exceed U.S. $10,000,000 (or the
Equivalent Amount in any other currency or currencies), and the
Restricted Parties do not maintain or contribute to any employee
welfare benefit plan (as defined in Section 3(1) of ERISA)
which provides benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or any
Pension Plan the obligations with respect to which could reasonably
be expected to have a Material Adverse Effect, and no condition
exists or event or transaction has occurred with respect to any
Pension Plan or Non-U.S. Pension Plan which could result in the
incurrence by any Restricted Party of any material liability, fine
or penalty, and each Non-U.S. Pension Plan and Non-U.S. Welfare
Plan has been maintained in substantial compliance with its terms
and in compliance in all material respects with the requirements
of any and all Applicable Laws and has been maintained, where
required, in all material respects in good standing with applicable
Governmental Authorities. All contributions required to be made
with respect to each Non-U.S. Pension Plan and Non-U.S. Welfare
Plan have been timely made in accordance in all material respects
with the terms thereof and all Applicable Laws. The Restricted
Parties have not incurred any material obligation in connection
with the termination of or withdrawal from any Non-U.S. Pension
Plan or Non-U.S. Welfare Plan. Each Non-U.S. Pension Plan and
Non-U.S. Welfare Plan for which funding is required under its
terms pursuant to Applicable Laws is fully funded or fully insured
in all material respects on both a solvency and going concern basis
as at the end of the applicable Restricted Party's most recently
ended Financial Year on substantially the basis of the actuarial
assumptions and methodology contained in the most recent actuarial
valuation report filed in respect of such plan with the applicable
Governmental Authority or where no such filing is required in
accordance with the most recent actuarial valuation report prepared
in respect of such plan.
(bb) the value of the Margin Stock at any time owned by the Restricted
Parties (other than Margin Stock acquired pursuant to a Two-Step
Permitted Acquisition, which, at the time this representation is
made, continues to constitute Margin Stock that
<PAGE> 112
SECTION 7.01
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is pledged at such time as Security) does not exceed 25% of the
value of the property of the Restricted Parties taken as a whole.
Neither the making available of any Accommodation by a Lender, nor
the use of the proceeds of any such Accommodation, will violate or
be inconsistent with the provisions of Regulation G, T, U or X.
(cc) none of the Restricted Parties is an "investment company" within the
meaning of the United States Investment Company Act of 1940, as
amended, or 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," within the meaning of
the United States Public Utility Holding Company Act of 1935, as
amended;
(dd) no portion of any of the property of any of the Restricted Parties
has been listed, designated or identified in the National Priorities
List ("NPL") or the CERCLA Information System ("CERCLIS"), both as
published by the United States Environmental Protection Agency, or
any similar list of sites published by any federal, state or local
authority proposed for requiring clean up or remedial or corrective
action under any Environmental Law;
(ee) the Cdn. Borrower reviews and evaluates on an ongoing basis, in
consultation with its environmental consultants, the potential
liability of the Restricted Parties under Environmental Law or
otherwise relative to Environmental Activities and sets and at all
times maintains reserves on its financial statements for these
liabilities based on, and in an amount at least equal to, the Cdn.
Borrower's reasonable estimate of the potential liability of the
Restricted Parties relative to all such matters;
(ff) the Cdn. Borrower and its officers, advisors and consultants have
completed customary and reasonable financial, environmental,
business and legal due diligence reviews of Allwaste and Serv Tech
and their Subsidiaries and their respective businesses, operations,
properties, financial condition and performance and are not aware of
any fact or matter respecting any of the foregoing which (i) as a
result of or in connection with the Allwaste Acquisition or the Serv
Tech Acquisition, has any reasonable likelihood of having a Material
Adverse Effect, or (ii) is otherwise of a nature which a reasonable
Person would consider that a prudent and conscientious Person
entering into an agreement such as this Agreement as an agent, a
co-arranger or a lender would want to be made aware of; and
(gg) (i) the revenue of each of the Restricted Subsidiaries listed in
Schedule 26 (as such Schedule may have been amended as provided
for in subsection 8.01(w) prior to the time this representation
is given) and its
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SECTION 7.01
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Subsidiaries (other than Independent Subsidiaries) for the most
recently completed four Financial Quarters was less than 1% of
the aggregate revenue of all of the Restricted Parties for such
four Financial Quarters;
(ii) the book value of the property of each of the Restricted
Subsidiaries listed in Schedule 26 (as such Schedule may
have been amended as provided for in subsection 8.01(w)
prior to the time this representation is given) and its
Subsidiaries (other than Independent Subsidiaries) is less
than 1% of the book value of all property of all of the
Restricted Parties;
(iii) no Restricted Subsidiary listed in Schedule 26 (as such
Schedule may have been amended as provided for in subsection
8.01(w) prior to the time this representation is given) or
any of its Subsidiaries owns, leases, licenses or otherwise
holds any property which is material to the undertaking,
business, operation or property of any Material Restricted
Party;
(iv) the aggregate revenue of all of the Restricted Subsidiaries
listed in Schedule 26 (as such Schedule may have been amended
as provided for in subsection 8.01(w) prior to the time this
representation is given) and their Subsidiaries (other than
Independent Subsidiaries) for the most recently completed
four Financial Quarters was less than 15% of the aggregate
revenue of all of the Restricted Parties for such four
Financial Quarters; and
(v) the book value of the property of all of the Restricted
Subsidiaries listed in Schedule 26 (as such Schedule may
have been amended as provided for in subsection 8.01(w)
prior to the time this representation is given) and their
Subsidiaries (other than Independent Subsidiaries) is less
than 15% of the book value of all property of all of the
Restricted Parties.
1.072 REPETITION OF REPRESENTATIONS AND WARRANTIES
The representations and warranties set out in Section 7.01 will be deemed
to be repeated by each of the Borrowers as of the date of each request for new
Accommodation by any Borrower (other than rollovers, renewals or conversions of
Accommodation) except to the extent that on or prior to such date (a) the Cdn.
Borrower has advised the Administrative Agent in writing of a variation in any
such representation or warranty, and (b) if such variation in the opinion of
the Required Lenders, acting reasonably, is material to the property, business,
prospects or financial position of the Restricted Parties considered as a whole
or could otherwise have a Material Adverse Effect, the Required Lenders have
approved such variation.
<PAGE> 114
SECTION 8.01
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ARTICLE EIGHT
COVENANTS
1.081 AFFIRMATIVE COVENANTS
So long as this Agreement is in force and except as otherwise permitted by
the prior written consent of the Required Lenders (or such greater threshold as
may be provided for elsewhere in this Agreement), each of the Borrowers
covenants and agrees that it will, and with respect to clauses (b), (c), (d),
(e), (f), (h), (j), (k), (l), (m), (n), (p), (t), (u) and (v) it will cause
each of the other Restricted Parties to, and with respect to clauses (q) and
(r) it will cause each of the Independent Subsidiaries to:
(a) Financial Statements. Furnish to the Administrative Agent:
(i) (x) as soon as available, but in any event within 120 days
after the end of each Financial Year a copy of the
audited consolidated balance sheet of the Cdn. Borrower
and its Subsidiaries as at the end of such Financial
Year, together with the related audited consolidated
statements of earnings, changes in financial position
and shareholders' equity of the Cdn. Borrower and its
Subsidiaries for such Financial Year, setting forth in
each case in comparative form the figures for the
previous Financial Year and reported on by Deloitte &
Touche or any other independent internationally
recognized firm of chartered accountants or certified
public accountants;
(y) as soon as available, but in any event within 90 days
after the end of each Financial Year (A) a copy of the
unaudited consolidated balance sheet of the Cdn.
Borrower and its Subsidiaries as at the end of such
Financial Year, together with the related unaudited
consolidated statements of earnings, changes in
financial position and shareholders' equity of the Cdn.
Borrower and its Subsidiaries for such Financial Year,
setting forth in each case in comparative form the
figures for the previous Financial Year and budgeted
figures for such Financial Year and accompanied by an
Officer's Certificate substantially in the form of
Schedule 21 stating that in such officer's opinion such
financial statements present fairly the consolidated
financial position of the Cdn. Borrower and its
Subsidiaries as at the date of such statements and for
the reporting period included in such statements, and
(B) a deconsolidation and
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SECTION 8.01
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reconciliation of the financial statements referred to
in clause (A) above deconsolidating and eliminating the
balance sheet, income and cash flow effects from
Persons which are not Restricted Parties and rendering
the equivalent of the financial statements referred to
in clause (A) above on a Modified Consolidated basis
and in compliance with Section 1.03; and
(z) as soon as available, but in any event within 120 days
after the end of each Financial Year a copy of the
unaudited consolidated balance sheet of the U.S.
Borrower and its Subsidiaries as at the end of such
Financial Year, together with the related unaudited
consolidated statements of earnings, changes in
financial position and shareholders' equity of the U.S.
Borrower and its Subsidiaries for such Financial Year,
setting forth in each case in comparative form the
figures for the previous Financial Year accompanied by
an Officer's Certificate substantially in the form of
Schedule 21 stating that in such officer's opinion such
financial statements present fairly the consolidated
financial position of the U.S. Borrower and its
Subsidiaries as at the date of such statements and for
the reporting period included in such statements;
(ii) as soon as available, but in any event not later than 60 days
after the end of each of the first three Financial Quarters:
(x) (A) a copy of the unaudited consolidated balance sheet
of the Cdn. Borrower and its Subsidiaries as at the end
of such Financial Quarter, together with the related
unaudited consolidated statements of earnings, changes
in financial position and shareholders' equity of the
Cdn. Borrower and its Subsidiaries for such Financial
Quarter and the portion of the Financial Year through
the end of such Financial Quarter, setting forth in each
case in comparative form the figures for the previous
Financial Year and the budgeted figures for such
Financial Quarter and the portion of the Financial Year
to the end of such Financial Quarter, and accompanied by
an Officer's Certificate substantially in the form of
Schedule 21 stating that in such officer's opinion such
financial statements present fairly the consolidated
financial position of the Cdn. Borrower and its
Subsidiaries as at the date of such statements and for
the reporting period included in such statements
(subject to normal year-end audit adjustments), (B) a
deconsolidation and reconciliation of the financial
statements referred to in clause (A) above
deconsolidating and eliminating the
<PAGE> 116
SECTION 8.01
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balance sheet, income and cash flow effects from
Persons which are not Restricted Parties and rendering
the equivalent of the financial statements referred to
in clause (A) above on a Modified Consolidated basis
and in compliance with Section 1.03, and (C) if such
Financial Quarter is the Financial Quarter ending June
30, 1997, the June 30 Pro Forma Financial Statements;
and
(y) a copy of the unaudited consolidated balance sheet of
the U.S. Borrower and its Subsidiaries as at the end of
such Financial Quarter, together with the related
unaudited consolidated statements of earnings, changes
in financial position and shareholders' equity of the
U.S. Borrower and its Subsidiaries for such Financial
Quarter and the portion of the Financial Year through
the end of such Financial Quarter, setting forth in each
case in comparative form the figures for the previous
Financial Year, and accompanied by an Officer's
Certificate substantially in the form of Schedule 21
stating that in such officer's opinion such financial
statements present fairly the consolidated financial
position of the U.S. Borrower and its Subsidiaries as at
the date of such statements and for the reporting period
included in such statements (subject to normal year-end
audit adjustments);
(iii) as soon as available, but in any event not later than the
earlier of 10 days after the date of approval thereof by the
board of directors of the Cdn. Borrower and 60 days after the
commencement of each Financial Year, a copy of the Modified
Consolidated corporate budget (the "ANNUAL BUDGET") (both
capital and operating) for the Restricted Parties for such
Financial Year (including without limitation a summary of all
proposed Capital Expenditures and Dispositions by division)
as approved by the board of directors of the Cdn. Borrower
setting forth the principal assumptions upon which such
budget is based and which budget shall contain forecasted
consolidated balance sheets, statements of earnings and
statements of expenses for the Restricted Parties for the
Financial Year covered by such budget and forecasted
statements of changes in financial position for the
Restricted Parties for the Financial Year covered by such
budget, such budget to be in substantially the form of, and
to contain summaries and information, and corporate and
division financial information (including information
respecting fixed assets and expenditures, Capital
Expenditures, investments, intangible assets and bank
position, debt and interest expense) as contained in the
February, 1997 annual budget of the Cdn. Borrower; and
<PAGE> 117
SECTION 8.01
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(iv) as soon as available, but in any event not later than the
date of the delivery of the Annual Budget for any Financial
Year, an update of the five-year forecast for the Restricted
Parties covering the Financial Year covered by such Annual
Budget and the following four Financial Years, which
five-year forecast shall be in substantially the form of, and
to contain summaries and information, and corporate and
division financial information (including information
respecting fixed assets and expenditures, Capital
Expenditures, investments, intangible assets and bank
position, debt and interest expense) as contained in, the
five-year forecast delivered by the Cdn. Borrower to the
Co-Arrangers in connection with the initial syndication of
the Credit.
All financial statements will be prepared on a consolidated basis (or a
Modified Consolidated basis, as the case may be) and in accordance with
GAAP (containing any required reconciliations to show all amounts which
for the purpose of this Agreement are to be determined in accordance
with GAAP in effect on December 31, 1996 as so determined in accordance
with GAAP in effect on such date). Audited financial statements
required to be delivered pursuant to this Agreement will be complete
and accompanied by a report of an independent auditor confirming that
the audit was conducted in accordance with generally accepted auditing
standards and confirming that in the auditor's opinion, such financial
statements present fairly in all material respects the consolidated
financial position of the Cdn. Borrower at the relevant date and the
consolidated results of its operations and the consolidated changes in
its financial position for the relevant period, in accordance with
GAAP.
(b) Certificates; Other Information. Furnish to the Administrative Agent:
(i) concurrently with the delivery of the financial statements
referred to in clauses 8.01(a)(i) and (ii), an Officer's
Certificate of the Cdn. Borrower substantially in the form of
Schedule 21 stating that, to the best of such officer's
knowledge, each of the Restricted Parties and the Independent
Subsidiaries during such period has observed or performed all
of its covenants and other agreements, and satisfied every
condition, contained in each of the Credit Documents to be
observed, performed or satisfied by it, and that such officer
has obtained no knowledge of any Default or Event of Default
except as specified in such certificate, such certificate to
include calculations to evidence compliance with the
financial covenants set forth in Section 8.03 and the Debt to
EBITDA Pricing Adjustment Ratio applicable to the calculation
of interest and fees pursuant to Article Three;
<PAGE> 118
SECTION 8.01
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(ii) concurrently with the delivery of the financial statements
referred to in clauses 8.01(a)(i) and (ii), an Officer's
Certificate of the Cdn. Borrower substantially in the form of
Schedule 22 respecting compliance by the Restricted Parties
with Environmental Laws;
(iii) concurrently with the delivery of the financial statements
referred to in clause 8.01(a)(i), a copy of the annual
environmental report respecting the Restricted Parties from
an independent environmental consultant satisfactory to the
Administrative Agent, acting reasonably, retained by the
Restricted Parties;
(iv) concurrently with the delivery of the financial statements
referred to in clause 8.01(a)(i), certificates of all
insurance referred to in subsection 8.01(e) (excluding any
policies relating solely to automobile insurance) of each of
the Restricted Parties in effect on the last day of the
immediately preceding Financial Year;
(v) within 10 Business Days of the granting of any material
Permitted Lien, notice of such Permitted Lien and, promptly
following any request from the Administrative Agent, such
information relating to any Permitted Lien or Permitted Liens
as the Administrative Agent may reasonably request;
(vi) promptly, and in any event, within 5 Business Days after any
Restricted Party (w) is notified by the Internal Revenue
Service of its liabilities for the tax imposed by Section
4971 of the Code, for failure to make required contributions
to a Pension Plan or Section 4975 of the Code, or penalties
under Section 502(i) of ERISA for engaging in a prohibited
transaction, (x) notifies PBGC of the termination of a
defined benefit pension plan, if there are not, or may not
be, sufficient assets to convert the plan's benefit
labilities as required by Section 4041 of ERISA, (y) is
notified by the PBGC of the institution of pension plan
termination proceedings under Section 4042 of ERISA or that
it has a material liability under Section 4063 of ERISA, or
(z) is notified that it has withdrawal liability under
Section 4202 of ERISA which is material, copies of the notice
or other communication given or sent;
(vii) within five Business Days after the same are sent, copies of
all reports which any Restricted Party sends to its
shareholders or partners which are material to the business,
operations, property. condition or prospects, financial or
otherwise, of either Borrower or any Restricted Subsidiary,
and within five days after the same are filed, copies of all
financial statements and copies of all reports, notices, news
releases and other
<PAGE> 119
SECTION 8.01
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documents, if any, which any Restricted Party may make to, or
file with, any Governmental Authority (including any stock
exchange or any federal, provincial or state securities
commission or analogous Governmental Authority) and which
reports, notices, news releases or other documents contain
information, or relate to matters, which are material to the
business, operations, property, condition or prospects
(financial or otherwise) of either Borrower or any Restricted
Subsidiary;
(viii) promptly on entering into any definitive or final form of
agreement respecting any Acquisition, any Disposition or any
Additional Debt involving an amount (or in the case of a
Disposition, an amount or property of a value) in excess of
U.S. $50,000,000 (or the Equivalent Amount in any other
currency or currencies), notice of such proposed Acquisition,
Disposition or Additional Debt, as the case may be, and all
pertinent information relative thereto and from time to time
thereafter promptly all relevant information respecting any
material developments relative to, and respecting the
completion or closing of, such Acquisition, Disposition or
Additional Debt, as the case may be;
(ix) all other information with respect to the Restricted Parties
and their respective property and the Independent
Subsidiaries which may be requested from time to time by the
Administrative Agent, acting reasonably, and which is
available to the Restricted Parties; and
(x) with each quarterly compliance certificate referred to in
clause 8.01(b)(i), an updated report with supporting
financial information confirming the status of all assurances
and obligations referred to in clause (c)(i)(y) of the
definition of Contingent Obligation, any proceedings or
events respecting the demand, call or other event relative to
such assurances and obligations and the basis on which such
assurances and obligations would or would not be treated as a
liability in accordance with GAAP and, promptly following any
material change or development in the nature or status of any
assurances or obligations referred to in clause (c)(i)(y) of
the definition of Contingent Obligation which are in an
amount in excess of U.S. $5,000,000 (or the Equivalent Amount
in any other currency or currencies), an updated report
confirming the status of such assurances or obligations, any
proceedings or events respecting the demand, call or other
event relative to such assurances or obligations and the
basis on which such assurances or obligations would or would
not be treated as a liability in accordance with GAAP.
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(c) Payment of Obligations. Pay, discharge or otherwise satisfy (i) in
accordance with normal business practices in the case of trade
payables, and (ii) at or before maturity or before they become
delinquent, as the case may be, in the case of all of its other Debt
and other material obligations of whatever nature, except when (x) the
amount or validity thereof is currently being contested, (y) reserves
in conformity with GAAP with respect thereto have been provided for in
the Modified Consolidated financial statements of the Restricted
Parties, and (z) the failure to pay the same would not have, or have
any reasonable likelihood of having, a Material Adverse Effect.
(d) Conduct of Business and Maintenance of Existence. Engage in business
of the same general type as now conducted by it; carry on and conduct
its business and operations in a proper, efficient and businesslike
manner, in accordance with good business practice; preserve, renew and
keep in full force and effect its existence and take all reasonable
action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business; and comply with all
Contractual Obligations and Requirements of Law except to the extent
that the failure to comply therewith would not, in the aggregate, have,
or have any reasonable likelihood of having, a Material Adverse Effect.
(e) Maintenance of Property and Insurance. Keep all property useful and
necessary in its business in good working order and condition, normal
wear and tear excepted; maintain with financially sound and reputable
insurance companies insurance with respect to the conduct of its
business and on all its property which meets the requirements of
Schedule 23; and furnish to the Administrative Agent, upon written
request, full information as to, and certified copies of all policies
respecting, the insurance carried.
