<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
COMMISSION FILE NUMBER 0-20854
PHILIP SERVICES CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
ONTARIO N/A
(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
100 KING STREET WEST,
HAMILTON, ONTARIO L8N 4J6
(Address of Principal Executive Offices) (Zip Code)
(905) 521-1600
(Registrant's Telephone Number, Including Area Code)
</TABLE>
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No ___.
The number of shares of Common Shares of the Registrant, outstanding at
August 10, 1998 was 131,143,854.
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<PAGE> 2
REPORT INDEX
<TABLE>
<CAPTION>
PART AND ITEM NO. PAGE NO.
----------------- --------
<S> <C>
PART I -- Financial Information
Item 1 -- Financial Statements
Consolidated Balance Sheets as of June 30, 1998
(unaudited) and December 31, 1997...................... 2
Consolidated Statements of Earnings for the Three and Six
Months Ended June 30, 1998 and June 30, 1997
(unaudited)............................................ 3
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1998 and June 30, 1997 (unaudited)...... 4
Notes to Consolidated Financial Statements (unaudited).... 5
Item 2 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations.......... 11
PART II -- Other Information
Item 1 -- Legal Proceedings............................... 17
Item 2 -- Changes in Securities........................... 17
Item 3 -- Defaults upon Senior Securities................. 17
Item 4 -- Submission of Matters to a Vote of Security
Holders................................................ 18
Item 5 -- Other Information............................... 18
Item 6 -- Exhibits and Reports on Form 8-K................ 19
Signature................................................... 20
</TABLE>
1
<PAGE> 3
PHILIP SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $ 29,868 $ 48,809
Accounts receivable (net of allowance for doubtful
accounts of $16,585; December 31, 1997 -- $25,059)..... 565,149 535,052
Inventory for resale...................................... 126,747 223,613
Other current assets...................................... 101,618 66,898
---------- ----------
823,382 874,372
Fixed assets................................................ 592,054 605,710
Goodwill.................................................... 1,099,126 1,089,649
Deferred income taxes....................................... 76,867 86,468
Other assets................................................ 181,450 167,174
---------- ----------
$2,772,879 $2,823,373
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... 219,531 271,726
Accrued liabilities....................................... 166,524 190,741
Current maturities of long-term debt...................... 1,082,958 47,166
---------- ----------
1,469,013 509,633
Long-term debt.............................................. 63,085 966,995
Other liabilities........................................... 109,337 129,804
Contingencies (Notes 1, 4 and 11)
Shareholders' equity........................................ 1,131,444 1,216,941
---------- ----------
$2,772,879 $2,823,373
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE> 4
PHILIP SERVICES CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(IN THOUSANDS OF US DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------- --------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue
Metals services............................. $355,194 $258,788 $749,513 $461,746
Industrial services......................... 330,466 94,969 612,378 161,612
-------- -------- -------- --------
685,660 353,757 1,361,891 623,358
Operating expenses............................ 629,991 305,637 1,225,988 536,633
Special charges............................... -- (318) -- (4,566)
Selling, general and administrative costs..... 65,672 22,676 119,950 46,254
Depreciation and amortization................. 27,857 9,140 55,219 17,590
Write-off of goodwill......................... 11,506 -- 11,506 --
-------- -------- -------- --------
Income (loss) from operations................. (49,366) 16,622 (50,772) 27,447
Interest expense.............................. 22,874 7,963 42,291 13,979
Other income and expense -- net............... (2,336) (676) (18,465) (4,051)
-------- -------- -------- --------
Earnings (loss) before tax.................... (69,904) 9,335 (74,598) 17,519
Income taxes.................................. 3,109 1,849 (1,020) 3,645
-------- -------- -------- --------
Net earnings (loss)........................... $(73,013) $ 7,486 $(73,578) $ 13,874
======== ======== ======== ========
Basic earnings per share...................... $ (0.56) $ 0.11 $ (0.56) $ 0.20
======== ======== ======== ========
Diluted earnings per share.................... $ (0.56) $ 0.10 $ (0.56) $ 0.19
======== ======== ======== ========
Weighted average number of common shares
outstanding (000's)......................... 131,141 71,327 131,117 70,970
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
PHILIP SERVICES CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED IN THOUSANDS OF US DOLLARS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
JUNE 30, JUNE 30,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss)......................................... $(73,578) $ 13,874
Items included in earnings not affecting cash
Depreciation and amortization............................. 40,557 13,844
Amortization of goodwill.................................. 14,662 3,746
Deferred income taxes..................................... 9,303 (6,392)
Loss (gain) on sale of assets............................. 352 (2,800)
Write-off of goodwill..................................... 11,506 --
-------- --------
Cash flow from operations................................... 2,802 22,272
Changes in non-cash working capital......................... (55,942) (90,871)
-------- --------
Cash used in operating activities........................... (53,140) (68,599)
-------- --------
INVESTING ACTIVITIES
Proceeds from sale of operations............................ 9,922 19,800
Acquisitions - including acquired cash (bank
indebtedness)............................................. (22,739) (104,416)
Purchase of fixed assets.................................... (37,808) (25,900)
Proceeds from sale of fixed assets.......................... 17,045 --
Other....................................................... (30,002) (14,273)
-------- --------
Cash used in investing activities........................... (63,582) (124,789)
-------- --------
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 173,657 279,834
Principal payments on long-term debt........................ (76,442) (87,784)
Common shares issued........................................ 566 2,896
-------- --------
Cash provided by financing activities....................... 97,781 194,946
-------- --------
Net change in cash for the period........................... (18,941) 1,558
Cash position, beginning of period.......................... 48,809 6,044
-------- --------
Cash position, end of period................................ $ 29,868 $ 7,602
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 6
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Philip
Services Corp. and its subsidiaries (the "Company") and have been prepared in US
dollars using accounting principles generally accepted in the United States.
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 the Company's Consolidated Financial Statements for the fiscal year
ended December 31, 1997.
The consolidated financial statements herein have been prepared by the
Company without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (the "SEC"). As applicable under such regulations,
certain information and footnote disclosures normally included in complete
annual financial statements have been condensed or omitted. The Company believes
that the presentation and disclosures herein are adequate to make the
information not misleading, and the financial statements reflect all elimination
entries and normal adjustments which are necessary for a fair statement of the
results for the three and six months ended June 30, 1998 and June 30, 1997.
As described in Note 4, the Company is currently not in compliance with the
provisions of its credit agreement and therefore, certain amounts of debt
previously recorded as long-term have been reclassified as current liabilities
which has created a working capital deficiency. These consolidated interim
financial statements have been prepared on the basis of accounting principles
applicable to a going concern which assumes that the Company will realize the
carrying value of its assets and satisfy its obligations and commitments as they
become due in the normal course of operations. The ability of the Company to
continue operating in this manner is dependant on a number of factors, including
the continuing financial support from the Company's lenders. Management is in
active discussions with its lenders to secure appropriate financing arrangements
while continuing to implement its operating and divestiture plans to ensure the
long term viability of the Company. These consolidated interim financial
statements do not reflect the adjustments and disclosures that would be
necessary if the going concern assumption were not considered to be appropriate.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect reported amounts of assets, liabilities, income and
expenses and disclosures of contingencies. Actual results could differ from the
Company's estimates.
(2) SPECIAL CHARGES (in thousands)
The financial results for the three and six months ended June 30, 1997 have
been affected by the following:
In January of 1998, previously incurred but unrecorded trading losses
resulting from unauthorized trading of copper cathode outside of the Company's
normal business practices. The trading took place within the copper division of
the Company's Metals Services Group over a three year period ended December 31,
1997. The losses from the trading were deferred principally through unrecorded
liabilities and to a lesser extent were also improperly recorded through various
balance sheet accounts. During 1997, the previously unrecorded amounts were
improperly capitalized into the inventory accounts. The statements of earnings
for the three and six months ending June 30, 1997 reflect as special charges net
trading gains of $318 and $4,566, respectively, relating to this activity.
(3) ACQUISITIONS
During the six months ended June 30, 1998, the Company acquired three
businesses. During 1997, the Company acquired over 30 businesses, including
Allwaste Inc. ("Allwaste") and Luria Brothers ("Luria").
5
<PAGE> 7
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Allwaste, an integrated provider of industrial and environmental services based
in Houston, Texas was acquired on July 31, 1997 for a total consideration of
$443.8 million, paid for by the issuance of approximately 23 million common
shares. Luria, based in Cleveland, Ohio was acquired on October 10, 1997 for
total cash consideration of $175.3 million.
All business combinations have been accounted for using the purchase method
of accounting and are summarized below (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- ------------
<S> <C> <C>
Purchase consideration
Cash...................................................... $ 16,112 $ 560,489
Company's common shares................................... -- 602,632
Deferred payments and long-term debt...................... 189 22,828
Acquisition costs and accruals............................ 1,086 83,505
-------- ----------
$ 17,387 $1,269,454
======== ==========
Fair value of net assets acquired
Cash (bank indebtedness).................................. $ (6,352) $ 1,644
Long-term debt............................................ (11,934) (228,365)
Assets, excluding cash & intangibles...................... 35,332 878,460
Liabilities............................................... (22,667) (350,001)
Goodwill.................................................. 23,008 940,534
Other intangibles......................................... -- 27,182
-------- ----------
$ 17,387 $1,269,454
======== ==========
</TABLE>
(4) LONG-TERM DEBT (in thousands)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Bank term loan (a).......................................... $1,036,086 $ 897,352
Convertible subordinated debentures......................... 25,636 25,625
Loans bearing interest at a weighted average fixed rate of
6.3% maturing at various dates up to 2020................. 15,365 19,627
Loans bearing interest at prime plus a weighted average
floating rate of 1.1% maturing at various dates up to
2007...................................................... 21,912 6,582
Loans unsecured, bearing interest at a weighted average
fixed rate of 6.0%, maturing at various dates up to
2001...................................................... 28,758 21,908
Obligations under capital leases on equipment bearing
interest at rates varying from 6% to 12% maturing at
various dates to 2004..................................... 16,985 15,793
Product financing loan...................................... -- 25,973
Other....................................................... 1,301 1,301
---------- ----------
1,146,043 1,014,161
Less current maturities of long-term debt................... 1,082,958 47,166
---------- ----------
$ 63,085 $ 966,995
========== ==========
</TABLE>
(a) In August 1997, the Company signed a $1.5 billion revolving credit agreement
which was amended in October 1997, February 1998 and June 1998 (the "Credit
Facility") with a syndicate of international
6
<PAGE> 8
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
lenders which replaced the 1996 revolving term loan agreement and
refinanced certain other long-term debt. The Credit Facility expires in
August of 2002, and contains certain restrictive covenants and financial
covenants including that: (a) the Company must meet interest ratio coverage
tests as well as total debt and fixed charge ratio coverage tests; (b) the
Company must maintain a prescribed level of working capital; and (c)
acquisitions by the Company are subject to lenders' approval.
At June 30, 1998, the Company was not in compliance with the Credit
Facility financial covenants which require the Company to maintain a
specified interest coverage ratio, debt to EBITDA ratio, fixed charge ratio
and working capital ratio. As the Company is not in compliance with the
terms of its Credit Facility, the debt outstanding under the Credit
Facility has been classified as a current liability on the Company's June
30, 1998 Consolidated Balance Sheets.
Borrowings under the Credit Facility are guaranteed, jointly and severally
by the Company's wholly owned subsidiaries and are secured by a pledge of
all of the issued and outstanding securities, and all the present and
future assets, held by the Company in all of its subsidiaries. The Credit
Facility bears interest based on a moving grid. At June 30, 1998, the
Company was paying approximately 7.2% on these borrowings. Pursuant to the
June 1998 amendment to the Credit Facility, the facility was reduced from
US$1.5 billion to US$1.2 billion, the interest rate charged was increased
by 100 basis points, the Company was permitted access to US$60 million of
the proceeds arising from an asset disposition and the Company agreed to a
standstill until September 30, 1998 respecting the incurrence of additional
debt and the making of dispositions or acquisitions.
