<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 September 30, 1999
Commission file number 0-20854
---------------------
PHILIP SERVICES CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
ONTARIO N/A
(State or Other Jurisdiction of Incorporation (I.R.S. Employer Identification Number)
or Organization)
100 KING STREET WEST, HAMILTON, ONTARIO L8N 4J6
(Address of Principal Executive Offices) (Zip Code)
</TABLE>
(905) 521-1600
(Registrant's Telephone Number, Including Area Code)
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 [ ]. No [X].
The number of shares of Common Shares of the Registrant, outstanding at
November 12, 1999 was 131,144,013.
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<PAGE> 2
REPORT INDEX
<TABLE>
<CAPTION>
PART AND ITEM NO. PAGE NO.
- ----------------- --------
<S> <C> <C>
PART I -- Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999
(unaudited) and December 31, 1998......................... 2
Consolidated Statements of Earnings for the Three and Nine
Months Ended September 30, 1999 and September 30, 1998
(unaudited)............................................... 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and September 30, 1998
(unaudited)............................................... 4
Notes to Consolidated Financial Statements (unaudited)...... 5
Item 2. Management's Discussion and Analysis of Financial Condition
and
Results of Operations..................................... 21
Item 3. Quantitative and Qualitative Disclosures About Market
Risk...................................................... 31
PART II -- Other Information
Item 1. Legal Proceedings........................................... 32
Item 2. Changes in Securities....................................... 35
Item 3. Defaults Upon Senior Securities............................. 35
Item 4. Submission of Matters to a Vote of Securities Holders....... 36
Item 5. Other Information........................................... 36
Item 6. Exhibits and Reports on Form 8-K............................ 36
Signature................................................... 39
</TABLE>
1
<PAGE> 3
PHILIP SERVICES CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and equivalents...................................... $ 58,643 $ 60,727
Accounts receivable (net of allowance for doubtful
accounts of $23,629; December 31, 1998 -- $24,354)..... 286,001 302,204
Inventory for resale...................................... 34,121 32,633
Other current assets...................................... 155,763 185,390
---------- ----------
534,528 580,954
Fixed assets................................................ 340,455 416,936
Other assets................................................ 72,815 100,967
---------- ----------
$ 947,798 $1,098,857
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities Not Subject to Compromise:
Current Liabilities:
Accounts payable....................................... $ 101,341 $ 86,584
Accrued liabilities.................................... 117,484 182,707
Current maturities of long-term debt................... 14,091 1,083,831
---------- ----------
232,916 1,353,122
Long-term debt............................................ 4,904 13,715
Deferred income taxes..................................... 16,935 15,982
Other liabilities......................................... 95,059 109,163
Liabilities Subject to Compromise (Note 6).................. 1,136,468 --
Contingencies
Shareholders' equity (deficit).............................. (538,484) (393,125)
---------- ----------
$ 947,798 $1,098,857
========== ==========
</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 U.S. DOLLARS, EXCEPT
SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
--------------------- -----------------------
1999 1998 1999 1998
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue........................................ $358,067 $422,876 $1,055,481 $1,505,648
Operating expenses............................. 324,941 352,232 925,327 1,255,324
Special charges (Note 10)...................... -- 356,633 -- 356,633
Selling, general and administrative costs...... 36,167 110,014 136,244 216,452
Depreciation and amortization.................. 13,259 25,886 41,664 75,664
-------- -------- ---------- ----------
Loss from operations........................... (16,300) (421,889) (47,754) (398,425)
Interest expense............................... 591 20,275 52,490 53,297
Other income and expense -- net................ (1,981) 19,191 (3,409) 726
Cumulative effect of change in accounting
principle (Note 11).......................... -- -- 1,543 --
-------- -------- ---------- ----------
Loss from continuing operations before tax and
reorganization costs......................... (14,910) (461,355) (98,378) (452,448)
Reorganization costs (Note 12)................. 64,032 -- 78,356 --
Income taxes................................... 1,237 37,224 5,587 35,007
-------- -------- ---------- ----------
Loss from continuing operations................ (80,179) (498,579) (182,321) (487,455)
Discontinued operations (net of tax) (Note
2)........................................... (3,064) (146,820) 34,668 (231,522)
-------- -------- ---------- ----------
Net loss....................................... $(83,243) (645,399) $ (147,653) $ (718,977)
======== ======== ========== ==========
Basic and diluted earnings (loss) per share
Continuing operations........................ $ (0.61) $ (3.80) $ (1.39) $ (3.72)
Discontinued operations...................... (0.02) (1.12) 0.26 (1.76)
-------- -------- ---------- ----------
$ (0.63) $ (4.92) $ (1.13) $ (5.48)
======== ======== ========== ==========
Weighted average number of common shares
outstanding (000's).......................... 131,144 131,144 131,144 131,126
======== ======== ========== ==========
</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 U.S. DOLLARS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30
---------------------
1999 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss from continuing operations......................... $(182,321) $(487,455)
Items included in earnings not affecting cash
Depreciation and amortization............................. 41,664 55,810
Amortization of goodwill.................................. -- 19,854
Accrued but unpaid interest (Note 6a)..................... 49,540 --
Deferred income taxes..................................... 2,135 31,129
Writedown of investments.................................. 4,220 --
Gain on sale of assets.................................... (3,523) (16,843)
Non-cash reorganization costs............................. 64,239 --
Special charges (Note 10)................................. -- 447,897
--------- ---------
Cash flow from continuing operations........................ (24,046) 50,392
Changes in non-cash working capital......................... 11,571 (103,298)
--------- ---------
Cash used in continuing operating activities................ (12,475) (52,906)
Cash provided by (used in) discontinued operating
activities................................................ 2,834 (11,077)
--------- ---------
Cash used in operating activities........................... (9,641) (63,983)
--------- ---------
INVESTING ACTIVITIES
Proceeds from sale of operations............................ 23,085 104,922
Acquisitions -- including acquired cash (bank
indebtedness)............................................. -- (21,483)
Purchase of fixed assets.................................... (21,711) (46,951)
Proceeds from sale of fixed assets.......................... 12,292 23,798
Other -- net................................................ (295) (24,780)
--------- ---------
Cash provided by continuing investing activities............ 13,371 35,506
Cash provided by (used in) investing activities of
discontinued operations................................... 66,969 (13,315)
--------- ---------
Cash provided by investing activities....................... 80,340 22,191
--------- ---------
FINANCING ACTIVITIES
Proceeds from long-term debt................................ 140 176,962
Principal payments on long-term debt........................ (75,438) (93,007)
Common shares issued for cash............................... -- 566
--------- ---------
Cash provided by (used in) continuing financing
activities................................................ (75,298) 84,521
Cash provided by (used in) financing activities of
discontinued operations................................... 2,515 (21,283)
--------- ---------
Cash provided by (used in) financing activities............. (72,783) 63,238
--------- ---------
Net change in cash for the period........................... (2,084) 21,446
Cash and equivalents, beginning of period................... 60,727 27,391
--------- ---------
Cash and equivalents, end of period......................... $ 58,643 $ 48,837
========= =========
</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. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Philip
Services Corp. and its subsidiaries (the "Company") and have been prepared in
U.S. 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 audited Consolidated Financial Statements
included in the Company's Form 10-K for the fiscal year ended December 31, 1998.
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 months and nine months ended September 30, 1999 and
September 30, 1998.
For all periods presented, the Consolidated Financial Statements and Notes
to the Consolidated Financial Statements disclose the Utilities Management
division sold in May 1999 and the Company's Copper and Non-ferrous operations
discontinued in 1998 as discontinued operations, as discussed in Note 2.
BANKRUPTCY FILING AND PLAN OF REORGANIZATION
On June 25, 1999, the Company and substantially all of its wholly-owned
subsidiaries located in the United States (the "U.S. Debtors") filed voluntary
petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code with
the United States Bankruptcy Court for the District of Delaware (the "U.S.
Court"). The Company and substantially all of its wholly-owned subsidiaries
located in Canada (the "Canadian Debtors") commenced proceedings under the
Companies' Creditors Arrangement Act ("CCAA") in Canada in the Ontario Superior
Court of Justice (the "Canadian Court") on the same date. The U.S. Debtors and
the Canadian Debtors (collectively the "Debtors") are currently operating as
debtors-in-possession under the supervision of the U.S. Court and Canadian Court
(collectively the "Courts"). Under these proceedings, substantially all
liabilities, litigation and claims against the Debtors in existence at the
filing date are stayed unless the stay is modified or lifted or payment has been
otherwise authorized by the Courts. The Debtors are authorized to continue to
pay in the ordinary course of their business both the pre-petition and
post-petition claims of trade creditors who continue to supply trade credit on
terms at least as favourable as those previously extended and to pay the
outstanding and future wages, salaries, employee benefits and other like amounts
due or accruing to current employees. With the interim and final orders received
in July 1999, the Courts have also authorized and directed the Debtors to enter
into debtor-in-possession ("DIP") financing which will provide financing of up
to $100 million and allows the Debtors access to $93 million of proceeds
remaining from previous sales of non-core assets. As of September 30, 1999, the
Company has drawn $52.2 million of these proceeds and except for up to $20
million in letters of credit, no amounts can be drawn on the DIP facility until
all of the asset proceeds are utilized.
On July 12, 1999, the U.S. Debtors filed a Joint Plan of Reorganization
(the "U.S. Plan") with the U.S. Court and on July 15, 1999, the Canadian Debtors
filed a Plan of Compromise and Arrangement (the "Canadian Plan") with the
Canadian Court. In August 1999, a number of motions were brought before the
Canadian Court challenging the fairness of the Canadian Plan. The motions were
brought by, among others, certain of the Company's creditors claiming
contribution and indemnity from the Company, including Deloitte & Touche LLP,
the underwriters of the Company's November 1997 public offering (the
"Underwriters") and certain former directors and officers. In respect of the
August 1999 motions, it was held that the Canadian Plan as initially filed,
failed to comply with the procedural and statutory requirements of the CCAA
5
<PAGE> 7
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
1. BASIS OF PRESENTATION (continued)
regime. As a result of the decision, the Company filed a plan in the U.S. Court
on September 21, 1999 (the "Amended U.S. Plan") and an amended plan in the
Canadian Court on September 24, 1999 (the "Amended Canadian Plan"). In summary,
the Amended Canadian Plan provided that in order for the Company to be able to
propose a restructuring plan to its unsecured creditors, the Company had to by
October 27, 1999, either (a) arrive at a settlement with each of the
contribution and indemnity claimants or (b) agree with each of the contribution
and indemnity claimants as to the amount of each of their claims and have the
agreement of each such claimant that they would vote in favour of the plan. In
an attempt to arrive at a global settlement and therefore meet the conditions of
the Amended Canadian Plan, a mediation was held on October 25th and October
26th, 1999 involving various parties. As the mediation was unsuccessful, the
Company brought a motion returnable November 1, 1999, to cancel the meeting of
the affected unsecured creditors scheduled for November 2, 1999 and filed a
Supplement to the Amended Canadian Plan (the "Canadian Plan Supplement"). The
Canadian Plan Supplement amended and restated the Amended Canadian Plan such
that the only affected class of creditors is the holders of secured lender
claims and unsecured creditors would no longer be affected. The Canadian Plan
Supplement provides that substantially all of the assets of the Canadian debtors
will be transferred to new companies that, on the implementation of the Amended
U.S. Plan will be wholly owned subsidiaries of Philip Services (Delaware), Inc
("PSI"). All the shares held by the Company in PSI will be cancelled under the
Amended U.S. Plan. The motions brought by the Company, Deloitte & Touche LLP and
the Underwriters were heard in the Canadian Courts on November 1, 1999 at which
time the judge reserved decision until November 5, 1999. On November 3, 1999 a
hearing was held in the U.S. Court to consider confirmation of the Amended U.S.
Plan. At that hearing, the U.S. court overruled all remaining objections to the
Amended U.S. Plan and scheduled a hearing on November 30, 1999 to review the
terms of the exit facility. On November 4, 1999, the Canadian Court allowed the
motion to cancel the meeting of the unsecured creditors in Canada and the
motions of Deloitte & Touche LLP and the Underwriters were dismissed. On
November 5, 1999, the Company's lenders voted to approve the Canadian Plan
Supplement. As the judge has dismissed the only outstanding objections to the
Company completing its financial reorganization under the CCAA, a hearing will
be scheduled in the Canadian Court to sanction the Canadian Plan Supplement.
The Amended U.S. Plan and the Canadian Plan Supplement (collectively the
"Plan") provides that the existing syndicated debt of approximately $1 billion
be converted into $250 million of senior secured debt, $100 million of
convertible secured payment in-kind debt and 91% of the common shares of PSI.
The payment in-kind debt is convertible into 25% of the common shares of PSI on
a fully diluted basis as of the plan implementation date. The senior secured
debt and the secured payment in-kind debt each have a term of five years. The
Plan also provides for the conversion of certain specified impaired unsecured
claims, into $60 million of unsecured payment in-kind notes and 5% of the common
shares of PSI as of the plan implementation date. Certain holders of the
unsecured claims to be compromised may elect to receive $1.50 in face amount of
unsecured convertible notes in exchange for every $1.00 in face amount of
unsecured payment in-kind notes that such holder would have received under the
Plan. The aggregate amount of unsecured convertible notes to be issued shall not
exceed $18 million. The Company has also reached an agreement in principle with
the Canadian and U.S. class action plaintiffs to settle all class action claims
for 1.5% of the common shares of PSI. This agreement is subject to final
documentation and the approval of the Courts. Other potential equity claimants
will receive 0.5% of the common shares of PSI and existing shareholders will
receive 2% of the common shares of PSI. The Plan provides that the Board of
Directors of PSI consists of nine directors who will be nominated by the new 91%
shareholders (i.e., the lenders). The nominees will include two members of the
existing Board and two members will be nominated by High River Limited
Partnership ("High River") provided that High River and any lender acting in
concert with it beneficially own at least 25% of the syndicated debt.
6
<PAGE> 8
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
1. BASIS OF PRESENTATION (continued)
These consolidated financial statements have been prepared on the basis of
accounting principles applicable to a going concern which in this situation
assumes that the Company will realize the carrying value of its assets, and
satisfy its obligations and commitments except as otherwise disclosed, in the
normal course of business. However, as a result of the filings and the
circumstances relating to this event, such realization of assets and liquidation
of liabilities is subject to significant uncertainty. Furthermore, the Company's
ability to continue as a going concern is dependent upon the confirmation of the
Plan by the Courts, achievement of profitable operations and the ability to
generate sufficient cash from operations and financing sources to meet
obligations. While under protection and with the approval of the Courts, the
Company may sell or otherwise dispose of assets and liquidate or settle
liabilities for amounts other than those reflected in the consolidated financial
statements. Further, implementation of the Plan could materially change the
amounts and classifications reported in the consolidated financial statements.