(f) Inspection of Property: Books and Records; Discussions. Keep proper
books of record and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities;
and permit representatives and agents of the Administrative Agent and
the Other Agents to visit and inspect any of its properties and examine
and make abstracts from any of its books and records at any reasonable
time, on reasonable notice and as often as may reasonably be desired,
and to discuss the business, operations, property, condition and
prospects (financial or otherwise) of the Restricted Parties with
senior officers of the Restricted Parties and with their independent
chartered accountants.
(g) Notices. Promptly give notice to the Administrative Agent:
(i) of the occurrence of any Default or Event of Default;
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(ii) of any:
(x) default or event of default under any Contractual
Obligation of any Restricted Party; or
(y) litigation, investigation or proceeding which may exist
or be threatened at any time between any Restricted
Party and any Governmental Authority; or
(z) any other event or circumstance;
which in any such case the Borrower considers has, or has any
reasonable likelihood of having, a Material Adverse Effect;
(iii) of any suit, litigation or other proceeding which is
commenced or threatened against any Restricted Party which
involves a claim in excess of U.S. $10,000,000 (or the
Equivalent Amount in any other currency or currencies), or in
which any injunctive or similar relief is sought, and all
material developments in respect thereof;
(iv) the occurrence of the acceleration, default or demand
pursuant to the terms of any Debt of any Restricted Party
which is in the aggregate in excess of U.S. $10,000,000 (or
the Equivalent Amount in any other currency or currencies);
(v) any material default or event of default under any material
Permitted Lien or any Debt secured by any material Permitted
Lien;
(vi) of the date on which any material contribution is required to
be made to any Pension Plan under Section 302(f) of ERISA;
(vii) of the institution of any steps by any Person to terminate
any Pension Plan or Non-U.S. Pension Plan if such termination
could give rise to any material liability on the part of any
Restricted Party, or the failure to make a required
contribution to any Pension Plan if such failure is
sufficient to give rise to a lien for a material amount under
section 302(f) of ERISA or the failure to make a required
contribution to any Non-U.S. Pension Plan if such failure is
sufficient to give rise to a lien or deemed trust for a
material amount under Applicable Law, or the taking of any
action with respect to a Pension Plan which could result in
the requirement that any Restricted Party furnish a bond or
other security to the PBGC or such
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Pension Plan, or that could have the result that any
Restricted Party may incur any material liability pursuant to
any employee welfare benefit plan (as defined in Section 3(1)
of ERISA) that provides benefits to retired employees or
other former employees (other than as required by Section 601
of ERISA) or any Pension Plan or any Non-U.S. Pension Plan or
Non-U.S. Welfare Plan in addition to the liability that
existed on the initial Borrowing Date pursuant to any such
plan or plans, or the occurrence of any event with respect to
any Pension Plan or Non-U.S. Pension Plan or Non-U.S. Welfare
Plan which could result in the incurrence by any Restricted
Party of any material liability, fine or penalty;
(viii) of the occurrence of any event or circumstance which the
Borrower considers has, or which has any reasonable
likelihood of having, a Material Adverse Effect;
(ix) any civil, criminal or regulatory proceedings or
investigations which could give rise to a claim or claims
individually in excess of U.S. $2,000,000 (or the Equivalent
Amount in any other currency or currencies) or in the
aggregate in excess of U.S. $10,000,000 (or the Equivalent
Amount in any other currency or currencies) arising under,
relating to or with respect to any Environmental Law or laws
relating to occupational health and safety, including without
limitation, any action request, control order, stop order or
violation notice or breach of any certificate, approval,
permit, consent, order or direction concerning the
installation or operation of any machinery, equipment or
facility constituting the property of the Cdn. Borrower or
any of its Subsidiaries, or concerning any structure,
activity or facility on or in any such property;
(x) any material Release from the real property of the Cdn.
Borrower or any of its Subsidiaries into the Natural
Environment other than a Release which is not in violation in
any material respect of Environmental Law; and
(xi) if any Restricted Party learns that any Governmental
Authority or any employee or agent thereof has determined,
threatens to determine or requires an investigation to
determine that there exists any material Release from the
property of the Cdn. Borrower or any of its Subsidiaries into
the Natural Environment other than a Release which is not in
violation in any material respect of Environmental Law.
Each notice pursuant to this subsection shall be accompanied by an
Officer's Certificate of the Cdn. Borrower setting forth details of the
occurrence referred to
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therein and stating the potential effect of such occurrence on the
business, operations, property and financial condition of the Borrowers
and the Restricted Subsidiaries and what action the Restricted Parties
have taken and propose to take with respect thereto.
(h) Permits and Requirements of Law. Obtain and maintain in effect all
Permits which are material to the ownership and operation of its
business and property from time to time, and comply in all material
respects with the conditions of such Permits.
(i) Use of Accommodation. Ensure that all proceeds of Accommodation are
used only for the purposes expressly permitted by Section 2.02.
(j) Environmental Clean-Up. Investigate and clean-up, as required by
Applicable Laws (subject to the right of the Restricted Parties to
dispute or contest interpretations of the Law provided that such
dispute or contestation would not give rise to, and would not have any
reasonable likelihood of giving rise to, a Material Adverse Effect),
any Release of Contaminant from any of its properties or caused by it
with the utmost care and due diligence and comply in all material
respects with all material orders issued by any Governmental Authority
with respect to the Natural Environment.
(k) No Environmental Damage. Conduct its business and affairs in a manner
consistent with that of a prudent and responsible resource recovery and
industrial services company and at all times actively and diligently
proceed to use its best efforts to comply with (and will comply in all
material respects with) all Environmental Law and laws relating to
occupational health and safety.
(l) Security.
(i) Provide, and cause each other Restricted Party (other than
Phencorp International Finance Inc.) to provide, to the
Administrative Agent (on or prior to the Closing Date with
respect to the Restricted Parties on such date and otherwise
within 30 days of any Person becoming a Restricted Party (or
such longer period as may be agreed to by the Administrative
Agent where an auditor's report or confirmation may be
required as a condition to the validity or enforceability of
any such Security) or within 30 days following the date by
which the quarterly compliance certificate for the Financial
Quarter (or the Financial Year in the case of a 4th Financial
Quarter) in which a Non Material Restricted Subsidiary
becomes a Material Restricted Party is required to be
delivered to the Administrative Agent, as the case may be),
the Security (together with all
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applicable security certificates and powers of attorney for
all securities of all Material Restricted Parties to be
pledged under such Security) required from time to time
pursuant to Article Six in accordance with the provisions of
such Article, accompanied by supporting resolutions,
certificates and opinions in form and substance satisfactory
to the Administrative Agent, acting reasonably;
(ii) provide the Administrative Agent on a monthly basis, with all
pertinent information, if any, required to update the
information set forth in Schedule 16 and Schedule 18 and to
ensure that all issued and outstanding shares of all Material
Restricted Parties (other than the Cdn. Borrower) continue to
be validly pledged to the Administrative Agent under the
Security; and
(iii) do, execute and deliver, and cause each of its Subsidiaries
to do, execute and deliver, all such things, documents,
security, agreements and assurances as may from time to time
be requested by the Administrative Agent, acting reasonably,
to ensure that the Administrative Agent holds at all times
valid, enforceable, perfected first priority Security from
the Restricted Parties meeting the requirements of Article
Six.
(m) Permitted Liens. Comply in all material respects with each agreement
which constitutes a Permitted Lien and requires compliance therewith by
a Restricted Party.
(n) Appointment of Consultants. Allow the Administrative Agent on behalf
of the Other Agents and the Lenders, with, prior to an Event of
Default, the Cdn. Borrower's consent (such consent not to be
unreasonably withheld or delayed), to appoint consultants or agents at
any time to complete audits or to report on any other matter as may be
deemed necessary by the Administrative Agent on behalf of the Other
Agents and the Lenders (or any one of them), all at the Cdn. Borrower's
expense.
(o) Reserves for Environmental Liabilities. Review and evaluate on an
ongoing basis, in consultation with its environmental consultants, the
potential liability of the Restricted Parties under Environmental Law
or otherwise relative to Environmental Activities and set and at all
times maintain reserves on its financial statements for these
liabilities based on, and in an amount at least equal to, the Cdn.
Borrower's reasonable best estimate of the potential liability of the
Restricted Parties relative to all such matters.
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SECTION 8.01
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(p) Payment of Taxes. Pay or cause to be paid all Taxes, government fees
and dues levied, assessed or imposed on it or on all or any part of its
property as and when the same become due and payable; provided that it
may contest the payment of any such Taxes, fees or dues if it has
maintained adequate reserves with respect thereto in accordance with
GAAP.
(q) Independent Subsidiaries - Delivery of Agreements. Cause each
Independent Subsidiary (in the case of Independent Subsidiaries
existing on the date of this Agreement, on or prior to the Closing
Date, and in the case of Persons which become Independent Subsidiaries
after the date of this Agreement, within 30 days of the date on which
they become Independent Subsidiaries):
(i) to execute and deliver to the Borrowers and the
Administrative Agent a Corporate Separateness Covenant and
Assurance Agreement and, if such Independent Subsidiary
consents or is required to join in the filing of consolidated
federal income tax returns in the United States of America
with any one or more of the Restricted Parties, a Tax Sharing
Agreement together in each case with such supporting
certificates, resolutions, corporate documentation and legal
opinions as the Administrative Agent, acting reasonably, may
request with respect to such agreements; and
(ii) to deliver, or cause to be delivered, to the Borrowers and to
the Administrative Agent Non Recourse Acknowledgements and
Undertakings from all material creditors of such Independent
Subsidiary;
and cause each Independent Subsidiary to observe, perform and comply
with, in all material respects, its covenants, obligations and
undertakings from time to time under its Corporate Separateness
Covenant and Assurance Agreement and Tax Sharing Agreement.
(r) Independent Subsidiaries - Conduct of Business. Cause each Independent
Subsidiary to conduct its business and affairs without any Financial
Assistance from any Restricted Party (except for Investments permitted
under subsection 8.02(e) and Financial Assistance permitted under
subsection 8.02(l)) and in a manner which, to the extent then possible
under Applicable Law, would not result in the creditors of such
Independent Subsidiary having any Recourse Against any Restricted Party
for the debts, liabilities or obligations of such Independent
Subsidiary to such creditors.
(s) Expenses. Pay promptly all reasonable fees and disbursements
(including sales tax, goods and services tax and harmonized sales and
goods and services tax) incurred or paid by the Administrative Agent,
the Other Agents or the Lenders in
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SECTION 8.01
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connection with the preparation, negotiation, execution, delivery,
maintenance, administration, amendment and enforcement (including any
workouts in connection with or in lieu of any enforcement), of the
Credit Documents and any and all other documents contemplated by a
Credit Document and in connection with the consummation of the
transactions contemplated by the Credit Documents and each grant of
Accommodation and in connection with the initial syndication of the
Commitments and including without limitation, all court costs and all
fees and disbursements of lawyers, auditors, consultants, accountants
and environmental auditors and investigators. Such fees and
disbursements (or if the exact amount thereof is undetermined at the
time, a reasonable estimate thereof) may, without further direction of
either Borrower be paid out of any grant of Accommodation under the
Credit. Failure to deduct actual or estimated fees and disbursements
in whole or in part as aforesaid will not reduce the Borrowers'
liability therefor. The Administrative Agent will be entitled (but not
obligated) at any time and from time to time to pay or satisfy any
liability or obligation of a Borrower pursuant to any Credit Document
or any document contemplated by a Credit Document and the Cdn. Borrower
will, on request by the Administrative Agent, promptly reimburse the
Administrative Agent for all amounts expended, advanced or incurred by
the Administrative Agent to satisfy such liability or obligation or to
enforce the rights of the Administrative Agent, any Other Agent or any
Lender pursuant to any Credit Document which amounts will include all
court costs, lawyers' fees, fees of auditors, consultants and
accountants, environmental auditors and investigators and investigation
expenses reasonably incurred by the Administrative Agent, any Other
Agent or any Lender in connection with any such matters.
(t) Further Assurances. At its expense, promptly following the request of
the Administrative Agent, cure or cause to be cured all defects in the
content, execution and delivery of any Credit Document and any other
document arising from the Credit Documents. At its expense, promptly
execute and deliver to the Administrative Agent, or cause to be
executed and delivered to the Administrative Agent, on request by the
Administrative Agent, all such other and further documents, agreements
and instruments necessary to satisfy the obligations of the Restricted
Parties under the Credit Documents or under any of the documents
arising from the Credit Documents, to effect any registrations or
filings required by the Administrative Agent or to obtain any consents
required by the Administrative Agent.
(u) Margin Stock. Take any and all actions as may be required to ensure
that no securities pledged, or required to be pledged, pursuant to the
Security shall constitute Margin Stock; provided that, in the case of a
Two-Step Permitted Acquisition where the consummation of the tender
offer portion thereof results in
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SECTION 8.01
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the acquisition of Margin Stock, the Margin Stock so acquired shall be
pledged pursuant to the Security and (x) at the time of the
consummation of any such tender offer and upon the occurrence of each
Borrowing during any period that Accommodation is secured by Margin
Stock, (i) it will take any and all actions as may be required, or as
may be reasonably requested by the Administrative Agent, to establish
compliance with Regulations G and U, (ii) the Borrowers shall deliver
to each Lender a duly completed Form U-1 or G-3, as appropriate,
referred to in Regulations U and G, and (iii) each Lender shall be able
in good faith to complete such Form U-1 or G-3, as the case may be,
showing that the Accommodation made available by the Lenders pursuant
to this Agreement comply with Regulations U and G, including with
respect to the collateral valuation requirements of such Regulations
and (y) as promptly as practicable after the consummation of the
back-end merger in respect of such Two-Step Permitted Acquisition and
in any event within 30 days thereafter (or, if earlier, 30 days after
the respective Target becomes a Wholly-Owned Restricted Party of a
Borrower), the Borrowers will, and will cause the other Restricted
Parties to, take any and all actions as may be required to ensure that
no security acquired pursuant to such Two-Step Permitted Acquisition
shall continue to, or at any time thereafter, constitute Margin Stock.
(v) Acquisitions. Structure each Acquisition so that the purchasing or
acquiring Restricted Party receives at the time of closing of such
Acquisition a payout and discharge letter from all general bank,
financial institution or credit providers (subject to Permitted
Indebtedness allowed relative to such Acquisition pursuant to clause 1
of Schedule 7 and Permitted Liens allowed relative to such Acquisition
pursuant to clause (s) of Schedule 6), execute and deliver, and cause
to be executed and delivered, all Security required as a result of such
Acquisition (including a pledge of the securities of any acquired
Target and its Subsidiaries and guarantees and securities pledges from
such Target and its Subsidiaries) within the time frames required under
subsection 8.01(l), and cause the Permitted Indebtedness, if any,
allowed under clause 1 of Schedule 7 relative to such Acquisition, and
any Permitted Liens, if any, allowed under clause (s) of Schedule 6
relative to such Acquisition, to be repaid, released and discharged
within the time frames required in such clauses.
(w) Non Material Restricted Subsidiaries. Within 30 days following any
Acquisition and within 30 days following the date by which the
compliance certificate for the Financial Quarter (or Financial Year in
the case of the 4th Financial Quarter) in which any one or more
Restricted Subsidiaries listed in Schedule 26 (as such Schedule may
have been amended prior to such time) cease to qualify as a Non
Material Restricted Subsidiary is required to be delivered to the
Administrative Agent, deliver to the Administrative Agent a draft
revised Schedule 26 listing
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SECTION 8.01
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only Restricted Subsidiaries which would qualify as Non Material
Restricted Subsidiaries under this Agreement, together with such
supporting financial and other information and certificates as the
Administrative Agent, acting reasonably, may require to confirm the
same, which amended schedule, on delivery of written notice from the
Administrative Agent to the Cdn. Borrower acknowledging acceptance of
the same, shall become Schedule 26 for all purposes of this Agreement.
1.082 NEGATIVE COVENANTS
------------------
So long as this Agreement is in force and except as otherwise permitted by
the prior written consent of the Required Lenders (or such greater threshold as
may be provided elsewhere in this Agreement), each of the Borrowers covenants
and agrees that it will not, and that it will cause each of the other
Restricted Parties not to, directly or indirectly:
(a) Debt. Create, incur, assume or suffer or permit to exist any Debt
except:
(i) Debt owing to the Administrative Agent, the Other Agents or
the Lenders under any Credit Document;
(ii) Debt owing under Purchase Money Obligations in an amount not
in excess of the amount of Purchase Money Obligations which
may constitute Permitted Liens at any time as set forth in
Schedule 6;
(iii) Debt owing under Capitalized Lease Obligations relating only
to Rolling Stock and Debt owing under other Capitalized Lease
Obligations (including any such Capitalized Lease Obligations
under a sale and lease back transaction permitted under
subsection 8.02(j)) in an amount not in excess of the amount
of Capitalized Lease Obligations which may constitute
Permitted Liens at any time as set forth in Schedule 6;
(iv) Debt owing under operating leases arising as a result of a
sale and lease back transaction relating only to Rolling
Stock and Debt owing under operating leases arising under any
other sale and lease back transactions permitted under
subsection 8.02(j) in an amount not in excess of U.S.
$70,000,000 (or the Equivalent Amount in any other currency
or currencies) less the aggregate amount of Debt owing at
such time under all Purchase Money Obligations and under all
Capitalized Lease Obligations (other than Capitalized Lease
Obligations relating only to Rolling Stock);
<PAGE> 129
SECTION 8.02
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(v) Debt owing under operating leases (other than those referred
to in paragraph (iv) of this subsection) entered into in the
ordinary course of business for the purpose of carrying on
the same;
(vi) Debt under Hedging Arrangements permitted under subsection
8.02(r);
(vii) Permitted Indebtedness; and
(viii) subject to compliance with the provisions of Section 4.03,
Additional Debt.
(b) Liens. Create, incur, assume or suffer or permit to exist any Lien
upon any of its property, whether now owned or hereafter acquired,
except for Permitted Liens.
(c) Amalgamation, etc. Enter into any transaction of amalgamation or
consolidation or merger or liquidate, wind-up or dissolve itself (or
suffer any liquidation, winding-up or dissolution or any proceedings
therefor) or continue itself under the laws of any other statute or
jurisdiction, except that, subject to the Restricted Parties taking
such action, and executing and delivering to the Administrative Agent
such undertakings, certificates, agreements, opinions and other
documents as the Administrative Agent, acting reasonably, may require
to affirm and assure the continued validity, enforceability,
effectiveness and priority of the Security and the continued validity,
enforceability and effectiveness of the covenants, agreements and
obligations of the Restricted Parties under the Credit Documents, and
provided that no Default or Event of Default is then continuing or
would be created thereby, any Wholly-Owned Restricted Party may be
amalgamated or consolidated or merged or liquidated, wound-up or
dissolved with or into a Borrower, provided that such Borrower shall be
the continuing corporation, or with or into any one or more other
Wholly-Owned Restricted Parties provided that if any such Restricted
Party is a Material Restricted Party, a Material Restricted Party shall
be the continuing corporation.