At June 30, 1998, the Company had undrawn credit capacity under the Credit
Facility of approximately $101 million, net of outstanding letters of
credit which amounted to $63 million.
(5) SHAREHOLDERS' EQUITY (in thousands, except number of shares)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1998 1997
---------- -----------
<S> <C> <C>
Share capital............................................... $1,348,632 $1,348,066
Retained earnings........................................... (159,852) (86,274)
Cumulative foreign currency translation adjustment.......... (57,336) (44,851)
---------- ----------
$1,131,444 $1,216,941
========== ==========
</TABLE>
The issued capital of the Company is comprised of the following:
<TABLE>
<CAPTION>
COMMON SHARES
-------------------------
NUMBER AMOUNT
----------- ----------
<S> <C> <C>
Balance -- December 31, 1997................................ 131,058,393 $1,348,066
Share options exercised for cash............................ 83,842 536
Other....................................................... 1,540 30
----------- ----------
Balance -- June 30, 1998.................................... 131,143,775 $1,348,632
=========== ==========
</TABLE>
7
<PAGE> 9
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(6) CHANGE IN NON-CASH WORKING CAPITAL (in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
------------------------
1998 1997
---------- ----------
<S> <C> <C>
Accounts receivable......................................... $(16,660) $(23,535)
Inventory for resale........................................ 93,965 (9,366)
Other....................................................... (25,857) 8,389
Accounts payable and accrued liabilities.................... (101,288) (71,854)
Income taxes................................................ (6,102) 5,495
-------- --------
Changes in non-cash working capital......................... $(55,942) $(90,871)
======== ========
</TABLE>
(7) STATEMENTS OF CASH FLOWS (in thousands)
The supplemental cash flow disclosures and non-cash transactions for the
six months ended June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1998 1997
--------------- ---------------
<S> <C> <C>
Supplemental Disclosures:
Interest paid............................................. $ 42,305 $ 13,376
Income taxes paid......................................... -- 1,500
Non Cash Transactions:
Common stock issued in acquisitions....................... -- 17,233
Capital leases and debt obligations for the purchase of
property and equipment................................. 2,764 6,551
Debt and liabilities incurred or assumed in
acquisitions........................................... 189 6,302
</TABLE>
(8) COMPUTATION OF EARNINGS PER SHARE (in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) -- basic and diluted...... $(73,013) $ 7,486 $(73,578) $ 13,874
======== ======== ======== ========
Number of common shares outstanding........... 131,144 71,469 131,144 71,469
Effect of using weighted average common shares
outstanding................................. (3) (142) (27) (499)
-------- -------- -------- --------
Basic weighted average number of common shares
outstanding................................. 131,141 71,327 131,117 70,970
Effect from conversion of common stock
equivalents................................. -- 1,955 -- 1,975
-------- -------- -------- --------
Diluted weighted average number of common
shares outstanding.......................... 131,141 73,282 131,117 72,945
======== ======== ======== ========
</TABLE>
(9) COMPREHENSIVE INCOME (in thousands)
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 130
"Reporting Comprehensive Income" which is effective for fiscal years beginning
after December 15, 1997. Comprehensive income
8
<PAGE> 10
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
is defined as the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
Comprehensive income for the Company is as follows:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss)........................... $(73,013) $ 7,488 $(73,578) $ 13,874
Other comprehensive income, net of tax:
Translation adjustments..................... (14,806) 1,170 (12,395) (1,201)
-------- -------- -------- --------
Comprehensive Income (Loss)................... $(87,819) $ 8,656 $(85,973) $ 12,673
======== ======== ======== ========
</TABLE>
(10) SEGMENTED INFORMATION (in thousands)
The Company has two principal business segments, Industrial Services and
Metals Services. The Industrial Services segment provides on-site industrial
services, environmental services and utilities management as well as by-products
recovery and processing. The Metals Services segment has three primary business
operations being ferrous, non-ferrous and copper operations. Segmentation of the
business is as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------------------------------
1998 1997
--------------------------------------------------- ----------
INDUSTRIAL METALS CORPORATE INDUSTRIAL
SERVICES SERVICES HEADQUARTERS TOTAL SERVICES
---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenue..................... $ 612,378 $ 749,513 $ -- $1,361,891 $161,612
Income (loss) from
operations................ 26,371 (51,491) (25,652) (50,772) 8,471
Total assets................ 2,009,141 1,401,568 (637,830) 2,772,879 421,770
Depreciation and
amortization.............. 29,178 18,859 7,182 55,219 8,380
Capital expenditures........ 22,462 20,249 2,133 44,844 12,382
Equity investments.......... 33,440 3,422 -- 36,862 --
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------
1997
------------------------------------
METALS CORPORATE
SERVICES HEADQUARTERS TOTAL
-------- ------------ ----------
<S> <C> <C> <C>
Revenue..................... $461,746 $ -- $ 623,358
Income (loss) from
operations................ 26,164 (7,188) 27,447
Total assets................ 574,042 183,539 1,179,352
Depreciation and
amortization.............. 4,462 4,748 17,590
Capital expenditures........ 14,547 6,915 33,844
Equity investments.......... -- -- --
</TABLE>
(11) CONTINGENCIES (in thousands)
(a) The Company in the normal course of its business expends funds for
environmental protection and remediation but does not expect these
expenditures to have a materially adverse effect on its financial condition
or results of operations since its business is based on compliance with
environmental laws and regulations.
Certain of the Company's facilities are contaminated as a result of
operating practices at the sites prior to their acquisition by the Company.
The Company has established procedures to routinely evaluate these sites
giving consideration to the nature and extent of the contamination. The
Company has provided for the remediation of these sites based upon
management's judgement and prior experience. The Company has estimated the
liability to remediate these sites to be $59,238.
As well, certain subsidiaries acquired by the Company have been named as a
potentially responsible or liable party in connection with sites listed on
the Superfund National Priority List ("NPL"). In the majority of situations
the Company's connection with NPL sites relates to allegations that its
subsidiaries or their predecessors transported waste to the site in
question. The Company has reviewed the nature and extent of its alleged
connection to these sites, the number, connection and financial ability of
other named and unnamed potentially responsible parties and the nature and
estimated cost of the likely remedy. Based on its review, the Company has
estimated its liability to remediate these sites to be $5,077.
9
<PAGE> 11
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(b) Various class actions which have been filed against the Company and certain
of its past and present directors and officers. Each action alleges that
Philip's financial disclosures for various time periods between 1995 and
1997 contained material misstatements or omissions in violation of U.S.
federal securities laws (provisions of the Securities Act of 1933 and of the
Securities Exchange Act of 1934) and seeks to represent a class of
purchasers of Philip's common stock. On June 2, 1998, the Judicial Panel on
Multi Jurisdictional Litigation ordered that the class actions be
consolidated and transferred to the United States District Court, Southern
District of the State of New York. On July 23, 1998, two pre-trial orders of
the US District Court of New York were made. Pre-Trial Order No. 1 dealt
with various administrative matters relating to the consolidation of the
actions and a schedule for the plaintiffs to serve and file a consolidated
amended class action complaint and for the Company's response. Pre-Trial
Order No. 2 appointed a lead plaintiff and lead counsel. In addition,
similar claims have been asserted against the Company and certain of its
past and present officers and directors by the former shareholders of the
Steiner-Liff Metals group of companies and the Southern-Foundry Supply group
of companies. The claims allege that Philip's financial disclosures for
various time periods between 1995 and 1997 contain material misstatements or
omissions and that these constitute a breach of certain representations and
warranties made to the former shareholders or alternatively, a violation of
US securities laws. The Company has conducted a review of the claims and
determined that it is not feasible to predict or determine the final outcome
of these proceedings. The Company intends to vigorously defend all claims
but there can be no assurance that the outcome of the class actions and
related actions will not have a material adverse effect upon the financial
condition or results of operations of the Company.
(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.
(12) SUBSEQUENT EVENTS:
On July 7, 1998, the Company sold its Houston, Texas based steel
distribution business for cash proceeds of $93 million of which $33 million was
used to pay down existing bank indebtedness. The remainder of the proceeds were
retained by the Company's lenders and are available to the Company for general
working capital purposes. The business generated annual revenue in excess of
$130 million and income from operations of $12.5 million in 1997.
10
<PAGE> 12
PHILIP SERVICES CORP. AND SUBSIDIARIES
PART I, ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion reviews the Company's operations for the three and
six months ended June 30, 1998 and 1997 and should be read in conjunction with
the Company's audited Consolidated Financial Statements and related notes
thereto included in the Company's Form 10-K/A Amendment No. 2 for the fiscal
year ended December 31, 1997. The Company reports in U.S. dollars and in
accordance with U.S. generally accepted accounting principles.
INTRODUCTION
The Company is a supplier of metals and industrial services. The Company
has over 320 operating facilities and over 14,000 employees located throughout
North America and Europe, that provide services to approximately 50,000
industrial and commercial customers. The Company has achieved its position in
the metals recovery and industrial services market through internal growth and
through the acquisition and integration of over 40 companies since the beginning
of 1996. The Company's primary base of operations is in the United States.
The Company's business is organized into two principal operating divisions
- -- the Metals Services Group and the Industrial Services Group. The Metals
Services Group processes or recycles ferrous scrap materials (the "Ferrous
Operations") and non-ferrous scrap materials at multiple locations throughout
North America and Europe. The Ferrous Operations include the collection and
processing of ferrous scrap materials primarily for shipment to steel mills and
also includes the processing and distribution of structural steel products. Non-
ferrous operations include the refining of second grade copper into prime ingot
as well as the processing of aluminum dross to recover primary aluminum and the
production of deoxidizing products and alloys from aluminum scrap for reuse in
the steel and automotive industries respectively. Copper operations process wire
and cable scrap to recover copper. Both the ferrous and non-ferrous operations
of Philip provide significant brokerage services for scrap materials and primary
metals including ferrous, copper, and aluminum. The Metals Services Group
services the steel, telecommunications, aluminum, wire and cable and automotive
industry sectors.
The Industrial Services Group provides industrial outsourcing services,
by-products recovery and environmental services through a network of over 250
facilities in North America and Europe. Specific services include on-site
industrial services, environmental services and utilities management. On-site
industrial services include cleaning and maintenance, waste collection and
transportation, container services and tank cleaning, turnaround and outage
services, mechanical contracting and refractory services. Environmental services
range from decommissioning and remediation to emergency response and analytical
services. Utilities management services include industrial and municipal water
and wastewater treatment plans, power plants and related infrastructure. The
Industrial Services Group also provides by-products recovery services, which
include distillation, fuel blending, and the processing of organic and inorganic
materials. The Industrial Services Group services the automotive, chemical,
food, beverage, oil and gas, paint and coatings, petrochemical and pulp and
paper industry sectors, as well as public sector clients responsible for water
and wastewater treatment.
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 products.
The Company's 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 accrual for future closure and
remediation costs. Selling, general and administrative expenses include
management salaries,
11
<PAGE> 13
clerical and administrative costs, professional services, facility rentals and
insurance costs, as well as costs related to the Company's marketing and sales
force.
DIVESTITURE PLANS:
On June 2, 1998, the Company announced its intentions to sell its Metals
Services Group, other than the copper operations. The sale of these businesses
is anticipated to generate sufficient proceeds to allow the Company to reduce
its existing debt and restructure its Credit Facility. The proceeds to be raised
with this divestiture are currently unknown. The Metals Services businesses may
be sold in whole or in part, depending on the offers received. The net book
value of the assets of the Group, excluding the copper operations, is
approximately $950 million. In the event the Company were to dispose of the
Metals Services Group or a component thereof, for less than book value, a loss
would be incurred on the divestitures. In addition, costs with respect to
restructuring operations in the event of a partial disposition of the Metal
Services Group, may be necessary but are not quantifiable at this time.
On July 7, 1998, the Company's Houston, Texas based steel distribution
business was sold for cash proceeds in excess of net book value of $93 million.