The financial statements do not give effect to any adjustments to the carrying
value of assets or amounts and priority of liabilities that might be necessary
as a consequence of the Plan and the application of fresh start accounting.
These financial statements do not reflect the adjustments and disclosures that
would be necessary if the Plan were not confirmed.
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
estimates and judgments made in preparing these financial statements which
include assumptions made concerning the acceptance of the Plan.
REFLECTING THESE EVENTS IN THE FINANCIAL STATEMENTS
In preparing the Company's financial statements, management has assessed
the degree to which the events or changes in circumstances impact the
recoverability of the carrying amount of the Company's assets and the amounts
owing to lenders and creditors.
The Company's financial statements as of September 30, 1999 have been
presented in conformity with the AICPA's Statement of Position 90-7 "Financial
Reporting By Entities In Reorganization Under the Bankruptcy Code" ("SOP 90-7").
The statement requires that the amounts owing to the Company's lending syndicate
as well as any other pre-petition liabilities that are subject to compromise
under the Plan be segregated in the Company's Consolidated Balance Sheet as
liabilities subject to compromise and the identification of all transactions and
events that are directly associated with the reorganization of the Company in
the Consolidated Statement of Earnings. The liabilities are recorded at the
amounts expected to be allowed as claims by the Courts, rather than the amounts
for which those allowed claims may ultimately be settled. As the claims are
settled, the amounts included in the Consolidated Balance Sheet at September 30,
1999, as liabilities subject to compromise, may be subject to adjustment.
2. DISCONTINUED OPERATIONS (in thousands)
On May 18, 1999, the Company sold its investment in Philip Utilities
Management Corp. ("PUMC") for cash proceeds of $70,104, resulting in a gain on
sale of $39,115. The operations of PUMC, previously reported as the Utilities
Management division of the Industrial Services group, are now reflected as
discontinued operations. In December 1998, the Company made the decision to
discontinue the Non-Ferrous and Copper operations of its Metals Services
business. The sale of certain aluminum operations included in the Non-Ferrous
operations closed on January 11, 1999 for a total consideration of approximately
$69,500. Certain of the Copper and Non-ferrous operations or assets are
anticipated to be sold while the remainder of the operations in these segments
will be closed during 1999.
7
<PAGE> 9
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
2. DISCONTINUED OPERATIONS (in thousands) (continued)
Revenue from the Non-Ferrous, Copper and Utilities Management operations,
net of intercompany revenue, was $8,228 and $66,468 for the three and nine
months ended September 30, 1999, respectively. Net earnings from discontinued
operations in the Consolidated Statement of Earnings is presented net of
applicable income tax provision of nil and $674 for the three and nine months
ended September 30, 1999, respectively. No interest or general corporate
overhead was allocated to these discontinued operations.
Revenue from the Non-Ferrous, Copper and Utilities Management operations,
net of intercompany revenue, was $114,363 and $393,482 for the three and nine
months ended September 30, 1998, respectively. Loss from discontinued operations
in the Consolidated Statement of Earnings is presented net of applicable income
tax provision of $47,212 and $48,409 for the three and nine months ended
September 30, 1998, respectively.
3. OTHER CURRENT ASSETS (in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Restricted cash(a).......................................... $ 77,579 $ 28,423
Work in progress............................................ 16,489 17,209
Small parts and supplies.................................... 17,531 18,128
Prepaid expenditures........................................ 10,410 14,052
Non-trade receivables....................................... 13,682 9,911
Other....................................................... 17,096 13,149
Net current assets from discontinued operations(b).......... 2,976 84,518
-------- --------
$155,763 $185,390
======== ========
</TABLE>
(a) Restricted cash represents funds used as collateral for letters of credit,
and proceeds from the sale of assets which are currently held by the
Company's lenders and to which the Company has access under a stipulation
and order authorizing the use of cash collateral made by the U.S. Court on
June 28, 1999.
(b) Net current assets from discontinued operations for December 31, 1998
include proceeds receivable of approximately $69,500 from the sale of the
aluminum operations (Note 2).
4. OTHER ASSETS (in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Restricted investments(a)................................... $32,430 $ 31,016
Deferred financing costs.................................... -- 836
Investments................................................. 13,807 18,810
Other intangibles........................................... 5,551 9,046
Other....................................................... 21,027 28,089
Net long-term assets of discontinued operations............. -- 13,170
------- --------
$72,815 $100,967
======= ========
</TABLE>
(a) Restricted investments support the Company's self-insurance program and are
invested and managed by the Company's wholly-owned insurance subsidiary.
8
<PAGE> 10
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
5. ACCRUALS (in thousands)
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Accrued employee compensation and benefit costs............. $ 27,360 $ 40,537
Accrued insurance costs..................................... 29,001 32,678
Accrued purchases........................................... 13,589 20,062
Income taxes payable........................................ 8,147 8,058
Accrued restructuring costs................................. 10,674 17,520
Accrued other............................................... 28,713 63,852
-------- --------
$117,484 $182,707
======== ========
</TABLE>
6. LIABILITIES SUBJECT TO COMPROMISE (in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Bank term loan(a)........................................... $1,004,086 $ --
Convertible subordinated debentures(b)...................... 27,609 --
Other long-term debt(c)..................................... 24,137 --
Accrued liabilities......................................... 28,698 --
Other long-term liabilities................................. 27,460 --
Liabilities of discontinued operations...................... 24,478 --
---------- ----------
$1,136,468 $ --
========== ==========
</TABLE>
(a) In August 1997, the Company signed a $1.5 billion revolving credit agreement
which was amended in October 1997, February 1998, June 1998, October 1998
and December 1998 (the "Credit Facility") with a syndicate of international
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 specified interest coverage ratio, debt to
EBITDA ratio, fixed charge ratio and working capital ratio tests, and (b)
acquisitions by the Company are subject to lenders' approval.
Since June 30, 1998, the Company has not been in compliance with certain
covenants in the Credit Facility, including the 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 was not in compliance with the terms of its Credit Facility, the
debt outstanding under the Credit Facility was classified as a current
liability on the Company's Consolidated Balance Sheet at December 31, 1998.
Borrowings under the Credit Facility are guaranteed, jointly and severally
by the Company and its direct and indirect wholly-owned subsidiaries and
are secured by a pledge of the issued and outstanding securities of the
Company's direct and indirect wholly-owned subsidiaries, and a charge over
the present and future assets of the Company and its direct and indirect
wholly-owned subsidiaries. The Credit Facility bears interest based on a
moving grid. In June 1998, the Credit Facility was reduced from $1.5
billion to $1.2 billion, the interest rate charged was increased by 100
basis points, the Company was permitted access to $60 million of the
proceeds arising from an asset disposition of which $20 million was
allocated to provide collateral for letters of credit and the Company
agreed to a standstill until September 30, 1998 respecting the incurrence
of additional debt and the occurrence of dispositions or acquisitions. On
October 20, 1998, the Credit Facility was further amended to permit the use
of the letter of credit facility for general corporate and other purposes
and to extend the Company standstill on certain
9
<PAGE> 11
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
6. LIABILITIES SUBJECT TO COMPROMISE (in thousands) (continued)
activities until June 30, 1999. In November 1998, the Company suspended
payments of interest under the Credit Facility. Interest on the borrowings
under the Credit Facility ceased to accrue at the filing date. The interest
expense that would have accrued on the outstanding Credit Facility for the
third quarter of 1999 was $23.9 million.
The Plan sets forth a new capital structure for the Company and the
conditions that govern the restructuring of approximately $1.0 billion in
secured term loans outstanding, which includes accrued but unpaid interest,
under the Credit Facility. Under the terms of the Plan, the lenders will
convert the outstanding $1.0 billion of secured debt into $250 million of
senior secured debt, $100 million of convertible secured payment in-kind
debt and 91% of the common shares of PSI. The secured payment in-kind debt
is convertible into 25% of the common shares of PSI on a fully diluted
basis as of the plan implementation date. The senior secured debt and the
secured payment in-kind debt each have a term of five years.
(b) On the acquisition of Allwaste, Inc. ("Allwaste") the Company assumed the
indenture with respect to Allwaste's 7 1/4% Convertible Subordinated
Debentures ("debenture") which are due 2014. At any time up to and including
June 1, 2014 the holder of any debenture will have the right to convert the
principal amount of such debenture into common shares equal to the principal
amount of the debenture surrendered for conversion divided by $19.5376. The
debentures are redeemable for cash at the option of the Company. The
debentures provide for annual mandatory sinking fund payments equal to 5% of
the aggregate principal amount of the debenture issued, commencing June 1,
1999. Interest is payable semi-annually on June 1 and December 1. Effective
December 1, 1998, the Company suspended payments of interest on the
debenture which created a default under the indenture. Interest accrued on
the debenture as at September 30, 1999 is approximately $2 million. The
amount of the debentures outstanding was classified as a current liability
on the Consolidated Balance Sheet at December 31, 1998. Interest on the
debenture ceased to accrue as of the filing date. The interest expense that
would have accrued on the outstanding debenture for the third quarter of
1999 was $0.5 million.
(c) Included in other long-term debt are promissory notes, relating to certain
1996 and 1997 acquisitions, totalling $16,000 which are in default as
principal repayments required were not made. At December 31, 1998, $11,000
of these notes were in default and therefore were classified as a current
liability on the Company's December 31, 1998 Consolidated Balance Sheet.
The Plan provides for the conversion of liabilities subject to compromise
other than the Bank term loan into $60 million of unsecured payment in-kind
notes and 5% of the common shares of PSI as of the plan implementation
date. The holders of the liabilities to be compromised may elect to receive
$1.50 in face amount of unsecured convertible notes in exchange for every
$1.00 in face amount of unsecured payment in-kind notes that such holder
would have received under the Plan. The aggregate amount of unsecured
convertible notes to be issued shall not exceed $18 million.
10
<PAGE> 12
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
7. LONG-TERM DEBT (in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Bank term loan (Note 6a).................................... $ -- $1,025,253
Convertible subordinated debentures (Note 6b)............... -- 25,609
Secured loans bearing interest at a weighted average fixed
rate of 6.1% maturing at various dates up to 2020(a)...... 9,344 12,431
Secured loans bearing interest at prime plus a weighted
average floating rate of 0.7% maturing at various dates up
to 2008................................................... 1,917 3,100
Loans unsecured, bearing interest at a weighted average
fixed rate of 6.6%, maturing at various dates up to 2005
(Note 6c)................................................. 384 17,136
Obligations under capital leases on equipment bearing
interest at rates varying from 6% to 12% maturing at
various dates to 2004..................................... 7,350 12,800
Other....................................................... -- 1,217
------- ----------
18,995 1,097,546
Less current maturities of long-term debt................... 14,091 1,083,831
------- ----------
$ 4,904 $ 13,715
======= ==========
</TABLE>
(a) Included in the fixed rate secured loans are industrial development bonds
totaling $7,700 which were in default as at December 31, 1998, and September
30, 1999 as principal repayments required were not made. Therefore, these
loans have been classified as a current liability on the Company's
Consolidated Balance Sheets at December 31, 1998 and September 30, 1999.
8. SHAREHOLDERS' EQUITY (DEFICIT) (in thousands, except number of shares)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Share capital............................................... $1,351,482 $1,351,482
Retained earnings (deficit)................................. (1,820,799) (1,673,146)
Cumulative foreign currency translation adjustment.......... (69,167) (71,461)
---------- ----------
$ (538,484) $ (393,125)
========== ==========
</TABLE>
The issued capital of the Company is comprised of 131,144,013 common shares
(December 31, 1998 -- 131,144,013).
9. CHANGES IN NON-CASH WORKING CAPITAL (in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1999 1998
-------- ---------
<S> <C> <C>
Accounts receivable......................................... $ (84) $ 25,126
Inventory for resale........................................ (1,405) 14,030
Other....................................................... 31,896 (61,182)
Accounts payable and accrued liabilities.................... (16,284) (73,130)
Income taxes................................................ (2,552) (8,142)
-------- ---------
$ 11,571 $(103,298)
======== =========
</TABLE>
11
<PAGE> 13
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
9. CHANGES IN NON-CASH WORKING CAPITAL (in thousands) (continued)
STATEMENTS OF CASH FLOWS
The supplemental cash flow disclosures and non-cash transactions for the
nine months ended September 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1999 1998
------ -------
<S> <C> <C>
Supplemental Disclosures:
Interest paid............................................... $2,182 $68,207
Income taxes paid........................................... 7,687 --
Non Cash Transactions:
Capital leases and debt obligations for the purchase of
property and equipment.................................... -- 2,764
Debt and liabilities incurred or assumed in acquisitions.... -- 189
Notes receivable for the sale of equipment.................. 1,875 --
</TABLE>
10. SPECIAL CHARGES (in thousands)
1998
The following table summarizes the special charges recorded by the Company
in the three and nine months ended September 30, 1998 and identifies where they
are disclosed in the Statements of Earnings:
<TABLE>
<S> <C>
Asset impairments and other costs recorded as special
charges(a).................................................. $356,633
Costs recorded as selling, general and administrative
expenses(b)............................................... 53,000
Writedowns of investments recorded as other income and
expenses(c)............................................... 38,250
--------
Pre-tax..................................................... $447,883
========
After tax................................................... $447,883
========
</TABLE>
(a) For the nine months ended September 30, 1998, the Company recorded a charge
of $356,633 reflecting the effects of (i) decisions made with respect to the
potential disposition of certain operations, (ii) impairments of fixed
assets and related goodwill resulting both from decisions to exit various
business locations or activities and dispose of the related assets, and
(iii) assessments of the recoverability of fixed assets and the related
goodwill of business units in continuing use as a result of the significant
deterioration in metal markets and business operations of the Company in the
third quarter of 1998.
All businesses assessed for asset impairment were acquired in purchase
business combinations and, accordingly, the goodwill that arose in the
transactions was included in the tests for recoverability. Assets to be
disposed of were valued at their estimated net realizable value while the
value of the assets of the business units to be continued were assessed at
fair value principally using discounted cash flow methods.
12
<PAGE> 14
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
10. SPECIAL CHARGES (in thousands) (continued)
The special charges related to asset impairments and other costs are
comprised of the following items:
<TABLE>
<S> <C>
Business units, locations or activities to be exited:
Fixed assets written down to estimated net realizable
value of $4,900.................................... $ 12,000
Future lease and other exiting costs.................. 8,400
Business units to be continued:
Goodwill written off.................................. 325,000
Fixed assets written down to estimated net realizable
value of $1,000.................................... 11,233
--------
$356,633
========
</TABLE>
(b) Included in selling, general and administrative costs in the three months
ended September 30, 1998 are costs of $20,000 relating to charges for
financing fees and debt restructuring costs. Deferred financing costs which
were previously amortized over the life of the credit agreement were written
off as the existing credit agreement will be replaced. The Company's
financial position, its planned divestitures, litigation with debtors,
unexpected financial difficulties of certain customers and a general
deterioration in customer market conditions necessitated the recording of an
additional provision for doubtful accounts of $25,000. The remainder of the
charges recorded in selling, general and administrative costs related to
severance payments and other costs recorded in the three months ended
September 30, 1998 relating to ongoing cost reduction measures and
restructuring.