(d) Dispositions of Property. Except as permitted by subsection 8.02(c),
Dispose of, in one transaction or a series of transactions, all or any
part of its property, whether now owned or hereafter acquired, except
that:
(i) each of the Restricted Parties may Dispose of, in the normal
course of its business for the purpose of carrying on the
same, for fair market value, in accordance with customary
trade terms, any tangible property that would reasonably be
considered to be the subject matter of sales by it in the
normal course of its business for the purpose of carrying on
the same, or
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SECTION 8.02
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that is worn out, obsolete or no longer useful for the
purpose of carrying on its business;
(ii) any Restricted Subsidiary may Dispose of all or any of its
property (upon voluntary liquidation or otherwise) to a
Borrower or to any Wholly-Owned Restricted Party which has
provided all Security required to be provided under this
Agreement;
(iii) the Restricted Parties may, so long as no Default or Event of
Default is continuing or would be created thereby, provided
that such Disposition would not have, or have any reasonable
likelihood of having, a Material Adverse Effect, in addition
to the other transactions permitted by this subsection (d),
Dispose of property in any Financial Year (the "REFERENCE
FINANCIAL YEAR") provided however that:
(x) on the Business Day following the date of the closing of
any such Disposition an amount equal to that portion, if
any, of the purchase price payable to the Restricted
Parties under any such Disposition (the "DEEMED PROCEEDS
OF DISPOSITION AMOUNT" relative to such Disposition)
which is not Reinvested in the Restricted Parties on the
date of the closing of such Disposition will be paid by
the Borrowers to the Administrative Agent to repay
Accommodation under the Credit as provided for in
subsection 4.04(1); and
(y) on that date which is one year from and including the
date of the closing of any such Disposition (the
"ANNIVERSARY" of such Disposition) in respect of which
the fair market value at the time of such Disposition of
the property so Disposed of exceeds (the amount of such
excess being the "DEEMED EXCESS PROCEEDS OF DISPOSITION
AMOUNT" relative to such Disposition) the greater of (1)
$0, and (2) U.S. $50,000,000 (or the Equivalent Amount
in any other currency or currencies) less the fair
market value of all other property of the Restricted
Parties Disposed of prior to such time under this
paragraph of this subsection during the Reference
Financial Year:
(A) the limit of the Credit will be permanently reduced
by an amount (the "PERMANENT DISPOSITION REDUCTION
AMOUNT" relative to such Disposition) equal to the
amount, if any, by which (X) the Deemed Excess
Proceeds of Disposition Amount relative to such
Disposition exceeds (Y) the amount, if any, which
has been Reinvested in the
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SECTION 8.02
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Restricted Parties from the date of the closing of
such Disposition to the Anniversary of such
Disposition and which has not previously been used
in the calculation of the Permanent Disposition
Reduction Amount relative to any other Disposition;
and
(B) the Borrowers shall make such permanent repayments
of Accommodation, if any, required under the
provisions of subsection 4.04(2); and
(iv) a Restricted Party may enter into an arrangement to factor or
securitize accounts receivable or monetize inventory of such
Restricted Party provided however that no Default or Event of
Default has occurred and is continuing at the time of giving
effect to, or would result from or be created by giving
effect to, such arrangement and provided further that in
connection with any such arrangement other than such an
arrangement involving only Guarantor Subsidiaries:
(w) such arrangement is entered into with third parties on
an arm's length basis on reasonable commercial terms
consistent with those entered into by other Persons in
similar transactions in the market place;
(x) the proceeds from such arrangement are used solely for
the working capital purposes of the Restricted Parties;
(y) such arrangement is without any Recourse Against any
Restricted Party; and
(z) the aggregate of (A) the face amount of all accounts
receivable generated by the Restricted Parties and owned
at any time by another Person or by other Persons under
all such factoring or securitization arrangements, and
(B) the value (determined in accordance with GAAP in the
same manner as used by the Restricted Parties to value
their other inventory) of all inventory created or
acquired by the Restricted Parties and owned or held at
such time by another Person or by other Persons under
all such monetization transactions, may not exceed U.S.
$115,000,000 (or the Equivalent Amount in any other
currency or currencies). For greater certainty there
will not be included in calculating the amounts referred
to in clauses (A) and (B) of this paragraph the face
amount of accounts receivable generated by a Target or
its
<PAGE> 132
SECTION 8.02
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Subsidiaries prior to the date of the Acquisition of
such Target by a Restricted Party and sold to another
Person or Persons by such Target or its Subsidiaries
prior to the date of such Acquisition under factoring or
securitization arrangements entered into by such Target
or its Subsidiaries prior to such date, or the value of
inventory created or acquired by a Target or its
Subsidiaries prior to the date of the Acquisition of
such Target by a Restricted Party and sold to another
Person or Persons by such Target or its Subsidiaries
prior to the date of such Acquisition under monetization
arrangements entered into by such Target or its
Subsidiaries prior to such date, in each case provided
that neither such arrangement nor such sale was entered
into or effected in connection with, or in anticipation
or contemplation of, such Acquisition.
(e) Investments. Make any Investments in any one or more Persons who are
not Wholly-Owned Restricted Parties which exceed, in the aggregate for
all such Investments made after the date of this Agreement and all
Financial Assistance given after the date of this Agreement as
permitted under subsection 8.02(l) by all Restricted Parties, U.S.
$50,000,000 (or the Equivalent Amount in any other currency or
currencies).
(f) Restricted Payments. Make any Restricted Payment, except that, so long
as no Default or Event of Default is continuing (other than with
respect to Restricted Payments which are in the form of management or
consulting fees or bonuses payable to officers or directors of a
Restricted Party in accordance with bona fide arrangements entered into
in good faith in the ordinary course of business consistent with past
practices, which may be paid in the circumstances provided for in
paragraphs (i) and (ii) of this subsection although a Default or Event
of Default may be continuing provided that amounts owing under this
Agreement have not been accelerated at or prior to such time pursuant
to Section 9.02) or would be created thereby:
(i) any Wholly-Owned Restricted Party may pay Restricted Payments
to a Borrower or to any other Wholly-Owned Restricted Party;
and
(ii) the Cdn. Borrower may make Restricted Payments at any time
provided that:
(x) the sum of (A) all such Restricted Payments to be made
at such time and (B) all Restricted Payments made on or
after the date of this Agreement and prior to such time;
<PAGE> 133
SECTION 8.02
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does not exceed
(y) 25% of cumulative Net Income for the period from January
1, 1997 to the date of the proposed payment of such
Restricted Payment.
(g) Transfers of Shares. Except for Dispositions which constitute a
Disposition of all of the issued and outstanding shares of such
Restricted Party held by the Restricted Parties and which is otherwise
permitted under paragraph 8.02(d)(iii), Dispose of, or enter into any
agreement to Dispose of, or grant any option respecting, any shares or
other equity interest in any Restricted Party now or hereafter directly
or indirectly held by any Restricted Party or in any other way permit
any reduction in the direct or indirect voting interest, or the direct
or indirect equity interest, of any Restricted Party in any other
Restricted Party. For greater certainty, nothing in this subsection
prohibits shareholders of the Cdn. Borrower from Disposing of any
shares in the Cdn. Borrower held by them.
(h) No Share Issuance. Except for the issue of common shares by the Cdn.
Borrower, issue any securities unless the Person to whom such
securities are issued is a Restricted Party and then only if (i) the
issue of such securities would not result in any reduction in the
direct or indirect voting interest, or the direct or indirect equity
interest, of any Restricted Party in the Restricted Party issuing such
securities, and (ii) if any of the securities of the issuing Restricted
Party are pledged to the Administrative Agent under the Security, the
additional securities so issued are validly pledged for the benefit of
the Administrative Agent and the Lenders under the Security.
Notwithstanding anything contained in this subsection, the Cdn.
Borrower may issue common shares in its capital without the consent of
the Lenders.
(i) Transactions with Affiliates. Except as specifically permitted under
this Agreement, enter into any transaction, including the purchase,
Disposition of any property or the rendering of any services, with any
Affiliate that is not a Wholly-Owned Restricted Party, or with any of
its or their directors or officers, or enter into, assume or suffer to
exist any employment, consulting or analogous agreement or arrangement
with any such Affiliate or with any of its or their directors or
officers, except a transaction or agreement or arrangement (i) which is
in the ordinary course of business of such Restricted Party and which
is upon fair and reasonable terms not less favorable to such Restricted
Party than it would obtain in a comparable arm's-length transaction,
and (ii) if the aggregate value of such transaction or agreement, or
the property or services covered by such transaction or agreement,
could reasonably be expected to exceed U.S. $50,000,000 (or the
Equivalent Amount in any other currency or currencies), in respect of
which such Restricted Party has first delivered a letter from an
<PAGE> 134
SECTION 8.02
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independent financial advisor acceptable to the Administrative Agent
confirming to the satisfaction of the Administrative Agent, acting
reasonably, the compliance of such transaction or agreement with the
requirements of this subsection.
(j) Sale and Leaseback. Enter into any arrangement with any Person
providing for the leasing by any of the Restricted Parties, as lessee,
of property which has been or is to be Disposed of by any Restricted
Party to such Person or to any other Person to whom funds have been or
are to be advanced by such Person on the security of such property or
the lease obligation of any of the Restricted Parties provided that the
Restricted Parties may enter into such a sale and lease back
transaction provided that
(i) no Default or Event of Default has occurred and is continuing
at the time of, or would result from or be created by giving
effect to, such transaction;
(ii) the liabilities of the Restricted Parties under such
transaction shall constitute Debt for the purposes of this
Agreement; and
(iii) in connection with any such transaction other than a sale and
lease back of property consisting only of Rolling Stock and
other than a sale of property from one Guarantor Subsidiary
to another Guarantor Subsidiary and the lease of such
property by the selling Guarantor Subsidiary from the buying
Guarantor Subsidiary:
(x) the Disposition of the property subject to such
transaction shall constitute a Disposition of property
under paragraph 8.02(d)(iii) and the proceeds from such
Disposition shall be applied as provided for in such
paragraph and elsewhere in this Agreement; and
(y) the aggregate amount of the liabilities of the
Restricted Parties under such transaction together with
the aggregate amount of the liabilities of the
Restricted Parties under all other such transactions may
not at any time exceed U.S. $70,000,000 (or the
Equivalent Amount in any other currency or currencies)
less the aggregate amount at such time of all Debt under
Purchase Money Obligations and all Debt under
Capitalized Lease Obligations (other than Capitalized
Lease Obligations relating only to Rolling Stock).
(k) Acquisitions. Make any Acquisition unless:
(i) the Acquisition is in a Related Business;
<PAGE> 135
SECTION 8.02
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(ii) no Default or Event of Default has occurred and is continuing
on the date of, or would occur as a result of giving effect
to, such Acquisition; and
(iii) if the cost (including assumption of Debt) for such
Acquisition would exceed U.S. $150,000,000 (or the Equivalent
Amount in any other currency or currencies) and the Cdn.
Borrower does not have an Investment Grade Rating at the time
of such proposed Acquisition, the Cdn. Borrower has delivered
to the Co-Arrangers at least 5 Business Days prior to the
closing of such Acquisition an Officer's Certificate in
substantially the same form as Schedule 21 with pro forma
financial information (which certificate will be distributed
to the Lenders at least 5 Business Days (or such shorter
period as may be practical having regard to the date on which
the Co-Arrangers receive such certificate) prior to the
closing of such Acquisition) confirming on a pro forma basis
the continued compliance of the Restricted Parties (including
the subject matter of such Acquisition) after giving effect
to such Acquisition with the provisions of the Credit
Documents.
For greater certainty, the provisions of this subsection will not
prohibit an Acquisition (including an Acquisition by an Independent
Subsidiary) where such Acquisition is financed entirely (x) from, or
from a combination of, the proceeds of a common share equity issue of
the Cdn Borrower, sources other than Accommodation or the Restricted
Parties or any of their property and any Investments permitted under
subsection 8.02(e), (y) without any Financial Assistance from any of
the Restricted Parties (other than Financial Assistance permitted under
subsection 8.02(l)), and (z) without Recourse Against any of the
Restricted Parties (other than pursuant to Financial Assistance
permitted under subsection 8.02(l)).
(l) Limitation of Financial Assistance. Provide any Financial Assistance
to any one or more Persons which are not Wholly-Owned Restricted
Parties which exceed, in the aggregate for all such Financial
Assistance made after the date of this Agreement and all Investments
given after the date of this Agreement as permitted under subsection
8.02(e) by all Restricted Parties, U.S. $50,000,000 (or the Equivalent
Amount in any other currency or currencies); provided, however, that
this limitation shall not apply to assurances or obligations of
Restricted Parties which are excluded from the definition of Contingent
Obligation pursuant to paragraph (c) of such definition.
(m) No Change of Fiscal Year. Change its financial year end of December
31.
<PAGE> 136
SECTION 8.02
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(n) No Hostile Take-Over Bids. Make any Hostile Take-Over Bid without the
prior consent of all of the Lenders, after they have received and
considered such information as they may request from the Cdn. Borrower.
(o) No Change of Name. Change its name without 30 days prior written
notice to the Administrative Agent.
(p) No Breaches. Make any request for Accommodation which, if made, would
result in the occurrence of a Default or an Event of Default, including
a default in the Debt to EBITDA Covenant Ratio required to be
maintained under Section 8.03.
(q) Arrangements with Independent Subsidiaries. Except to the extent that
the same constitutes an Investment permitted under subsection 8.02(e)
or Financial Assistance permitted under subsection 8.02(l), provide any
Financial Assistance to any Independent Subsidiary or take or fail to
take any other action, or permit any Independent Subsidiary to take or
fail to take any action, which could result in any creditor of an
Independent Subsidiary having any Recourse Against any Restricted
Party.
(r) Hedging Arrangements. Enter into any Hedging Arrangement unless such
Hedging Arrangement:
(i) is designed to protect the Restricted Parties against
fluctuations in currency exchange rates, interest rates or
commodity prices; and
(ii) has been entered into by such Restricted Party bona fide and
in good faith in the ordinary course of its business for the
purpose of carrying on the same and not for speculative
purposes.
1.083 FINANCIAL COVENANTS
-------------------
So long as this Agreement is in force the Cdn. Borrower:
(a) will ensure that the Interest Coverage Ratio is at all times greater
than 3.5 to 1.0;
(b) will ensure that the Debt to EBITDA Covenant Ratio is at all times:
(i) on or before December 31, 1998, equal to or less than 4.25 to
1.0;
(ii) on or after January 1, 1999 and on or before December 31,
1999, equal to or less than 4.0 to 1.0; and
<PAGE> 137
SECTION 8.03
- 129 -
(iii) on or after January 1, 2000, equal to or less than 3.75 to
1.0;
(c) will ensure that the Fixed Charge Ratio is at all times equal to or
greater than 1.25 to 1.0; and
(d) will ensure that the Working Capital Ratio is at all times equal to or
greater than 1.25 to 1.0.
1.084 INTERPRETATION OF CERTAIN COVENANTS
-----------------------------------
The specification in Article Three of interest rates and fees for a range
which is different than the covenants set forth in Section 8.03, does not limit
the extent of, or relieve the Borrowers from complying with, the covenants in
this Agreement.
ARTICLE NINE
------------
EVENTS OF DEFAULT
-----------------
1.091 EVENTS OF DEFAULT
-----------------
Any one or more of the following events will constitute an Event of Default:
(a) Default in Principal. If a Borrower fails to repay any indebtedness on
account of principal under the Credit when due under this Agreement.
(b) Default in Interest, etc. If a Borrower fails to pay any interest, fees
or other amount payable under any Credit Document (other than principal
referred to in subsection 9.01(a)) within two Business Days of the due
date thereof.
(c) Certain Defaults under Credit Agreement. If a Borrower defaults in the
performance or observance of any term, condition or covenant contained
in Section 8.02 or Section 8.03.
(d) Other Defaults under Credit Documents. Subject to subsections 9.01(a),
(b) and (c), if a Restricted Party or any Independent Subsidiary
defaults in the performance or observance of any term, condition or
covenant contained in any Credit Document and, with respect to any
covenant which is capable of being cured, such default continues for a
period of 15 days or more after written notice of such default has been
delivered by the Administrative Agent or the Required Lenders to the
applicable Person (provided that the grace period can be abridged by
the Administrative Agent or the Required Lenders with respect to any
covenant
<PAGE> 138
SECTION 9.01
- 130 -
for which the above referenced 15 day grace period is available if the
Administrative Agent or the Required Lenders consider that the delay
would impair the Security or if the nature or rank of the Security is
being challenged).
(e) Representations and Warranties. If any representation, warranty or
statement made in any Credit Document or any certificate or other
document delivered to the Administrative Agent, any Other Agent or any
of the Lenders pursuant to this Agreement is untrue or incorrect in any
material respect when made or when deemed to have been made.
(f) Default under Other Agreements with Lenders. If a Restricted Party
defaults in the performance or observance of any term, condition,
representation or covenant contained in any Lender/Borrower Hedging
Arrangement or in any other agreement between such Restricted Party and
the Administrative Agent, any of the Other Agents or any of the Lenders
or any of their respective Eligible Affiliates (other than the Credit
Documents) after the expiry of any applicable grace periods.
(g) Default in other Indebtedness. If there shall be outstanding any
amount or amounts exceeding an aggregate of U.S. $10,000,000 (or the
Equivalent Amount in any other currency or currencies) in respect of
which any one or more of the Restricted Parties shall have failed to
make a payment when due and payable, or if any amount or amounts
exceeding an aggregate of U.S. $10,000,000 (or the Equivalent Amount in
any other currency or currencies) shall have become due and payable by,
or could then be declared by the Person to whom such amount is to be
paid to be due and payable by, any one or more of the Restricted
Parties prior to the stated maturity date thereof or prior to the
regularly scheduled date for payment thereof as a result of any default
or event of default (however described) or other failure by any one or
more of the Restricted Parties to perform or observe any obligation or
covenant.
(h) Credit Documents. If any Credit Document or any part thereof shall, at
any time after its respective execution and delivery and for any
reason, cease in any way to be in full force and effect or if the
Security or any part thereof shall, at any time after its execution and
delivery and for any reason, cease to constitute a Lien of the nature
and priority specified in or contemplated by this Agreement, and in
either such case such event continues for a period of 15 days after
notice thereof from the Administrative Agent or the Required Lenders to
the Cdn. Borrower, or if the validity or enforceability of any Credit
Document is disputed in any manner by any of the parties thereto other
than the Administrative Agent and the Lenders;
<PAGE> 139
SECTION 9.01
- 131 -
(i) Winding-up etc. If an order is made or an effective resolution passed
for the winding-up, liquidation or dissolution of a Restricted Party,
except to the extent permitted under subsection 8.02(c).
(j) Voluntary Insolvency Actions. If any Restricted Party institutes
proceedings for its winding up, liquidation or dissolution, or takes
action to become a voluntary bankrupt, or consents to the filing of a
bankruptcy proceeding against it, or files a proposal, a notice of
intention to make a proposal, a petition or answer or consent seeking
reorganization, readjustment, arrangement, composition or similar
relief under any bankruptcy law or any other similar applicable law or
consents to the filing of any such petition, or consents to the
appointment of a receiver, liquidator, trustee or assignee in
bankruptcy or insolvency of all or a substantial part of the property
of any Restricted Party, or makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts
generally as they become due or commits any other act of bankruptcy, or
suspends or threatens to suspend transaction of its usual business, or
any action is taken by any Restricted Party in furtherance of any of
the aforesaid.
(k) Insolvency Proceedings. If a court having jurisdiction enters a decree
or order adjudging any Restricted Party a bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization,
readjustment, arrangement, composition or similar relief under any
bankruptcy law or any other similar applicable law, or a decree or
order of a court having jurisdiction for the appointment of a receiver,
liquidator, trustee or assignee in bankruptcy or insolvency of all or a
substantial part of the undertaking or property of any Restricted
Party, or for the winding up, dissolution or liquidation of its
affairs, is entered and such decree, order or petition is not contested
and the effect thereof stayed, or any material part of the undertaking
or property of any Restricted Party is sequestered or attached and is
not returned to the possession of such Restricted Party or released
from such attachment within 45 days thereafter.
(l) Appointment of Receiver. If a receiver, manager, receiver and manager,
trustee, custodian or other similar official is appointed in respect of
any Restricted Party or any material part of its property.
(m) Bankruptcy Statutes. If any proceeding, voluntary or involuntary, is
commenced, or an order or petition is issued, respecting any Restricted
Party pursuant to any statute relating to bankruptcy, insolvency,
reorganization of debts, liquidation, winding-up or dissolution,
including, without limitation, any proceedings, proposal, notice of
intention to make a proposal, order or petition under the Bankruptcy
and Insolvency Act (Canada), the United States Bankruptcy Code, the
<PAGE> 140
SECTION 9.01
- 132 -
Company Creditors Arrangement Act (Canada), the Winding-up Act (Canada)
or any similar legislation in any other jurisdiction.