The Company also intends to divest of certain of its non-core businesses or
investments which are currently part of the Industrial Services Group. The
proceeds which may be raised from this divestiture are currently unknown. The
annual revenue of these businesses is approximately $120 million and the net
book value of the assets is approximately $100 million. A gain or loss may be
recorded on the divestitures but the amount cannot be determined until
definitive arrangements are reached.
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the percentage
relationships which the various items in the Consolidated Statements of Earnings
bear to consolidated revenue.
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
------------- -------------
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenue
Metals services........................................... 52% 73% 55% 74%
Industrial services....................................... 48% 27% 45% 26%
---- ---- ---- ----
100% 100% 100% 100%
Operating expenses.......................................... 92% 86% 90% 86%
Special charges............................................. -- -- -- (1%)
Selling, general and administrative......................... 9% 6% 9% 7%
Depreciation and amortization............................... 4% 3% 4% 3%
Write-off of goodwill....................................... 2% -- 1% --
---- ---- ---- ----
Income (loss) from operations............................... (7%) 5% (4%) 5%
Interest expense............................................ (3%) 2% 3% 2%
Other income and expense -- net............................. -- -- (1%) --
---- ---- ---- ----
Earnings (loss) before tax.................................. (10%) 3% (6%) 3%
Income taxes................................................ 1% 1% 1% 1%
---- ---- ---- ----
Net earnings (loss)......................................... (11%) 2% (5%) 2%
==== ==== ==== ====
</TABLE>
NET EARNINGS
For the three months ended June 30, 1998, the Company incurred a net loss
of $73.0 million or $0.56 per share. This compares to net earnings of $7.5
million and $0.10 per share on a diluted basis for the three months ended June
30, 1997. For the six months ended June 30, 1998 the Company incurred a loss of
12
<PAGE> 14
$73.6 million or $0.56 per share. This compares to net earnings of $13.9 million
and $0.19 per share on a diluted basis for the same period in 1997.
REVENUE
Consolidated revenue for the three and six months ended June 30, 1998
compared with the same period in 1997 is shown in the following table:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
----------------------------- -------------------------------
1998 % 1997 % 1998 % 1997 %
------ ---- ------ ---- -------- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Metals Services............ $355.2 52% $258.8 73% $ 749.5 55% $461.8 74%
Industrial Services........ 330.5 48% 95.0 27% 612.4 45% 161.6 26%
------ ---- ------ ---- -------- ---- ------ ----
Total...................... $685.7 100% $353.8 100% $1,361.9 100% $623.4 100%
====== ==== ====== ==== ======== ==== ====== ====
</TABLE>
The 94% increase in consolidated revenue for the three months ended June
30, 1998 was attributable to the net effect of internal growth of approximately
$53 million in Industrial Services, ferrous operations and non-ferrous
operations, approximately $335 million from acquisitions and a decrease in
revenue in the copper operations of approximately $56 million. The 118% increase
in consolidated revenue for the six months ended June 30, 1998 was attributable
to internal growth of approximately $86 million in Industrial Services, ferrous
operations and non-ferrous operations, approximately $735 million from
acquisitions and a decrease in revenue in the copper operations of approximately
$82 million.
The Industrial Services Group revenue for the three months ended June 30,
1998, increased by $236 million compared with the same period in 1997. The
acquisitions of Allwaste and Serv-Tech as well as 7 other new businesses
contributed approximately $175 million of the revenue increase. The remainder of
the increase, or approximately $61 million, came from the expansion of service
offerings of existing businesses and internal growth. The increase in revenue
for the six months ended June 30, 1998 of $451 million compared with the same
period in 1997 was attributable to $375 million from acquisitions and $76
million from the expansion of service offerings in existing businesses and
internal growth.
The Metals Services Group revenue for the three months ended June 30, 1998
reflects a net increase in revenue of $96 million compared with the same period
in 1997. A decrease in the revenue of the copper operations which are being
exited of $56 million and a decrease in selling prices in the ferrous and
non-ferrous operations netted with the acquisition of Luria Brothers in October
1997 as well as the acquisition of 8 other businesses which contributed
approximately $160 million to cause the overall increase. The increase in
revenue for the six months ended June 30, 1998 of $288 million compared with the
same period in 1997 was attributable to $360 million from acquisitions and a
decrease in copper operations revenue of $82 million.
OPERATING EXPENSES
As a percentage of revenue, operating expenses for the three months and six
months ended June 30, 1998 were 92% and 90%, respectively compared to 86% in the
same periods of 1997. The increase was principally caused by the recording of a
reserve of $21 million in the copper operations to cover future inventory losses
which is discussed below.
OPERATING RESULTS
The operating results for the Metals Services Group reflect the following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-------------------------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
-------------------------------------- --------------------------------------
FERROUS NON-FERROUS COPPER TOTAL FERROUS NON-FERROUS COPPER TOTAL
------- ----------- ------ ----- ------- ----------- ------ -----
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... 240.7 105.2 9.3 355.2 106.3 87.3 65.2 258.8
Income (loss) from
operations................ 10.4 0.6 (55.0) (44.0) 8.5 (2.0) 2.0 8.5
</TABLE>
13
<PAGE> 15
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
-------------------------------------- --------------------------------------
FERROUS NON-FERROUS COPPER TOTAL FERROUS NON-FERROUS COPPER TOTAL
------- ----------- ------ ----- ------- ----------- ------ -----
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue..................... 504.1 220.5 24.9 749.5 190.3 165.0 106.5 461.8
Income (loss) from
operations................ 24.7 2.9 (79.1) (51.5) 15.2 1.5 9.5 26.2
</TABLE>
The increase in revenue for the ferrous operations of $134.4 million and
$313.8 million in the three months and six months ended June 30, 1998,
respectively, was due primarily to the acquisition of business in fiscal 1997.
This increase was offset by lower sale prices for scrap, largely attributable to
reduced shipments of domestic scrap material to Asian markets, causing an
oversupply in the market in the United States. These lower prices are reflected
in income from operations as a percentage of revenue, which was 4.3% and 4.9%
for the three and six months ended June 30, 1998, as compared to 8.0% and 8.0%
for the three and six months ended June 30, 1997. The increase in revenue from
non-ferrous operations of $17.9 million and $30.2 million for the three months
and six months ended June 30, 1998, respectively, was due primarily to
acquisitions in fiscal 1997. The increase was offset by lower sales prices in
the period. Income from operations as a percentage of revenue was 0.6% and
(2.3%) for the three months and six months ended June 30, 1998, compared to 1.3%
and 0.9% for the three months and six months ended June 30, 1997, reflecting
higher margins from the businesses acquired, partially offset by the lower
prices.
Revenue and income from the copper operations for the three months ended
June 30, 1998 were significantly less than the same period in the prior year.
The copper operations, which include the scrap copper wire and cable processing
operations maintained primarily in the Company's Hamilton, Ontario yards, are
being liquidated or shut down. In the second quarter of 1998, yields from
processing and selling copper inventory were lower than anticipated which
contributed to the operating loss. Further, the Company realized lower than
expected prices on the sale of copper inventories which were liquidated in the
second quarter of 1998, and a reserve of $21 million was recorded to cover
future inventory losses. In addition, goodwill related to the Company's
Hamilton, Ontario copper yards of $11.5 million was determined to be impaired
and written off in the second quarter of 1998. As the Company makes its final
determination as to which copper processing operations will be retained or
closed, additional write-offs of goodwill and other assets may occur, however,
this amount can not be quantified at this time.
The operating results for the Industrial Services Group reflect the
following:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
-----------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------------------------- -------------------------------
BY-PRODUCTS OTHER ISG TOTAL BY-PRODUCTS OTHER ISG TOTAL
----------- --------- ----- ----------- --------- -----
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ 50.5 280.0 330.5 46.4 48.6 95.0
Income (loss) from operations.......... 3.4 11.9 15.3 5.7 5.2 10.9
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-----------------------------------------------------------------
JUNE 30, 1998 JUNE 30, 1997
------------------------------- -------------------------------
BY-PRODUCTS OTHER ISG TOTAL BY-PRODUCTS OTHER ISG TOTAL
----------- --------- ----- ----------- --------- -----
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ 101.8 510.6 612.4 87.7 73.9 161.6
Income (loss) from operations.......... 0.8 25.6 26.4 3.1 5.4 8.5
</TABLE>
The increase in revenue from the Company's Industrial Services Group of
$235.5 million and $450.8 million for the three months and six months ended June
30, 1998 respectively, was due primarily to the acquisition of Allwaste and
Serv-Tech as well as of other businesses in fiscal 1997. Income from operations
as a percentage of revenue was 4.6% and 4.3% for the three months and six months
ended June 30, 1998 compared to 11.5% and 5.3% for the three months and six
months ended June 30, 1997, due to a cost overrun on a large turnaround project,
severance costs incurred in the quarter and a different mix of business which
has resulted after the acquisitions in fiscal 1997.
14
<PAGE> 16
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses have increased over the prior
year due to the consolidation of selling, general and administrative expenses of
companies acquired and to the addition of sales and marketing staff and
corporate staff to manage the increased volume of business. In addition costs of
$8.2 million were recorded, in the second quarter of 1998, relating to
severance, professional fees, legal costs respecting litigation and the
restructuring of the bank debt.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of fixed assets and goodwill for the three
months ended June 30, 1998 was $27.9 million, representing an increase of $18.7
million over the same period in 1997 due to acquisitions completed by the
Company in the prior year. Depreciation and amortization of fixed assets and
goodwill for the six months ended June 30, 1998 was $55.2 representing an
increase of $37.6 million over the same period in 1997.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 1998 was $22.9
million, and for the six months ended June 30, 1998 was $42.3 million,
representing an increase of $14.9 million and $28.3 million, respectively, over
the same periods in 1997. This increase was primarily attributable to increased
borrowings 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 six months ended June 30, 1998
includes a net gain of $14.7 million before tax received on the termination of
the merger agreement to acquire Safety-Kleen Corp. in the first quarter of 1998.
Other income and expense -- net for the three and six months ended June 30,
1997 includes a $2.8 million gain before tax on the sale of shares received as
part of the proceeds on the sale of the Company's municipal and commercial solid
waste business in 1996. The shares, which were restricted at the time of
receipt, were sold by the Company in February 1997 following the removal of the
restriction.
INCOME TAXES
The Company recorded an income tax provision in the three months ended June
30, 1998 due to a valuation allowance of $25 million which was recorded related
to Canadian operating losses incurred in the quarter. Based on the level of
historical taxable income and projections for future taxable income over the
periods in which the net operating losses are deductible, it was determined that
it was likely that the Company would not realize the benefit of the Canadian
deferred tax debit which arose in the quarter.
FINANCIAL CONDITION
LIQUIDITY AND CREDIT FACILITY
In August 1997, the Company signed a five year term, revolving credit
agreement which was amended in October 1997, February 1998 and June 1998 ("the
Credit Facility") with a syndicate of international lenders which originally
provided for up to $1.5 billion in borrowings, subject to compliance with
specified availability tests. Borrowings under the credit agreement are
guaranteed by the Company's wholly-owned subsidiaries and are secured by a
pledge of all of the issued and outstanding securities and all the present and
future assets held by the Company in all of its subsidiaries. At June 30, 1998,
the Company was not in compliance with the Credit Facility financial covenants
which require the Company to maintain a specified interest coverage ratio, debt
to EBITDA ratio, fixed charge ratio and working capital ratio. As the Company is
not in compliance with the terms of its Credit Facility, the debt outstanding
under the Credit Facility has been classified as a current liability on the
Company's June 30, 1998 Consolidated Balance Sheets. Pursuant to the June 1998
15
<PAGE> 17
amendment to the Credit Facility, the facility was reduced from US$1.5 billion
to US$1.2 billion, the interest rate charged was increased by 100 basis points,
the Company was permitted access to US$60 million of the proceeds arising from
an asset disposition and the Company agreed to a standstill until September 30,
1998 respecting the incurrence of additional debt and the making of dispositions
or acquisitions.
At June 30, 1998, the Company's working capital deficiency was $646
million, representing a decrease of $1.0 billion from December 31, 1997. This
deficiency is attributable to the fact that the debt outstanding under the
Credit Facility of $1.04 billion was classified as a current liability at June
30, 1998.