(c) The Company's 24.2% investment in Innovative Valve Technologies Inc.
("Invatec"), is accounted for using the equity method of accounting. Invatec
is a publicly traded company which provides comprehensive maintenance
repair, replacement and value-added distribution services of industrial
valves and process system components. The reduction in carrying value of
$25,000 at September 30, 1998 recognized a potentially long-term impairment
in value which was reflected by the market performance of Invatec's shares.
The Company's investment in Strategic Holdings Inc., which was accounted
for at cost, was divested in the fourth quarter of 1998 for less than its
book value. Accordingly, a writedown of the investment of $13,250 was
recorded in the three months ended September 30, 1998 as part of Other
income and expense-net.
11. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING POLICY
The American Institute of Certified Public Accountants has issued Statement
of Position 98.5 "Reporting on the Costs of Start-Up Activities" which is
effective for fiscal years beginning after December 15, 1998. This statement
requires that all pre-operating costs be expensed as incurred. The statement
also requires that upon initial application any previous pre-operating costs
that had been deferred be expensed and reported as a cumulative effect of a
change in accounting principle.
13
<PAGE> 15
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
12. REORGANIZATION COSTS (in thousands)
The expenses resulting from the Company's reorganization filings has been
segregated from expenses related to operations in the accompanying Statements of
Earnings and includes the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Write-off of unamortized debt issue costs on
subordinated debentures................................ $ -- $ 800
Provision for future lease rejections.................. -- 6,164
Provision for litigation claims........................ -- 6,360
Assets written down to net realizable value............ 49,915 49,915
Professional fees...................................... 6,839 6,839
Employee retention and severance costs................. 6,424 6,424
Other.................................................. 854 1,854
------- -------
$64,032 $78,356
======= =======
</TABLE>
13. COMPREHENSIVE INCOME (in thousands)
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. Comprehensive income for the Company is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
--------------------- ----------------------
1999 1998 1999 1998
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net loss................................... $(83,243) $(645,399) $(147,653) $(718,977)
Other comprehensive income, net of tax:
Translations adjustments................. 2,836 (16,454) 2,294 (28,939)
-------- --------- --------- ---------
Comprehensive loss......................... $(80,407) $(661,853) $(145,359) $(747,916)
======== ========= ========= =========
</TABLE>
14. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 2000. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that an entity recognize these items as assets
or liabilities in the statement of financial position and measure them at fair
value. The effect on the Company of the adoption of this standard is not
anticipated to be material.
15. SEGMENTED INFORMATION (in thousands)
The Company has two distinct business operations, Metals Services and
Industrial Services. The Industrial Services operations have two business
segments, By-Products Recovery and Industrial Outsourcing Services. By-Products
recovery includes solvent distillation, engineered fuel blending, paint
overspray recovery, organic and inorganic processing and polyurethane recycling.
Industrial Outsourcing Services includes cleaning and maintenance, waste
collection and transportation, decommissioning and remediation, analytical
services, emergency response services, container services and tank cleaning,
turnaround and outage services, mechanical contracting and refractory services.
14
<PAGE> 16
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
15. SEGMENTED INFORMATION (in thousands) (continued)
The Metals Services operations have two business segments, Ferrous Services
and Industrial Metals Services ("IMS"). Ferrous services include the collection
and processing of ferrous scrap materials for shipment to steel mills as well as
significant brokerage services for scrap materials and primary metals. The IMS
group provides mill services and engineering and consulting services.
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
--------------------------------------------------------------------------
INDUSTRIAL CORPORATE
BY-PRODUCTS OUTSOURCING FERROUS AND
RECOVERY SERVICES SERVICES IMS ELIMINATIONS TOTAL
----------- ----------- -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue.................. $112,392 $ 598,887 $328,335 $15,867 $ -- $1,055,481
Income (loss) from
operations............. (909) (15,726) 7,333 (5,613) (32,839) (47,754)
Total assets............. 119,136 1,200,595 267,906 11,549 (651,388) 947,798
Depreciation and
amortization........... 6,004 22,725 10,688 259 1,988 41,664
Capital expenditures..... 882 14,428 5,507 702 192 21,711
Equity investments....... -- 3,109 4,643 -- 3,569 11,321
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1998
--------------------------------------------------------------------------
INDUSTRIAL CORPORATE
BY-PRODUCTS OUTSOURCING FERROUS AND
RECOVERY SERVICES SERVICES IMS ELIMINATIONS TOTAL
----------- ----------- -------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue.................. $152,974 $ 706,871 $613,434 $32,369 $ -- $1,505,648
Income (loss) from
operations............. 1,375 15,920 (317,239) (883) (97,598) (398,425)
Total assets............. 169,928 1,699,135 508,153 32,640 (450,539) 1,959,317
Depreciation and
amortization........... 8,018 34,434 24,615 950 7,647 75,664
Capital expenditures..... 1,936 24,188 18,021 2,034 3,536 49,715
Equity investments....... -- 8,369 3,167 -- 4,833 16,369
</TABLE>
The geographical segmentation of the Company's business is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------------------------------------
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------------ ------------------------
LONG-LIVED LONG-LIVED
REVENUE ASSETS REVENUE ASSETS
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Canada.................................... $ 142,639 $ 98,684 $ 196,652 $129,802
United States............................. 834,762 245,655 1,224,109 317,143
Europe.................................... 78,080 61,236 84,887 85,561
---------- -------- ---------- --------
$1,055,481 $405,575 $1,505,648 $532,506
========== ======== ========== ========
</TABLE>
16. 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.
15
<PAGE> 17
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
16. CONTINGENCIES (in thousands) (continued)
Certain of the Company's facilities are contaminated primarily 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 $66,832 (December 31, 1998 --
$66,097).
As well, certain subsidiaries acquired by the Company have been named as
potentially responsible or liable parties in connection with sites listed
on the Superfund National Priority List ("NPL"). In the majority of the
cases, 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
accrued its estimate of its liability to remediate these sites at $20,592
(December 31, 1998 -- $20,827). If it is determined that more expensive
remediation approaches may be required in the future, the Company could
incur additional obligations of up to $35,000.
The liabilities discussed above are disclosed in the Consolidated Balance
Sheets as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1999 1998
------------ -----------
<S> <C> <C>
Net current assets from discontinued operations.......... $ 1,400 $ 1,400
Accrued liabilities...................................... 8,507 7,051
Other long-term liabilities.............................. 76,131 78,473
Liabilities subject to compromise........................ 1,386 --
------- -------
$87,424 $86,924
======= =======
</TABLE>
(b) Various class actions have been filed against the Company, certain of its
past and present directors and officers, the underwriters of the Company's
1997 public offering and the Company's auditors. Each action alleges that
the Company'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 the Company's common shares. On June 2, 1998 the Judicial
Panel on Multidistrict Litigation ordered that the class actions be
consolidated and transferred to the United States District Court, Southern
District of New York. On July 23, 1998, two pre-trial orders of the District
Court 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. On November 13, 1998, the Company filed a motion
for an order dismissing the class action on the grounds of forum non
conveniens. On May 12, 1999, the Company received notice that the United
States District Court, Southern District of New York, ruled in favour of the
Company's motion to dismiss the U.S. plaintiffs' consolidated and amended
class action complaint on forum non conveniens grounds. The District Court
declined to assume jurisdiction over the complaint on the grounds that
Ontario provides an adequate alternative forum for litigation of the class
action plaintiff's claims, and ruled that adjudication in Ontario would be
more convenient and best serve the public interest. The plaintiffs are
appealing this decision.
16
<PAGE> 18
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
16. CONTINGENCIES (in thousands) (continued)
A claim brought under the Ontario Class Proceedings Act was commenced on
October 26, 1998 against the Company, the underwriters of the Company's
1997 public offering and the Company's auditors. The claim was brought on
behalf of persons in Canada who purchased common shares of the Company
between November 6, 1997 and December 18, 1997 and also seeks damages on
behalf of persons in Canada who purchased common shares between May 21,
1996 and April 23, 1998. The claim contains various allegations that are
similar in nature to those made in the U.S. class action claims dismissed
on May 4, 1999.
On June 25, 1999, the Company, the U.S. class action plaintiffs and the
Canadian class action plaintiffs entered into a memorandum of understanding
(the "MOU") with respect to the settlement of the U.S. and Canadian class
actions (collectively the "Security Claims"). The MOU provides that the
U.S. and Canadian class action plaintiffs will receive 1.5% of the common
shares of PSI in exchange for a release and discharge of all claims. The
settlement contemplated by the MOU is subject to the execution of
definitive documentation and to the approval of the U.S. Court and the
Canadian Court. Additionally, the MOU provides that the Debtors will
support a joint application for attorneys' fees and reasonable expenses of
plaintiff's counsel not to exceed $575,000, subject to approval by the
Courts, and which shall not be payable until after the plan implementation
date. The claims and causes of actions against the Debtors described in the
preceding two paragraphs are classified in the Amended U.S. Plan as Class
8B Securities Claims. Under the Amended U.S. Plan, the Securities Claims
will be discharged as of the plan implementation date. There can be no
assurance that the Amended U.S. Plan will be confirmed by the U.S. Court.
If the Plan is not confirmed there can be no assurance that the U.S. and
Canadian class actions will not have a material adverse effect on the
financial condition or results of operations of the Company.
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 (the "Liff Actions") and the
Southern-Foundry Supply group of companies (the "Chazen Actions"). Philip
acquired these companies in October of 1997 and issued the Company's common
shares in partial payment of the purchase price. The claims allege that the
Company'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 U.S. securities laws.
Under the Amended U.S. Plan, the claims in the Liff Actions and the Chazen
Actions are classified as Class 8C claims. The Amended U.S. Plan provides
that the claims against the Debtors arising from the Liff Actions and the
Chazen Actions will be discharged on the plan implementation date.
Therefore, if the Amended U.S. Plan is confirmed and consummated, after the
plan implementation date, the claims arising from the Liff Actions and the
Chazen Actions cannot be pursued against the reorganized Debtors. There can
be no assurance that the Amended U.S. Plan will be confirmed by the U.S.
Court. If the Amended U.S. Plan is not confirmed there can be no assurance
that the Liff Actions or Chazen Actions will not have a material adverse
effect on the financial condition or results of operations of the Company.
(c) Upon the acquisition of Allwaste, the Company assumed the pre-existing
indenture with respect to the Allwaste's 7 1/4% Convertible Subordinated
Debentures ("Old Debentures") which are due in 2014. Effective December 1,
1998, the Company suspended payments of interest on the Old Debentures which
created a default under the indenture. Following the Company's failure to
cure the payment default within thirty days, on April 22, 1999, First Union
National Bank (the "Indenture Trustee") invoked an acceleration clause and
declared the principal of all the Old Debentures to be immediately due and
payable. On April 27, 1999, the Indenture Trustee filed suit in the 11th
Judicial District Court of Harris
17
<PAGE> 19
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
16. CONTINGENCIES (in thousands) (continued)
County, Texas seeking the full amount due and owing under the Old
Debentures (the "Allwaste Collection Action").
The commencement of the Chapter 11 cases automatically stayed the further
prosecution of the Allwaste Collection Action. Moreover, the Debtors
believe that the U.S. Court has exclusive jurisdiction over the causes of
action asserted in the Allwaste collection action and that such matters
will be adjudicated in the Chapter 11 cases by the U.S. Court. Under the
Amended U.S. Plan, claims arising out of the Old Debentures are classified
as Class 7 Impaired Unsecured Claims and will receive the treatment
afforded such claims and will be discharged under the Amended U.S. Plan as
of the plan implementation date. Therefore, if the Amended U.S. Plan is
confirmed and consummated, after the plan implementation date, the
Reorganized Debtors will have no liability as to the Old Debentures and the
Allwaste Collection Action will be fully resolved and will be dismissed
with prejudice. There can be no assurance that the Amended U.S. Plan will
be confirmed by the U.S. Court. If the Amended U.S. Plan is not confirmed
there can be no assurance that the Allwaste Collection Action will not have
a material adverse effect on the financial condition or results of
operations of the Company.
On May 25, 1999, the Indenture Trustee filed suit against the Company and
the Lenders in the 11th Judicial District Court of Harris County, Texas
(the "Allwaste Avoidance Action") alleging that any and all liens, security
interests, and obligations conveyed or transferred by the Company to its
lending syndicate were avoidable as fraudulent conveyances. The Debtors
believe that the commencement of the Chapter 11 cases have vested exclusive
standing to prosecute avoidance actions, including those asserted by the
Indenture Trustee against the defendant Lenders in the Allwaste Avoidance
Action, in the Debtors pursuant to the Bankruptcy Code. Therefore, the
Debtors believe that the causes of action alleged in the Allwaste Avoidance
Action are property of the Debtors' estates and that further prosecution of
the Allwaste Avoidance Action is stayed. Under the terms of the Amended
U.S. Plan, the causes of action asserted by the Indenture Trustee against
the defendant Lenders will be deemed to be settled and released as a
consequence of the treatment of all claims and interests, including the
claims of the Lenders and the holders of Old Debentures under the Amended
U.S. Plan. Therefore, if the Amended U.S. Plan is confirmed and
consummated, as of the plan implementation date, the Allwaste Avoidance
Action will be fully resolved and will be dismissed with prejudice. There
can be no assurance that the Amended U.S. Plan will be confirmed by the
U.S. Court. If the Amended U.S. Plan is not confirmed there can be no
assurance that the Allwaste Avoidance Action will not have a material
adverse effect on the financial condition or results of operations of the
Company.