(n) Judgments. If a final judgment for an amount in excess of U.S.
$10,000,000 (or the Equivalent Amount in any other currency or
currencies) is rendered against a Restricted Party and, within 15
Business Days after entry thereof, such judgment has not been
discharged or execution thereof stayed pending appeal or if, within 15
days after the expiration of any such stay, such judgment has not been
discharged.
(o) Encumbrances. If an encumbrancer takes possession of any property of
one or more Restricted Parties the value of which in the opinion of the
Required Lenders exceeds U.S. $10,000,000 (or the Equivalent Amount in
any other currency or currencies), or if a distress or execution or any
similar process is levied or enforced against any property of one or
more Restricted Parties, the value of which in the opinion of the
Required Lenders exceeds U.S. $10,000,000 (or the Equivalent Amount in
any other currency or currencies), and such distress, execution or
similar process remains unsatisfied for such period as would permit
such property or any part thereof to be sold thereunder, provided that
such possession or process has not been stayed and is not being
contested in good faith by the applicable Restricted Party (or if
contested in good faith is not dismissed within 45 days).
(p) Cease to carry on Business. If a Restricted Party ceases or threatens
to cease to carry on in the ordinary course its business or a
substantial part thereof, except to the extent permitted under
subsection 8.02(c).
(q) Qualified Auditor's Report. If any report of the Cdn. Borrower's
auditors contains any qualification which in the opinion of the
Required Lenders relates to a matter which has a Material Adverse
Effect.
(r) Reorganization. If there is any reorganization of a Restricted Party
and in consequence of such reorganization the applicable Restricted
Party is not the surviving entity of such reorganization, or if there
is any consolidation, merger or amalgamation of a Restricted Party with
any other Person except to the extent permitted under subsection
8.02(c).
(s) Material Adverse Effect. If, in the opinion of the Required Lenders
(which opinion will be conclusive), any event occurs which has a
Material Adverse Effect.
<PAGE> 141
SECTION 9.01
- 133 -
(t) Change of Control of a Restricted Party. Except for Dispositions of
shares of a Restricted Party permitted under subsection 8.02(g), if
there occurs without the prior written consent of the Required Lenders,
a change of control of a Restricted Party. For the purposes of this
Agreement, there will be a "change of control" if:
(i) with respect to any Restricted Party, there is a change of
"control" as defined in the Business Corporations Act
(Ontario); or
(ii) with respect to the Cdn. Borrower, the nominees of any single
Person (other than Allen Fracassi) or any single Person
(other than Allen Fracassi) together with such Person's
Associates and/or Affiliates comprise a majority of the board
of directors of the Cdn. Borrower.
(u) Pension Plans. If (i) any steps are instituted to terminate a Pension
Plan or a Non-U.S. Pension Plan in whole or in part if as a result of
such termination any Borrower could be required to make a contribution
to such Pension Plan or Non-U.S. Pension Plan, or could incur a
liability or obligation to such Pension Plan or Non-U.S. Pension Plan,
in excess of U.S. $10,000,000 (or the Equivalent Amount in any other
currency or currencies), or (ii) if a contribution failure occurs with
respect to any Pension Plan sufficient to give rise to a lien for an
amount in excess of U.S. $2,000,000 (or the Equivalent Amount in any
other currency or currencies) under section 302(f) of ERISA or if a
contribution failure occurs with respect to any Non-U.S. Pension Plan
sufficient to give rise to a lien or a deemed trust for an amount in
excess of U.S. $10,000,000 (or the Equivalent Amount in any other
currency or currencies) under Applicable Law or, (iii) if,
(x) a Pension Plan has an Unfunded Current Liability, there is any
withdrawal liability of a Restricted Party or any ERISA Affiliate
to any Pension Plan which is a multiemployer plan (as defined in
Section 4001(a)(3) of ERISA), any Restricted Party has incurred or
is likely to incur liabilities pursuant to one or more employee
welfare benefit plans (as defined in Section 3(1) of ERISA) or
Non-U.S. Welfare Plan that provide benefits to retired employees
or other former employees (other than as required by Section 601
of ERISA) or Pension Plans or Non-U.S. Pension Plans, and a
condition exists or an event or transaction may occur with respect
to any Pension Plan or Non-U.S. Pension Plan or Non-U.S. Welfare
Plan; and
(y) there shall result from any such condition, event or events the
imposition or the granting of a Lien, or a liability or a material
risk of incurring a liability; and
<PAGE> 142
SECTION 9.01
- 134 -
(z) such Lien, or liability, individually, and/or in the aggregate, in
the opinion of the Required Lenders, has had, or could reasonably
be expected to have, a Material Adverse Effect.
1.092 REMEDIES
--------
(1) Upon the occurrence of any Event of Default, and at any time thereafter
if the Event of Default shall then be continuing, the Administrative Agent with
the consent of the Required Lenders may, and upon written request by the
Required Lenders shall, take any or all of the following actions: (i) by
written notice to the Cdn. Borrower declare all principal amounts with respect
to Accommodation, all amounts payable with respect to outstanding Bankers'
Acceptances and BA Equivalent Notes as provided for in subsection 2.05(8), all
amounts payable with respect to outstanding Letters of Credit as provided for in
subsection 2.06(5), and all accrued interest, fees and other amounts hereunder
to be, whereupon the same shall become, immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived by the Borrowers; (ii) by written notice to the Cdn.
Borrower declare the Credit and the Commitments to be terminated, whereupon the
same shall terminate immediately and all standby fees, availment fees and other
amounts accrued under the Credit Documents shall immediately become due and
payable without any further notice of any kind; provided however that if an
Event of Default described in subsections 9.01(i), (j), (k), (l) or (m) and
relative to either Borrower shall occur, the result which would otherwise occur
only on the giving of notice by the Administrative Agent to the Cdn. Borrower as
specified in clauses (i) and (ii) above shall occur automatically without the
giving of any such notice; (iii) realize upon the Security and any other
security applicable to the liability of any of the Restricted Parties under the
Credit Documents; and (iv) without limitation, exercise any other action, suit,
remedy or proceeding authorized or permitted by any Credit Documents or any
other agreement, at law, in equity, under statute or otherwise.
(2) If any Restricted Party shall fail to comply with any covenant
contained in any Credit Document that is applicable to it, the Administrative
Agent may satisfy the obligations of such Restricted Party with respect to such
covenant, and all costs and expenses thereby incurred by or on behalf of the
Administrative Agent shall be reimbursed by the Borrowers to the Administrative
Agent immediately.
1.093 BENEFIT OF SECURITY; SET-OFF; SHARING OF PAYMENTS.
--------------------------------------------------
(1) Subject to subsection 9.03(5), all Security shall be held for the
Rateable benefit of the Administrative Agent, the Other Agents, the Lenders and
their respective Eligible Affiliates (collectively the "SECURED PARTIES"), and
all proceeds from the Security which are distributable to the Secured Parties
shall be applied for the Rateable benefit of the Secured Parties irrespective
of any priority to which any Secured Party may otherwise be entitled.
Notwithstanding the foregoing or any other provision of any of the Credit
Documents or the Lender/Borrower
<PAGE> 143
SECTION 9.03
- 135 -
Hedging Arrangements (collectively the "SECURED PARTY DOCUMENTS"), if there
shall exist at any time any amount payable by any Secured Party to any other
Secured Party pursuant to any provision of any Secured Party Document, then
such amount shall be taken into account when calculating, and an appropriate
portion of such amount shall be paid from, any proceeds of Security otherwise
payable to such first Secured Party.
(2) Each Borrower agrees that, upon the occurrence of an Event of Default,
in addition to (and without limitation of) any right of set-off, bankers' lien,
counterclaim or other right or remedy that any Secured Party may otherwise
have, each Secured Party shall be entitled, at its option, but subject to
subsection 9.03(3), to offset any and all balances held by it for the account
of such Borrower at any of its offices or branches, in any currency, against
any and all amounts owed by such Borrower to such Secured Party under any
Secured Party Document (regardless of whether any such balances are then due or
payable to such Borrower), in which case such Secured Party shall promptly
notify such Borrower and the Administrative Agent thereof; provided that such
Secured Party's failure to give any such notice shall not affect the validity
thereof. Any Person purchasing an interest in the obligations of any Borrower
as contemplated by subsection 9.03(3) may exercise all rights of set-off,
bankers' lien, counterclaim or similar rights with respect to such interest as
fully as if such obligations had been originally incurred to such Person and
such Person were the holder thereof.
(3) Each Secured Party (a "SURPLUS SECURED PARTY") that receives any
payment or recovery (except (i) interest and fees paid as required pursuant to
the Credit Documents prior to the acceleration of any payment or the
termination of the Credit and the Commitments pursuant to Section 9.02, (ii)
payments made in accordance with subsections 8.01(s) or 9.02(2) or Articles
Four or Five prior to the acceleration of any payment or the termination of the
Credit and the Commitments pursuant to Section 9.02 (including any prepayment
of any or all amounts owing under the Credit Documents prior to the Maturity
Date), (iii) payments made by a Borrower to a Secured Party under a
Lender/Borrower Hedging Arrangement between such Borrower and such Secured
Party, in accordance with the provisions of such Hedging Arrangement, prior to
the acceleration of any payment or the termination of the Credit and the
Commitments pursuant to Section 9.02, and (iv) any payment pursuant to this
subsection 9.03(3)) from, or from the property of, any Restricted Party in
respect of any obligation of a Restricted Party to such Secured Party under any
Secured Party Document (whether by voluntary payment, by realization of any
security held by such Secured Party, by exercise of a right of set-off or
banker's lien, by counterclaim or cross action, by the enforcement of any of
the Secured Party Documents, by reason of any priority afforded in any
insolvency proceeding, or otherwise) in an amount which, relative to the
corresponding amounts received by the other Secured Parties (the "DEFICIENT
SECURED PARTIES"), is a greater proportion than the proportion which the
obligations of such Borrower to the Surplus Secured Party under the Secured
Party Documents bears to the obligations of such Borrower to the Deficient
Secured Parties under the Secured Party Documents immediately prior to such
receipt (in each case without regard to any Excess Amounts as defined in
subsection 9.03(5)), the Surplus Secured Party shall purchase for cash
<PAGE> 144
SECTION 9.03
- 136 -
from the Deficient Secured Parties, without recourse, an interest in the
obligations of the Restricted Parties to the Deficient Secured Parties under
the Secured Party Documents in such amount as shall result in a Rateable
participation (subject to subsection 9.03(5)) by all of the Secured Parties in
the obligations of the Restricted Parties to all of the Secured Parties under
the Secured Party Documents (provided that, to the extent that the Secured
Parties determine that the same is practicable, any such purchase will be
structured to minimize any increase of the amount for which any Borrower is
liable in respect of Taxes pursuant to Section 5.03 and, if requested by the
Administrative Agent, any such purchase shall be accompanied by an indemnity in
favour of the Administrative Agent for any liability which the Administrative
Agent may incur to any Governmental Authority in connection with any such
increased Taxes for which any Restricted Party becomes liable pursuant to
Section 5.03); provided, however, that if the Surplus Secured Party is
thereafter required to relinquish all or any portion of such excess payment or
recovery to any Person (other than to the Deficient Secured Parties as provided
herein), such purchase shall be rescinded and the purchase price restored to
the extent of such recovery, but without interest. The Administrative Agent,
upon consultation with the applicable Secured Parties, shall have the power to
settle any documentation required to evidence any such purchase or restoration
and, if deemed advisable by the Administrative Agent, to execute any document
as attorney for any Secured Party in order to complete any such purchase or
restoration. The Borrowers acknowledge that the foregoing arrangements are to
be settled by the Secured Parties among themselves, and the Borrowers expressly
consent to the foregoing arrangements among the Secured Parties.
(4) Nothing contained in the Secured Party Documents shall require any
Secured Party to exercise any right, or shall affect the right of any Secured
Party to exercise and retain the benefits of exercising any right, with respect
to any indebtedness or obligation of any of the Borrowers existing otherwise
than pursuant to the Secured Party Documents.
(5) Notwithstanding any other provisions of any of the Secured Party
Documents, the aggregate amount (the "EXCESS AMOUNT") of any obligations owing
by the Borrowers to a Secured Party under a Tranche on the date of any
acceleration under Section 9.02 which are in excess of such Secured Party's
Commitment under such Tranche at such time shall not, as among the Secured
Parties, be treated as outstanding Accommodation from such Secured Party for
the purpose of determining the Secured Party's Rateable entitlement to proceeds
from the Security or other enforcement proceedings, with the intent that
proceeds from Security and from any other enforcement proceedings shall be
distributed first to the Secured Parties Rateably only on the basis of
outstanding Accommodation and other amounts ("PRIOR AMOUNTS") owing under the
Secured Party Documents which are not Excess Amounts and second, only after
payment of all such Prior Amounts (and all interest, fees and other amounts
payable relative to such Prior Amounts), Rateably to the Secured Parties on the
basis of all Excess Amounts.
<PAGE> 145
SECTION 9.04
- 137 -
1.094 REMEDIES CUMULATIVE
-------------------
The rights and remedies of the Administrative Agent, the Other Agents and
the Lenders under the Credit Documents are cumulative and in addition to and
not in substitution for any rights or remedies provided by any other agreement,
at law, in equity, under statute or otherwise.
1.095 APPROPRIATION OF MONEYS RECEIVED
--------------------------------
Each of the Administrative Agent, the Other Agents and the Lenders may
from time to time when an Event of Default has occurred and is continuing, but
subject to subsection 9.03(3), appropriate any moneys received by it from the
Restricted Parties or from any security held by such Person in or toward
payment of such of the obligations of the Borrowers or any other Restricted
Party under the Credit Documents as such Person in its sole discretion may see
fit.
1.096 NON-MERGER
----------
The taking of a judgment or judgments or any other action or dealing
whatsoever by the Administrative Agent, any Other Agent or any Lender in
respect of the Security will not operate as a merger of any indebtedness or
liability of either of the Borrowers to the Administrative Agent, any Other
Agent or any of the Lenders or in any way suspend payment or affect or
prejudice the rights, remedies and powers, legal or equitable, which the
Administrative Agent, any Other Agent or any Lender may have in connection with
such liabilities and the surrender, cancellation or any other dealings with any
security for such liabilities will not release or affect the liability of
either of the Borrowers or any other Restricted Party under any of the Credit
Documents or any security held by or on behalf of the Administrative Agent, the
Other Agents and the Lenders.
ARTICLE TEN
-----------
CONDITIONS PRECEDENT TO BORROWINGS
----------------------------------
1.101 CONDITIONS PRECEDENT TO THE INITIAL BORROWING
---------------------------------------------
No Lender shall be obliged to make available any Accommodation under the
initial Borrowing under the Credit unless all of the following have occurred
and/or are true:
(a) The Administrative Agent shall have received the relevant Notice of
Borrowing.
(b) The Administrative Agent shall have received the Security, which shall
have been duly registered and filed, and have the priority, as required
by Article Six and all necessary third party consents relative to the
issuance of the Security.
<PAGE> 146
SECTION 10.01
- 138 -
(c) The Administrative Agent shall have received a Corporate Separateness
Covenant and Assurance Agreement and, with respect to Independent
Subsidiaries which has consented or is required to join in the filing
of consolidated federal income tax returns in the United States of
America with one or more Restricted Parties, a Tax Sharing Agreement
duly authorized, executed and delivered by each of the Independent
Subsidiaries and shall have received a duly executed Non Recourse
Acknowledgement and Undertaking from each material creditor of an
Independent Subsidiary specified by the Co-Arrangers.
(d) There shall exist no Default or Event of Default on the initial
Borrowing Date and the completion of the Allwaste Acquisition, the Serv
Tech Acquisition, and the applicable Borrowing would not result in the
occurrence of a Default or an Event of Default, and each Borrower shall
have delivered to the Administrative Agent an Officer's Certificate to
such effect.
(e) All representations and warranties contained in Article Seven (applied
as if Allwaste and its Subsidiaries and Serv Tech and its Subsidiaries
were Restricted Parties at such time) shall be true on and as of the
initial Borrowing Date with the same effect as if such representations
and warranties had been made on and as of the initial Borrowing Date,
and each Borrower shall have delivered to the Administrative Agent an
Officer's Certificate to such effect.
(f) The Administrative Agent and the Lenders shall have received such
financial and other information relating to the Restricted Parties and
the Allwaste Acquisition and the Serv Tech Acquisition, as they shall
have reasonably requested.
(g) The Administrative Agent shall have received certified copies of, or
certificates of insurance for, all insurance maintained by the
Restricted Parties, Allwaste and its Subsidiaries and Serv Tech and its
Subsidiaries, and such insurance shall comply with the requirements of
the Credit Documents.
(h) Except for any Permitted Indebtedness, the Existing Bank Debt shall be
repaid in full, and the Existing Philip Bank Credit Agreement and the
Existing Allwaste and Serv Tech Credit Agreements shall be cancelled,
simultaneously with the obtaining of the initial Borrowing.
(i) Each Borrower shall have paid to each of the Administrative Agent, the
Other Agents and the Lenders all fees and other amounts which shall
have become due and payable by it to the Administrative Agent or such
Lender on or prior to the initial Borrowing Date and shall have paid
all fees payable to the advisors of the Administrative Agent and the
Lenders.
<PAGE> 147
SECTION 10.01
- 139 -
(j) All Liens over any property of any of the Restricted Parties and
Allwaste and its Subsidiaries, and if the Serv Tech Acquisition has
closed prior to such time or is closing at such time Serv Tech and its
Subsidiaries, other than Permitted Liens, shall have been released and
discharged or the Co-Arrangers shall have received undertakings and
assurances satisfactory to them respecting the release and discharge of
all such Liens.
(k) The following documents in form, substance and execution acceptable to
the Administrative Agent shall have been delivered to the
Administrative Agent:
(i) a certified copy of the constating documents and by-laws of
each Material Restricted Party (including Allwaste and Serv
Tech and those of their respective Subsidiaries which would
constitute Material Restricted Parties), and of all corporate
proceedings taken and required to be taken by each Material
Restricted Party (including Allwaste and Serv Tech and those
of their respective Subsidiaries which would constitute
Material Restricted Parties), to authorize the execution and
delivery of the Credit Documents to which it is a party and
the performance of the transactions by it contemplated in
such Credit Documents;
(ii) a certificate of incumbency for each Restricted Party
(including Allwaste and Serv Tech and those of their
respective Subsidiaries which would constitute Material
Restricted Parties) setting forth specimen signatures of the
persons authorized to execute the Credit Documents to which
it is a party;
(iii) a certificate of status or certificate of good standing, as
the case may be, for each Material Restricted Party
(including Allwaste and Serv Tech and those of their
respective Subsidiaries which would constitute Material
Restricted Parties);
(iv) the opinion of counsel for each of those Material Restricted
Parties (including Allwaste and Serv Tech and those of their
respective Subsidiaries which would constitute Material
Restricted Parties) designated by the Co-Arrangers as
material, such opinion to be in form and substance
satisfactory to the Lenders;
(v) the opinion of Canadian counsel for the Administrative Agent
and the Lenders, in form and substance satisfactory to the
Lenders;
(vi) an environmental compliance certificate from the Cdn.
Borrower's Executive Vice-President, Corporate and Regulatory
Affairs;
<PAGE> 148
SECTION 10.01
- 140 -
(vii) the most recent annual audit (and any subsequent addendums)
from the Cdn. Borrower's independent environmental auditor;
(viii) an Officer's Certificate of the Cdn. Borrower, together with
pro forma financial statements and other information in form
and detail satisfactory to the Required Lenders, giving
effect to the Allwaste Acquisition, the Serv Tech Acquisition
and the initial Borrowing hereunder and confirming the
interest and fee pricings under Article Three, and compliance
with the financial covenants under Section 8.03, after giving
effect to the Allwaste Acquisition and the Serv Tech
Acquisition, and such initial Borrowing; and
(ix) such other documents relative to the Credit Documents, the
transactions contemplated in the Credit Documents and the
Allwaste Acquisition, and the Serv Tech Acquisition, as the
Administrative Agent and the Lenders may reasonably require.