Inventory for resale, a significant component of the working capital at
June 30, 1998, has decreased by $97 million since December 31, 1997, due to the
liquidation of copper inventories given the intention to exit this business.
At June 30, 1998, the Company had undrawn credit capacity under the
facility of approximately $101 million, net of letters of credit outstanding,
which amounted to $63 million.
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, although no assurance can be
given in this regard.
CAPITAL EXPENDITURES
Capital expenditures were $45 million during the first six months of 1998
compared to $34 million during the first six months of 1997.
YEAR 2000
Philip has undertaken a review of all of its computer based systems to
mitigate problems that could occur as the result of the year 2000 century
change. This issue affects computer systems that have time sensitive programs
that may not properly recognize the year 2000. A project team has been assembled
and has prepared a plan to address these potential problems. Activities in
support of this plan are in progress to ensure that problems which are
identified from both internal and external sources are addressed before they
present a problem for the Company. The total cost for 1998 associated with any
required modifications is expected to be $5.0 million and will be expensed as
incurred.
FORWARD-LOOKING STATEMENTS
This Form 10-Q 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: (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; (9) unanticipated
changes in industry trends; (10) liquidity and the ability of the Company to
renegotiate its Credit Facility; (11) the impact of outstanding class actions
and related claims; and (12) the ability of the Company to successfully complete
the divestiture of its Metals Services Group. These factors and other risks are
discussed in the Company's Prospectus dated November 6, 1997 included in its
Registration Statement on Form S-1 (File No. 333-36549) and from time to time in
the Company's filings with the Securities and Exchange Commission and other
regulatory authorities.
16
<PAGE> 18
PART II -- OTHER INFORMATION
ITEM 1: 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 maintains liability
insurance against risks arising out of the normal course of business. There can
be no assurance that such insurance will be adequate to cover all such
liabilities. The following describes pending legal proceedings other than
ordinary, routine litigation incidental to its business.
In January 1997, the State of Missouri brought an enforcement action
against Solvent Recovery Company 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. The
Company and the State of Missouri have agreed upon a current payment of
$255,000, with a remaining future payment of $125,000 still the subject of
ongoing negotiations. The Company does not expect that the matter will have a
material adverse effect on the Company's results of operations or financial
position.
Various class actions which have been filed against the Company and certain
of its past and present directors and officers. Each action alleges that
Philip's financial disclosures for various time periods between 1995 and 1997
contained material misstatements or omissions in violation of U.S. federal
securities laws (provisions of the Securities Act of 1933 and of the Securities
Exchange Act of 1934) and seeks to represent a class of purchasers of Philip's
common stock. On June 2, 1998, the Judicial Panel on Multi Jurisdictional
Litigation ordered that the class actions be consolidated and transferred to the
United States District Court, Southern District of the State of New York. On
July 23, 1998, two pre-trial orders of the US District Court of New York were
made. Pre-Trial Order No. 1 dealt with various administrative matters relating
to the consolidation of the actions and a schedule for the plaintiffs to serve
and file a consolidated amended class action complaint and for the Company's
response. Pre-Trial Order No. 2 appointed a lead plaintiff and lead counsel. In
addition, similar claims have been asserted against the Company and certain of
its past and present officers and directors by the former shareholders of the
Steiner-Liff Metals group of companies and the Southern-Foundry Supply group of
companies. The claims allege that Philip's financial disclosures for various
time periods between 1995 and 1997 contain material misstatements or omissions
and that these constitute a breach of certain representations and warranties
made to the former shareholders or alternatively, a violation of US securities
laws. The Company has conducted a review of the claims and determined that it is
not feasible to predict or determine the final outcome of these proceedings. The
Company intends to vigorously defend all claims but there can be no assurance
that the outcome of the class actions and related actions will not have a
material adverse effect upon the financial condition or results of operations of
the Company.
ITEM 2: CHANGES IN SECURITIES
(C) SALES OF UNREGISTERED SECURITIES
None.
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
At June 30, 1998, the Company was not in compliance with the Credit
Facility financial covenants which require the Company to maintain a specified
interest coverage ratio, debt to EBITDA ratio, fixed charge ratio and working
capital ratio. As the Company is not in compliance with the terms of its Credit
Facility, the debt outstanding under the Credit Facility has been classified as
a current liability on the Company's June 30, 1998 Consolidated Balance Sheets.
Pursuant to the June 1998 amendment to the Credit Facility, the facility
was reduced from US$1.5 billion to US$1.2 billion, the interest rate charged was
increased by 100 basis points, the Company was permitted access to US$60 million
of the proceeds arising from an asset disposition and the Company
17
<PAGE> 19
agreed to a standstill until September 30, 1998 respecting the incurrence of
additional debt and the making of dispositions or acquisitions.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
An Annual General and Special Meeting of Shareholders (the "Meeting") was
held on June 25, 1998. The matters voted upon at the Meeting were: (i) the
election of the following persons as directors of the Company to hold office
until the next annual meeting of shareholders or until his successor is elected
or appointed: Roy Cairns Q.C., Allen Fracassi, Peter Green, William E. Haynes,
Robert L. Knauss, Felix Pardo, Harland A. Riker, Derrick Rolfe and Herman
Turkstra. The vote as to the election of the directors was as follows:
<TABLE>
<CAPTION>
FOR WITHHELD
---------- ----------
<S> <C> <C>
Roy Cairns: 67,490,527 30,745,600
Allen Fracassi: 64,601,400 33,634,721
Peter Green: 82,082,592 16,153,535
William E. Haynes: 79,591,764 18,644,363
Robert L. Knauss: 81,363,565 16,872,562
Felix Pardo: 81,375,266 16,860,861
Harland A. Riker: 79,756,900 18,479,227
Derrick Rolfe: 73,782,265 24,453,862
Herman Turkstra: 67,403,626 30,832,501
</TABLE>
and (ii) the reappointment of Deloitte and Touche, Chartered Accountants, as
auditors of the Company to hold office until the next annual meeting of
shareholders, the vote as to which was 67,770,015 for, 11,832,900 withheld and
10,863,895 spoiled.
ITEM 5: OTHER INFORMATION
None.
18
<PAGE> 20
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NOTES DESCRIPTION
- ------- ----- -----------
<C> <C> <S>
3.1* Articles of Amalgamation of Lincoln Waste Management Inc.
(previous name of the Registrant) dated April 15, 1991
3.2* Articles of Amendment of the Registrant dated June 26, 1991
3.3* Articles of Amendment of the Registrant dated July 10, 1991
3.4* Articles of Amendment of the Registrant dated May 22, 1997
3.5* Bylaws of Lincoln Waste Management Inc. (previous name of
the Registrant) dated August 16, 1990
4.1* Indenture dated as of June 1, 1989, 7% Convertible
Subordinated Debentures due 2014 between Allwaste, Inc. and
Texas Commerce Trust Company of New York
4.2* Specimen of Common Stock Certificate
10.1* 1991 Stock Option Plan
10.2* 1997 Amended and Restated Stock Option Plan
10.3* Amended and Restated Shareholder Rights Plan Agreement dated
as of May 19, 1995 between Philip Environmental Inc.
(previous name of Registrant) and Montreal Trust Company of
Canada
10.4+ 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/ New York
Branch, Royal Bank of Canada and the various persons from
time to time subject to the Credit Agreement as Lenders
10.5* Amending Agreement No. 1 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce, as
administrative agent made as of October 31, 1997
10.6* Amending Agreement No. 2 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce, as
administrative agent made as of February 19, 1998
10.7 Amending Agreement No. 3 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc and Canadian Imperial Bank of Commerce, as
administrative agent made as of June 24, 1998.
27 Financial Data Schedule
</TABLE>
- ---------------
+ Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (Registration Statement No. 333-36549)
* Incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K/A Amendment No. 2 for the fiscal year ended December 31,
1997.
(B) REPORTS ON FORM 8-K
Form 8-K dated April 24, 1998 relating to the Company's press release
announcing a required amendment to the Company's Annual Report on Form 10-K.
19
<PAGE> 21
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant, has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PHILIP SERVICES CORP.
By: /s/ PHILLIP WIDMAN
------------------------------------
Phillip Widman
Executive Vice President & Chief
Financial Officer
Dated: August 14, 1998
20
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- --------
<C> <S> <C>
3.1* Articles of Amalgamation of Lincoln Waste Management Inc.
(previous name of the Registrant) dated April 15, 1991......
3.2* Articles of Amendment of the Registrant dated June 26,
1991........................................................
3.3* Articles of Amendment of the Registrant dated July 10,
1991........................................................
3.4* Articles of Amendment of the Registrant dated May 22,
1997........................................................
3.5* Bylaws of Lincoln Waste Management Inc. (previous name of
the Registrant) dated August 16, 1990.......................
4.1* Indenture dated as of June 1, 1989, 7% Convertible
Subordinated Debentures due 2014 between Allwaste, Inc. and
Texas Commerce Trust Company of New York....................
4.2* Specimen of Common Stock Certificate........................
10.1* 1991 Stock Option Plan......................................
10.2* 1997 Amended and Restated Stock Option Plan.................
10.3* Amended and Restated Shareholder Rights Plan Agreement dated
as of May 19, 1995 between Philip Environmental Inc.
(previous name of Registrant) and Montreal Trust Company of
Canada......................................................
10.4+ 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/New York
Branch, Royal Bank of Canada and the various persons from
time to time subject to the Credit Agreement as Lenders.....
10.5* Amending Agreement No. 1 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce, as
administrative agent made as of October 31, 1997............
10.6* Amending Agreement No. 2 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce, as
administrative agent made as of February 19, 1998...........
10.7 Amending Agreement No. 3 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc and Canadian Imperial Bank of Commerce, as
administrative agent made as of June 24, 1998.
27 Financial Data Schedule.....................................
</TABLE>
- ---------------
+ Incorporated by reference to the exhibits filed with the Company's
Registration Statement on Form S-1 (Registration Statement No. 333-36549).
* Incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1997.
<PAGE> 1
AMENDING AGREEMENT NO. 3
THIS IS AN AMENDING AGREEMENT made as of June 24, 1998 among PHILIP
SERVICES CORP. as a borrower in Canada (the "CDN. BORROWER"), PHILIP SERVICES
(DELAWARE), INC., as a borrower in the United States of America (the "U.S.
BORROWER") and CANADIAN IMPERIAL BANK OF COMMERCE, as administrative agent (the
"ADMINISTRATIVE AGENT") on behalf of itself, the Lenders, the Other Agents and
their respective Eligible Affiliates.
WHEREAS:
A. The Cdn. Borrower and the U.S. Borrower, as borrowers (the
"BORROWERS"), the Persons from time to time parties to such agreement
as lenders (the "LENDERS"), the Administrative Agent, as administrative
agent for the Lenders, Bankers Trust Company, as syndication agent,
Canadian Imperial Bank of Commerce and Bankers Trust Company, as
co-arrangers, and Dresdner Bank Canada and Dresdner Bank AG New York
Branch, as documentation agents, are parties to a credit agreement
dated as of August 11, 1997 as amended by amending agreements dated as
of October 31, 1997 and February 19, 1998 (collectively the "CREDIT
AGREEMENT").
B. The Borrowers are in default under the Credit Agreement and have
requested certain amendments to the Credit Agreement to permit the
Borrowers to effect the Disposition of Intsel Southwest Limited
Partnership and to obtain additional funds to finance certain short
term working capital requirements of the Restricted Parties.
C. The Lenders, subject to the terms and conditions set forth in this
amending agreement, have consented to the amendments to the Credit
Agreement effected by this amending agreement and have authorized the
Administrative Agent to execute and deliver this amending agreement to
the Borrowers on behalf of itself, the Lenders, the Other Agents and
their respective Eligible Affiliates.