(d) In June 1997, pursuant to a share purchase agreement, Republic Environmental
Systems, Inc. ("Republic") sold certain corporate entities to RESI
Acquisition (Delaware), Inc. ("RESI") for $17 million. As consideration for
the transaction, RESI paid $8 million in cash and executed two promissory
notes in favor of Republic in a combined amount of $9 million. After the
notes were executed, the parties made several modifications to the payment
schedule, allowing RESI extra time to fulfill its obligations. However, RESI
eventually defaulted and Republic thereafter brought an action in the
Superior Court of the State of Delaware against the Company and RESI to
collect on the notes (the "U.S. Republic Action"). In addition to the note
involved in the U.S. Republic Action, another note issued by Philip
Enterprises Inc. in conjunction with the RESI acquisition exists and is the
subject of litigation in Canada that has now been stayed in connection with
the Canadian filing (the "Canadian Republic Action"). The Company filed
counterclaims alleging damages from the 1997 Share Purchase Agreement. On
June 3, 1999, the court issued judgement granting Republic's Motion for
Final Judgement on the Pleadings as to the notes and guaranty, and denying
the Company's motion to dismiss. On June 4, 1999, RESI filed a petition for
relief under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the District of Delaware. As a result of the CCAA and
Chapter 11 filings,
18
<PAGE> 20
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
16. CONTINGENCIES (in thousands) (continued)
U.S. Republic Action and the Canadian Republic Action are now stayed. The
claims of Republic, which are classified under the Amended U.S. Plan as
Class 7 Impaired Unsecured Claims, will receive the treatment afforded such
claims, and will be discharged under the Amended U.S. Plan as of the plan
implementation date. Therefore, if the Amended U.S. Plan is confirmed and
consummated, as of the plan implementation date, the reorganized Debtors
will have no liability as to the U.S. Republic Action or the Canadian
Republic Action and the actions will be fully resolved and will be
dismissed with prejudice. There can be no assurance that the Amended U.S.
Plan will be confirmed by the U.S. Court. If the Amended U.S. Plan is not
confirmed there can be no assurance that the U.S. Republic Action or the
Canadian Republic Action will not have a material adverse effect on the
financial condition or results of operations of the Company.
(e) In January 1999, Exxon Chemical Company ("Exxon") asserted a claim against
International Catalyst, Inc. ("INCAT"), an indirect wholly-owned subsidiary
of the Company, for damages of $32.1 million arising from certain work
conducted by INCAT at Exxon's Baytown, Texas chemical plant. Exxon alleges
that INCAT was responsible for the purchase and installation in 1996 of
improper gasket materials in the internal bed piping flange joints of the
Baytown plant which caused damages to the facility and consequential losses
arising from the shutdown of the plant while repairs were made. INCAT has
conducted a preliminary review of these claims and determined that it is not
feasible to predict or determine the final outcome of these proceedings.
INCAT intends to vigorously defend the claims and believes that it may have
insurance coverage for such claims. There can be no assurance, though, that
the outcome of the claims will not have a material adverse effect upon the
financial condition or results of operations of INCAT.
(f) In November 1998, the Company ceased paying interest on its $1.0 billion in
outstanding secured syndicated debt, which includes accrued but unpaid
interest of $67.9 million, and stopped making payments on certain other
unsecured debt and contractual obligations ("the Unsecured Obligations").
The Company has reached an agreement with its lending syndicate on the terms
of a financial restructuring of the Company. On June 25, 1999, the Company
and substantially all of its wholly-owned subsidiaries located in the United
States filed voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code. The Company and substantially all of its wholly-owned
subsidiaries located in Canada commenced proceedings under the Companies'
Creditors Arrangement Act in Canada on the same date. Pursuant to the
Amended U.S. Plan, outstanding syndicated debt of $1 billion will be
converted into $250 million of senior secured debt, $100 million in
convertible secured payment in-kind debt and 91% of the common shares of
PSI. The senior secured debt and the secured payment in-kind debt each have
a term of five years. The Amended U.S. Plan also provides for the conversion
of certain specified impaired unsecured claims, into $60 million of payment
in-kind notes and 5% of the common shares of PSI as of the plan
implementation date. The implementation of the Amended U.S. Plan is subject
to the fulfillment of certain conditions. There can be no assurance that the
Amended U.S. Plan will be confirmed by the U.S. Court. If the Amended U.S.
Plan is not approved, there can be no assurance that the Company will
continue as a going concern. If the Amended U.S. Plan is not confirmed, the
Unsecured Obligations could have a material adverse effect upon the
financial condition or results of operations of the Company.
(g) The Company's operations are subject to various comprehensive laws and
regulations related to the protection of the environment. The Company's
facilities are subject to periodic unannounced inspections by federal,
provincial, state and local authorities to ensure compliance with operating
permits and applicable laws and regulations. If violations are found or
deficiencies, if any, are not remedied, an enforcement action could be
commenced against the Company or the Company could be charged with an
offense and may incur substantial fines. A charge is outstanding against the
Company under the
19
<PAGE> 21
PHILIP SERVICES CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(UNAUDITED)
16. CONTINGENCIES (in thousands) (continued)
Environmental Protection Act of Ontario in respect of a discharge in
October 1997 of an odor from the Company's Vulcan Ave., Toronto, Ontario
facility. The Company is also aware of ongoing investigations of certain of
its facilities that could give rise to charges or the issuance of notices
of violation. Based on the information available and reviews conducted by
the Company, the Company does not expect the outstanding charge or the
investigations of any single facility to give rise to monetary sanctions
that would exceed $100,000.
(h) The Company is named as a defendant in several lawsuits which have arisen in
the ordinary course of its business. Management believes that none of these
suits is likely to have a material adverse effect on the Company's business
or financial condition and therefore has made no provision in these
financial statements for the potential liability, if any.
20
<PAGE> 22
PHILIP SERVICES CORP.
PART 1
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
nine months ended September 30, 1999 and 1998 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 for the fiscal year ended December
31, 1998. The Company reports in U.S. dollars and in accordance with U.S.
generally accepted accounting principles.
The Company has not been in compliance with the provisions of its credit
agreement since June 30, 1998. On June 25, 1999, the Company and substantially
all of its wholly-owned subsidiaries located in the United States (the "U.S.
Debtors") filed voluntary petitions for reorganization under Chapter 11 of the
U.S. Bankruptcy Code with the United States Bankruptcy Court for the District of
Delaware (the "U.S. Court"). The Company and substantially all of its
wholly-owned subsidiaries located in Canada (the "Canadian Debtors") commenced
proceedings under the Companies' Creditors Arrangement Act in Canada in the
Ontario Superior Court of Justice (the "Canadian Court") on the same date. The
U.S. Debtors and the Canadian Debtors (collectively the "Debtors") are currently
operating as debtors-in-possession under the supervision of the U.S. Court and
Canadian Court (collectively the "Courts"). Under these proceedings,
substantially all liabilities, litigation and claims against the Debtors in
existence at the filing date are stayed unless the stay is modified or lifted or
payment has been otherwise authorized by the Courts. The Debtors are authorized
to continue to pay in the ordinary course of their business both the
pre-petition and post-petition claims of trade creditors who continue to supply
trade credit on terms at least as favourable as those previously extended and to
pay the outstanding and future wages, salaries, employee benefits and other like
amounts due or accruing to current employees.
As a result of the financial uncertainty surrounding the Company, the
results of operations for the three and nine months ended September 30, 1999
were significantly impacted by actions to retain customers, suppliers'
tightening trade terms and employee attrition. Until this uncertainty is removed
and the new capital and debt structure is in place, the reported financial
information discussed herein may not be indicative of future operating results
or future financial condition.
INTRODUCTION
The Company is a supplier of metals recovery and industrial services. The
Company has over 260 operating facilities and over 12,000 employees located
throughout North America and Europe, that provide services to more than 40,000
industrial and commercial customers. The Company's primary base of operations is
in the United States.
The Company's business is organized into two 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 provides mill services and engineering and consulting services ("Industrial
Metals Services" or "IMS"), at multiple locations throughout North America and
Europe. The Ferrous Operations include the collection and processing of ferrous
scrap materials for shipment to steel mills as well as significant brokerage
services for scrap materials. The Metals Services Group primarily services the
steel, foundry and automotive industry sectors. In December 1998, the Company
decided to discontinue the non-ferrous and copper operations of its Metals
Services Group. The non-ferrous operations included the refining of second grade
copper into prime ingot, and the production of deoxidizing products and alloys
from aluminum scrap for use in the steel and automotive industries ("Non-Ferrous
Operations"). The Copper Operations processed wire and cable scrap to recover
copper ("Copper Operations"). For all periods presented, the consolidated
financial results disclose the Company's Non-Ferrous and Copper Operations as
discontinued operations.
21
<PAGE> 23
The Industrial Services Group provides industrial outsourcing services and
by-products recovery services with a network of over 230 facilities. Industrial
outsourcing services include cleaning and maintenance, waste collection and
transportation, decommissioning and remediation, analytical services, emergency
response services, container services and tank cleaning, turnaround and outage
services, mechanical contracting and refractory services. By-products recovery
includes solvent distillation, engineered fuel blending, paint overspray
recovery, organic and inorganic processing and polyurethane recycling. The
Industrial Services Group services the automotive, refining and petrochemical,
steel, oil and gas, pulp and paper and transportation sectors. On May 18, 1999,
the Company sold its utilities management business, which was previously
included in the Industrial Services Group, for proceeds of $70.1 million. For
all periods presented the consolidated financial results disclose the Company's
Utilities Management business as discontinued operations.
The Company earns revenue by providing industrial services, from 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.
The Company's operating expenses include direct labour, indirect labour,
payroll related taxes, 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, clerical and administrative costs, professional fees,
facility rentals and insurance costs, as well as costs related to the Company's
marketing and sales force. Professional fees related to restructuring of the
Company incurred prior to the filing have been included in selling, general and
administrative expenses in 1998 and 1999.
DISCONTINUED OPERATIONS AND DIVESTITURES
In June 1999, the Company sold its Birmingham, Alabama based civil
construction and maintenance business for $23.1 million resulting in a gain on
sale of $1.0 million. The business, whose results are included in the Industrial
Services Group, generated annual revenue of $70 million and income from
operations of $4.5 million in 1998.
On May 18, 1999, the Company sold its investment in Philip Utilities
Management Corp. ("PUMC") for cash proceeds of $70.1 million resulting in a gain
of $39.1 million. The operations of PUMC, which were previously reported as a
segment of the Industrial Services Group, are now treated as discontinued
operations.
In December 1998, the Company made the decision to discontinue the
Non-Ferrous Operations and Copper Operations. A sale of certain of the aluminum
operations included in Non-Ferrous Operations closed on January 11, 1999 for a
total consideration of approximately $69.5 million. Certain copper and
non-ferrous operations or assets are anticipated to be sold and the remainder of
the operations in these segments closed during 1999.
On July 7, 1998, the Company's Houston, Texas based steel distribution
business was sold for cash proceeds of $95 million, resulting in a gain on sale
of approximately $17 million. The results of operations for the steel
distribution business are included in the Ferrous operations segment of the
Metal Services business. The business generated annual revenue in excess of $130
million and income from operations of $12.5 million in 1997.
The Company continues to review the divestiture of certain of its non-core
businesses or investments. The proceeds which may be raised from these
divestitures is unknown. A gain or loss may be recorded on the divestitures but
the amount cannot be determined until definitive agreements are reached. In
addition, costs with respect to restructuring operations may be necessary but
are not quantifiable at this time.
22
<PAGE> 24
RESULTS OF OPERATIONS
The following table presents, for the periods indicated, the results of
operations and the percentage relationships which the various items in the
Consolidated Statements of Earnings bear to the consolidated revenue from
continuing operations.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
------------------------------- ---------------------------------
1999 1998 1999 1998
------------- --------------- --------------- ---------------
($ ) MILLIONS ($ ) MILLIONS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue........................ $358.1 100% $ 422.9 100% $1,055.5 100% $1,505.6 100%
Operating expenses............. 324.9 91% 352.3 84% 925.3 87% 1,255.3 83%
Special charges................ -- -- 356.6 84% -- -- 356.6 24%
Selling, general and
administrative costs......... 36.2 10% 110.0 26% 136.3 13% 216.5 14%
Depreciation and
amortization................. 13.3 4% 25.9 6% 41.7 4% 75.7 5%
------ ---- ------- ----- -------- ---- -------- ----
Loss from operations........... (16.3) (5%) (421.9) (100%) (47.8) (4%) (398.5) (26%)
Interest expense............... 0.6 -- 20.3 5% 52.5 5% 53.3 4%
Other income and expense-net... (2.0) (1%) 19.2 4% (3.4) -- 0.7 --
Cumulative effect of change in
accounting principle......... -- -- -- -- 1.5 -- -- --
------ ---- ------- ----- -------- ---- -------- ----
Loss from continuing operations
before tax and reorganization
costs........................ (14.9) (4%) (461.4) (109%) (98.4) (9%) (452.5) (30%)
Reorganization costs........... 64.0 18% -- -- 78.4 8% -- --
Income taxes................... 1.3 -- 37.2 9% 5.6 -- 35.0 2%
------ ---- ------- ----- -------- ---- -------- ----
Loss from continuing
operations................... (80.2) (22%) (498.6) (118%) (182.4) (17%) (487.5) (32%)
Discontinued operations
(net of tax)................. (3.0) (1%) (146.8) (35%) 34.7 3% (231.5) (16%)
------ ---- ------- ----- -------- ---- -------- ----
Net loss....................... $(83.2) (23%) $(645.4) (153%) $ (147.7) (14%) $ (719.0) (48%)
====== ==== ======= ===== ======== ==== ======== ====
</TABLE>
EARNINGS FROM CONTINUING OPERATIONS
For the three months ended September 30, 1999, the Company incurred a loss
from continuing operations of $80.2 million or $0.61 per share including
reorganization costs of $64 million. This compares to a loss from continuing
operations of $498.6 million or $3.80 per share for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, the Company
incurred a loss from continuing operations of $182.4 million or $1.39 per share.
This compares to a loss from continuing operations of $487.5 million or $3.72
per share for the nine months ended September 30, 1998.
OPERATING RESULTS
The operating results for the Metals Services Group reflect the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
1999 1998
------------------------ -------------------------
FERROUS IMS TOTAL FERROUS IMS TOTAL
------- ----- ------ ------- ----- -------
($ ) MILLIONS
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................. $139.2 $ 5.3 $144.5 $ 133.2 $14.2 $ 147.4
Income (loss) from operations............ 4.0 (1.4) 2.6 (341.8) (2.0) (343.8)
Income (loss) from operations excluding
special charges........................ 4.0 (1.4) 2.6 (2.1) 1.5 (0.6)
</TABLE>
23
<PAGE> 25
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
----------------------------------------------------
1999 1998
------------------------ -------------------------
FERROUS IMS TOTAL FERROUS IMS TOTAL
------- ----- ------ ------- ----- -------
($ ) MILLIONS
<S> <C> <C> <C> <C> <C> <C>
Revenue.................................. $328.3 $15.9 $344.2 $ 613.4 $32.4 $ 645.8
Income (loss) from operations............ 7.3 (5.6) 1.7 (317.2) (0.9) (318.1)
Income (loss) from operations excluding
special charges........................ 7.3 (5.6) 1.7 22.5 2.6 25.1
</TABLE>
The decrease in revenue for the ferrous operations of $285.1 million for
the nine months ended September 30, 1999, compared with the same period of 1998
relates primarily to the first six months of 1999 where there was a significant
reduction in the average selling price of ferrous scrap from $144 per ton in the
first six months of 1998 to $99 per ton. In addition, revenue has been impacted
by the sale of the Company's steel distribution business in July 1998 and as
well the ferrous operations' volumes have been adversely impacted by the
negative financial situation of the Company. Income from operations excluding
special charges as a percentage of revenue, was 2.2% for the nine months ended
September 30, 1999, compared to 3.7% for the nine months ended September 30,
1998, respectively which reflects the lower prices and volumes. Income from
operations for the three months ended September 30, 1999 was $4.0 million or
2.9% as a percentage of revenue compared to a loss from operations of $2.1
million or 1.6% in the same period of 1998. This improvement in profit is due to
the increasing average price of ferrous scrap in the third quarter of 1999
compared to the third quarter of 1998 where the average price of ferrous scrap
was decreasing.