(l) The Allwaste Acquisition shall have closed, or shall close concurrently
with such Borrowing, on terms and conditions satisfactory to the
Administrative Agent and the Lenders.
(m) If the Serv Tech Acquisition has been completed prior to, or is
completed concurrently with, such Borrowing, such Acquisition shall
have been completed on the terms and conditions set forth in the Serv
Tech Agreement and Plan of Merger.
(n) The Restricted Parties and Allwaste will have obtained all required
consents and approvals to the completion of the Allwaste Acquisition
including without limitation any required consents and approvals under
existing Applicable Law and from all applicable Governmental
Authorities all of which shall be in full force and effect and in good
standing.
(o) The Borrowers shall have executed and delivered an agency fee letter to
the Administrative Agent in form and substance satisfactory to the
Administrative Agent.
(p) There shall not be instituted or pending any action, proceeding or
application before or by any Governmental Authority or any other Person
(i) challenging the Allwaste Acquisition which is effective to
restrain, prohibit or delay the Allwaste Acquisition, or (ii) which in
the opinion of the Required Lenders, acting reasonably, has a
reasonable likelihood of having a Material Adverse Effect.
<PAGE> 149
SECTION 10.01
- 141 -
(q) The Co-Arrangers shall have received, reviewed and indicated their
satisfaction with the Cdn. Borrower's current 5 year financial
forecast.
(r) The initial Borrowing shall have taken place on or before August 31,
1997.
1.102 CONDITIONS PRECEDENT TO SUBSEQUENT BORROWINGS
---------------------------------------------
No Lender shall be obliged to make available any subsequent Accommodation
under the Credit unless all of the following have occurred and/or are true:
(a) The Administrative Agent shall have received the relevant Notice of
Borrowing (other than with respect to Borrowings under an Operating
Line which shall be subject to such notice requirements as may have
been agreed to by the Cdn. Borrower and the Cdn. Operating Lender and
by the U.S. Borrower and each of the U.S. Operating Lenders).
(b) There shall exist no Default or Event of Default on the applicable
Borrowing Date and the applicable Borrowing would not result in the
occurrence of a Default or an Event of Default, and the applicable
Borrower shall have delivered to the Administrative Agent, if so
requested by the Administrative Agent, an Officer's Certificate to such
effect.
(c) After giving effect to the applicable Borrowing the Borrowers will
continue to be in compliance with the Debt to EBITDA Covenant Ratio
requirements set forth in Section 8.03, and the applicable Borrower
shall have delivered to the Administrative Agent, if so requested by
the Administrative Agent, an Officer's Certificate to such effect.
(d) The representations and warranties contained in Article Seven as the
same may have been modified prior to such time as provided for in
Section 7.02 shall be true on and as of the applicable Borrowing Date
with the same effect as if such representations and warranties had been
made on and as of the applicable Borrowing Date, and the applicable
Borrower shall have delivered to the Administrative Agent, if so
requested by the Administrative Agent, an Officer's Certificate to such
effect.
(e) All conditions specified in Section 10.01, to the extent not previously
satisfied for any reason, shall have been satisfied.
(f) All conditions required to be complied with by the applicable Borrowing
Date pursuant to any undertakings delivered to the Administrative Agent
by a
<PAGE> 150
SECTION 10.02
- 142 -
Restricted Party on the Closing Date or in connection with the initial
Borrowing shall have been satisfied and fulfilled.
(g) If at the time of such Borrowing any Margin Stock is pledged or
required to be pledged pursuant to the Security, all actions required
to be taken pursuant to subsection 8.01(u) shall have been taken to the
reasonable satisfaction of the Administrative Agent.
ARTICLE ELEVEN
--------------
THE ADMINISTRATIVE AGENT AND OTHER AGENTS
-----------------------------------------
1.111 APPOINTMENT
-----------
The Lenders, the Other Agents and their Eligible Affiliates hereby appoint
Canadian Imperial Bank of Commerce to act as their administrative agent as
herein specified and, except as may be specifically provided to the contrary
herein, each of the Lenders hereby irrevocably authorizes Canadian Imperial Bank
of Commerce, as the agent of such Lender, to take such action on its behalf
under or in connection with the Credit Documents and to exercise such powers
thereunder as are delegated to the Administrative Agent by the terms thereof and
such other powers as are reasonably incidental thereto which it may be necessary
for the Administrative Agent to exercise in order that the provisions of the
Credit Documents are carried out. The Lenders hereby acknowledge and agree that
the Administrative Agent is the holder of an irrevocable power of attorney from
the Lenders for the purpose of holding any of the Security or any other security
granted by any Person with respect to the liabilities of the Restricted Parties
under the Credit Documents, and the Administrative Agent hereby agrees to act in
such capacity. The Lenders hereby designate Bankers Trust Company to act as the
Syndication Agent, Canadian Imperial Bank of Commerce and Bankers Trust Company
to act as Co-Arrangers and Dresdner Kleinwort Benson and Royal Bank of Canada to
act as Documentation Agents, in each case to act in such capacities as specified
in this Agreement and in the other Credit Documents. The Administrative Agent
and each Other Agent may perform any of its duties under the Credit Documents by
or through its agents. The Restricted Parties shall not be concerned to enquire
whether the powers which the Administrative Agent is purporting to exercise have
become exercisable or otherwise as to the propriety or regularity of any other
action on the part of the Administrative Agent, and accordingly insofar as the
Restricted Parties are concerned the Administrative Agent shall for all purposes
hereof be deemed to have authority from the Lenders to exercise the powers and
take the actions which are in fact exercised and taken by it.
<PAGE> 151
SECTION 11.02
- 143 -
1.112 INDEMNITY FROM LENDERS
----------------------
The Lenders, the Other Agents, the Administrative Agent and their Eligible
Affiliates agree to Rateably indemnify the Administrative Agent and the Other
Agents (to the extent that such Person is not promptly reimbursed by the
Borrowers on demand) from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any nature or kind whatsoever which may be imposed on,
incurred by, or asserted against the Administrative Agent in its capacity as
administrative agent hereunder or any Other Agent in its capacity as an Other
Agent hereunder which in any way relate to or arise out of the Credit Documents
or any action taken or omitted by such Person in such capacity under the Credit
Documents; provided that no Lender or Eligible Affiliate shall be liable for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements which result from
such Person's gross negligence or wilful misconduct. Without limitation, each
Lender, each Other Agent and each of their Eligible Affiliates agrees to
reimburse the Administrative Agent promptly upon demand for its Rateable share
of out-of-pocket expenses (including the fees and disbursements of counsel)
incurred by the Administrative Agent in connection with the preparation of the
Credit Documents and the determination or preservation of any rights of the
Administrative Agent, the Other Agents, the Lenders or their respective
Eligible Affiliates under, or the enforcement of, or legal advice in respect of
rights or responsibilities under, the Credit Documents, to the extent that the
Administrative Agent is not promptly reimbursed for such expenses by the
Borrowers on demand.
1.113 EXCULPATION
-----------
None of the Administrative Agent or any Other Agent shall have any duties
or responsibilities except those expressly set forth in the Credit Documents.
None of the Administrative Agent, any Other Agent nor any of their respective
officers, directors, employees or agents shall be liable for any action taken
or omitted to be taken under or in connection with the Credit Documents, unless
such act or omission constitutes gross negligence or wilful misconduct. The
duties of the Administrative Agent and the Other Agents shall be mechanical and
administrative in nature; none of the Administrative Agent or any Other Agent
shall have by reason of the Credit Documents a fiduciary relationship with any
Lender and nothing in the Credit Documents, express or implied, is intended to
or shall be construed as to impose upon the Administrative Agent or any Other
Agent any obligation except as expressly set forth therein. None of the
Lenders shall have any duties or responsibilities to any of the other Lenders
except as expressly set forth in the Credit Documents. None of the
Administrative Agent or any Other Agent shall be responsible for any recitals,
statements, representations or warranties in any of the Credit Documents or
which may be contained in any other document subsequently received by the
Administrative Agent, any Other Agent or the Lenders from or on behalf of any
Restricted Party or any Independent Subsidiary or for the authorization,
execution, effectiveness, genuineness, validity or enforceability of any of
<PAGE> 152
SECTION 11.03
- 144 -
the Credit Documents, and none of the Administrative Agent or any Other Agent
shall be required to make any inquiry concerning the performance or observance
by any Restricted Party or any Independent Subsidiary of any of the terms,
provisions or conditions of any of the Credit Documents. Each of the Lenders
severally represents and warrants to the Administrative Agent and the Other
Agents that it has made and will continue to make such independent
investigation of the financial condition and affairs of the Restricted Parties
as such Lender deems appropriate in connection with its entering into of any of
the Credit Documents and the making and continuance of any Accommodation
hereunder, that such Lender has and will continue to make its own appraisal of
the credit worthiness of the Restricted Parties and that such Lender in
connection with such investigation and appraisal has not relied upon any
information provided to such Lender by the Administrative Agent or by any Other
Agent.
1.114 RELIANCE ON INFORMATION
-----------------------
The Administrative Agent and each Other Agent shall be entitled to rely
upon any writing, notice, statement, certificate, facsimile, telex or other
document or communication believed by it to be genuine and correct and to have
been signed, sent or made by the proper Person or Persons, and, with respect to
all legal matters pertaining to the Credit Documents and its duties thereunder,
upon the advice of counsel selected by it.
1.115 KNOWLEDGE AND REQUIRED ACTION
-----------------------------
None of the Administrative Agent nor any Other Agent shall be deemed to
have knowledge or notice of the occurrence of any Default or Event of Default
(other than the non-payment of any principal, interest or other amount to the
extent the same is required to be paid to the Administrative Agent for the
account of the Lenders) unless the Administrative Agent or such Other Agent has
received notice from a Lender or a Borrower specifying such Default or Event of
Default and stating that such notice is given pursuant to this Section. In the
event that the Administrative Agent receives such a notice, it shall give
prompt notice thereof to the Lenders, and shall also give prompt notice to the
Lenders of each non-payment of any amount required to be paid to the
Administrative Agent for the account of the Lenders. The Administrative Agent
shall, subject to Section 11.06, take such action with respect to such Default
or Event of Default as shall be directed by the Lenders in accordance with this
Article; provided that, unless and until the Administrative Agent shall have
received such direction the Administrative Agent may, but shall not be obliged
to, take such action, or refrain from taking such action, with respect to such
Default or Event of Default as it shall deem advisable in the best interest of
the Lenders; and provided further that the Administrative Agent in any case
shall not be required to take any such action which it determines to be
contrary to the Credit Documents or to any Applicable Law.
<PAGE> 153
SECTION 11.06
- 145 -
1.116 REQUEST FOR INSTRUCTIONS
------------------------
The Administrative Agent may at any time request instructions from the
Lenders with respect to any actions or approvals which, by the terms of any of
the Credit Documents, the Administrative Agent is permitted or required to take
or to grant, and the Administrative Agent shall be absolutely entitled to
refrain from taking any such action or to withhold any such approval and shall
not be under any liability whatsoever as a result thereof until it shall have
received such instructions from the Lenders. No Lender shall have any right of
action whatsoever against the Administrative Agent as a result of the
Administrative Agent acting or refraining from acting under the Credit
Documents in accordance with instructions from the Lenders or the Required
Lenders, as applicable. The Administrative Agent shall in all cases be fully
justified in failing or refusing to take or continue any action under the
Credit Documents unless it shall have received further assurances to its
satisfaction from the Lenders and their Eligible Affiliates of their
indemnification obligations under Section 11.02 against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take such action, and unless it shall be secured in respect thereof as it may
deem appropriate.
1.117 EXCHANGE OF INFORMATION
-----------------------
The Borrowers agree that each Lender, the Administrative Agent and the
Other Agents may provide to the other Lenders or the Administrative Agent or
any Other Agent such information concerning the financial position and property
and operations of the Restricted Parties as, in the opinion of such Lender or
the Administrative Agent, is relevant to the ability of each of the Restricted
Parties to fulfil its respective obligations under or in connection with the
Credit Documents.
1.118 THE ADMINISTRATIVE AGENT AND THE OTHER AGENTS, INDIVIDUALLY
-----------------------------------------------------------
With respect to its Commitments, the Accommodation made available by it
and the Credit Documents to which it is a party, each of the Persons which is
the Administrative Agent or an Other Agent and their respective Affiliates
shall have the same rights and powers under the Credit Documents as any other
Lender and may exercise such rights and powers as though such Person were not
the Administrative Agent or an Other Agent or an Affiliate of the
Administrative Agent or an Other Agent, and the term "Lenders" and "Required
Lenders" shall, unless the context clearly otherwise indicates, include each
such Person in its individual capacity. It is understood and agreed by all of
the Lenders that each of the Persons which is the Administrative Agent or an
Other Agent, either directly or through its Affiliates, from time to time
accepts deposits from, lends money to, provides underwriting, consulting and
advisory services to, and generally engages in banking, securities, advisory
and other related and ancillary businesses with the Restricted Parties and
their Affiliates and Associates otherwise than as a Lender under the Credit
Documents and may continue to do so as if it were not the
<PAGE> 154
SECTION 11.08
- 146 -
Administrative Agent or an Other Agent under the Credit Documents and shall
have no duty to account to any of the Lenders with respect to any such
dealings.
1.119 RESIGNATION AND TERMINATION
---------------------------
If at any time (i) the Administrative Agent or any Other Agent shall deem
it advisable, in its sole discretion, it may deliver to each of the Lenders and
the Borrowers written notification of its resignation insofar as it acts on
behalf of the Lenders pursuant to this Article or (ii) the Administrative Agent
or any Other Agent is in default of any of its obligations hereunder and the
Lenders shall deem it advisable, in their sole discretion, they may deliver to
the Administrative Agent or such Other Agent, as the case may be, and the
Borrowers written notification of the termination of the Administrative Agent's
or such Other Agent's, as the case may be, authority to act on behalf of the
Lenders pursuant to this Article. Any such resignation or termination of the
Administrative Agent is to be effective upon the date of the appointment by the
Lenders of a successor which shall assume all of the rights, powers, privileges
and duties of the Administrative Agent under the Credit Documents, which
appointment shall be promptly made from among the remaining Lenders and written
notice thereof shall be given to the Borrowers concurrently with such
appointment. The Borrowers shall have the right to approve any successor
Administrative Agent to be appointed by the Lenders as aforesaid at any time
that no Default or Event of Default has occurred and is continuing, provided
that such approval shall not be unreasonably withheld or delayed. Any such
resignation or termination of any Other Agent is to be effective immediately.
If in the case of resignation by the Administrative Agent no appointment of a
successor Administrative Agent has been made by the Lenders and approved by the
Borrowers within 30 days, the resigning Administrative Agent may make such
appointment without the approval of the Borrowers from among the remaining
Lenders on behalf of the Lenders, and shall forthwith give notice of such
appointment to the Lenders and the Borrowers.
1.1101 ACTIONS BY LENDERS
------------------
(1) Any approval (including without limitation any approval of or
authorization for any amendment to any of the Credit Documents), instruction or
other expression of the Lenders under any of the Credit Documents may be
obtained by an instrument in writing signed in one or more counterparts by the
Required Lenders, or where required by subsection 11.10(3) all of the Lenders
(which instrument in writing, for greater certainty, may be delivered by
facsimile).
(2) Any approval (including without limitation any approval of or
authorization for any amendment to any of the Credit Documents), instruction or
other expression of the Lenders hereunder may also be included in a resolution
that is submitted to a meeting or adjourned meeting of the Lenders duly called
and held for the purpose of considering the same as hereinafter provided and
shall be deemed to have been obtained if such resolution is passed by the
affirmative vote evidenced in writing of the Required Lenders at a meeting at
which a
<PAGE> 155
SECTION 11.10
- 147 -
quorum is present. A meeting of Lenders may be called by the Administrative
Agent and shall be called by the Administrative Agent upon the request of any
three Lenders. Every such meeting shall be held in the City of Toronto or at
such other reasonable place as the Administrative Agent may approve. At least
seven days notice of the time and place of any such meeting shall be given to
the Lenders and shall include or be accompanied by a draft of the resolutions
to be submitted to such meeting, but the notice may state that such draft is
subject to amendment at the meeting or any adjournment thereof. The Required
Lenders who are present in person or by proxy at the time and place specified
in the notice shall constitute a quorum for the purpose of the transaction of
business. A person nominated in writing by the Administrative Agent shall be
chairman of the meeting. Upon every poll taken at any such meeting every
Lender who is present in person or represented by a proxy duly appointed in
writing (who need not be a Lender) shall be entitled to one vote in respect of
each U.S. $1 of its Commitment (or if the Commitments have been terminated each
U.S. $1 of the U.S. Dollar Amount of its outstanding Accommodation). In
respect of all matters concerning the convening, holding and adjourning of
Lenders' meetings, the form, execution and deposit of instruments appointing
proxies and all other relevant matters, the Administrative Agent may from time
to time make such reasonable regulations not inconsistent with this subsection
11.10(2) as it shall deem expedient and any regulations so made by the
Administrative Agent shall be binding upon the Borrowers, the Administrative
Agent and the Lenders.
(3) Notwithstanding subsections 11.10(1) and (2):
(a) the consent of all of the Lenders evidenced by an instrument in writing
or, if all of the Lenders are present at a meeting of Lenders as
aforesaid, by an affirmative vote of all of the Lenders, will be
required for (i) any amendment to, postponement of, or discharge of all
or substantially all of the Security (other than a release of Security
over any property which a Restricted Party is expressly permitted to
Dispose of pursuant to the provisions of this Agreement) or any release
of the Cdn. Borrower from its guarantee forming part of the Security,
(ii) any reduction to the amount of, or any extension to the date of,
payment of any principal, interest or fees under this Agreement, (iii)
any change to or waiver of clauses 9.01(a), (b), (i), (j), (k), (l) or
(m) as they relate to a Borrower, Sections 9.02 and 9.03 or this
Subsection, or (iv) any reduction in the percentage specified in the
definition of Required Lenders or in any percentage of Lenders
specified in any Credit Document as being required for the Lenders to
take any action (it being understood that, with the consent of the
Required Lenders, additional extensions of credit pursuant to this
Agreement may be included in the determination of the Required Lenders
on substantially the same basis as the extensions of the Commitments
are included on the Closing Date);
(b) except for any change in a Commitment otherwise expressly provided for
in this Agreement, the consent of the particular Lender will be
required for any change in
<PAGE> 156
SECTION 11.10
- 148 -
the Commitment of such Lender (it being understood that neither a
reallocation of Commitments among Tranches as permitted under this
Agreement nor waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default or of a mandatory reduction of
the total Commitment shall constitute an increase of the Commitment of
any Lender);
(c) the consent of the Administrative Agent will be required for any change
with respect to the duties or liabilities of the Administrative Agent
under the Credit Documents; and
(d) the consent of an Other Agent will be required for any change with
respect to the duties or liabilities of such Other Agent under any of
the Credit Documents.
(4) An instrument in writing from the Required Lenders or, where
applicable, all of the Lenders as provided for in subsection 11.10(1) and a
resolution passed pursuant to subsection 11.10(2) ( any such instrument in
writing or resolution being an "APPROVAL INSTRUMENT") shall be binding upon all
of the Lenders, the Other Agents, the Administrative Agent and their respective
Eligible Affiliates, and the Administrative Agent (subject to the provisions for
its indemnity contained in this Agreement) shall be bound to give effect thereto
accordingly. For greater certainty, to the extent so authorized in the Approval
Instrument, the Administrative Agent shall be entitled (but not obligated) to
execute and deliver on behalf of the Administrative Agent, the Other Lenders,
all of the Lenders and all of their respective Eligible Affiliates, without the
requirement for the execution by any other Person or Persons, any consents,
waivers, documents or instruments (including without limitation any amendment to
any of the Credit Documents) necessary or advisable in the opinion of the
Administrative Agent to give effect to the matters approved by the Required
Lenders or all of the Lenders, as the case may be, in any Approval Instrument.