NOW THEREFORE THIS AMENDING AGREEMENT WITNESSES that, in consideration
of the mutual covenants and agreements contained in this amending agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, the Borrowers and the Administrative Agent, on behalf of
itself, the Lenders, the Other Agents and their respective Eligible Affiliates,
agree as follows:
ARTICLE ONE
INTERPRETATION
SECTION 1.01 ONE AGREEMENT: This amending agreement amends the Credit Agreement.
This amending agreement and the Credit Agreement shall be read, interpreted,
construed and have effect as, and shall
<PAGE> 2
constitute, one agreement with the same effect as if the amendments made by this
amending agreement had been contained in the Credit Agreement as of the date of
this amending agreement.
SECTION 1.02 DEFINED TERMS: In this amending agreement, unless something in the
subject matter or context is inconsistent:
(a) terms defined in the description of the parties or in the
recitals have the respective meanings given to them in the
description or recitals, as applicable; and
(b) all other capitalized terms have the respective meanings given
to them in the Credit Agreement as amended by Article Two of
this amending agreement.
SECTION 1.03 HEADINGS: The headings of the Articles and Sections of this
amending agreement are inserted for convenience of reference only and shall not
affect the construction or interpretation of this amending agreement.
SECTION 1.04 REFERENCES: All references to Articles and Sections, unless
otherwise specified, are to Articles and Sections of the Credit Agreement.
ARTICLE TWO
AMENDMENTS
SECTION 2.01 DEFINITIONS: Section 2.01 of the Credit Agreement is amended by
adding the following definitions to such Section in the appropriate alphabetical
order:
"DISCLOSED MATTERS" shall mean (a) those matters disclosed to the
Lenders by KPMG Investigation and Security Inc. in its reports to the
Lenders, (b) those matters disclosed in note 3 and note 18 to the
December 31, 1997 audited annual financial statements of the Cdn.
Borrower attached to the May 15, 1998 Form 10-K/A filed by the Cdn.
Borrower with the United States Securities and Exchange Commission, and
(c) the default by Philip Enterprises Inc. in payment of amounts in
aggregate in excess of U.S. $10,000,000 owed to CIBC Trust Company
relative to an inventory monetization program as disclosed in a letter
to the Administrative Agent from the Cdn. Borrower.
"INSOLVENCY EVENTS OF DEFAULT" shall mean those Events of Default
described in subsections 9.01(i), (j), (k), (l) and (m) and "INSOLVENCY
EVENT OF DEFAULT" shall mean any one of the Insolvency Events of
Default.
"INTSEL PURCHASE AND SALE AGREEMENT" shall mean the stock purchase
agreement dated as of June 24, 1998 between Metals USA, Inc., as buyer,
Philip Metals (USA) Inc., as seller, Philip Services Corp. and Philip
Enterprises Inc. setting forth the agreement of such parties with
respect to the Intsel Sale.
"INTSEL SALE" shall mean the sale by Philip Metals (USA) Inc. to
Metals USA, Inc. of all of the shares of each of Philip Metals
(Delaware) Inc. and PEN Metals (Delaware) Inc. (which corporations
<PAGE> 3
constitute all of the partners of Intsel Southwest Limited Partnership)
in accordance with the terms and provisions of the Intsel Purchase and
Sale Agreement.
"INTSEL SALE CLOSING DATE" shall mean the date of the closing of the
Intsel Sale.
"INTSEL SALE PROCEEDS" shall mean the aggregate purchase price payable
by Metals USA, Inc. under the Intsel Purchase and Sale Agreement net of
any bona fide direct costs incurred by Philip Metals (USA) Inc. in
completing the closing of the Intsel Sale.
"INTSEL SALE PROCEEDS DISTRIBUTION AMOUNT" shall mean that portion of
the Intsel Sale Proceeds equal to the amount by which (a) the Intsel
Sale Proceeds exceeds (b) the Intsel Sale Proceeds Retention Amount.
"INTSEL SALE PROCEEDS RETENTION AMOUNT" shall mean U.S. $60,000,000 of
the Intsel Sale Proceeds.
"PERMITTED LC FACILITY" shall have the meaning specified in paragraph
8.02(a)(ix).
"PERMITTED LC FACILITY CASH COLLATERAL SECURITY" shall have the
meaning specified in paragraph (z) of Schedule 6.
"RELEASE DATES" shall have the meaning specified in Section 6.07 and
"RELEASE DATE" shall mean any one of the Release Dates.
"RELEASE TERMINATION DATE" shall mean the first date on which any of
the following occurs:
(a) an Insolvency Event of Default;
(b) the Administrative Agent having received written
notice from the Required Lenders that an event has
occurred, or a circumstance exists, which event or
circumstance, in the opinion of such Lenders, (i) was
not known by such Lenders on June 24, 1998, and (ii)
has had, or has had or would have a reasonable
likelihood of having, a Material Adverse Effect; or
(c) the Commitments being cancelled pursuant to the
provisions of Section 9.02.
SECTION 2.02 REDUCTION IN LIMIT OF THE CREDIT: Effective as of June 24, 1998 the
limit of the Credit was permanently reduced by U.S. $300,000,000 from U.S.
$1,500,000,000 to U.S. $1,200,000,000 with such reduction in the limit of the
Credit to be apportioned among the Tranches and within the Tranches as
instructed by the Required Lenders. Such U.S. $300,000,000 reduction in the
limit of the Credit will be allocated, effective immediately following the
allocation and application of the Intsel Sale Proceeds Distribution Amount to
repayment of outstanding Accommodation in accordance with Section 4.07, to each
Lender's Commitment under each of the Tranches in the amounts indicated in
Exhibit A to this amending agreement so that, immediately after such allocation
on such date, the amount of each Lender's Commitment under each Tranche will be
the amount indicated in Exhibit A to this amending agreement.
SECTION 2.03 INTEREST ON LOANS: Section 3.01 of the Credit Agreement is amended
by changing the words "...
<PAGE> 4
The Applicable Interest Pricing Adjustment ..." in the twelfth and fourteenth
lines of such Section to read "... Subject to the last sentence of this Section,
the Applicable Interest Pricing Adjustment ...", and by adding the following
sentence at the end of such Section:
"Notwithstanding any other provision of this Section, from and after
July 15, 1998 the Applicable Interest Pricing Adjustment under this
Section for Prime Rate Loans, U.S. Base Rate Loans and U.S. Reference
Rate Loans will be 175 bps and the Applicable Interest Pricing
Adjustment under this Section for LIBOR Loans will be 275 bps."
SECTION 2.04 FEES FOR BANKERS' ACCEPTANCES AND BA EQUIVALENT NOTES: Section 3.09
of the Credit Agreement is amended by changing the words "... The Applicable
Stamping Fee ..." in the eighth, ninth and tenth lines of such Section to read
"... Subject to the last sentence of this Section, the Applicable Stamping Fee
...", and by adding the following sentence at the end of such Section:
"Notwithstanding any other provision of this Section, from and after
July 15, 1998 the Applicable Stamping Fee will be 275 bps."
SECTION 2.05 FEES FOR LETTERS OF CREDIT: Section 3.10 of the Credit Agreement is
amended by changing the words "... The Applicable LC Fee Pricing Rate ..." in
the fourteenth, fifteenth and sixteenth lines of such Section to read "...
Subject to the last sentence of this Section, the Applicable LC Fee Pricing Rate
...", and by adding the following sentence at the end of such Section:
"Notwithstanding any other provision of this Section, from and after
July 15, 1998 the Applicable LC Fee Pricing Rate will be 275 bps."
SECTION 2.06 STANDBY FEE: Section 3.11 of the Credit Agreement is amended by
changing the words "... The Applicable Standby Fee Pricing Rate ..." in the
seventh line of such Section to read "... Subject to the last sentence of this
Section, the Applicable Standby Fee Pricing Rate ...", and by adding the
following sentence at the end of such Section:
"Notwithstanding any other provision of this Section, from and after
July 15, 1998 the Applicable Standby Fee Pricing Rate will be 145 bps."
SECTION 2.07 REPAYMENTS: Article Four of the Credit Agreement is amended by
adding the following Section at the end of such Article:
"4.07 REPAYMENTS FROM INTSEL SALE PROCEEDS
The Borrowers shall pay to the Administrative Agent on the
Intsel Sale Closing Date an amount equal to the Intsel Sale Proceeds
Distribution Amount and:
(a) first, such amount shall be allocated by the
Administrative Agent to each of the Tranches (that is
to each of Tranches 1, 2 and 3, the LC Line and each
of the Operating Lines) on a pro rata basis (with the
amount to be allocated to each such Tranche (with
respect to each Tranche, its "ALLOCATED AMOUNT")
being an amount equal to the Intsel Sale Proceeds
Distribution Amount multiplied by a
<PAGE> 5
fraction (x) the numerator of which is aggregate principal
amount of Accommodation outstanding under such Tranche at
the time of such allocation, and (y) the denominator of
which is the aggregate principal amount of Accommodation
outstanding under all of the Tranches at the time of such
allocation); and
(b) then immediately following the allocation referred to
in subsection 4.07(a):
(i) the Allocated Amount for each of Tranches 1,
2, and 3, shall be applied to repay
outstanding Accommodation under such Tranche
so that, to the extent possible, immediately
after such repayment, the principal amount
of outstanding Accommodation from each
Lender under such Tranche is pro rata (based
on the respective Commitments of each of the
Lenders under such Tranche) with the
principal amount of outstanding
Accommodation from all of the Lenders under
such Tranche; and
(ii) immediately following the repayment referred
to in paragraph 4.07(b)(i), the balance of
the Allocated Amount for each of Tranches 1,
2, and 3, if any, shall be applied to repay
outstanding Accommodation under such Tranche
from all of the Lenders under such Tranche
pro rata (based on the principal amount of
Accommodation then outstanding from each
Lender under such Tranche); and
(iii) the Allocated Amount for the LC Line and
each of the Operating Lines shall be applied
to the repayment of outstanding
Accommodation from all of the Lenders under
such Tranche pro rata (based on the
principal amount of Accommodation then
outstanding from each Lender under such
Tranche) (and which repayment, for greater
certainty, would include depositing funds
with the Cdn. LC Issuer pursuant to the LC
Line repayment mechanism referred to in
Section 5.06)."
SECTION 2.08 MANNER OF REPAYMENT UNDER THE LC LINE: Article Five of the Credit
Agreement is amended by adding the following Section at the end of such Article:
"5.06 CERTAIN REPAYMENTS UNDER THE LC LINE
Any amount to be applied to repayment of outstanding Letters
of Credit under the LC Line (as opposed to outstanding Loans or
reimbursement obligations under the LC Line) will be paid to the Cdn.
LC Issuer and such amount (together with interest on such amount) shall
be held by the Cdn. LC Issuer to be applied in payment of the liability
of the Borrowers pursuant to subsection 2.06(3) or otherwise in respect
of outstanding Letters of Credit so long as the LC Issuers or either of
them has or may in any circumstance have any liability under any Letter
of Credit or Letters of Credit in an aggregate amount equal to or
greater than such repayment
<PAGE> 6
amount, and shall bear interest for such terms as are selected from
time to time by the Cdn. LC Issuer at the wholesale money market rate
of the Cdn. LC Issuer for deposits of similar currency, amounts and
maturities. Any balance of such funds and interest remaining at such
time as the LC Issuers do not have any actual or contingent liability
under any Letter of Credit shall be paid to the Administrative Agent
to be paid to the Lenders in accordance with Section 9.03 or in such
other manner as the Required Lenders may direct. In addition, at any
time that a Letter of Credit expires or is cancelled, such portion of
such funds, if any, which are in excess of the maximum aggregate
liability of the LC Issuers under all remaining outstanding Letters of
Credit shall be paid to the Administrative Agent to be paid to the
Lenders in accordance with Section 9.03 or in such other manner as the
Required Lenders may direct."