The revenue from the Industrial Metals Services operations decreased by
$8.9 million and $16.5 million for the three and nine months ended September 30,
1999 respectively compared with the same period in 1998. Income (loss) from
operations excluding special charges as a percentage of revenue was (26.4)% and
(35.2)% for the three and nine months ended September 30, 1999, respectively
compared to 10.6% and 8.0% for the three and nine months ended September 30,
1998 resulting from the failure to bring to fruition development projects due to
the Company's financial uncertainty. Certain non-core components of the
Industrial Metals Services group are being wound down, which is expected to be
completed by year end.
The operating results for the Industrial Services Group reflect the
following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30
-----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
INDUSTRIAL INDUSTRIAL
BY-PRODUCTS OUTSOURCING BY-PRODUCTS OUTSOURCING
RECOVERY SERVICES TOTAL RECOVERY SERVICES TOTAL
----------- ----------- ------ ----------- ----------- ------
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $39.1 $174.5 $213.6 $58.1 $217.4 $275.5
Income (loss) from operations...... 0.9 (15.6) (14.7) 0.5 (7.7) (7.2)
Income (loss) from operations
excluding special charges........ 0.9 (15.6) (14.7) 0.5 8.7 9.2
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-----------------------------------------------------------------------
1999 1998
---------------------------------- ----------------------------------
INDUSTRIAL INDUSTRIAL
BY-PRODUCTS OUTSOURCING BY-PRODUCTS OUTSOURCING
RECOVERY SERVICES TOTAL RECOVERY SERVICES TOTAL
----------- ----------- ------ ----------- ----------- ------
($ MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................ $112.4 $598.9 $711.3 $153.0 $706.9 $859.9
Income (loss) from operations...... (0.9) (15.7) (16.6) 1.4 15.9 17.3
Income (loss) from operations
excluding special charges........ (0.9) (15.7) (16.6) 1.4 32.3 33.7
</TABLE>
The revenue and income from operations for the nine months ended September
30, 1999 for the By-Products Recovery group have decreased compared to 1998 due
to the fact that certain customers are
24
<PAGE> 26
reluctant to enter into service agreements until the uncertainty from the
Company's reorganization filings is resolved. The increase in income from
operations for the three months ended September 30, 1999 when compared to the
same period in 1998 is due to cost reduction programs which have begun to take
effect.
Revenue for the Industrial Outsourcing Services operations decreased by
$42.9 million and $108 million for the three and nine months ended September 30,
1999, respectively. Income (loss) from operations for the Industrial Outsourcing
Services operations for the three months and nine months ended September 30,
1999 was impacted by $2.3 million and $6.7 million, respectively, related to
Year 2000 costs and employee benefit liability adjustments. Income (loss) from
operations as a percentage of revenue for the Industrial Outsourcing Services
operations, excluding special charges and non-recurring costs, was (7.6)% and
(1.5)% for the three and nine months ended September 30, 1999, respectively
compared with 4.0% and 4.6% for the three and nine months ended September 30,
1998, respectively. The reorganization filings, which occurred at the beginning
of the third quarter of 1999, had a significant impact on the revenue and
profitability of the Industrial Outsourcing Services business. The perceived
financial instability has caused customers to decline to consider the awarding
of large outage service and fabrication contracts to the Company until it
emerges from its financial restructuring process. In the first half of 1999, the
operating results were also impacted by deteriorating market conditions in the
petroleum refining sector caused by the instability of crude oil prices and the
merger of key petroleum customers. For example, while oil and gas prices have
been depressed, customers in this industry have elected to postpone significant
maintenance and capital expenditures, including turnaround projects, which has
reduced both revenue and profitability.
Cash conservation measures by the Company have reduced the amount of
capital expenditures for the first nine months of 1999. As a result, the
operating results for both the Metals and Industrial Services groups have been
impacted as higher repair and maintenance costs and rental expenses are being
incurred.
SPECIAL CHARGES 1998
For the nine months ended September 30, 1998, the Company recorded a charge
of $356.6 million reflecting the effects of (a) decisions made with respect to
the potential disposition of certain operations, (b) impairment of fixed assets
and related goodwill resulting both from decisions to exit various business
locations or activities and dispose of the related assets, and as a result of
the significant deterioration in the metals market and business operations of
the company in the third quarter of 1998 and, (c) assessments of the
recoverability of fixed assets and the related goodwill of business units in
continuing use, as a result of the significant deterioration in the metals
markets and business operations of the Company in the third quarter of 1998.
Included in selling, general and administrative costs in the three months
ended September 30, 1998 are special charges of $53 million of which $20 million
related to charges for financing fees and debt restructuring costs. On August
31, 1998, the Company filed its quarterly compliance certificate with its
syndicate of lenders which indicated the Company was not in compliance with the
provisions of its credit agreement. Deferred financing costs which were
previously amortized over the life of the credit agreement were written off as
the credit facility will be replaced with a new facility. In addition, the
Company's financial position, its planned divestitures, litigation with debtors,
unexpected financial difficulties of certain customers and a general
deterioration in customer market conditions necessitated the recording of an
additional provision for doubtful accounts of $25 million. The remainder of the
charges recorded in selling, general and administrative costs related to
severance payments and other costs recorded in the three months ended September
30, 1998 relating to ongoing cost reduction measures and restructuring.
In the third quarter of 1998, the Company recorded writedowns on
investments of $38.3 million in Other income and expense -- net. The Company's
24.2% investment in Innovative Valve Technologies Inc. ("Invatec"), is accounted
for using the equity method of accounting. Invatec is a publicly traded company
providing comprehensive maintenance, repair, replacement and value added
distribution services of industrial valves and process system components. In
1998, Invatec was in default of its covenants with its lenders and was
experiencing operating losses. The reduction in carrying value of $25 million
gave effect to an other than temporary decline in value which was reflected by
the market performance of Invatec's shares at Septem-
25
<PAGE> 27
ber 30, 1998. The Company's investment in Strategic Holdings, Inc., which was
accounted for at cost, was sold in the fourth quarter of 1998 for less than its
book value. Accordingly, a writedown of the investment of $13.3 million was
recorded in the three months ended September 30, 1998 as part of Other income
and expense -- net.
SELLING, GENERAL AND ADMINISTRATIVE COSTS
Selling, general and administrative costs as a percentage of revenue were
10% and 13% for the three and nine months ended September 30, 1999 respectively
compared to 26% and 14% over the same periods in 1998. The higher costs in 1998
reflect the recording of special charges of $53 million in the third quarter as
discussed above. Included in the nine months ended September 30, 1999 are
professional fees of $13.0 million related to the financial restructuring of the
Company and $5 million related to Year 2000 costs.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization of fixed assets and goodwill for the three
and nine months ended September 30, 1999 was $13.3 million and $41.7 million
respectively, representing a decrease of $12.6 million or 48.7% and $34.0
million or 44.9% over the same periods in 1998. This decrease was due to the
write-offs of goodwill and fixed assets of $1.1 billion during 1998.
INTEREST EXPENSE
Interest expense for the three and nine months ended September 30, 1999 was
$0.6 million and $52.5 million, respectively. This decrease in interest expense
of $19.7 million in the third quarter of 1999 compared with the same period of
1998 is the result of interest on the credit facility being stayed in the
reorganization filings. The interest expense that would have accrued on
outstanding debt is approximately $25 million. Although the interest expense was
stayed in the third quarter of 1999, for the nine months ended September 30,
1999 the interest expense is approximately the same as the same period in 1998
since the borrowing rates in 1999 increased due to increases in the prime rate
and an increase of 100 basis points in the June 1998 amendment to the Credit
Facility. Although the Company suspended payments of interest under the Credit
Facility in November 1998, all amounts owing were expensed and included in the
balance of the bank term loan up to the date of the filings of June 25, 1999.
OTHER INCOME AND EXPENSE -- NET
Other income and expense -- net for the nine months ended September 30,
1999 consists of gains on sale of assets of $3.5 million, a writedown of the
investment in Innovative Valve Technologies Inc. of $4.2 million and interest
and equity income on investments.
Other income and expense -- net for the nine months ended September 30,
1998 consists primarily of net proceeds on the termination of the merger
agreement to acquire Safety Kleen Corp. of $14.7 million, a gain of $17.2
million on the sale of the steel distribution business, writedowns in
investments of $38.3 million as described in Special Charges, and interest and
equity income on investments.
INCOME TAXES
The Company is required to record a valuation allowance for deferred tax
assets when management believes it is more likely than not that the asset will
not be realized. 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 is more likely than not that the Company
will not realize the benefit of the Canadian and U.S. deferred tax debits which
arose in the nine months ended September 30, 1999. The Company's plan to
restructure the secured bank term loans in 1999 in accordance with the Plan
indicated in Note 1 to the Consolidated Financial Statements appearing elsewhere
herein, may result in a gain that will be sufficient to utilize the deferred tax
assets. However, given that this gain is contingent on Court confirmation, the
Company has not recorded the gain nor the related deferred tax assets. The
valuation allowance recorded as of September 30, 1999 is $283 million.
26
<PAGE> 28
FINANCIAL CONDITION
LIQUIDITY AND CREDIT FACILITY
In August 1997, the Company signed a five year revolving term credit
agreement, which was amended in October 1997, February 1998, June 1998, October
1998 and December 1998 ("the Credit Facility"), with a syndicate of
international lenders (the "lenders"). The Credit Facility originally provided
for up to $1.5 billion in borrowings, subject to compliance with specified
availability tests. Borrowings under the Credit Facility are guaranteed by the
Company and its direct and indirect wholly-owned subsidiaries and are secured by
a pledge of the issued and outstanding securities of the Company's direct and
indirect wholly-owned subsidiaries and a charge over the present and future
assets of the Company and its direct and indirect wholly-owned subsidiaries.
Since June 30, 1998, the Company has not been in compliance with certain
covenants in the Credit Facility, including the 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 was
not in compliance with the terms of the Credit Facility, the debt outstanding
under the Credit Facility was classified as a current liability on the Company's
Consolidated Balance Sheet at December 31, 1998. The debt outstanding under the
Credit facility is classified as a Liability Subject to Compromise on the
Company's Consolidated Balance Sheet at September 30, 1999. In June 1998, the
Credit Facility was reduced from $1.5 billion to $1.2 billion, the interest rate
charged was increased by 100 basis points, the Company was permitted access to
$60 million of the proceeds arising from an asset disposition of which $20
million was allocated to provide collateral for letters of credit and the
Company agreed to a standstill until September 30, 1998 respecting the
incurrence of additional debt and the occurrence of dispositions or
acquisitions. On October 20, 1998, the Credit Facility was further amended to
permit the use of the letter of credit facility for general corporate and other
purposes and to extend the Company standstill on certain activities until June
30, 1999. In November 1998, the Company suspended payments of interest under the
Credit Facility.
On June 25, 1999, the Company and substantially all of its wholly-owned
subsidiaries located in the United States filed voluntary petitions for
reorganization under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Court.
The Company and substantially all of its wholly-owned subsidiaries located in
Canada filed petitions under the Companies' Creditors Arrangement Act in Canada
in the Canadian Court on the same date. The Debtors are currently operating as
debtors-in-possession under the supervision of the Courts. Under these
proceedings, substantially all liabilities, litigation and claims against the
Debtors in existence at the filing date are stayed unless the stay is modified
or lifted or payment has been otherwise authorized by the Courts. The Debtors
are authorized to continue to pay in the ordinary course of their business both
the pre-petition and post-petition claims of trade creditors who continue to
supply trade credit on terms at least as favourable as those previously extended
and to pay the outstanding and future wages, salaries, employee benefits and
other like amounts due or accruing to current employees. With the interim and
final orders received in July 1999, the Courts have also authorized and directed
the Debtors to enter into debtor-in-possession ("DIP") financing which will
provide financing of up to $100 million and allows the Debtors access to $93
million of proceeds remaining from previous sales of non-core assets. As of
September 30, 1999, the Company has drawn $52.2 million of these proceeds and
except for up to $20 million in letters of credit, no amounts can be drawn on
the DIP facility until all of the asset proceeds are utilized.
On July 12, 1999, the U.S. Debtors filed a Joint Plan of Reorganization
(the "U.S. Plan") with the U.S. Court and on July 15, 1999, the Canadian Debtors
filed a Plan of Compromise and Arrangement (the "Canadian Plan") with the
Canadian Court. In August 1999, a number of motions were brought before the
Canadian Court challenging the fairness of the Canadian Plan. The motions were
brought by, among others, certain of the Company's creditors claiming
contribution and indemnity from the Company, including Deloitte & Touche LLP,
the underwriters of the Company's November 1997 public offering (the
"Underwriters") and certain former directors and officers. In respect of the
August 1999 motions, it was held that the Canadian Plan as initially filed,
failed to comply with the procedural and statutory requirements of the CCAA
regime. As a result of the decision, the Company filed a plan in the U.S. Court
on September 21, 1999 (the "Amended U.S. Plan") and an amended plan in the
Canadian Court on September 24, 1999 (the "Amended Canadian Plan"). In summary,
the Amended Canadian Plan provided that in order for the
27
<PAGE> 29
Company to be able to propose a restructuring plan to its unsecured creditors,
the Company had to by October 27, 1999, either (a) arrive at a settlement with
each of the contribution and indemnity claimants or (b) agree with each of the
contribution and indemnity claimants as to the amount of each of their claims
and have the agreement of each such claimant that they would vote in favour of
the plan. In an attempt to arrive at a global settlement and therefore meet the
conditions of the Amended Canadian Plan, a mediation was held on October 25th
and October 26th, 1999 involving various parties. As the mediation was
unsuccessful, the Company brought a motion returnable November 1, 1999, to
cancel the meeting of the affected unsecured creditors scheduled for November 2,
1999 and filed a Supplement to the Amended Canadian Plan (the "Canadian Plan
Supplement"). The Canadian Plan Supplement amended and restated the Amended
Canadian Plan such that the only affected class of creditors is the holders of
secured lender claims and unsecured creditors would no longer be affected. The
Canadian Plan Supplement provides that substantially all of the assets of the
Canadian debtors will be transferred to new companies that, on the
implementation of the Amended U.S. Plan will be wholly owned subsidiaries of
Philip Services (Delaware), Inc ("PSI"). All the shares held by the Company in
PSI will be cancelled under the Amended U.S. Plan. The motions brought by the
Company, Deloitte & Touche LLP and the Underwriters were heard in the Canadian
Courts on November 1, 1999 at which time the judge reserved decision until
November 5, 1999. On November 3, 1999 a hearing was held in the U.S. Court to
consider confirmation of the Amended U.S. Plan. At that hearing, the U.S. court
overruled all remaining objections to the Amended U.S. Plan and scheduled a
hearing on November 30, 1999 to review the terms of the exit facility. On
November 4, 1999, the Canadian Court allowed the motion to cancel the meeting of
the unsecured creditors in Canada and the motions of Deloitte & Touche LLP and
the Underwriters were dismissed. On November 5, 1999, the Company's lenders
voted to approve the Canadian Plan Supplement. As the judge has dismissed the
only outstanding objections to the Company completing its financial
reorganization under the CCAA, a hearing will be scheduled in the Canadian Court
to sanction the Canadian Plan Supplement.