1.111 PROVISIONS FOR BENEFIT OF LENDERS ONLY
--------------------------------------
The provisions of this Article (other than Section 11.07, the last sentence
of Section 11.01 and the last sentence of subsection 11.10(4)) relating to the
rights and obligations of the Lenders, the Other Agents, the Administrative
Agent and their respective Eligible Affiliates inter se shall be operative as
between the Lenders, the Other Agent, the Administrative Agent and their
respective Eligible Affiliates only, and the Borrowers shall not have any rights
under or be entitled to rely for any purposes upon such provisions.
<PAGE> 157
SECTION 12.01
- 149 -
ARTICLE TWELVE
--------------
MISCELLANEOUS
-------------
1.121 PARTICIPATIONS, ASSIGNMENTS AND TRANSFERS
-----------------------------------------
(1) In addition to any transfer required by Section 9.03 to be made to any
other Lender or required by Applicable Law to be made to any Person, a Lender
may assign or transfer (a "SYNDICATION"), or grant participations (a
"PARTICIPATION") in, or enter into any other arrangement (a "CREDIT
DERIVATIVE") for the purpose of sharing, transferring or otherwise mitigating
its risks with respect to, all or any part of its rights and obligations in
respect of its Commitments or any Accommodation from time to time outstanding
from it to such Persons ("PARTICIPANTS"), at such times and upon such terms as
it may determine, without any obligation to obtain any consent from any
Restricted Party, in accordance with the following provisions:
(a) With respect to the grant of any Participation or any Credit
Derivative:
(i) the granting Lender shall remain fully liable for all of its
obligations under the Credit Documents to the same extent as
if such Participation or Credit Derivative had not been
granted;
(ii) all amounts payable by the Borrowers to the granting Lender
under this Agreement shall be determined as if such Lender
had not granted such Participation or Credit Derivative and
as if such Lender were funding all Accommodation included in
such Participation or Credit Derivative in the same way that
it is funding all Accommodation made available by it in which
no Participation or Credit Derivative has been granted;
(iii) the granting Lender shall administer such Participation or
Credit Derivative on behalf of the applicable Participant,
and neither such Participant nor any Restricted Party shall
have any rights against or obligations to, or deal directly
with, each other in respect of such Participation or Credit
Derivative; and
(iv) the granting Lender shall ensure that its arrangements with
respect to any such Participation or Credit Derivative do not
require the granting Lender to consult with the applicable
Participant with respect to any consents, approvals or votes
from such granting Lender relative to any matter except for
consents, approvals, amendments or waivers which would (x)
extend the final scheduled maturity of any Accommodation in
which such Participant is participating or reduce the rate or
extend the time for payment of interest or fees thereon or
reduce the principal amount thereof, or increase the amount
of the Participant's participation over the amount thereof
then in effect (it being understood that a waiver of any
Default or
<PAGE> 158
SECTION 12.01
- 150 -
Event of Default or of a mandatory reduction in the
Commitments shall not constitute a change in the terms of
such participation, and that an increase in the available
portion of any Commitment of any Lender shall be permitted
without the consent of any Participant if the Participant's
participation is not increased as a result thereof), (y)
consent to the assignment or transfer by a Borrower of any of
its rights or obligations under this Agreement, or (z)
release all or substantially all of the Security (except as
expressly provided for in the Credit Documents).
(b) with respect to any such Syndication:
(i) no such assignment or transfer shall be made at any time that
an Event of Default is not continuing unless the applicable
assignee or transferee (the "ASSIGNEE") is an Affiliate of
the assigning or transferring Lender (the "ASSIGNOR") or is
an Eligible Transferee. The term "ELIGIBLE TRANSFEREE" shall
mean and include a commercial bank, trust company, insurance
company, financial institution, any fund (a "FUND") that
invests in bank loans and any other "accredited investor" (as
defined in Regulation D of the United States Securities and
Exchange Act). In the case of any Lender that is a Fund, any
other Fund which is managed by the same investment advisor of
such Lender or by an Affiliate of such investment advisor
shall be deemed to be an Affiliate of such Lender for the
purposes of this subsection;
(ii) at the time of any such assignment or transfer to an Assignee
which will, as a result of such assignment or transfer,
become a U.S. Lender, which is not already a U.S. Lender and
which is not a United States person (as such term is defined
in Section 7701(a)(30) of the Code) for United States Federal
income tax purposes, the Assignee shall, to the extent
legally entitled to do so, provide to the U.S. Borrower in
the case of a Lender described in clause (a) or (b) of
subsection 5.03(3), the forms described in such clause (a) or
(b), as the case may be;
(iii) the Assignor shall obtain from the Assignee an undertaking of
the Assignee, addressed to the parties to this Agreement (as
such parties may be constituted at such time) and
substantially in the form of Schedule 24 (the "UNDERTAKING"),
whereby the Assignee agrees to be bound by this Agreement in
the place and stead of the Assignor to the extent of the
rights and obligations of the Assignor in respect of the
amount of its Commitments that has been assigned or
transferred to the Assignee and the assignment or transfer
shall be made by way of an assignment and
<PAGE> 159
SECTION 12.01
- 151 -
assumption agreement between the Assignor and the Assignee
substantially in the form of Schedule 25;
(iv) no such assignment or transfer other than an assignment or
transfer to another Lender or to any Affiliate of any Lender
shall be made to any Person if the Assignor has not received
the prior written consent of the Administrative Agent, such
consent not to be unreasonably withheld or delayed;
(v) subject to paragraph 12.01(1)(h), no such assignment or
transfer shall be made by any Cross Border Lender at any time
that an Event of Default is not continuing unless (a) the
assignment or transfer is made by both the applicable Cdn.
Cross Border Lender and its Affiliated U.S. Cross Border
Lender, (b) the assignment or transfer is of a Tranche 2
Combined Commitment of such Lenders, and (c) the assignment
or transfer is made on a combined basis to a Person which is
a financial institution in Canada which will agree to make
available the full amount of the assigned Tranche 2 Combined
Commitment as a Cdn. Cross Border Lender under Tranche 2 to
the Cdn. Borrower in Canada and an Affiliated Person which is
a U.S. financial institution which will agree to make
available the full amount of the assigned Tranche 2 Combined
Commitment as its Affiliated U.S. Cross Border Lender under
Tranche 2 to the U.S. Borrower in the United States of
America;
(vi) no such assignment or transfer shall be made by the Cdn.
Operating Lender under the Cdn. Operating Line unless such
assignment or transfer is of all of the Cdn. Operating
Lender's Commitment under such Tranche;
(vii) no such assignment or transfer shall be made by a U.S.
Operating Lender under the U.S. Operating Line from such U.S.
Operating Lender unless such assignment or transfer is of all
of such U.S. Operating Lender's Commitment under such U.S.
Operating Line;
(viii) subject to paragraph 12.01(1)(h), no such assignment or
transfer shall be made by any LC Lender at any time that an
Event of Default is not continuing unless (a) the assignment
or transfer is made by both the applicable Cdn. LC Lender and
its Affiliated U.S. LC Lender, (b) the assignment or transfer
is of a Combined LC Commitment of such Lenders, and (c) the
assignment or transfer is made on a combined basis to a
Person which is a financial institution in Canada which will
agree to make available the full amount of the assigned
Combined LC Commitment as a
<PAGE> 160
SECTION 12.01
- 152 -
Cdn. LC Lender under the LC Line to the Cdn. Borrower and an
Affiliated Person which is a U.S. financial institution which
will agree to make available the full amount of the assigned
Combined LC Commitment as its Affiliated U.S. LC Lender under
the LC Line to the U.S. Borrower;
(ix) each Borrower agrees that, subject to the subsection 2.08(2)
and clause (x) of this paragraph requiring recordation of
such assignment or transfer in the Registry of Commitments,
such assignment or transfer shall be effective upon the date
provided in the assignment or transfer agreement between the
Assignor and the Assignee (but in no event earlier than the
date that the relevant Undertaking is delivered by the
Assignee to the Administrative Agent), and the Assignee shall
thereafter be and be treated as a Lender for all purposes of
the Credit Documents and shall, to the extent of the rights
and obligations assigned or transferred to it by the
Assignor, be entitled to the full benefits and subject to the
full obligations of the Assignor under the Credit Documents
to the same extent as if the Assignee were an original party
in respect of the rights and obligations assigned or
transferred to it, and the Assignor shall be released and
discharged accordingly;
(x) the Administrative Agent shall notify the Borrowers of the
identity, nationality and applicable lending office of the
Assignee and the rights and obligations assigned or
transferred to the Assignee immediately after the assignment
or transfer, and shall make the necessary entries and
recordings in the Registry of Commitments reflecting the
adjustments to the Commitments resulting from such assignment
or transfer which assignment or transfer and adjustments
shall not be effective until so recorded by the
Administrative Agent in the Registry of Commitments as
provided for in subsection 2.08(2), and the Borrowers shall
promptly following any written request from the
Administrative Agent execute and deliver such assurances as
may be reasonably requested by the Administrative Agent to
confirm any of the matters provided for in this Section
including, without limitation, the release and discharge
provided for in clause (ix) of this paragraph;
(xi) unless the Assignee is an Affiliate of the Assignor, the
Assignee shall be entitled to receive all principal, interest
and other amounts owing under this Agreement in respect of
any Accommodation that is included in the assignment or
transfer as aforesaid free from all equities or rights of
set-off or counterclaim between the Borrowers or any of them
and the Assignor
<PAGE> 161
SECTION 12.01
- 153 -
and any intermediate assignee or transferee or other Person
entitled thereto, and all Persons may act accordingly;
(xii) the minimum amount of any assignment or transfer which is
less than the whole Commitment of the Assignor shall be U.S.
$5,000,000 or an amount in excess thereof which is a whole
multiple of U.S. $100,000; and
(xiii) the Assignor or the Assignee, as the case may be, shall pay
to the Administrative Agent at the time of any such
assignment or transfer to a Person who is not an Affiliate of
the Assignor an administration fee of U.S. $2,500 for each
Assignee relative to each such assignment or transfer
(provided that assignments or transfers to two Affiliated
Persons under Tranche 2 who will act as a Cdn. Cross Border
Lender and its Affiliated U.S. Cross Border Lender or to two
Affiliated Persons under the LC Line who will act as a Cdn.
LC Lender and its Affiliated U.S. LC Lender shall be treated
as one assignment or transfer to one Assignee).
(c) Each of the Borrowers, the Other Agents and the Lenders consents to
each and every assignment or transfer which may be made on or after the
date of this Agreement pursuant to this Section, and to the release and
discharge of each Assignor in accordance with clause (ix) of paragraph
of this Section.
(d) Each Assignee shall be deemed to have confirmed to the Administrative
Agent, the Other Agents and the Lenders that it has received a copy of
this Agreement together with such other documents and information as it
has deemed appropriate to make its own credit analysis and decision to
acquire such of the rights and obligations of the Assignor as have been
assigned or transferred to it, and each Assignee agrees that,
independently and without reliance upon the Administrative Agent, any
Other Agent, the Assignor or any other Lender and based on such
documents and information as it shall deem appropriate at the time, it
will continue to make its own credit decisions in taking or not taking
actions under this Agreement, and further agrees that it will perform
in accordance with their terms all of the obligations which by the
terms of the Credit Documents are required to be performed by it as a
Lender.
(e) Any grant, assignment or transfer pursuant to this Section will not
constitute a repayment by the applicable Borrower to the granting
Lender or to the Assignor, as the case may be, of any Accommodation
included in such assignment or transfer, nor a new advance of such
Accommodation to such Borrower by the grantee or by the Assignee, as
the case may be, and the parties acknowledge that the applicable
Borrower's obligations under this Agreement with respect to any
<PAGE> 162
SECTION 12.01
- 154 -
assigned or transferred Accommodation will continue and not constitute
new obligations.
(f) The Lenders, the Administrative Agent and the Other Agents may disclose
on a confidential basis to a potential or actual Participant or
Assignee such information concerning the Restricted Parties, the
Independent Subsidiaries and the Credit Documents as the Administrative
Agent, any Other Agent or any Lender may consider to be appropriate in
connection therewith, provided that such potential or actual
Participant or Assignee, as the case may be, shall be subject to the
provisions of Section 12.06.
(g) A Borrower may not, and, unless expressly permitted under this
Agreement, shall not permit any other Restricted Party to, assign or
transfer all or any of its rights or obligations under any Credit
Document without the prior written consent of all of the Lenders.
(h) Notwithstanding clauses 12.01(1)(b)(v) and 12.01(1)(b)(viii), the
Administrative Agent and the Cdn. Borrower may consent to an assignment
or transfer by an Assignor which would have the effect of adjusting the
Commitments under the Tranches of a Credit by all or a portion of the
amount assigned or transferred by each Assignor having regard to the
wish of the Assignor to become a Lender under a different Tranche of
such Credit with respect to the amount so assigned or transferred than
the Tranche under which such amount was held by the Assignor.
(i) To the extent that an assignment or transfer of all or any portion of a
Lender's Commitments and related outstanding Accommodation by way of a
Participation or a Credit Derivative pursuant to subsection 12.01(a) or
pursuant to this subsection would, at the time of such assignment or
transfer, result in increased costs under Section 5.03 or Section 5.04
in excess of those being charged by the applicable Assignor prior to
such assignment or transfer, then the applicable Borrower, in
accordance with and pursuant to the other provisions of this Agreement,
shall not be obligated to pay such excess increased costs (although the
Borrowers, in accordance with and pursuant to the other provisions of
this Agreement, shall be obligated to pay the costs which are not in
excess of those being charged by the applicable Assignor prior to such
assignment or transfer and any subsequent increased costs of the type
described above resulting from changes after the date of the such
assignment or transfer).
(2) Any Lender may pledge its interests in the Credit Documents in the
ordinary course of its business including to the United States Federal Reserve
or any other similar Governmental Authority and, with the consent of the
Administrative Agent, any Lender that is a
<PAGE> 163
SECTION 12.01
- 155 -
Fund may pledge all or any portion of its interests in the Credit Documents to
its trustee in support of its obligations to its trustee.
1.122 WAIVER
------
No delay on the part of the Administrative Agent, any Other Agent or any
Lender in exercising any right or privilege under any Credit Document shall
operate as a waiver of such right or privilege, and no waiver of any Default or
Event of Default shall operate as a waiver of such Default or Event of Default
unless made in writing and signed by an authorized officer of the
Administrative Agent. No written waiver shall preclude the exercise by the
Administrative Agent, any Other Agent or any Lender of any right, power or
privilege under any Credit Document other than in respect of the specific
action or inaction covered by such waiver and strictly in accordance with the
terms of such waiver, or extend to or apply to any other Default or Event of
Default. No Lender shall be deemed to have waived, by reason of making
available any Accommodation under this Agreement, any Default or Event of
Default which has arisen by reason of any representation or warranty made or
deemed to have been made in any Credit Document proving to be false or
misleading.
1.123 FURTHER ASSURANCES
------------------
Each Borrower shall from time to time immediately upon request by the
Administrative Agent do, make and execute, and cause each of the other
Restricted Parties and each of their respective Subsidiaries to do, make and
execute, all such documents, acts, matters and things as may be reasonably
required by the Administrative Agent to give effect to the Credit Documents,
and to any assignment or transfer permitted by Section 12.01.
1.124 NOTICES
-------
Any notice or communication to be given under this Agreement (other than
telephone notice as specifically provided in this Agreement) may be effectively
given by delivering (whether by courier or personal delivery) the same at the
addresses set out on the signature pages of this Agreement (or with respect to
any Assignee pursuant to Section 12.01, to the address provided by such
Assignee to the Cdn. Borrower and the Administrative Agent) or by sending the
same by facsimile or prepaid registered mail to the parties at such addresses.
Any notice so mailed shall be deemed to have been received on the fifth
Business Day next following the mailing of such notice, provided that postal
service is in normal operation during such time. Any facsimile notice shall be
deemed to have been received on transmission (and receipt of confirmation of
transmission) if sent during normal business hours on a Business Day and, if
not, on the next Business Day following transmission. Any party may from time
to time notify the other parties, in accordance with the provisions of this
Section, of any change of its address
<PAGE> 164
SECTION 12.04
- 156 -
which after such notification, until changed by like notice, shall be the
address of such party for all purposes of this Agreement.
1.125 DOMICILE OF ACCOMMODATION
-------------------------
The Accommodation made available by each Lender shall be made and carried
at the branch or office of such Lender set out opposite the name of such Lender
on the signature pages of this Agreement; provided that each Lender may make,
carry or transfer the Accommodation made available by it from, at or to any
other branch or office of such Lender, provided that if, on the basis of the
Applicable Law in effect and the circumstances existing as at the date of any
such transfer, such transfer increases the amount for which any Borrower is
liable with respect to Taxes pursuant to Section 5.03 or increased costs
pursuant to Section 5.04 compared to such amounts existing prior to such
transfer, such Lender shall not be entitled to receive from any Borrower, and
no Borrower shall be obligated to pay, such excess increased costs (although
the Borrowers, in accordance with and pursuant to the other provisions of this
Agreement, shall be obligated to pay the costs which are not in excess of those
being charged by such Lender prior to such transfer and any subsequent
increased costs of the type described above resulting from changes after the
date of such transfer).
1.126 CONFIDENTIALITY
---------------
Each of the Lenders will maintain on a confidential basis (except as
otherwise permitted under the Credit Documents or as required by Applicable Law)
all information relating to the Borrowers and their Subsidiaries provided to it
under the Credit Documents by such Borrower; provided, however, that a Lender
may share such information with those of its Affiliates which are lending
institutions (but for greater certainty not with any such Affiliates which are
brokers or investment dealers unless any such Affiliate is one institution which
has both a lending division and a broker dealer division, in which case such
information may not be shared with any members of the broker dealer division)
and provided further that this Section shall not apply to any information which
(i) was in the public domain at the time of communication to such Lender, (ii)
enters the public domain through no fault of such Lender subsequent to the time
of communication to such Lender, (iii) was in such Lender's possession free of
any obligation of confidence at the time of communication to such Lender, (iv)
was communicated to such Lender free of any obligation of confidence subsequent
to the time of initial communication to such Lender, (v) was communicated to any
Person free from any obligation of confidence subsequent to the time of
communication to such Lender (provided that any communication by a Restricted
Party shall be deemed to have been made in confidence unless otherwise indicated
by such Restricted Party) or (vi) is disclosed in order to permit the
Administrative Agent and the Lenders to enforce any of their rights under any of
the Credit Documents.
<PAGE> 165
SECTION 12.07
- 157 -
1.127 CONFIRMATION TO CREDITORS OF INDEPENDENT SUBSIDIARIES
-----------------------------------------------------
The Administrative Agent, on behalf of itself, the Other Agents and the
Lenders, will execute and deliver from time to time such reasonable
confirmations as any material creditor of an Independent Subsidiary may request
confirming that, other than in respect of their interest in the shares of any
Independent Subsidiary subject to the Lien of the Security or in respect of any
claims made by a Restricted Party against an Independent Subsidiary as a
consequence of any dealings or relationships between such Persons, none of the
Administrative Agent, the Other Agents or any Lenders claim any Recourse
Against such Independent Subsidiary in connection with the debts and
liabilities of the Restricted Parties under the Credit Documents.
1.128 SURVIVAL
--------
All agreements, representations and warranties made in this Agreement
shall survive the execution and delivery of this Agreement and the obtaining of
Accommodation and all indemnities set forth in this Agreement, and all
obligations and liabilities under Sections 5.02, 5.03, 5.04 and 5.05, shall
survive the repayment of all Accommodation and the termination of this
Agreement.