SECTION 2.09 SECURITY: Article Six of the Credit Agreement is amended by adding
the following Sections at the end of such Article:
"6.07 INTSEL SALE PROCEEDS
The Borrowers will insure that the entire Intsel Sale Proceeds
are delivered directly by Metals USA, Inc. to the Administrative Agent
for the account of the Administrative Agent and the Lenders on the
Intsel Sale Closing Date. The Administrative Agent will place that
portion of such Intsel Sales Proceeds equal to the Intsel Sale Proceeds
Retention Amount in an account maintained by and titled in the
Administrative Agent for the benefit of the Administrative Agent and
the Lenders under conditions that such amount will be held and dealt
with by the Administrative Agent in accordance with the provisions of
this Section. The Administrative Agent will pay and apply the balance
of such Intsel Sale Proceeds (namely the Intsel Sale Proceeds
Distribution Amount) in the manner provided for in Section 4.07. While
held by the Administrative Agent in the above referenced account, title
to the Intsel Sale Proceeds Retention Amount, and interest thereon,
will remain with the Administrative Agent for the benefit of the
Administrative Agent and the Lenders and the interest of the Borrowers
and any other Restricted Parties, if any, in and to the Intsel Sale
Proceeds Retention Amount and interest thereon will be subject to the
Lien of the Security and to all of the rights and remedies set forth in
the Security. Unless and until the Release Termination Date has
occurred, and subject to fulfilment of the conditions precedent
referred to in Section 6.08, the Administrative Agent will release from
the above referenced account, and will deliver to or as directed by the
Borrowers, on each of the dates specified in Schedule 28 (the "RELEASE
DATES"), that portion of the Intsel Sale Proceeds Retention Amount then
remaining in such account equal to the amount (the "RELEASED AMOUNT")
set forth in Schedule 28 with respect to such Release Date. On, but not
before, delivery of any Released Amount to the Borrowers, title to such
Released Amount will pass from the Administrative Agent to the
Borrowers. All Released Amounts shall only be used by the Borrowers for
those purposes set forth in Schedule 28 with respect to such applicable
Released Amount. For greater certainty, from and after the Release
Termination Date, no Restricted Party shall be entitled to receive any
further amounts still held in the above referenced account all of which
amounts shall be retained by and titled in the Administrative Agent
and, to the extent of the interest of the Borrowers and any other
Restricted Parties, shall continue to be subject to the Security and,
on request of the Required Lenders, shall be paid by the Administrative
Agent to the Lenders in the manner provided for in Section 4.07.
6.08 CONDITIONS PRECEDENT TO RELEASE OF PROCEEDS
<PAGE> 7
The Administrative Agent shall not be obliged to release any
portion of the Intsel Sales Proceeds Retention Amount to the Borrowers
under Section 6.07 unless all of the following have occurred and/or are
true:
(a) all of the outstanding accounts of Blake, Cassels &
Graydon (and their agents), White & Case (and their
agents), KPMG Investigation and Security Inc. and
KPMG Chartered Accountants have been paid at or prior
to the date of such release of such Released Amount
(or are paid from the proceeds of such Released
Amount);
(b) the escrow account referred to in subsection 8.01(ab)
has been established, the initial U.S. $250,000
contribution has been made (or is made from the
proceeds of such Released Amount) to such account and
any subsequent contributions required to have been
made to such account prior to such Release Date
pursuant to the provisions of subsection 8.01(ac)
have been made or are made from the proceeds of such
Released Amount;
(c) the Administrative Agent shall have received with
respect to such Released Amount a certificate of the
Cdn. Borrower signed by its President and Chief
Executive Officer:
(i) detailing the purposes for which such
Released Amount will be used; and
(ii) certifying that (except for financial
assurances provided by the Restricted Parties
to Governmental Authorities or to bonding or
insurance companies in the ordinary course of
business for the purpose of carrying on the
same) no funds, securities or other property
is being held under any trust or other
arrangement by any Person on behalf of or for
the benefit of (x) the Restricted Parties or
any of their Subsidiaries or (y) any of the
advisors or agents of the Restricted Parties
acting on behalf of or for the benefit of any
of the Restricted Parities or any of their
Subsidiaries or (z) any of the officers or
directors of any of the Restricted Parties or
any of their Subsidiaries; and
(d) the Release Termination Date shall not have occurred
on or prior to the applicable Release Date.
6.09 POSTPONEMENT OF LIEN OF SECURITY IN PERMITTED LC CASH
COLLATERAL SECURITY
The Lien of the Security in the cash collateral constituting
the Permitted LC Facility Cash Collateral Security will be subordinate
to the prior rights of the issuer of the standby letters of credit
under the Permitted LC Facility to such cash collateral as security for
the liabilities of the Cdn. Borrower with respect to such standby
letters of credit, and the Administrative Agent will execute and
deliver such acknowledgements and agreements of postponement and
subordination relative to the Permitted LC Facility Cash Collateral
Security as may be necessary or desirable in the opinion of the
Administrative Agent to evidence such subordination."
<PAGE> 8
SECTION 2.10 POSITIVE COVENANTS: Section 8.01 of the Credit Agreement is amended
by renumbering subsection 8.01(aa) as subsection 8.01(y) and by adding the
following subsections at the end of such Section:
"(z) Monthly Financial Statements. With respect to each month
beginning with the month of July 1998, deliver to the
Administrative Agent, on or before the 30th day following the
end of such month where such month is not the last month of a
Financial Quarter, and on or before the 45th day following the
last day of such month where such month is the last month of a
Financial Quarter, the unaudited monthly consolidated balance
sheet, and the unaudited monthly consolidating balance sheets,
of the Restricted Parties as of the last day of such month
together with the related unaudited consolidated statement,
and unaudited consolidating statements, of earnings, changes
in financial position and shareholders' equity of the
Restricted Parties for such month.
(aa) Rolling 13 Week Cash Flows. Deliver to the Administrative
Agent by the Wednesday of every other week (the "SUBJECT
WEEK"), beginning with Wednesday July 15, 1998 for the Subject
Week beginning Monday July 13, 1998, a weekly cash flow
summary and cash flow projection in the form presented by the
Cdn. Borrower to the Lenders at the June 17, 1998 Lenders'
meeting for the 13 week period which commences with and
includes the Subject Week.
(ab) Establishment of Escrow Account for Advisors' Fees and
Disbursements. Immediately deliver to Blake, Cassels & Graydon
U.S. $250,000 to be held by Blake, Cassels & Graydon in an
interest bearing trust account on terms which will permit
Blake, Cassels & Graydon to pay funds out of such account at
the direction of the Administrative Agent to pay outstanding
fees and disbursements of the advisors to the Administrative
Agent and the Lenders and the agents of such advisors or to
finance disbursements (such as registration or filing fees) to
be incurred by any of the advisors to the Administrative Agent
and the Lenders or the agents of such advisors in the
performance of their services for the Administrative Agent and
the Lenders.
(ac) Replenishing Escrow Account for Advisors' Fees and
Disbursements. Immediately following receipt, at any time and
from time to time, of notice from Blake, Cassels & Graydon
that the amount in the escrow account referred to in
subsection 8.01(ab) is equal to or less than U.S. $50,000,
deliver to Blake, Cassels & Graydon for deposit in such escrow
account sufficient funds to increase the amount in such escrow
account to U.S. $250,000."
SECTION 2.11 NEGATIVE COVENANTS - DEBT: Subsection 8.02(a) of the Credit
Agreement is amended by deleting the word "and" at the end of paragraph
8.02(a)(vii), changing the "." at the end of paragraph 8.02(a)(viii) to read ";
and", and adding the following paragraph at the end of such subsection:
"(ix) standby letters of credit in an aggregate amount of not more
than U.S. $20,000,000 issued for the account of the Cdn.
Borrower (to provide credit support to suppliers of the North
American metals business of the Restricted Parties) by a
Person who is a Lender pursuant to a standby letter of credit
facility (the "PERMITTED LC FACILITY") established outside of
this Agreement, provided that the debts and
<PAGE> 9
liabilities of the Cdn. Borrower under such standby letter of
credit facility are unsecured except for the Permitted LC
Facility Cash Collateral Security."
SECTION 2.12 STANDSTILL RESPECTING CERTAIN ACTIVITIES: Section 8.02 of the
Credit Agreement is amended by adding the following subsection at the end of
such Section:
"(v) Additional Standstill Respecting Certain Activities.
Notwithstanding any other provision of this Agreement, at any
time between June 24, 1998 and September 30, 1998, without the
prior written consent of the Required Lenders, take any action
which would create any material liability, involve a
Disposition of property (other than Dispositions approved by
the Required Lenders (including the Intsel Sale) or ordinary
course Dispositions of inventory or obsolete or worn out
equipment made in compliance with the provisions of paragraph
8.02(d)(i)) or involve the creation of any Lien (other than
the Permitted Liens referred to in paragraphs (y) and (z) of
Schedule 6), and in particular and without limitation each of
the Borrowers agrees not to, and to cause each of the other
Restricted Parties not to, directly or indirectly:
(i) create, incur, assume or suffer or permit to
exist any new or additional Debt under any
existing Purchase Money Obligation or
Capitalized Lease Obligation or create,
incur, assume or suffer or permit to exist
any new or additional Purchase Money
Obligation or Capitalized Lease Obligation;
(ii) create, incur, assume or suffer or permit to
exist any new or additional Debt under any
existing operating leases or enter into any
new or additional material operating leases
other than motor vehicle and equipment
operating leases entered into by the
applicable Restricted Party in the ordinary
course of business for the purpose of
carrying on the same and on fair and
reasonable terms in accordance with
customary trade practice;
(iii) create, incur, assume or suffer or permit to
exist any new or additional Permitted
Indebtedness or create, incur, assume or
suffer or permit to exist any new or
additional Additional Debt;
(iv) enter into any transaction of amalgamation
or consolidation or merger or implement or
effect or consent to any reorganization 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 or effect any name
change;
(v) make any Disposition (which would include
any further securitizations or monetizations
that would otherwise have been permitted
under paragraph 8.02(d)(iv)) other than
<PAGE> 10
Dispositions permitted under paragraph
8.02(d)(i) and other than the Intsel Sale;
(vi) make any new or additional Investments in or
provide any new or additional Financial
Assistance to any Person which is not a
Wholly Owned Restricted Party which has
provided and perfected all Security required
to be provided by it under this Agreement or
any other Credit Document (the Cdn. Borrower
acknowledging that none of the Restricted
Parties in the United Kingdom have provided
the Security required to be provided by them
under this Agreement);
(vii) effect any new or additional sale and
leaseback transactions (including any
further sales to National City Leasing
Corporation which would otherwise have been
permitted under paragraph 8.02(s)(iii));
(viii) make any Acquisition (other than the
completion of acquisitions of real property
to which the Restricted Parties are
committed as of June 24, 1998 for an
aggregate purchase price for all such
acquisitions of not more than U.S.
$3,200,000); or
(ix) make any payment (a) of any dividends on any
shares of the Cdn. Borrower, (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 any Restricted Party or any
warrants, options or rights to acquire any
such shares, or the making by any Restricted
Party of any other distribution in respect
of any shares of its capital, or (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 any Restricted
Party ranking in right of payment
subordinate to any liability of such Person
under the Credit Documents."
SECTION 2.13 SCHEDULES: Schedule 6 (Permitted Liens) is amended by adding the
following paragraphs at the end of such Schedule:
"(y) Liens granted by a Restricted Party to secure its obligations
under an indemnity agreement provided by such Restricted Party
to a bonding or insurance company provided that (i) such
indemnity agreement imposes liability on such Restricted Party
only to the extent of payments made by such bonding or
insurance company under a bid bond or performance bond issued
by such bonding or insurance company in support of such
Restricted Party's bid for, or performance under, an
industrial services contract (a "BONDED CONTRACT") which such
Restricted Party is bidding for or has entered into in the
ordinary course of its business, (ii) such indemnity agreement
and the Lien granted in support thereof are on ordinary
commercial terms consistent with those entered into by other
Persons in the same
<PAGE> 11
or similar businesses as those of the applicable Restricted
Party, (iii) such Lien does not secure any indebtedness or
liabilities of any Restricted Party other than the
indebtedness and liabilities arising under the applicable
indemnity agreement in connection with the applicable Bonded
Contract, (iv) such Lien only creates a Lien in, and does not
extend to any property other than, the applicable Bonded
Contract, amounts payable under the Bonded Contract or from
subcontractors under the Bonded Contract and equipment and
materials located on the site where the work is to be
performed under the applicable Bonded Contract, (v) the
property subject to such Lien is subject to a valid perfected
Lien under the Security and the Restricted Party providing
such Lien has executed and delivered all Security required to
be executed and delivered by it under the Credit Agreement,
and (vi) such Lien has been fully postponed and subordinated
to the Lien of the Security pursuant to a written postponement
and subordination agreement in form, scope and substance
satisfactory to the Administrative Agent.