The Amended U.S. Plan and the Canadian Plan Supplement (collectively the
"Plan") provides that the existing syndicated debt of approximately $1 billion
be converted into $250 million of senior secured debt, $100 million of
convertible secured payment in-kind debt and 91% of the common shares of PSI.
The payment in-kind debt is convertible into 25% of the common shares of PSI on
a fully diluted basis as of the plan implementation date. The senior secured
debt and the secured payment in-kind debt each have a term of five years. The
Plan also provides for the conversion of certain specified impaired unsecured
claims, into $60 million of unsecured payment in-kind notes and 5% of the common
shares of PSI as of the plan implementation date. Certain holders of the
unsecured claims to be compromised may elect to receive $1.50 in face amount of
unsecured convertible notes in exchange for every $1.00 in face amount of
unsecured payment in-kind notes that such holder would have received under the
Plan. The aggregate amount of unsecured convertible notes to be issued shall not
exceed $18 million. The Company has also reached an agreement in principle with
the Canadian and U.S. class action plaintiffs to settle all class action claims
for 1.5% of the common shares of PSI. This agreement is subject to final
documentation and the approval of the Courts. Other potential equity claimants
will receive 0.5% of the common shares of PSI and existing shareholders will
receive 2% of the common shares of PSI. The Plan provides that the Board of
Directors of PSI consists of nine directors who will be nominated by the new 91%
shareholders (i.e., the lenders). The nominees will include two members of the
existing Board and two members will be nominated by High River Limited
Partnership ("High River") provided that High River and any lender acting in
concert with it beneficially own at least 25% of the syndicated debt.
On the acquisition of Allwaste Inc. ("Allwaste"), the Company assumed the
pre-existing indenture with respect to Allwaste's 7 1/4% Convertible
Subordinated Debentures ("old debenture") of $25.6 million which are due 2014.
Interest is payable semi-annually on June 1 and December 1. Effective December
1, 1998, the Company suspended payments of interest on the debenture which
created default under the indenture. Interest accrued on the debenture as at
September 30, 1999 is approximately $2.0 million. The amount of the debentures
is classified as a Liability Subject to Compromise at September 30, 1999 and was
classified as a current liability on the Consolidated Balance Sheet at December
31, 1998.
Liabilities Subject to Compromise include promissory notes relating to
certain 1996 and 1997 acquisitions totalling $16.0 million which were in default
as principal repayments required were not made. At
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December 31, 1998 $11.0 million of these notes were in default and therefore,
were classified as a current liability.
The fixed rate secured loans include industrial development bonds totalling
$7.7 million which are in default as at September 30, 1999 and December 31, 1998
since principal repayments required were not made.
The Company believes that cash generated from operations and the proceeds
from the sale of operations together with amounts available under the debtor-in
possession 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 for continuing operations were $21.7 million for the
nine month period ending September 30, 1999 compared to $49.7 million for the
same period in 1998.
YEAR 2000
STATE OF READINESS
The Year 2000 issue affects computer systems that have time sensitive
programs that may not properly recognize the year 2000. The Company's Year 2000
project is divided into four main areas: enterprise applications, supply chain,
site equipment, and computer and network infrastructure.
Enterprise applications include both purchased and custom developed
software packages that are used at multiple sites within the Company. Supply
chain addresses both the Company's customers and suppliers. The Company has
developed and implemented a program to communicate and co-ordinate with key
customers, including responding to several surveys and audits. A program to
identify critical vendors and track their progress towards Year 2000 readiness
has been developed. Site equipment includes industrial equipment,
instrumentation, stand-alone computer hardware, software, and building
infrastructure at the site level. Computer and network infrastructure deals with
the local area network, wide area network, file servers and network components
that connect the Company's critical applications.
Each area must follow the seven phases of the Company's Year 2000
methodology: awareness, inventory, assessment, planning, remediation, testing,
and implementation. Each phase requires a sign off from the location manager,
with a final sign off authorized by the Regional Vice President. The Year 2000
Quality Assurance team also reviews and or approves all deliverables and signs
off on completion.
The Company's numerous locations both in North America and Europe have
completed the awareness, inventory, assessment and planning stages with the
majority of the work effort complete in remediation/testing and implementation
stages. The project schedule indicates all locations will be materially
compliant by November 15, 1999 with continued testing until the end of the year.
From November 1st to the end of the calendar year the Company will be ensuring
that all documentation is in place. The Year 2000 team will continue to monitor
the process into the New Year.
COSTS
The total costs for the three and nine months ended September 30, 1999 for
the Year 2000 project were $2.1 million and $5 million, respectively and all
costs were expensed as incurred. Total costs to date for the Year 2000 project
has been $10 million.
Management has estimated the balance of the costs to complete the project
to be approximately $3.5 million including approximately $1 million in costs for
software and hardware upgrades based on management's best estimates which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third parties' Year 2000 readiness and other
factors.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially or adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, the Company is unable to
determine at this time either whether its Year 2000 plan
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will be completed on a timely basis or whether the consequences of the Year 2000
failures will have a material impact on the results of operations, liquidity and
financial condition.
CONTINGENCY PLANS
The Year 2000 project will have contingency plans in place for all four
major sections of the project. Contingency plans are in the development stage
while all environmental sites have emergency response and contingency plans in
place as part of their regular practice. Specifically, the Year 2000 project
team has developed contingency plans for all systems assessed to be critical to
the business. A standard contingency plan has been developed and is being used
to develop site specific contingency plans, if required. The Company has an
Emergency Response team established to be available to assist with any issues
arising during the Year 2000 transition period and additional resources will be
on call to assist the team, if necessary. Alternative energy and communication
equipment will be available should critical systems require support.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities" which is
effective for fiscal years beginning after June 15, 1999. This statement
establishes accounting and reporting standards for derivative instruments and
hedging activities and requires that an entity recognize these items as assets
or liabilities in the statement of financial position and measure them at fair
value. The effect on the Company of the adoption of this standard is not
anticipated to be material. In June 1999, the Financial Accounting Standards
Board issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" which
extended the effective date of implementation to fiscal years beginning after
June 15, 2000.
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. When used in this
document, the words "anticipate," "believe" "estimate" and "expect" and similar
expressions, as they relate to the Company or its management, are intended to
identify forward-looking statements. Such statements reflect the current views
of the Company with respect to future events and are subject to certain risks,
uncertainties and assumptions. Many factors could cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements that may be expressed or implied by
such forward-looking statements, including, among others: (1) ability to
continue as a going concern is dependent upon restructuring; (2) disruption of
operations due to restructuring; (3) control of PSI's Board of Directors by the
Company's lending syndicate; (4) effect of financial uncertainty on future
operating results; (5) outcome of legal proceedings may have a material adverse
effect on results of operations; (6) ability to trade common shares in the
United States; (7) risks associated with acquisitions including potential future
liabilities; (8) heightened competition, including the intensification of price
competition and the entry of new competitors; (9) dependence on outsourcing and
vendor reduction trends; (10) environmental and regulatory risks; (11) closure
costs for the Company's operating sites may exceed bonding amounts; (12) loss of
key employees; (13) commodity price and credit risks; (14) failure to obtain new
customers or retain existing customers; (15) general economic and business
conditions which are less favourable than expected; (16) the Year 2000 issue and
(17) unanticipated changes in industry trends. These factors and other risks are
discussed in the Company's Form 10-K for the fiscal year ended December 31, 1998
as well as from time to time in the Company's filings with the Securities and
Exchange Commission and other regulatory authorities. Should one or more of
these risks or uncertainties materialize, or should assumptions underlying the
forward-looking statements prove incorrect, actual results may vary materially
from those described herein as anticipated, believed, estimated or expected.
Philip does not intend, and does not assume any obligation, to update these
forward-looking statements.
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PHILIP SERVICES CORP.
PART 1, ITEM 3 -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to financial risk resulting from volatility in
foreign exchange rates, interest rates and commodity prices. The Company seeks
to minimize these risks through its regular operating and financing activities
and, when deemed appropriate, through the use of derivative financial
instruments. In 1999, the use of derivative instruments has been limited.
FOREIGN CURRENCY RATE RISK
The revenue and expenses of the Company's Canadian and European
subsidiaries are generally denominated using the local currency. The functional
currency of these subsidiaries is the local currency and therefore, foreign
currency translation adjustments made on consolidation are reflected as a
component of shareholders' equity (deficit) as stated in the Company's
accounting policies. Changes in the foreign exchange rates compared to the
United States dollar can have an effect on the Company's revenue and
profitability. The sensitivity of the net loss from continuing operations before
tax to the changing foreign currency rates is estimated to be approximately $0.4
million for a 1% change in the foreign currencies, based on the 1998 operating
results from foreign subsidiaries.
INTEREST RATE RISK
Substantially all of the Company's long-term debt bears interest at a
floating rate determined based on the U.S. prime lending rate. The debt
structure contemplated by the Plan provides for a fixed rate of interest to be
used on the majority of the debt, effective on the plan implementation date,
which will significantly reduce the Company's exposure to interest rate risk. At
September 30, 1999, the Company had no interest swaps outstanding.
COMMODITY PRICE RISK
In December 1998, the Company made the decision to discontinue the
Non-Ferrous and Copper Operations of its Metals Services group which were the
operations with the most sensitivity to commodity prices for copper and
aluminum. Therefore, for 1999, the commodity price risk for the remaining
operations is not anticipated to be material.
Prices for the Ferrous operations of the Metals Services group are set and
adjusted monthly by the major steel producers. The price of ferrous scrap is a
significant factor influencing the profitability of the Metals Services group.
In 1998, the Company's average selling price of ferrous scrap fell 46% to
approximately $82 per ton at December 31, 1998. In the nine months ended
September 30, 1999, the average selling price of ferrous scrap increased 40% to
$115 per ton. The Company manages its commodity price risk by acquiring ferrous
metal scrap as it is needed for its customers and maintaining relatively low
inventories of scrap and processed materials. Based on results of the Ferrous
operations for the third quarter of 1999, a 10% change in the price of ferrous
scrap is estimated to change the Company's loss from continuing operations
before tax by $3.4 million.
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PHILIP SERVICES CORP.
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.
(A)
Various class actions have been filed against the Company, certain of its
past and present directors and officers, the underwriters of the Company's 1997
public offering and the Company's auditors. Each action alleges that the
Company'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 the
Company's common shares. On June 2, 1998 the Judicial Panel on Multidistrict
Litigation ordered that the class actions be consolidated and transferred to the
United States District Court, Southern District of New York. On July 23, 1998,
two pre-trial orders of the District Court 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. On November 13, 1998, the
Company filed a motion for an order dismissing the class action on the grounds
of forum non conveniens. On May 12, 1999, the Company received notice that the
United States District Court, Southern District of New York, ruled in favour of
the Company's motion to dismiss the U.S. plaintiffs' consolidated and amended
class action complaint on forum non conveniens grounds. The District Court
declined to assume jurisdiction over the complaint on the grounds that Ontario
provides an adequate alternative forum for litigation of the class action
plaintiff's claims, and ruled that adjudication in Ontario would be more
convenient and best serve the public interest. The plaintiffs are appealing this
decision.
A claim brought under the Ontario Class Proceedings Act was commenced on
October 26, 1998 against the Company, the underwriters of the Company's 1997
public offering and the Company's auditors. The claim was brought on behalf of
persons in Canada who purchased common shares of the Company between November 6,
1997 and December 18, 1997 and also seeks damages on behalf of persons in Canada
who purchased common shares between May 21, 1996 and April 23, 1998. The claim
contains various allegations that are similar in nature to those made in the
U.S. class action claims dismissed on May 4, 1999.
On June 25, 1999, the Company, the U.S. class action plaintiffs and the
Canadian class action plaintiffs entered into a memorandum of understanding (the
"MOU") with respect to the settlement of the U.S. and Canadian class actions
(collectively the "Security Claims"). The MOU provides that the U.S. and
Canadian class action plaintiffs will receive 1.5% of the common shares of PSI
in exchange for a release and discharge of all claims. The settlement
contemplated by the MOU is subject to the execution of definitive documentation
and to the approval of the U.S. Court and the Canadian Court. Additionally, the
MOU provides that the Debtors will support a joint application for attorneys'
fees and reasonable expenses of plaintiff's counsel not to exceed $575,000,
subject to approval by the Courts, and which shall not be payable until after
the plan implementation date. The claims and causes of actions against the
Debtors described in the preceding two paragraphs are classified in the Amended
U.S. Plan as Class 8B Securities Claims. Under the Amended U.S. Plan, the
Securities Claims will be discharged as of the plan implementation date. There
can be no assurance that the Amended U.S. Plan will be confirmed by the U.S.
Court. If the Plan is not confirmed there can be no assurance that the U.S. and
Canadian class actions will not have a material adverse effect on the financial
condition or results of operations of the Company.
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 (the "Liff Actions") and
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the Southern-Foundry Supply group of companies (the "Chazen Actions"). Philip
acquired these companies in October of 1997 and issued the Company's common
shares in partial payment of the purchase price. The claims allege that the
Company'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 U.S. securities laws.
Under the Amended U.S. Plan, the claims in the Liff Actions and the Chazen
Actions are classified as Class 8C claims. The Amended U.S. Plan provides that
the claims against the Debtors arising from the Liff Actions and the Chazen
Actions will be discharged on the plan implementation date. Therefore, if the
Amended U.S. Plan is confirmed and consummated, after the plan implementation
date, the claims arising from the Liff Actions and the Chazen Actions cannot be
pursued against the reorganized Debtors. There can be no assurance that the
Amended U.S. Plan will be confirmed by the U.S. Court. If the Amended U.S. Plan
is not confirmed there can be no assurance that the Liff Actions or Chazen
Actions will not have a material adverse effect on the financial condition or
results of operations of the Company.