1.129 QUANTITIES OF DOCUMENTS
-----------------------
Each Borrower agrees to provide to the Administrative Agent sufficient
quantities of all documents, reports, financial statements and other information
required under the Credit Documents to be provided to the Administrative Agent
so that there shall be copies for the Administrative Agent and each of the Other
Agents and the Lenders.
1.1201 REPRODUCTION OF DOCUMENTS
-------------------------
All Credit Documents and all documents relating to any Credit Documents,
including consents, waivers and modifications which may hereafter be executed,
documents received by the Administrative Agent, any Other Agent or the Lenders
in connection with the negotiation of this Agreement and the making available
of Accommodation, and financial statements, certificates and other information
previously or hereafter furnished to the Administrative Agent, any Other Agent
or the Lenders, may be reproduced by the Administrative Agent, the Other Agents
or the Lenders by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process and the Administrative Agent,
the Other Agents and the Lenders may destroy any original documents so
reproduced. Each Borrower agrees that any such reproduction shall be
admissible in evidence as the original itself in any judicial or administrative
proceeding (whether or not the original is in existence and whether or not such
reproduction was made by the Administrative Agent, the Other Agents or the
Lenders in the regular course of
<PAGE> 166
SECTION 12.10
- 158 -
business) and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
1.121 LANGUAGE
--------
The parties to this Agreement expressly request and require that this
Agreement, all other Credit Documents, and all related documents be drafted in
English. Les parties aux presentes conviennent et exigent que cette Convention
et tous les documents qui s'y rattachent soient rediges en Anglais.
1.122 COUNTERPARTS AND EFFECTIVENESS
------------------------------
This Agreement may be executed in any number of counterparts and all of
such counterparts taken together shall be deemed to constitute one and the same
instrument and shall become effective on the date when each of the parties to
this Agreement shall have signed a copy of this Agreement (whether the same or
different copies) and shall have delivered the same to the Administrative
Agent.
1.123 FACSIMILE COPIES
----------------
An executed copy of this Agreement may be delivered by any party to this
Agreement by facsimile. In such event such party shall immediately deliver to
the other parties an original copy of this Agreement executed by such party.
<PAGE> 167
SECTION 12.14
- 159 -
1.124 BENEFIT OF AGREEMENT
--------------------
This Agreement shall be binding upon and enure to the benefit of the
parties to this Agreement and their respective successors and permitted
assigns.
IN WITNESS OF WHICH the parties to this Agreement have executed this
Agreement as of the day and year indicated on the first page of this Agreement.
<TABLE>
<S> <C>
ADDRESS: PHILIP SERVICES CORP,
100 King Street West
P.O. Box 2440 LCD 1 by: /s/ Marvin Boughton c/s
______________________________
Hamilton, Ontario name: Marvin Boughton
L8N 4J6 title: Chief Financial Officer,
Executive Vice President
Attention: Senior Vice President and
General Counsel
by: /s/ Colin Soule c/s
______________________________
Facsimile: (905) 521-9160 name: Colin Soule
title: Executive Vice President,
General Counsel
ADDRESS: PHILIP ENVIRONMENTAL
(DELAWARE), INC.
100 King Street West
P.O. Box 2440 LCD 1
Hamilton, Ontario by: /s/ Marvin Boughton
______________________________
L8N 4J6 name: Marvin Boughton
title: Chief Financial Officer,
Attention: Senior Vice President and Executive Vice President
General Counsel
Facsimile: (905) 521-9160 by: /s/ Colin Soule
______________________________
name: Colin Soule
title: Executive Vice President,
General Counsel
</TABLE>
(signatures continued on the next following page)
<PAGE> 168
- 160 -
(signatures continued from the preceding page)
<TABLE>
<S> <C>
ADDRESS: CANADIAN IMPERIAL BANK OF
COMMERCE
Loan Underwriting and (in its capacity as Administrative Agent)
Administration - Canada
Commerce Court West - 7
Toronto, Ontario by: /s/ Geoff Bond
M5L 1A2 ________________________________
name: Geoff Bond
title: Director
Attention: Manager - Agency
Facsimile: (416) 980-5151
ADDRESS: CANADIAN IMPERIAL BANK OF
COMMERCE
CIBC Wood Gundy (in its capacity as a Lender)
7th Floor
Commerce Court West
Toronto, Ontario by: /s/ Gerry L. Beauclair
M5L 1A2 ______________________________
name: Gerry L. Beauclair
title: Managing Director
Attention: Managing Director
Facsimile: (416) 980-8384
BRANCH OFFICE FOR ACCOMMODATION:
Main Branch
Commerce Court
Toronto, Ontario
</TABLE>
(signatures continued on the next following page)
<PAGE> 169
- 161 -
(signatures continued from the preceding page)
<TABLE>
<S> <C>
ADDRESS: CIBC INC.
425 Lexington Avenue
New York, NY 10017 by: /s/ Howard A. Palmer
_____________________________
name: Howard A. Palmer
Attention: Director title: Authorized Signatory
Facsimile: (212) 856-3761
BRANCH OFFICE FOR ACCOMMODATION:
Two Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30339
ADDRESS: CANADIAN IMPERIAL BANK OF
COMMERCE, NEW YORK AGENCY
425 Lexington Avenue
New York, NY 10017
by: /s/ Howard A. Palmer
_____________________________
Attention: Director name: Howard A. Palmer
title: Authorized Signatory
Facsimile: (212) 856-3761
BRANCH OFFICE FOR ACCOMMODATION:
Two Paces West
2727 Paces Ferry Road
Suite 1200
Atlanta, Georgia 30339
</TABLE>
(signatures continued on the next following page)
<PAGE> 170
- 162 -
(signatures continued from the preceding page)
<TABLE>
<S> <C>
ADDRESS: BANKERS TRUST COMPANY
c/o BT Bank of Canada
P.O. Box 100 by: /s/ Victoria Page
_____________________________
Royal Bank Plaza name: Victoria Page
North Tower, Suite 1700 title: Managing Director
Toronto, Ontario
M5J 2J2
Attention: Vice President
Facsimile: (416) 941-9587
BRANCH OFFICE FOR ACCOMMODATION:
Bankers Trust Company
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
ADDRESS: BT BANK OF CANADA
P.O. Box 100
Royal Bank Plaza by: ______________________________
North Tower, Suite 1700 name: Philip Hampson
Toronto, Ontario title: Vice President
M5J 2J2
Attention: Vice President
Facsimile: (416) 941-9587
BRANCH OFFICE FOR ACCOMMODATION:
</TABLE>
(signatures continued on the next following page)
<PAGE> 171
- 163 -
(signatures continued from the preceding page)
<TABLE>
<S> <C>
ADDRESS: ABN AMRO BANK CANADA
79 Wellington Street West
15th Floor, Aetna Tower by: /s/ Yvon J. Jeghers
P.O. Box 114, TD Centre _____________________________
Toronto, Ontario name: Yvon J. Jeghers
title: Group Vice President
M5K 1G8
Attention: Yvon J. Jeghers by: /s/ David Moore
_____________________________
name: David Moore
Facsimile: (416) 367-7937 title: Vice President
BRANCH OFFICE FOR ACCOMMODATION:
79 Wellington Street West
15th Floor, Aetna Tower
P.O. Box 114, TD Centre
Toronto, Ontario
M5K 1G8
</TABLE>
(signatures continued on the next following page)
<PAGE> 172
- 164 -
(signatures continued from the preceding page)
<TABLE>
<S> <C>
ADDRESS: BANK OF AMERICA CANADA
200 Front Street West
Suite 2700 by: /s/ Michel Hurtubise
Toronto, Ontario ______________________________
M5V 3L2 name: Michel Hurtubise
title: Vice President
Attention: Michel Hurtubise,
Vice President
Facsimile: (416) 349-4283
BRANCH OFFICE FOR ACCOMMODATION:
200 Front Street West
Suite 2700
Toronto, Ontario
M5V 3L2
ADDRESS: BANK OF AMERICA NT&SA
1850 Gateway Blvd.
5th Floor by: /s/ Denis Caldera
Concord, California 94520 ______________________________
name: Denis Caldera
title: Vice President
Attention: Denis Caldera,
Vice President
Facsimile: (510) 675-8053/8051
BRANCH OFFICE FOR ACCOMMODATION:
1850 Gateway Blvd.
5th Floor
Concord, California 94520
</TABLE>
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<TABLE>
<S> <C>
ADDRESS: BANQUE NATIONALE DE PARIS
(CANADA)
36 Toronto Street
Suite 750
Toronto, Ontario by: /s/ Quoc Le Minh
M5C 2C5 ______________________________
name: Quoc Le Minh
title: Senior Vice President
General Manager, Ontario
Attention: Tom Currie
Facsimile: (416) 947-3541
BRANCH OFFICE FOR ACCOMMODATION:
36 Toronto Street
Suite 750
Toronto, Ontario
M5C 2C5
</TABLE>
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<TABLE>
<S> <C>
ADDRESS: THE BANK OF NOVA SCOTIA
Corporate Banking - Ontario
44 King Street West by: /s/ Stephen P. Hart
16th Floor ______________________________
Toronto, Ontario name: Stephen P. Hart
M5H 1H1 title: Vice President & Unit Head
Attention: Stephen P. Hart by: /s/ M.S. Jackson
______________________________
Facsimile: (416) 866-2009 name: M.S. Jackson
title: Senior Relationship Manager
BRANCH OFFICE FOR ACCOMMODATION:
Corporate Banking Ontario
44 King Street West
16th Floor
Toronto, Ontario
M5H 1H1
ADDRESS: THE BANK OF NOVA SCOTIA, NEW
YORK AGENCY
1 Liberty Plaza
Floors 22-26
New York, NY 10006 by: /s/ John F. Neylan
______________________________
Attention: John F. Neylan name: John F. Neylan
title: Relationship Manager
Facsimile: (212) 225-5286
BRANCH OFFICE FOR ACCOMMODATION:
1 Liberty Plaza
Floors 22-26
New York, NY 10006
</TABLE>
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<TABLE>
<S> <C>
ADDRESS: THE BANK OF TOKYO-MITSUBISHI
(CANADA)
Royal Bank Plaza
South Tower, Suite 2100
P.O. Box 42 by: ______________________________
Toronto, Ontario name: Ted Vanderlaan
M5J 2J1 title: Vice President
Attention: Ted Vanderlaan,
Vice President
by: ______________________________
Facsimile: (416) 865-9511 name: David C.A. Frost
title: Senior Vice President
BRANCH OFFICE FOR ACCOMMODATION:
Royal Bank Plaza
South Tower, Suite 2100
P.O. Box 42
Toronto, Ontario
M5J 2J1
ADDRESS: THE BANK OF TOKYO-MITSUBISHI,
LTD., NEW YORK BRANCH
U.S. Corporate Banking Division
1251 Avenue of the Americas
12th Floor by: /s/ J.B. Meredith
New York, NY 10020 ______________________________
name: J.B. Meredith
title: Power of Attorney
Attention: Bruce Meredith
Senior Vice President &
Manager
Facsimile: (212) 782-6440
BRANCH OFFICE FOR ACCOMMODATION:
1251 Avenue of the Americas
12th Floor
New York, NY 10020
</TABLE>
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<PAGE> 176
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<TABLE>
<S> <C>
ADDRESS: THE CHASE MANHATTAN BANK OF CANADA
100 King Street West
Suite 6900
1 First Canadian Place by: /s/ Gene Gomes
Box 106 _______________________________
Toronto, Ontario name: Gene Gomes
M5X 1A4 title: Vice President
Attention: Gene Gomes
Facsimile: (416) 216-4161
BRANCH OFFICE FOR ACCOMMODATION:
100 King Street West
Suite 6900
1 First Canadian Place
Box 106
Toronto, Ontario
M5X 1A4
ADDRESS: TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
712 Main St. 5 TCBE 78
Houston, Texas 77002
by: /s/ Michael Ondruch
________________________________
Attention: Michael Ondruch name: Michael Ondruch
title: Vice President
Facsimile: (713) 216-6004
BRANCH OFFICE FOR ACCOMMODATION:
712 Main St. 5 TCBE 78
Houston, Texas 77002
</TABLE>
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<PAGE> 177
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<TABLE>
<S> <C> <C> <C> <C>
ADDRESS: BANQUE PARIBAS
1200 Smith
Suite 3100 by: /s/ Scott Clingan
Houston, TX 77002 ______________________________
name: Scott Clingan
title: Vice President
Attention: Scott Clingan
Facsimile: (713) 659-5234 by: /s/ Timothy A. Donnon
______________________________
name: Timothy A. Donnon
BRANCH OFFICE FOR ACCOMMODATION: title: Managing Director
1200 Smith
Suite 3100
Houston, TX 77002
</TABLE>
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<PAGE> 178
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<TABLE>
<S> <C>
ADDRESS: COMERICA BANK
International Finance Department
500 Woodward Avenue by: /s/ Darlene P. Persons
23rd Floor ______________________________
Detroit, Michigan 48226-3328 name: Darlene P. Persons
title: Vice President
Attention: Darlene P. Persons
Facsimile: (313) 222-3377
BRANCH OFFICE FOR ACCOMMODATION:
Internationae Finance Department
500 Woodward Avenue
23rd Floor
Detroit, Michigan 48226-3328
</TABLE>
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<PAGE> 179
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<TABLE>
<S> <C>
ADDRESS: CREDIT LYONNAIS CANADA
One Financial Place
One Adelaide Street East by: /s/ Helen Thomas
Suite 2505 ______________________________
Toronto, Ontario name: Helen Thomas
M5C 2V9 title: Vice President,
Corporate Banking
Attention: Assistant Vice President
by: /s/ David Farmer
Facsimile:(416) 202-6525 ______________________________
name: David Farmer
BRANCH OFFICE FOR ACCOMMODATION: title: First Vice-President and
Manager, Central Region
One Financial Place
One Adelaide Street East
Suite 2505
Toronto, Ontario
M5C 2V9
ADDRESS: CREDIT LYONNAIS NEW YORK
BRANCH
1301 Avenue of the Americas
New York, NY 10019
by: /s/Dennis Knecht
Attention: Marie Matsoukis-Malliaros ______________________________
name: Dennis Knecht
Facsimile: (212) 459-3169 title: Vice President,
Correspondent Banking
BRANCH OFFICE FOR ACCOMMODATION:
1301 Avenue of the Americas
New York, NY 10019
</TABLE>
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<PAGE> 180
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<TABLE>
<S> <C>
ADDRESS: CREDIT SUISSE FIRST BOSTON
CANADA
525 University Avenue
Suite 1300
Toronto, Ontario by: /s/ Peter Chauvin
M5G 2K8 ______________________________
name: Peter Chauvin
title: Vice President
Attention: Vice President,
Corporate Banking
Facsimile: (416) 351-3671 by: /s/ W.M. Mcfarland
______________________________
name: W.M. Mcfarland
title: Vice President
BRANCH OFFICE FOR ACCOMMODATION:
525 University Avenue
Suite 1300
Toronto, Ontario
M5G 2K8
ADDRESS: CREDIT SUISSE FIRST BOSTON
Eleven Madison Avenue
New York, New York 10010-3629 by: /s/ David W. Kratovil
______________________________
name: David W. Kratovil
Attention: David W. Kratovil title: Director
Facsimile: (212) 325-8309
by: /s/ Chris T. Horgan
______________________________
name: Chris T. Horgan
BRANCH OFFICE FOR ACCOMMODATION: title: Vice President
Eleven Madison Avenue
New York, New York 10010-3629
</TABLE>
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<PAGE> 181
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<TABLE>
<S> <C>
ATTENTION: THE DAI-ICHI KANGYO BANK, LTD.
One World Trade Centre
Suite 4911 by: /s/ Robert P. Gallagher
New York, New York 10048 ______________________________
name: Robert P. Gallagher
title: Assistant Vice President
Attention: Robert P. Gallagher Corporate Finance
Facsimile: (212) 524 0579
BRANCH OFFICE FOR ACCOMMODATION:
One World Trade Centre
Suite 4911
New York, New York 10048
ADDRESS: DAI-ICHI KANGYO BANK (CANADA)
P.O. Box 295, Suite 5025
Commerce Court West by: /s/ Hideki Suda
Toronto, Ontario ______________________________
M5L 1H9 name: Hideki Suda
title: Vice President
Attention: Alvin Lindhorst
Facsimile: (416) 365-7314
BRANCH OFFICE FOR ACCOMMODATION:
P.O. Box 295, Suite 5025
Commerce Court West
Toronto, Ontario
M5L 1H9
</TABLE>
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<PAGE> 182
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<TABLE>
<S> <C>
ADDRESS: DEUTSCHE BANK CANADA
222 Bay Street
Suite 1100, P.O. Box 196 by: /s/ Francois Wentzel
Toronto, Ontario ______________________________
M5K 1H6 name: Francois Wentzel
title: Vice President and Director
Attention: Vice President,
Corporate Finance by: /s/ T.G. Leonard
______________________________
Facsimile: (416) 682-8444 name: T.G. Leonard
title: Vice President
BRANCH OFFICE FOR ACCOMMODATION:
222 Bay Street
Suite 1200, P.O. Box 196
Toronto, Ontario
M5K 1H6
ADDRESS: DEUTSCHE BANK AG
Deutsche Bank Securities Corporation
31 West 52nd Street by: /s/ Jean Hannigan
New York, New York 100 ______________________________
name: Jean Hannigan
title: Vice President
Attention: Vice President
Facsimile: (212) 469-8212 by: /s/ John Augsburger
______________________________
name: J. Augsburger
BRANCH OFFICE FOR ACCOMMODATION: title: Vice President
Deutsche Bank AF
Cayman Islands Branch
31 West 52nd Street
New York, New York 10019
</TABLE>
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<PAGE> 183
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<TABLE>
<S> <C>
ADDRESS: DRESDNER BANK CANADA
Suite 1700, Exchange Tower
2 First Canadian Place, P.O. Box 430 by: /s/ Bill Eeuwes
Toronto, Ontario ______________________________
M5X 1E3 name: Bill Eeuwes
title: Vice President
Attention: Vice President
by: /s/ Linda Krisman
Facsimile: (416) 369-8362 ______________________________
name: Linda Krisman
title: Assistant Vice President
BRANCH OFFICE FOR ACCOMMODATION:
Suite 1700, Exchange Tower
2 First Canadian Place, P.O. Box 430
Toronto, Ontario
M5X 1E3
</TABLE>
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<PAGE> 184
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<TABLE>
<S> <C>
ADDRESS: DRESDNER BANK AG NEW YORK
BRANCH AND DRESDNER BANK AG
75 Wall Street GRAND CAYMAN BRANCH
25th Floor
New York, NY 10005
by: /s/ Ben Marzouk
Attention: Vice President ______________________________
name: Ben Marzouk
title: Vice President
Facsimile: (212) 429-2781
BRANCH OFFICE FOR ACCOMMODATION: by: /s/ Anthony J. Berti
______________________________
name: Anthony J. Berti
75 Wall Street title: Assistant Treasurer
25th Floor
New York, NY 10005
</TABLE>
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<PAGE> 185
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<TABLE>
<S> <C>
ADDRESS: FIRST CHICAGO NBD BANK,
CANADA
161 Bay Street
Suite 4240
Toronto, Ontario by: /s/ Michael C. Bauer
M5J 2S1 ______________________________
name: Michael C. Bauer
title: Vice President
Attention: Michael C. Bauer
by: /s/ Michael N. Tam
______________________________
Facsimile: (416) 363-7574 name: Michael N. Tam
title: Assistant Vice President
BRANCH OFFICE FOR ACCOMMODATION:
161 Bay Street
Suite 4240
Toronto, Ontario
M5J 2S1
ADDRESS: NBD BANK
611 Woodward Avenue
Detroit, Michigan 48226 by: /s/ Michael C. Bauer
_____________________________
name: Michael C. Bauer
Attention: Michael C. Bauer title: Vice President
Facsimile: (416) 363-7564
by: /s/ Michael N. Tam
______________________________
BRANCH OFFICE FOR ACCOMMODATION: name: Michael N. Tam
title: Assistant Vice President
611 Woodward Avenue
Detroit, Michigan 48226
</TABLE>
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<PAGE> 186
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<TABLE>
<S> <C>
ADDRESS: FUJI BANK CANADA
BCE Place, Canada Trust Tower
Suite 2800
161 Bay Street by: /s/ John E. Baily
______________________________
Toronto, Ontario name: John E. Baily
M5J 2S1 title: Senior Vice President
Attention: Daniel Lee, Vice President,
Credit
Facsimile: (416) 865-9618
BRANCH OFFICE FOR ACCOMMODATION:
BCE Place, Canada Trust Tower
Suite 2800
161 Bay Street
Toronto, Ontario
M5J 2S1
ADDRESS: THE FUJI BANK, LIMITED
Houston Agency
1221 McKinney Street by: /s/ Philip C. Lauinger III
Suite 4100 ______________________________
Houston, Texas 77010 name: Philip C. Lauinger III
title: Vice President & Manager
Attention: Philip C. Lauinger III
Facsimile: (713) 759-0048
BRANCH OFFICE FOR ACCOMMODATION
Houston Agency
Suite 4100
1221 McKinney Street
Houston, Texas 77010
</TABLE>
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<PAGE> 187
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<TABLE>
<S> <C>
ADDRESS: HIBERNIA NATIONAL BANK
313 Carondelet Street
New Orleans, LA 70131 by: /s/ Troy J. Villafarra
______________________________
name: Troy J. Villafarra
Attention: Troy Villafarra title: Vice President
Facsimile: (504) 533-5344
BRANCH OFFICE FOR ACCOMMODATION
IN CANADA:
313 Carondelet Street
New Orleans, LA 70131
</TABLE>
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<PAGE> 188
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<TABLE>
<S> <C>
ADDRESS: THE INDUSTRIAL BANK OF JAPAN
(CANADA)
100 Yonge Street
Suite 1102
P.O. Box 29 by: /s/ Toru Irie
Toronto, Ontario __________________________________
M5C 2W1 name: Toru Irie
title: Senior Vice President
Attention: Campbell McLeish
Facsimile: (416) 367-3452
BRANCH OFFICE FOR ACCOMMODATION:
100 Yonge Street
Suite 1102
P.O. Box 29
Toronto, Ontario
M5C 2W1
ADDRESS: THE INDUSTRIAL BANK OF JAPAN, LTD.