(z) cash collateral security given to the issuer of the letters of
credit under the Permitted LC Facility provided that (i) the
aggregate amount of such cash collateral security shall not
exceed U.S. $20,000,000 (together with interest accrued
thereon), (ii) such cash collateral security will only secure
the debts and liabilities of the Cdn. Borrower to the issuer
of such letters of credit with respect to such letters of
credit, (iii) such cash collateral security will be funded
solely from the proceeds of Released Amounts released to the
Borrowers for such purpose pursuant to Section 6.07, and (iv)
the cash collateral held as such cash collateral security
shall be subject to the Lien of the Security subject only to
the Lien of the issuer of the letters of credit in such cash
collateral security (such cash collateral security being the
"PERMITTED LC FACILITY CASH COLLATERAL SECURITY")."
and Exhibit B to this amending agreement is added as Schedule 28 to the Credit
Agreement.
ARTICLE THREE
REPRESENTATIONS AND WARRANTIES
SECTION 3.01 CONFIRMATION OF REPRESENTATIONS: Each of the Borrowers represents
and warrants that, as at the date of this amending agreement and assuming that
the amendments made to the Credit Agreement by this amending agreement have
become effective, no Insolvency Event of Default has occurred and is continuing
and, subject to the Disclosed Matters, the representations and warranties
contained in Article Seven of the Credit Agreement are true and correct.
ARTICLE FOUR
GENERAL
SECTION 4.01 CONFIRMATION: The Credit Agreement, as amended by this amending
agreement, is hereby confirmed by the Borrowers and the Administrative Agent, on
behalf of itself, the Lenders, the Other Agents and their respective Eligible
Affiliates.
<PAGE> 12
SECTION 4.02 BINDING NATURE: This amending agreement shall enure to the benefit
of and be binding upon the Borrowers, the Administrative Agent, the Lenders, the
Other Agents, their respective Eligible Affiliates and their respective
successors and permitted assigns.
SECTION 4.03 CONFLICTS: If, after the date of this amending agreement, any
provision of this amending agreement is inconsistent with any provision of the
Credit Agreement, the relevant provision of this amending agreement shall
prevail.
SECTION 4.04 ACKNOWLEDGEMENT AND NO WAIVERS: The Borrowers acknowledge that
Defaults have occurred and are continuing under the Credit Agreement including,
without limitation, (a) an Event of Default under subsection 9.01(c) of the
Credit Agreement because the Cdn. Borrower is not in compliance with the
Interest Coverage Ratio requirements of subsection 8.03(a) of the Credit
Agreement, and (b) an Event of Default under subsection 9.01(g) of the Credit
Agreement because of the default by Philip Enterprises Inc. in payment of
amounts in aggregate in excess of U.S. $10,000,000 owed to CIBC Trust Company
relative to an inventory monetization program. Nothing in this amending
agreement waives or shall be deemed to waive any Default or Event of Default or
any right, entitlement, privilege, benefit or remedy which the Administrative
Agent, the Other Agents or the Lenders may have now or at any time in the future
as a result of or in connection with any such Default or Event of Default.
SECTION 4.05 LAW OF CONTRACT: This amending agreement shall be governed by and
construed in accordance with the laws of the Province of Ontario and of the laws
of Canada applicable in the Province of Ontario.
SECTION 4.06 COUNTERPART AND FACSIMILE: This amending agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same instrument.
Delivery of an executed signature page to this amending agreement by any party
by facsimile transmission shall be as effective as delivery of a manually
executed copy of this amending agreement by such party.
IN WITNESS OF WHICH the Borrowers and the Administrative Agent, on
behalf of itself, the Lenders, the Other Agents and their respective Eligible
Affiliates, have executed this amending agreement as of the date indicated on
the first page of this amending agreement.
PHILIP SERVICES
PHILIP SERVICES CORP. (DELAWARE), INC.
by: by:
name: name:
title: title:
by: by:
<PAGE> 13
name: name:
title: title:
CANADIAN IMPERIAL BANK OF
COMMERCE (in its capacity
as Administrative Agent)
by:
name:
title:
by:
name:
title:
ACKNOWLEDGEMENT AND CONFIRMATION
Each of the undersigned consents to the above referenced amendments to
the Credit Agreement and to the Borrowers, the Administrative Agent (on behalf
of itself, the Lenders, the Other Agents and their respective Eligible
Affiliates) entering into this amending agreement and acknowledges and agrees
that all of the guarantees and security delivered by it to or for the benefit of
any one or more of the Administrative Agent and the Lenders (including any such
guarantees and security delivered by it to Canadian Imperial Bank of Commerce as
security agent) in connection with, or otherwise applicable to, the debts and
liabilities of itself or either one or both of the Borrowers to any one or more
of the Administrative Agent, the Lenders, the Other Agents and their respective
Eligible Affiliates under, in connection with or with respect to any one or more
of the Credit Agreement, the other Credit Documents and the Lender/Borrower
Hedging Arrangements are hereby ratified and confirmed and remain in full force
and effect notwithstanding the entering into of this amending agreement by the
Borrowers, the Administrative Agent (on behalf of itself, the Lenders, the Other
Agents and their respective Eligible Affiliates) and notwithstanding the
amendments to the Credit Agreement effected by this amending agreement.
This acknowledgement and confirmation may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same instrument. Delivery of an executed
signature page to this acknowledgement and confirmation by any party by
facsimile transmission shall be as effective as delivery of a manually executed
copy of this acknowledgement and confirmation by such party.
<PAGE> 14
IN WITNESS OF WHICH each of the undersigned have executed this
acknowledgement and confirmation as of the date referred to on the first page of
this amending agreement.
LUNTZ CORPORATION
LUNTZ ACQUISITION (DELAWARE) CORPORATION
21ST CENTURY ENVIRONMENTAL MANAGEMENT, INC.
21ST CENTURY ENVIRONMENTAL MANAGEMENT, INC. OF NEVADA
21ST CENTURY ENVIRONMENTAL MANAGEMENT, INC. OF PUERTO
RICO
21ST CENTURY ENVIRONMENTAL MANAGEMENT, INC. OF RHODE
ISLAND
CHEMICAL POLLUTION CONTROL, INC. OF FLORIDA - A 21ST
CENTURY ENVIRONMENTAL MANAGEMENT COMPANY
CHEMICAL POLLUTION CONTROL, INC. OF NEW YORK - A 21ST
CENTURY ENVIRONMENTAL MANAGEMENT COMPANY
NORTHLAND ENVIRONMENTAL, INC.
RESI ACQUISITION (DELAWARE) CORPORATION
CHEM-FREIGHT, INC.
REPUBLIC ENVIRONMENTAL RECYCLING (NEW JERSEY), INC.
REPUBLIC ENVIRONMENTAL SYSTEMS (PENNSYLVANIA), INC.
REPUBLIC ENVIRONMENTAL SYSTEMS (TECHNICAL SERVICES
GROUP), INC.
REPUBLIC ENVIRONMENTAL SYSTEMS (TRANSPORTATION
GROUP), INC.
PHILIP ENTERPRISES INC./LES ENTREPRISES PHILIP INC.
PHILIP ANALYTICAL SERVICES CORPORATION
PHILIP ENVIRONMENTAL (ATLANTIC) LIMITED
PHILIP ENVIRONMENTAL (ELMIRA) INC.
<PAGE> 15
PHILIP ENVIRONMENTAL SERVICES LIMITED
PHILIP INVESTMENT CORP.
PSC/IML ACQUISITION CORP.
RECYCLAGE D'ALUMINIUM QUEBEC INC./QUEBEC ALUMINUM
RECYCLING INC.
1195613 ONTARIO INC.
1233793 ONTARIO INC.
842578 ONTARIO LIMITED
COUSINS WASTE CONTROL CORPORATION
D & L, INC.
INTERMETCO U.S., INC.
BUTCO, INC.
ALLTIFT, INC.
INTERMETCO U.S.A. LTD.
GEORGIA TUBULAR PRODUCTS, INC.
NORTRU, INC.
ALLWORTH, INC.
CHEMICAL RECLAMATION SERVICES, INC.
PHILIP RECLAMATION SERVICES, HOUSTON, INC.
SOUTHEAST ENVIRONMENTAL SERVICES COMPANY, INC.
CYANOKEM INC.
RHO-CHEM CORPORATION
SESSA, S.A. DE C.V.
<PAGE> 16
THERMALKEM INC.
PEN METALS (DELAWARE), INC.
PHILIP ENVIRONMENTAL OF IDAHO CORPORATION
PHILIP ENVIRONMENTAL (WASHINGTON) INC.
BURLINGTON ENVIRONMENTAL INC. [DELAWARE]
BURLINGTON ENVIRONMENTAL INC. [WASHINGTON]
RESOURCE RECOVERY CORPORATION
TERMCO CORPORATION
GASOLINE TANK SERVICE COMPANY, INC.
UNITED DRAIN OIL SERVICE, INC.
PHILIP ENVIRONMENTAL SERVICES CORPORATION
SOLVENT RECOVERY CORPORATION
PHILIP INDUSTRIAL SERVICES (USA), INC.
PHILIP INDUSTRIAL SERVICES GROUP, INC.
ALRC, INC.
APLC, INC.
ALLWASTE ASBESTOS ABATEMENT HOLDINGS, INC.
ALLWASTE ASBESTOS ABATEMENT, INC.
ALLWASTE ASBESTOS ABATEMENT OF NEW ENGLAND, INC.
ONEIDA ASBESTOS REMOVAL, INC.
ONEIDA ASBESTOS ABATEMENT INC.
PHILIP ENVIRONMENTAL SERVICES, INC.
ACE/ALLWASTE ENVIRONMENTAL SERVICES OF INDIANA, INC.
<PAGE> 17
ALL SAFETY AND SUPPLY, INC.
PHILIP SCAFFOLD CORPORATION
ALLSCAFF, INC.
ALLWASTE ENVIRONMENTAL SERVICES/NORTH CENTRAL, INC.
PHILIP SERVICES/OHIO, INC.
PHILIP WEST INDUSTRIAL SERVICES, INC.
PHILIP TRANSPORTATION AND REMEDIATION, INC.
PHILIP SERVICES/SOUTH CENTRAL, INC.
PHILIP SERVICES/SOUTHWEST, INC.
PHILIP SERVICES HAWAII, LTD.
ALLWASTE SERVICIOS INDUSTRIALES DE CONTROL ECOLOGICO
S.A. DE C.V.
ALLWASTE TANK SERVICES S.A. DE C.V.
ALLWASTE TEXQUISITION, INC.
CALIGO DE MEXICO, S.A. DE C.V.
PHILIP AUTOMOTIVE, LTD.
INDUSTRIAL CONSTRUCTION SERVICES COMPANY, INC.
J.D. MEAGHER/ALLWASTE, INC.
JAMES & LUTHER SERVICES, INC.
JESCO INDUSTRIAL SERVICES, INC.
PHILIP OIL RECYCLING, INC.
PHILIP INDUSTRIAL SERVICES OF TEXAS, INC.
PHILIP SERVICES/LOUISIANA, INC.
PHILIP MID-ATLANTIC, INC.
<PAGE> 18
PHILIP SERVICES/MISSOURI, INC.
PHILIP SERVICES/MOBILE, INC.
PHILIP SERVICES/NORTH ATLANTIC, INC.
PHILIP SERVICES/NORTH CENTRAL, INC.
PHILIP SERVICES/OKLAHOMA, INC.