(B)
Upon the acquisition of Allwaste, the Company assumed the pre-existing
indenture with respect to the Allwaste's 7 1/4% Convertible Subordinated
Debentures ("Old Debentures") which are due in 2014. Effective December 1, 1998,
the Company suspended payments of interest on the Old Debentures which created a
default under the indenture. Following the Company's failure to cure the payment
default within thirty days, on April 22, 1999, First Union National Bank (the
"Indenture Trustee") invoked an acceleration clause and declared the principal
of all the Old Debentures to be immediately due and payable. On April 27, 1999,
the Indenture Trustee filed suit in the 11th Judicial District Court of Harris
County, Texas seeking the full amount due and owing under the Old Debentures
(the "Allwaste Collection Action").
The commencement of the Chapter 11 cases automatically stayed the further
prosecution of the Allwaste Collection Action. Moreover, the Debtors believe
that the U.S. Court has exclusive jurisdiction over the causes of action
asserted in the Allwaste collection action and that such matters will be
adjudicated in the Chapter 11 cases by the U.S. Court. Under the Amended U.S.
Plan, claims arising out of the Old Debentures are classified as Class 7
Impaired Unsecured Claims and will receive the treatment afforded such claims
and will be discharged under the Amended U.S. Plan as of the plan implementation
date. Therefore, if the Amended U.S. Plan is confirmed and consummated, after
the plan implementation date, the Reorganized Debtors will have no liability as
to the Old Debentures and the Allwaste Collection Action will be fully resolved
and will be dismissed with prejudice. There can be no assurance that the Amended
U.S. Plan will be confirmed by the U.S. Court. If the Amended U.S. Plan is not
confirmed there can be no assurance that the Allwaste Collection Action will not
have a material adverse effect on the financial condition or results of
operations of the Company.
On May 25, 1999, the Indenture Trustee filed suit against the Company and
the Lenders in the 11th Judicial District Court of Harris County, Texas (the
"Allwaste Avoidance Action") alleging that any and all liens, security
interests, and obligations conveyed or transferred by the Company to its lending
syndicate were avoidable as fraudulent conveyances. The Debtors believe that the
commencement of the Chapter 11 cases have vested exclusive standing to prosecute
avoidance actions, including those asserted by the Indenture Trustee against the
defendant Lenders in the Allwaste Avoidance Action, in the Debtors pursuant to
the Bankruptcy Code. Therefore, the Debtors believe that the causes of action
alleged in the Allwaste Avoidance Action are property of the Debtors' estates
and that further prosecution of the Allwaste Avoidance Action is stayed. Under
the terms of the Amended U.S. Plan, the causes of action asserted by the
Indenture Trustee against the defendant Lenders will be deemed to be settled and
released as a consequence of the treatment of all claims and interests,
including the claims of the Lenders and the holders of Old Debentures under the
Amended U.S. Plan. Therefore, if the Amended U.S. Plan is confirmed and
consummated, as of the plan implementation date, the Allwaste Avoidance Action
will be fully resolved and will be dismissed with prejudice. There can be no
assurance that the Amended U.S. Plan will be confirmed by the U.S. Court. If the
Amended U.S. Plan is not confirmed there can be no assurance that the Allwaste
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Avoidance Action will not have a material adverse effect on the financial
condition or results of operations of the Company.
(C)
In June 1997, pursuant to a share purchase agreement, Republic
Environmental Systems, Inc. ("Republic") sold certain corporate entities to RESI
Acquisition (Delaware), Inc. ("RESI") for $17 million. As consideration for the
transaction, RESI paid $8 million in cash and executed two promissory notes in
favor of Republic in a combined amount of $9 million. After the notes were
executed, the parties made several modifications to the payment schedule,
allowing RESI extra time to fulfill its obligations. However, RESI eventually
defaulted and Republic thereafter brought an action in the Superior Court of the
State of Delaware against the Company and RESI to collect on the notes (the
"U.S. Republic Action"). In addition to the note involved in the U.S. Republic
Action, another note issued by Philip Enterprises Inc. in conjunction with the
RESI acquisition exists and is the subject of litigation in Canada that has now
been stayed in connection with the Canadian filing (the "Canadian Republic
Action"). The Company filed counterclaims alleging damages from the 1997 Share
Purchase Agreement. On June 3, 1999, the court issued judgement granting
Republic's Motion for Final Judgement on the Pleadings as to the notes and
guaranty, and denying the Company's motion to dismiss. On June 4, 1999, RESI
filed a petition for relief under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the District of Delaware. As a result of the
CCAA and Chapter 11 filings, the U.S. Republic Action and the Canadian Republic
Action are now stayed. The claims of Republic, which are classified under the
Amended U.S. Plan as Class 7 Impaired Unsecured Claims, will receive the
treatment afforded such claims, and will be discharged under the Amended U.S.
Plan as of the plan implementation date. Therefore, if the Amended U.S. Plan is
confirmed and consummated, as of the plan implementation date, the reorganized
Debtors will have no liability as to the U.S. Republic Action or the Canadian
Republic Action and the actions will be fully resolved and will be dismissed
with prejudice. There can be no assurance that the Amended U.S. Plan will be
confirmed by the U.S. Court. If the Amended U.S. Plan is not confirmed there can
be no assurance that the U.S. Republic Action or the Canadian Republic Action
will not have a material adverse effect on the financial condition or results of
operations of the Company.
(D)
In January 1999, Exxon Chemical Company ("Exxon") asserted a claim against
International Catalyst, Inc. ("INCAT"), an indirect wholly-owned subsidiary of
the Company, for damages of $32.1 million arising from certain work conducted by
INCAT at Exxon's Baytown, Texas chemical plant. Exxon alleges that INCAT was
responsible for the purchase and installation in 1996 of improper gasket
materials in the internal bed piping flange joints of the Baytown plant which
caused damages to the facility and consequential losses arising from the
shutdown of the plant while repairs were made. INCAT has conducted a preliminary
review of these claims and determined that it is not feasible to predict or
determine the final outcome of these proceedings. INCAT intends to vigorously
defend the claims and believes that it may have insurance coverage for such
claims. There can be no assurance, though, that the outcome of the claims will
not have a material adverse effect upon the financial condition or results of
operations of INCAT.
(E)
In November 1998, the Company ceased paying interest on its $1.0 billion in
outstanding secured syndicated debt, which includes accrued but unpaid interest
of $67.9 million, and stopped making payments on certain other unsecured debt
and contractual obligations ("the Unsecured Obligations"). The Company has
reached an agreement with its lending syndicate on the terms of a financial
restructuring of the Company. On June 25, 1999, the Company and substantially
all of its wholly-owned subsidiaries located in the United States filed
voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy
Code. The Company and substantially all of its wholly-owned subsidiaries located
in Canada commenced proceedings under the Companies' Creditors Arrangement Act
in Canada on the same date. Pursuant to the Amended U.S. Plan, outstanding
syndicated debt of $1 billion will be converted into $250 million of senior
secured debt,
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$100 million in convertible secured payment in-kind debt and 91% of the common
shares of PSI. The senior secured debt and the secured payment in-kind debt each
have a term of five years. The Amended U.S. Plan also provides for the
conversion of certain specified impaired unsecured claims, into $60 million of
payment in-kind notes and 5% of the common shares of PSI as of the plan
implementation date. The implementation of the Amended U.S. Plan is subject to
the fulfillment of certain conditions. There can be no assurance that the
Amended U.S. Plan will be confirmed by the U.S. Court. If the Amended U.S. Plan
is not approved, there can be no assurance that the Company will continue as a
going concern. If the Amended U.S. Plan is not confirmed, the Unsecured
Obligations could have a material adverse effect upon the financial condition or
results of operations of the Company.
(F)
In January 1997, the State of Missouri brought an enforcement action
against Solvent Recovery Company ("SRC"), an indirect wholly-owned subsidiary of
the Company, in state court alleging numerous violations of hazardous waste
regulations at SRC'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 SRC's permit in
the accumulation, record keeping, inspection, labelling, transportation and
handling of such waste. SRC and the State of Missouri have agreed upon a payment
of $225,000 to be made in two installments and a payment of approximately
$125,000 which payment is suspended and will be waived if the facility remains
in compliance with applicable federal and state environmental standards for
three years. Philip does not expect that the matter will have a material adverse
effect on its results of operations or financial position.
(G)
The Company's operations are subject to various comprehensive laws and
regulations related to the protection of the environment. The Company's
facilities are subject to periodic unannounced inspections by federal,
provincial, state and local authorities to ensure compliance with operating
permits and applicable laws and regulations. If violations are found or
deficiencies, if any, are not remedied, an enforcement action could be commenced
against the Company or the Company could be charged with an offense and may
incur substantial fines. A charge is outstanding against the Company under the
Environmental Protection Act of Ontario in respect of a discharge in October
1997 of an odor from the Company's Vulcan Ave., Toronto, Ontario facility. The
Company is also aware of ongoing investigations of certain of its facilities
that could give rise to charges or the issuance of notices of violation. Based
on the information available and reviews conducted by the Company, the Company
does not expect the outstanding charge or the investigations of any single
facility to give rise to monetary sanctions that would exceed $100,000.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Since June 30, 1998, the Company has not been in compliance with certain
covenants in the Credit Facility, including the 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 was
not in compliance with the terms of its Credit Facility, the debt outstanding
under the Credit Facility was classified as a current liability on the Company's
Consolidated Balance Sheet at December 31, 1998.
Borrowings under the Credit Facility are guaranteed, jointly and severally
by the Company and its direct and indirect wholly-owned subsidiaries and are
secured by a pledge of the issued and outstanding securities of the Company's
direct and indirect wholly-owned subsidiaries, and a charge over the present and
future assets of the Company and its direct and indirect wholly-owned
subsidiaries. The Credit Facility bears interest based on a moving grid. In June
1998, the Credit Facility was reduced from $1.5 billion to $1.2 billion, the
interest rate charged was increased by 100 basis points, the Company was
permitted access to $60 million of the
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<PAGE> 37
proceeds arising from an asset disposition of which $20 million was allocated to
provide collateral for letters of credit and the Company agreed to a standstill
until September 30, 1998 respecting the incurrence of additional debt and the
occurrence of dispositions or acquisitions. On October 20, 1998, the Credit
Facility was further amended to permit the use of the letter of credit facility
for general corporate and other purposes and to extend the Company standstill on
certain activities until June 30, 1999. In November 1998, the Company suspended
payments of interest under the Credit Facility. Interest on the borrowings under
the Credit Facility ceased to accrue at the filing date.
The Plan sets forth a new capital structure for the Company and the
conditions that govern the restructuring of approximately $1.0 billion in
secured term loans outstanding, which includes accrued but unpaid interest,
under the Credit Facility. Under the terms of the Plan, the lenders will convert
the outstanding $1.0 billion of secured debt into $250 million of senior secured
debt, $100 million of convertible secured payment in-kind debt and 91% of the
common shares of PSI. The secured payment in-kind debt is convertible into 25%
of the common shares of PSI on a fully diluted basis as of the plan
implementation date. The senior secured debt and the secured payment in-kind
debt each have a term of five years.
On the acquisition of Allwaste, Inc. ("Allwaste") the Company assumed the
indenture with respect to Allwaste's 7 1/4% Convertible Subordinated Debentures
("debenture") which are due 2014. At any time up to and including June 1, 2014
the holder of any debenture will have the right to convert the principal amount
of such debenture into common shares equal to the principal amount of the
debenture surrendered for conversion divided by $19.5376. The debentures are
redeemable for cash at the option of the Company. The debentures provide for
annual mandatory sinking fund payments equal to 5% of the aggregate principal
amount of the debenture issued, commencing June 1, 1999. Interest is payable
semi-annually on June 1 and December 1. Effective December 1, 1998, the Company
suspended payments of interest on the debenture which created a default under
the indenture. Interest accrued on the debenture as at September 30, 1999 is
approximately $2 million. The amount of the debentures outstanding was
classified as a current liability on the Consolidated Balance Sheet at December
31, 1998.
Included in other long-term debt are promissory notes, relating to certain
1996 and 1997 acquisitions, totalling $16,000 which are in default as principal
repayments required were not made. At December 1998, $11,000 of these notes were
in default and therefore were classified as a current liability on the Company's
December 31, 1998 Consolidated Balance Sheet.
Included in the fixed rate secured loans are industrial development bonds
totaling $7,700 which were in default as at December 31, 1998, and September 30,
1999 as principal repayments required were not made. Therefore, these loans have
been classified as a current liability on the Company's Consolidated Balance
Sheets at December 31, 1998 and September 30, 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
No matters were submitted to a vote of shareholders of the Company during
the third quarter of the fiscal year ending December 31, 1999.
ITEM 5. OTHER INFORMATION
None.
36
<PAGE> 38
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<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 1/4% Convertible
Subordinated Debentures due 2014 between Allwaste, Inc. and
Texas Commerce Trust Company of New York
4.2* First Supplemental Indenture dated as of July 30, 1997
supplementing and amending the June 1, 1989 Indenture
4.3* Specimen of Common Stock Certificate
10.1* 1991 Stock Option Plan
10.2* 1997 Amended and Restated Stock Option Plan
10.3+ 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
10.4* 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 made
as of October 31, 1997
10.5* 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 made
as of February 19, 1998
10.6** 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 made
as of June 24, 1998
10.7*** Amending Agreement No. 4 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 20, 1998
10.8(o) Amending Agreement No. 5 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of December 4, 1998
10.9(o) Lock-up Agreement dated as of April 5, 1999 among Philip
Services Corp. and certain lenders of Philip Services
Corp.'s lending syndicate
10.10(o) Proceeds Agreement dated as of April 5, 1999 among Canadian
Imperial Bank of Commerce, in its capacity as Administrative
Agent, Philip Services Corp. and certain subsidiaries of
Philip Services Corp.
10.11(x) Joint Plan of Reorganization of Philip Services (Delaware)
Inc. et al, United States Bankruptcy Court for the District
of Delaware, Chapter 11, Case No 99-02385 (MFW) (Jointly
Administered)
10.12(x) Disclosure Statement with respect to Joint Plan of
Reorganization of Philip Services (Delaware) Inc. et al
United States Bankruptcy Court for the District of Delaware,
Chapter 11, Case No 99-02385 (MFW) (Jointly Administered)
10.13(x) Plan of Compromise and Arrangement dated July 15, 1999 of
Philip Services Corp. and its Canadian Subsidiaries,
Companies' Creditors' Arrangement Act, Ontario Superior
Court of Justice (Commercial List), Court File No.:
99-CL-3442
</TABLE>
37
<PAGE> 39
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.14(x) Credit Agreement dated as of June 28, 1999 between Philip
Services Corp. and Philip Services (Delaware) Inc. as
Debtors-In-Possession, the Subsidiaries of the Borrowers
Named Therein as Subsidiary Guarantors, Bankers Trust
Company as DIP Agent, Bankers Trust Company and Canadian
Imperial Bank of Commerce as DIP Co-Arrangers, for the
amount of $100,000,000.