1251 Avenue of the Americas
New York, New York
10020-1104 by: /s/ J. Kenneth Biegen
_________________________________
name: J. Kenneth Biegen
Attention: Wayne Wright title: Senior Vice President
Assistant Vice President
Facsimile: (212) 282-4488
BRANCH OFFICE FOR ACCOMMODATION:
1251 Avenue of the Americas
New York, New York
10020-1104
</TABLE>
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<PAGE> 189
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<TABLE>
<S> <C>
ADDRESS: KEYBANK NATIONAL ASSOCIATION
127 Public Square
MC: OH-01-27-0606
Cleveland, Ohio 44114 by: /s/ Sharon F. Weinstein
_____________________________
name: Sharon F. Weinstein
Credit Matters: title: Vice President
- ---------------
Attention: Sharon F. Weinstein
Facsimile: (216) 689-4981
Notices of Borrowing:
- ---------------------
Attention: Sandy Wilder
Facsimile: (216) 689-4981
BRANCH OFFICE FOR ACCOMMODATION:
127 Public Square
MC: OH-01-27-0606
Cleveland, Ohio 44114
</TABLE>
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<PAGE> 190
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<TABLE>
<S> <C>
ADDRESS: THE LONG TERM CREDIT BANK OF
JAPAN, LTD.
165 Broadway
New York, NY 10006 by: /s/ Satoru Otsuba
__________________________________
name: Satoru Otsuba
Attention: Greg Hong, Vice President title: Joint General Manager
Facsimile: (212) 335-4524
BRANCH OFFICE FOR ACCOMMODATION:
165 Broadway
New York, NY 10006
</TABLE>
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<PAGE> 191
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<TABLE>
<S> <C>
ADDRESS: LLOYDS BANK PLC
575 Fifth Avenue
18th Floor by: /s/ William R. Davies
New York, New York 10017 ______________________________
name: William R. Davies
Attention: Windsor Davies title: Vice President & Manager
Facsimile: (212) 930-5098
BRANCH OFFICE FOR ACCOMMODATION:
One Biscayne Tower
Suite 3200
2 South Biscayne Boulevard
Miami, Florida 33131
</TABLE>
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<PAGE> 192
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<TABLE>
<S> <C>
ADDRESS: THE MUTUAL LIFE ASSURANCE
COMPANY OF CANADA
227 King Street South
Waterloo, Ontario
N2J 4C5 by: /s/ Keith Cressman
Attention: Keith Cressman ______________________________
name: Keith Cressman
Facsimile: (519) 888-3666 title: Manager, Corporate Loans
BRANCH OFFICE FOR ACCOMMODATION:
227 King Street South
Waterloo, Ontario
N2J 4C5
</TABLE>
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<PAGE> 193
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<TABLE>
<S> <C>
ADDRESS: NATIONAL BANK OF CANADA
150 York Street
Suite 200 by: /s/ Douglas Richmond
Toronto, Ontario ______________________________
M5H 3A9 name: Douglas Richmond
title: Manager
Attention: Manager
by: /s/ Anne Brown
Facsimile: (416) 864-7682 ______________________________
name: Anne Brown
title: Manager
BRANCH OFFICE FOR ACCOMMODATION:
150 York Street
Suite 200
Toronto, Ontario
M5H 3A9
ADDRESS: NATIONAL BANK OF CANADA, NEW
YORK BRANCH
1850 - 2121 San Jacinto
Dallas Texas 75201
by: /s/ Larry L. Sears
Attention: Vice President ______________________________
name: Larry L. Sears
Facsimile: (214) 871-2015 title: Group Vice President
BRANCH OFFICE FOR ACCOMMODATION: by: /s/ Bill Handley
______________________________
125 West 55th Street name: Bill Handley
New York, New York 10019 title: Vice President
</TABLE>
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<PAGE> 194
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<TABLE>
<S> <C>
ADDRESS: NATIONSBANK, N.A.
Credit Matters:
- ---------------
by: /s/ Peter D. Griffith
600 Peachtree Street, N.E. ______________________________
22nd Floor name: Peter D. Griffith
Atlanta, Georgia 30308 title: Senior Vice President
Attention: Peter Griffith
Facsimile: (404) 607-6423
Borrowings and Administrative Matters:
101 N. Tryon Street
15th Floor
Charlotte, NC 28255-0001
Attention: Kerri Thompson
facsimile: (704) 386-8694
BRANCH OFFICE FOR ACCOMMODATION:
101 N. Tryon Street
15th Floor
Charlotte, NC 28255-0001
</TABLE>
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<TABLE>
<S> <C>
ADDRESS: MELLON BANK CANADA
P.O. Box 320
Suite 3200, Royal Trust Tower by: /s/ Wendy B.H. Bocti
Toronto-Dominion Centre ______________________________
Toronto, Ontario name: Wendy B.H. Bocti
M5K 1K2 title: Vice President
Attention: Wendy B.H. Bocti
Facsimile: (416) 860-2409
BRANCH OFFICE FOR ACCOMMODATION:
P.O. Box 320
Suite 3200, Royal Trust Tower
Toronto-Dominion Centre
Toronto, Ontario
M5K 1K2
ADDRESS: MELLON BANK, N.A.
One Mellon Bank Centre
Room 4401 by: /s/ Dwayne R. Finney
Pittsburg, Pennsylvania 15258 ______________________________
name: Dwayne R. Finney
Attention: Dwayne R. Finney title: Assistant Vice President
Facsimile: (412) 234-8888
BRANCH OFFICE FOR ACCOMMODATION:
One Mellon Bank Centre
Room 4401
Pittsburg, Pennsylvania 15258
</TABLE>
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<PAGE> 196
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<TABLE>
<S> <C>
ADDRESS: PNC BANK, NATIONAL
ASSOCIATION
One PNC Plaza - 2nd Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15265 by: /s/ Lawrence W. Jacobs
______________________________
name: Lawrence W. Jacobs
Attention: Lawrence W. Jacobs title: Vice President
Facsimile: (412) 762-6484
BRANCH OFFICE FOR ACCOMMODATION:
One PNC Plaza - 2nd Plaza
249 Fifth Avenue
Pittsburgh, Pennsylvania 15265
</TABLE>
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<PAGE> 197
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<TABLE>
<S> <C>
ADDRESS: ROYAL BANK OF CANADA
3405 Harvester Road
Suite 201 by: ______________________________
Burlington, Ontario name: Peter Gray-Donald
L7N 3N1 title: Senior Account Manager
Attention: Senior Account Manager
Facsimile: (905) 333-7209
BRANCH OFFICE FOR ACCOMMODATION:
3405 Harvester Road
Suite 201
Burlington, Ontario
L7N 3N1
ADDRESS: ROYAL BANK OF CANADA
One North Franklin
Suite 700 by: /s/ Molly Drennan
Chicago, Ill 60606 ______________________________
name: Molly Drennan
title: Senior Account Manager
Attention: Manager
Facsimile: (312) 551-0805
BRANCH OFFICE FOR ACCOMMODATION:
Grand Cayman Branch (N. Amer #1)
New York Operations Center
Royal Bank of Canada
One Financial Square
New York, NY 10005
</TABLE>
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<PAGE> 198
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<TABLE>
<S> <C>
ADDRESS: THE ROYAL BANK OF SCOTLAND PLC
Wall Street Plaza
88 Pine Street
New York, New York 10005 by: /s/ Russell M. Gibson
______________________________
name: Russell M. Gibson
Attention: R.M. Gibson title: Vice President and
Deputy Manager
Facsimile: (212) 480-0791
BRANCH OFFICE FOR ACCOMMODATION:
Wall Street Plaza
88 Pine Street
New York, New York 10005
</TABLE>
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<PAGE> 199
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<TABLE>
<S> <C>
ADDRESS: SAKURA BANK (CANADA)
Commerce Court West
Suite 3601, P.O. Box 59 by: ______________________________
Toronto, Ontario name: Elwood R. Langley
M5L 1B9 title: Vice President
Attention: Vice President
Corporate Finance
Facsimile: (416) 369-0268
BRANCH OFFICE FOR ACCOMMODATION:
Commerce Court West
Suite 3601, P.O. Box 59
Toronto, Ontario
M5L 1B9
ADDRESS: THE SAKURA BANK, LIMITED
277 Park Avenue
New York, NY 10172-0098 by: /s/ Hiroshi Ozaki
_______________________________
name: Hiroshi Ozaki
Attention: Hiroshi Ozaki title: Vice President
Facsimile: (212) 888-7651
BRANCH OFFICE FOR ACCOMMODATION:
277 Park Avenue
New York, NY 10172-0098
</TABLE>
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<PAGE> 200
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<TABLE>
<S> <C>
ADDRESS: SANWA BANK CANADA
BCE Place, Canada Trust Tower
P.O. Box 525, Suite 4400 by: /s/ Shigeki Iwashita
161 Bay Street ______________________________
Toronto, Ontario name: Shigeki Iwashita
M5J 2S1 title: Vice President
Attention: Vice President, Corporate Banking
Facsimile: (416) 366-8599
BRANCH OFFICE FOR ACCOMMODATION:
BCE Place, Canada Trust Tower
P.O. Box 525, Suite 4400
161 Bay Street
Toronto, Ontario
M5J 2S1
ADDRESS: THE SANWA BANK, LIMITED,
ATLANTA AGENCY
Georgia-Pacific Center
Suite 4950
133 Peachtree Street, N.E. by: /s/ Shigeki Iwashita
Atlanta, Gerogia 30303 ______________________________
name: Shigeki Iwashita
title: Attorney-in-Fact
Attention: Vice President,
US Corporate Finance
Facsimile: (404) 589-1629
BRANCH OFFICE FOR ACCOMMODATION:
Georgia-Pacific Center
Suite 4950
133 Peachtree Street, N.E.
Atlanta, Gerogia 30303
</TABLE>
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<PAGE> 201
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<TABLE>
<S> <C>
ADDRESS: SOCIETE GENERALE (CANADA)
Scotia Plaza
100 Yonge Street by: /s/ Michael Klopchic
Suite 1002 ______________________________
Toronto, Ontario name: Michael Klopchic
M5C 2W1 title: Relationship Manager
Attention: Michael Klopchic
Relationship Manager by: /s/ Eric Dhoste
______________________________
name: Eric Dhoste
Facsimile: (416) 364-1897 title: Vice President
BRANCH OFFICE FOR ACCOMMODATION:
Scotia Plaza
100 Yonge Street
Suite 1002
Toronto, Ontario
M5C 2W1
ADDRESS: SOCIETE GENERALE - CHICAGO
181 West Madison
Suite 3400 by: /s/ Joseph A. Philbin
Chicago, Ill 60602 ______________________________
name: Joseph A. Philbin
title: Vice President
Attention: Joseph Philbin
Facsimile: (312) 578-5099
BRANCH OFFICE FOR ACCOMMODATION:
181 West Madison
Suite 3400
Chicago, Ill 60602
</TABLE>
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<TABLE>
<S> <C>
ADDRESS: SUMMIT BANK
750 Walnut Avenue
Cranford, NJ 07016 by: /s/ Rick Sobrevinas
______________________________
name: Rick Sobrevinas
Attention: Rick Sobrevinas title: Managing Director
Facsimile: (908) 709-3160
BRANCH OFFICE FOR ACCOMMODATION:
750 Walnut Avenue
Cranford, NJ 07016
</TABLE>
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<PAGE> 203
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<TABLE>
<S> <C>
ADDRESS: THE SUMITOMO BANK OF CANADA
Ernst & Young Tower
Suite 1400, P.O. Box 172 by: /s/ Alfred Lee
222 Bay Street ______________________________
Toronto, Ontario name: Alfred Lee
M5K 1H6 title: Vice President
Attention: Alfred Lee
Facsimile: (416) 368-4934
BRANCH OFFICE FOR ACCOMMODATION:
Ernest & Young Tower
Suite 1400, P.O. Box 172
222 Bay Street
Toronto, Ontario
M5K 1H6
ADDRESS: THE SUMITOMO BANK, LIMITED
Chicago Branch
Suite 4800 by: /s/ John Kemper
Sears Tower ______________________________
233 South Wacker Drive name: John Kemper
Chicago, Illinois 60606 title: Senior Vice President
Attention: Diane Zeller Scherer
Facsimile: (312) 876-6436
BRANCH OFFICE FOR ACCOMMODATION:
Chicago Branch
Sears Tower, Suite 4800
233 South Wacker Drive
Chicago, Illinois 60606
</TABLE>
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<PAGE> 204
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<TABLE>
<S> <C>
ADDRESS: THE TOYO TRUST & BANKING CO.,
LTD.
666 Fifth Avenue
33rd Floor
New York, New York 10103-3395 by: /s/ T. Mikumo
__________________________
Attention: Paul St. Mauro name: T. Mikumo
title: Vice President
Facsimile: (212) 307-3498
BRANCH OFFICE FOR ACCOMMODATION:
666 Fifth Avenue
33rd Floor
New York, New York 10103-3395
</TABLE>
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<PAGE> 205
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<TABLE>
<S> <C>
ADDRESS: THE TORONTO-DOMINION BANK
8th Floor, TD Tower
P.O. Box 1 by: Bruce A. Schouten
Toronto-Dominion Centre ________________________________
Toronto, Ontario name: Bruce A. Schouten
M5K 1S2 title: Manager
Attention: Manager, Corporate Lending
Facsimile: (416) 944-5630
BRANCH OFFICE FOR ACCOMMODATION:
Main Branch
King & Bay, Toronto
c/o Corporate Accounts Administration
8th Floor, TD Tower
P.O. Box 1
Toronto-Dominion Centre
Toronto, Ontario
M5K 1S2
Attention: Lynne Crofts
Facsimile: (416) 982-6630
ADDRESS: TORONTO DOMINION (NEW YORK), INC.
Credit-related Purposes:
- ------------------------
31 West 52nd Street by: /s/ David G. Parker
New York, New York 10019 ________________________________
name: David G. Parker
title: Manager -
Attention: Duncan Robertson Credit Administration
Facsimile: (212) 468-0551
BRANCH OFFICE FOR ACCOMMODATION:
909 Fannin, Suite 1700
Houston, Texas 77010
Attention: David G. Parker
Facsimile: (713) 653-8248
</TABLE>
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<PAGE> 206
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<TABLE>
<S> <C>
ADDRESS: U.S. BANK
1420 Fifth Avenue
WWH 276 by: /s/ Arnold J. Conrad
Seattle, WA 98101 ______________________________
name: Arnold J. Conrad
title: Vice-President
Attention: Arnold J. Conrad
Facsimile: (206) 587-5259
BRANCH OFFICE FOR ACCOMMODATION:
1420 Fifth Avenue
WWH 276
Seattle, WA 98101
</TABLE>
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<PAGE> 207
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<TABLE>
<S> <C>
ADDRESS: WACHOVIA BANK, N.A.
191 Peachtree Street NE
Atlanta, Georgia 30303 by: /s/ Henry H. Hagan
______________________________
name: Henry H. Hagan
Attention: Brian Rubins title: Senior Vice President
Facsimile: (404) 332-6898
BRANCH OFFICE FOR ACCOMMODATION:
191 Peachtree Street NE
Atlanta, Georgia 30303
</TABLE>
<PAGE> 1
Exhibit 21.1
MATERIAL SUBSIDIARIES
The following is a list of the material subsidiaries of Philip Services
Corp:
Philip Enterprises Inc., an Ontario corporation.
Luntz Corporation, a Delaware corporation.
Taro Aggregates Ltd., an Ontario corporation.
Philip Environmental (Delaware), Inc., a Delaware corporation.
Allwaste, Inc., a Delaware corporation.
Serv-Tech, Inc., a Texas corporation.
Philip Metals Recovery (USA) Inc., an Arizona corporation.
<PAGE> 1
EXHIBIT 23.3
[DELOITTE & TOUCHE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
We consent to the use in this Registration Statement of Philip Services Corp. on
Form S-1 of our report dated February 26, 1997 (April 22, 1997 with respect to
Note 18(d)), on our audits of the consolidated balance sheets of Philip Services
Corp. as at December 31, 1996 and 1995, and the consolidated statements of
earnings, retained earnings and changes in financial position for each of the
years in the three year period ended December 31, 1996, and of our auditors'
report on the schedule of additional disclosures required under Regulation
210.12-09 of Regulation S-X of the Securities Exchange Act of 1934 as at
December 31, 1996 and 1995, and for each of the years in the three year period
ended December 31, 1996, which are included in the prospectus of this
Registration Statement. We also consent to the reference of our firm under the
caption "Experts".
/s/ Deloitte & Touche
---------------------
Chartered Accountants
Mississauga, Ontario
September 24, 1997
<PAGE> 1
Exhibit 23.4
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
covering the consolidated balance sheets of Allwaste, Inc. and its subsidiaries
as of August 31, 1996 and 1995, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended August 31, 1996 (and to all references to our firm) included
in or made a part of this registration statement on Form S-1 filed by Philip
Services Corp.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Houston, Texas
September 26, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of Philip Services Corp. of our report dated
April 7, 1997 relating to the combined statements of income and of cash flows
of Pechiney (ISW), Inc., PPC (ISW), Inc. and Intsel Southwest Limited
Partnership, which appears in such Prospectus. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Houston, Texas
September 25, 1997
<PAGE> 1
Exhibit 23.6
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 19, 1996, with respect to the consolidated
statements of income and cash flows of Luntz Corporation, included in the
Registration Statement (Form S-1 No. 333-00000) of Philip Services Corp. for
the registration of 23,000,000 shares of its common stock.
/s/ Ernst & Young LLP
------------------------------
Ernst & Young LLP
Canton, Ohio
September 22, 1997