PHILIP PLANT SERVICES, INC.
PHILIP SERVICES/ATLANTA, INC.
BEC/PHILIP, INC.
PHILIP/WHITING, INC.
ALLWASTE OF CANADA LTD.
CALIGO RECLAMATION LTD.
ALLWASTE TANK CLEANING, INC.
ALLWASTE RAILCAR CLEANING, INC.
ALLWASTE RECOVERY SYSTEMS, INC.
PSC ENTERPRISES, INC.
ALLIES STAFFING, INC.
ALLIES STAFFING LTD.
ALLQUEST CAPITAL, INC.
PHILIP METALS (DELAWARE), INC.
INTSEL SOUTHWEST LIMITED PARTNERSHIP
PHILIP METALS INC.
PHILIP METALS RECOVERY (USA) INC.
PHILIP SERVICES (PENNSYLVANIA), INC.
<PAGE> 19
PHILIP METALS (NEW YORK), INC.
PHILIP ST, INC.
PHILIP CHEMISOLV HOLDINGS, INC.
PHILIP CHEMI-SOLV, INC.
DM ACQUISITION CORPORATION
DELTA MAINTENANCE, INC.
PHILIP REFRACTORY & CORROSION CORPORATION
HARTNEY CORPORATION
PHILIP REFRACTORY SERVICES, INC.
TOTAL REFRACTORY SYSTEMS, INC.
PHILIP REFRACTORY & CORROSION SERVICES, INC.
UNITED INDUSTRIAL MATERIALS, INC.
INDUSTRIAL SERVICES TECHNOLOGIES, INC.
ADVANCED ENVIRONMENTAL SYSTEMS, INC.
ADVANCED ENERGY CORPORATION
INTERNATIONAL CATALYST, INC.
IST HOLDING CORP.
CHEM-FAB, INC.
PIPING HOLDINGS CORP.
PIPING COMPANIES, INC.
PIPING MECHANICAL CORPORATION
HYDRO-ENGINEERING & SERVICE, INC.
MAC-TECH, INC.
<PAGE> 20
SERV-TECH DE MEXICO S DE R.L. DE C.V.
SERV-TECH MEXICANA S DE R.L. DE C.V.
PETROCHEM FIELD SERVICES DE VENEZUELA
PHILIP ENTERPRISE SERVICE CORPORATION
PHILIP MECHANICAL SERVICES OF LOUISIANA, INC.
PHILIP ST PIPING, INC.
PHILIP TECHNICAL SERVICES, INC.
PHILIP/SECO INDUSTRIES, INC.
TIPCO ACQUISITION CORP.
PRS HOLDING, INC.
PHILIP PETRO RECOVERY SYSTEMS, INC.
SERV-TECH EPC, INC.
SERV-TECH CONSTRUCTION AND MAINTENANCE, INC.
SERV-TECH ENGINEERS, INC.
PHILIP F.C. SCHAFFER, INC.
SERV-TECH INTERNATIONAL SALES, INC.
SERV-TECH OF NEW MEXICO, INC.
SERV-TECH SERVICES, INC.
SERV-TECH SUDAMERICANA S.A.
SERVTECH CANADA, INC.
ST DELTA CANADA, INC.
TERMINAL TECHNOLOGIES, INC.
RMF GLOBAL, INC.
<PAGE> 21
RMF INDUSTRIAL CONTRACTING, INC.
RMF ENVIRONMENTAL, INC.
PHILIP METALS (USA), INC.
ARC DUST PROCESSING (BARBADOS) LIMITED
PHENCORP INTERNATIONAL FINANCE INC.
PHENCORP INTERNATIONAL B.V.
PHILIP SERVICES (NETHERLANDS) B.V.
PHILIP SERVICES (EUROPE) LIMITED
ALLIED METALS LIMITED
B.M. METALS (RECYCLING) LTD.
BATH RECLAMATION (AVONMOUTH) CO. LIMITED
BLACKBUSHE LIMITED
BLACKBUSHE METALS (WESTERN) LIMITED
ELLIOTT METAL COMPANY LIMITED
SOUTHERN HAULIERS LIMITED
T.C. FRASER (METALS) LIMITED
E. PEARSE (HOLDINGS) LIMITED
E. PEARSE & CO., LIMITED
C. PHILIPP & SONS (BRISTOL) LIMITED
MAYER PEARSE LIMITED
WIDSITE LIMITED
PHILIP METALS (EUROPE) LIMITED
PHENCORP REINSURANCE COMPANY INC.
<PAGE> 22
PHILIP INTERNATIONAL DEVELOPMENT INC.
CECATUR HOLDINGS
PHILIP SERVICES (DELAWARE), L.L.C.
CHEMISOLV LIMITED
and all other Guarantor Subsidiaries (if any)
in each case by:
Colin Soule
Authorized Signatory
<PAGE> 23
EXHIBIT A
ALLOCATION OF REDUCTION IN LIMIT OF CREDIT
EXHIBIT A
PHILIP SERVICES CORP.
REVISED COMMITMENTS
<TABLE>
<CAPTION>
TR 1 % TR 2 % TR 3 % L/CS
------------ ------ ------------ ------ ------------ ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ABN AMRO..................... $ 22,052,504 11.01%
Banco Hispano................ $ 7,792,450 2.19%
Bank of America.............. $ 37,015,212 7.28%
Bank of Tokyo-Mes............ $ 32,902,410 6.45%
Bankers Trust................ $ 10,377,245 9.17% $ 18,507,605 3.83% $ 11,688,674 3.28% $12,572,042
BNP 15/Goldman50............. $ 36,754,480 18.35% $ 12,338,404 2.42%
Banque Paribas............... $ 15,564,899 4.37%
CIBC......................... $ 51,410,015 10.08% $16,762,722
Chase/TCB.................... $ 16,528,520 8.28% $ 1,948,112 0.55%
Commenca Bank................ $ 19,481,124 5.48%
Goldman Sachs................ $ 41,128,013 8.98%
CSFB......................... $ 16,451,285 3.23%
DKB.......................... $ 7,350,898 3.67% $ 19,481,124 5.49%
Deutsche Bank................ $ 28,789,608 5.85%
Dresdner..................... $ 14,377,245 9.17% $ 4,112,881 0.81% $ 19,481,124 5.49% $19,762,722
First Chicago NBD............ $ 37,015,212 7.26%
Fuji Bank.................... $ 18,377,245 9.17% $ 7,792,450 2.19%
Hibernia..................... $ 15,584,899 4.37%
IBJ.......................... $ 25,728,143 12.84%
Key Bank..................... $ 15,584,699 4.37%
Lloyds Bank Plc.............. $ 27,273,574 7.65%
LTCB......................... $ 35,066,023 9.84%
Mellon Bank.................. $ 16,451,205 3.23%
Mutual Life.................. $ 18,377,245 9.17%
National Bank................ $ 20,564,007 4.00%
NationsBank.................. $ 38,962,248 10.93%
PNC Bank..................... $ 38,962,248 10.93%
Royal Bk of Cda.............. $ 20,564,002 4.03% $16,762,722
Ryl Bk of Scotland........... $ 15,584,899 4.37%
Sakura Bank.................. $ 24,676,808 4.84%
Sanwa Bank................... $ 24,676,808 4.84%
Societe Generale............. $ 41,128,013 8.00%
Sumitomo Bank................ $ 18,377,245 9.17% $ 7,782,450 2.19%
Sumitomo Trust............... $ 3,886,225 1.09%
Summit....................... $ 15,594,028 4.37%
The BNS...................... $ 41,128,013 8.08%
Toronto Dominion............. $ 41,128,013 8.08%
Goldman Wasserstein.......... $ 15,584,589 4.37%
U.S. Bank.................... $ 7,792,450 2.19%
Wachovia Bank................ $ 15,584,890 4.37%
------------ ------ ------------ ------ ------------ ------ -----------
Total........................ $200,311,569 100% $509,987,361 100% $356,504,571 100% $62,560,208
<CAPTION>
% OPER % TOTAL
------ ----------- ------ --------------
<S> <C> <C> <C> <C>
ABN AMRO..................... $ 22,052,604
Banco Hispano................ $ 7,792,450
Bank of America.............. $ 37,015,212
Bank of Tokyo-Mes............ $ 32,902,410
Bankers Trust................ 20.00% $ 61,145,567
BNP 15/Goldman50............. $ 40,082,894
Banque Paribas............... $ 15,484,899
CIBC......................... 26.67% $ 68,172,738
Chase/TCB.................... $19,575,834 27.83% $ 38,053,567
Commenca Bank................ $21,716,488 30.80% $ 41,197,532
Goldman Sachs................ $ 41,128,013
CSFB......................... $ 16,451,285
DKB.......................... $ 26,032,022
Deutsche Bank................ $ 28,789,608
Dresdner..................... 26.67% $ 58,73,002
First Chicago NBD............ $ 37,015,212
Fuji Bank.................... $ 26,160,094
Hibernia..................... $ 15,584,899
IBJ.......................... $ 25,728,143
Key Bank..................... $ 15,584,699
Lloyds Bank Plc.............. $ 27,273,574
LTCB......................... $ 35,066,023
Mellon Bank.................. $ 16,451,205
Mutual Life.................. $ 18,377,245
National Bank................ $ 20,564,007
NationsBank.................. $ 38,962,248
PNC Bank..................... $ 38,962,248
Royal Bk of Cda.............. 26.67% $29,043,550 41.29% $ 66,370,278
Ryl Bk of Scotland........... $ 15,584,899
Sakura Bank.................. $ 24,676,808
Sanwa Bank................... $ 24,676,808
Societe Generale............. $ 41,128,013
Sumitomo Bank................ $ 26,169,054
Sumitomo Trust............... $ 3,886,225
Summit....................... $ 15,594,028
The BNS...................... $ 41,128,013
Toronto Dominion............. $ 41,128,013
Goldman Wasserstein.......... $ 15,584,589
U.S. Bank.................... $ 7,792,450
Wachovia Bank................ $ 15,584,890
------ ----------- ------ --------------
Total........................ 100% $70,335,892 100% $1,200,000,000
</TABLE>
<PAGE> 24
EXHIBIT B
<TABLE>
<CAPTION>
============================================================= =============================================================
RELEASED AMOUNTS RELEASE DATES
============================================================= =============================================================
<S> <C>
U.S. $10,000,000 to cash collateralize letters of credit Immediately on meeting conditions precedent
issued outside of Credit Agreement
- ------------------------------------------------------------- -------------------------------------------------------------
U.S. $12,000,000, for additional short term working capital Immediately on meeting conditions precedent
requirements
- ------------------------------------------------------------- -------------------------------------------------------------
U.S. $5,000,000 to cash collateralize letters of credit June 30, 1998
issued outside of Credit Agreement
- ------------------------------------------------------------- -------------------------------------------------------------
U.S. $8,000,000 for additional short term working capital July 2, 1998
requirements
- ------------------------------------------------------------- -------------------------------------------------------------
U.S. $5,000,000 to cash collateralize letters of credit July 22, 1998
issued outside of Credit Agreement
- ------------------------------------------------------------- -------------------------------------------------------------
U.S. $20,000,000 for additional short term working capital July 22, 1998
requirements
============================================================== =============================================================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 29,868
<SECURITIES> 0
<RECEIVABLES> 581,734
<ALLOWANCES> (16,585)
<INVENTORY> 126,747
<CURRENT-ASSETS> 823,382
<PP&E> 592,054
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,772,879
<CURRENT-LIABILITIES> 1,469,013
<BONDS> 0
<COMMON> 1,348,632
0
0
<OTHER-SE> (217,188)
<TOTAL-LIABILITY-AND-EQUITY> 2,772,879
<SALES> 0
<TOTAL-REVENUES> 1,361,891
<CGS> 0
<TOTAL-COSTS> 1,225,988
<OTHER-EXPENSES> 186,675
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,291
<INCOME-PRETAX> (74,598)
<INCOME-TAX> (1,020)
<INCOME-CONTINUING> (73,578)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (73,578)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> (0.56)
</TABLE>