10.15(x) Amendment to the Lockup Agreement dated June 21, 1999 among
the Lenders under a Credit Agreement dated as of August 11,
1997, as amended and Philip Services Corp.
10.16(u) Disclosure Statement with respect to the Amended Joint Plan
of Reorganization of Philip Services (Delaware), Inc., et
al, dated September 21, 1999, as filed with the United
States Bankruptcy Court for the District of Delaware.
10.17(u) Amended and Restated Joint Plan of Reorganization of Philip
Services Corp., Philip Services (Delaware), Inc. and certain
of their subsidiaries, dated September 21, 1999.
10.18 Amended and Restated Plan of Compromise and Arrangement
dated September 24, 1999 of Philip Services Corp. and its
Canadian Subsidiaries, Companies, Creditors Arrangement Act,
Ontario Superior Court of Justice (Commercial List), Court
File No. 99-CL-3442.
10.19 Supplement dated October 27, 1999 to the Amended and
Restated Plan of Compromise and Arrangement dated September
24, 1999.
21(o) Subsidiaries of the Registrant
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 for the fiscal year ended December 31, 1997.
** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended June 30, 1998.
*** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended September 30, 1998.
(o) incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
(x) incorporated by reference to the exhibits filed with the Company's
Quarterly Report for the three months ended June 30, 1999.
(u) incorporated by reference to the exhibits filed with the Company's
Application for Qualification of Indentures dated September 29, 1999.
(B) REPORTS ON FORM 8-K
Form 8-K dated July 12, 1999 relating to the Company's press releases in
relation to (i) an amended Lock-Up Agreement entered into by the Company and the
Company's lending syndicate, and (ii) the filing by the Company of a voluntary
application to reorganize and voluntary petition under the Companies' Creditors
Arrangement Act with the Ontario Superior Court of Justice in Toronto, Canada
and under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court
for the District of Delaware, respectively.
Form 8-K dated September 27, 1999 (amended October 7, 1999) relating to the
Company's press release announcing the filing of an Amended and Restated Plan of
Compromise and Arrangement under the Companies' Creditors Arrangement Act with
the Ontario Superior Court of Justice in Toronto and an Amended Joint Plan of
Reorganization and a Disclosure Statement under Chapter 11 of the U.S.
Bankruptcy Code with the U.S. Bankruptcy Court for the District of Delaware,
respectively.
38
<PAGE> 40
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant, Philip Services Corp., has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
PHILIP SERVICES CORP.
By: /s/ PHILLIP C. WIDMAN
- ----------------------------------------
Phillip C. Widman
Executive Vice President and
Chief Financial Officer
</TABLE>
Dated: November 15, 1999
39
<PAGE> 41
PHILIP SERVICES CORP.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C - ADDITIONS COLUMN D COLUMN E
- -------- ------------ ------------------------- ------------- ------------
BALANCE, CHARGED TO CHARGED TO
BEGINNING OF COSTS AND OTHER BALANCE, END
DESCRIPTION PERIOD EXPENSES ACCOUNTS(1) DEDUCTIONS(2) OF PERIOD
- ----------- ------------ ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
September 30, 1999............. (24,353,680 (5,361,818) -- 6,086,533 (23,628,965)
December 31, 1998.............. (17,643,048) (28,759,609) 113,740 21,933,231 (24,353,680)
December 31, 1997.............. (5,051,308) (5,050,801) (13,652,894) 6,111,955 (17,643,048)
</TABLE>
- ---------------
(1) Opening balances in companies acquired in the year net of closing balances
of companies sold in the year.
(2) Write-off of uncollectible accounts.
<PAGE> 42
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<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 1/4% Convertible
Subordinated Debentures due 2014 between Allwaste, Inc. and
Texas Commerce Trust Company of New York
4.2* First Supplemental Indenture dated as of July 30, 1997
supplementing and amending the June 1, 1989 Indenture
4.3* Specimen of Common Stock Certificate
10.1* 1991 Stock Option Plan
10.2* 1997 Amended and Restated Stock Option Plan
10.3+ 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
10.4* 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 made
as of October 31, 1997
10.5* 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 made
as of February 19, 1998
10.6** 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 made
as of June 24, 1998
10.7*** Amending Agreement No. 4 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of October 20, 1998
10.8(o) Amending Agreement No. 5 to the Credit Agreement dated as of
August 11, 1997 among Philip Services Corp., Philip Services
(Delaware), Inc. and Canadian Imperial Bank of Commerce made
as of December 4, 1998
10.9(o) Lock-up Agreement dated as of April 5, 1999 among Philip
Services Corp. and certain lenders of Philip Services
Corp.'s lending syndicate
10.10(o) Proceeds Agreement dated as of April 5, 1999 among Canadian
Imperial Bank of Commerce, in its capacity as Administrative
Agent, Philip Services Corp. and certain subsidiaries of
Philip Services Corp.
10.11(oe) Joint Plan of Reorganization of Philip Services (Delaware)
Inc. et al, United States Bankruptcy Court for the District
of Delaware, Chapter 11, Case No 99-02385 (MFW) (Jointly
Administered)
10.12(oe) Disclosure Statement with respect to Joint Plan of
Reorganization of Philip Services (Delaware) Inc. et al
United States Bankruptcy Court for the District of Delaware,
Chapter 11, Case No 99-02385 (MFW) (Jointly Administered)
10.13(oe) Plan of Compromise and Arrangement dated July 15, 1999 of
Philip Services Corp. and its Canadian Subsidiaries,
Companies' Creditors' Arrangement Act, Ontario Superior
Court of Justice (Commercial List), Court File No.:
99-CL-3442
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
<C> <S>
10.14(oe) Credit Agreement dated as of June 28, 1999 between Philip
Services Corp. and Philip Services (Delaware) Inc. as
Debtors-In-Possession, the Subsidiaries of the Borrowers
Named Therein as Subsidiary Guarantors, Bankers Trust
Company as DIP Agent, Bankers Trust Company and Canadian
Imperial Bank of Commerce as DIP Co-Arrangers, for the
amount of $100,000,000.
10.15(oe) Amendment to the Lock-up Agreement dated June 21, 1999 among
the Lenders under a Credit Agreement dated as of August 11,
1997, as amended and Philip Services Corp.
10.16(u) Disclosure Statement with respect to the Amended Joint Plan
of Reorganization of Philip Services (Delaware), Inc., et
al, dated September 21, 1999, as filed with the United
States Bankruptcy Court for the District of Delaware.
10.17(u) Amended and Restated Joint Plan of Reorganization of Philip
Services Corp., Philip Services (Delaware), Inc. and certain
of their subsidiaries, dated September 21, 1999.
10.18 Amended and Restated Plan of Compromise and Arrangement
dated September 24, 1999 of Philip Services Corp. and its
Canadian Subsidiaries, Companies, Creditors Arrangement Act,
Ontario Superior Court of Justice (Commercial List), Court
File No. 99-CL-3442.
10.19 Supplement dated October 27, 1999 to the Amended and
Restated Plan of Compromise and Arrangement dated September
24, 1999.
21(o) Subsidiaries of the Registrant
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 for the fiscal year ended December 31, 1997.
** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended June 30, 1998.
*** incorporated by reference to the exhibits filed with the Company's Quarterly
Report for the three months ended September 30, 1998.
(o) incorporated by reference to the exhibits filed with the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998.
(oe) incorporated by reference to the exhibits filed with the Company's
Quarterly Report for the three months ended June 30, 1999.
(u) incorporated by reference to the exhibits filed with the Company's
Application for Qualification of Indentures dated September 29, 1999.
<PAGE> 1
EXHIBIT 10.18
Court File No.: 99-CL-3442
SUPERIOR COURT OF JUSTICE
(Commercial List)
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C.
1985, c. C-36., AS AMENDED
AND IN THE MATTER OF THE COURTS OF JUSTICE ACT, R.S.O. 1990, c. C-43, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE AND ARRANGEMENT OF PHILIP
SERVICES CORP. AND THE APPLICANTS LISTED ON SCHEDULE "A".
APPLICATION UNDER THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C.
1985, c. C.-36, AS AMENDED.
AMENDED AND RESTATED PLAN OF COMPROMISE
AND ARRANGEMENT
September 24, 1999
<PAGE> 2
- 2 -
<PAGE> 3
AMENDED AND RESTATED PLAN OF COMPROMISE
AND ARRANGEMENT
Amended and Restated Plan of Compromise and Arrangement of Philip Services
Corp. and its Canadian subsidiaries listed on Schedule "A" hereto pursuant to
the Companies' Creditors Arrangement Act, R.S.C. 1995, c. C-36, as amended.
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINITIONS
In this Plan (including the Schedules hereto), unless otherwise stated or
the context otherwise requires:
"ACCOUNT INTERMEDIARIES" means (a) CIBC in its capacity as the provider
of the CIBC Bank Account Services, and (b) Comerica Bank and its
affiliates in their respective capacities as the providers of the
Comerica Bank Account Services, and (c) for the purposes of Section 6.3
includes Royal Bank of Canada in its capacity as the former provider of
bank account services to one or more of the Applicants;
"ADMINISTRATIVE AGENT" means CIBC or its successor as administrative
agent for the Lenders under the Credit Agreement;
"AFFECTED CLAIM" means an Affected Secured Lender Claim or an Affected
Unsecured Claim;
"AFFECTED CREDITOR" means a holder of an Affected Claim;
"AFFECTED SECURED LENDER CLAIM" means a Secured Claim of a Lender against
the Applicants arising under or as a result of the Credit Facility
Agreements other than any Other Secured Claims;
"AFFECTED SECURED CREDITOR" means a holder of an Affected Secured Lender
Claim;
"AFFECTED TRADE CLAIMS" means Claims in excess of $75,000 of trade
vendors who do not agree to continue to provide trade credit to the
Applicants in accordance with terms provided prior to the Date of Filing
or who have not actually provided such terms during the CCAA Proceedings;
"AFFECTED UNSECURED CLAIMS" means collectively, Affected Unsecured Lender
Claims, those Claims set forth on the Affected Unsecured Claims List,
<PAGE> 4
- 2 -
Affected Trade Claims, Contribution and Indemnity Claims and Claims of
parties to executory contracts and leases that are repudiated or
terminated pursuant to Article 8 hereof, and, for greater certainty, does
not include the Unaffected Obligations;
"AFFECTED UNSECURED CLAIMS LIST" means the list of Affected Unsecured
Claims attached hereto as Schedule "B", as amended or supplemented from
time to time;
"AFFECTED UNSECURED CREDITOR" means a holder of an Affected Unsecured
Claim;
"AFFECTED UNSECURED LENDER CLAIM" means a Claim of a Lender arising under
or as a result of the Credit Facility Agreements that is not an Affected
Secured Lender Claim, other than Lender Claims in respect of letters of
credit issued pursuant to the Credit Agreement that are contingent as of
the Effective Date;
"AGREED LC CLAIM" means US$20 million;
"AMENDED AND RESTATED TERM CREDIT AGREEMENT" means collectively, the
Amended and Restated Term Credit Agreement, together with ancillary
documents, to be entered into among PSC, PSI and holders of Secured
Lender Claims as of the Effective Date, pursuant to which the New Senior
Secured Term Debt and New Secured PIK Debt will be governed, which
agreement shall be substantially in the form to be included as a
supplement to the U.S. Plan;
"APPLICANTS" means PSC and each of the Canadian Subsidiaries and
"APPLICANT" means any one of the Applicants;
"ASSUMED INDEMNIFICATION OBLIGATIONS" means (a) the obligations of PSC
pursuant to section 7.02 of its bylaws to indemnify current and former
directors and officers, on the terms and subject to the limitations
described therein, if and to the extent that such indemnification is
permissable under the Business Corporations Act (Ontario) or such other
applicable governing corporate statute and (b) the obligations of the
Applicants other than PSC to indemnify current and former directors and
officers under their respective bylaws to the extent such indemnification
obligations are not more expansive than those of PSC under section 7.02
of its bylaws if and to the extent such indemnification is permissible
under the applicable governing corporate statute of the applicable
Applicant; in each case, including any affirmative obligation of the
Applicants to indemnify current and former directors and officers in
connection with any governmental, regulatory or enforcement
<PAGE> 5
- 3 -
investigation or action and in each case solely with respect to such
officer's or director's actions subsequent to becoming an officer or
director of PSC or of a director or indirect subsidiary or affiliate of
PSC; provided, however, that Assumed Indemnification Obligations shall
not include Excluded Indemnification Obligations;
"BAR DATE" means the date designated by the Court as the last date for
filing Proofs of Claim;
"BTCo" means Bankers Trust Company;
"BUSINESS DAY" means a day which is not (i) a Saturday or a Sunday; or
(ii) a day observed as a holiday under the laws of the Province of
Ontario or the applicable federal laws of Canada;
"CANADIAN SECURITIES ACTION" means the class action claim entitled
Menegon v. Philip Services Corp. et al, File No. 4166 CP 98 (Ontario
Superior Court of Justice);
"CANADIAN SUBSIDIARIES" means, collectively, the direct and indirect
subsidiaries of PSC listed on Schedule "A" hereto;
"CANADIAN UNDERWRITERS" means Merrill Lynch Canada Inc., Midland Walwyn
Capital Inc., First Marathon Securities Limited, Gordon Capital
Corporation, Salomon Brothers Canada Inc., CIBC Wood Gundy Securities
Inc., RBC Dominion Securities Inc. and TD Securities Inc., and their
respective successors;
"CCAA" means the Companies' Creditors Arrangement Act, R.S.C. 1985, c.
C-36, as amended;
"CCAA PROCEEDINGS" means the CCAA cases of PSC and the Canadian
Subsidiaries before the Court pursuant to the CCAA;
"CHAPTER 11 CASES" means the jointly administered Chapter 11 cases of
PSI, PSC and the U.S. Subsidiaries before the United States Bankruptcy
Court pursuant to the provisions of Chapter 11 of the United States
Bankruptcy Code;
"CIBC" means Canadian Imperial Bank of Commerce;
"CIBC BANK ACCOUNT SERVICES" means "CIBC Bank Account Services" as
defined in the Credit Agreement;
<PAGE> 6
- 4 -
"CLAIM" means any right of any Person against any Applicant in connection
with any indebtedness, liability or obligation of any kind of any
Applicant whether or not reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, unsecured, present, future, known, unknown, by
guarantee, by surety or otherwise and whether or not such a right is
executory in nature, including, without limitation, the right or ability
of any person to advance a claim for contribution or indemnity or
otherwise with respect to any matter, action, cause or chose in action
whether existing at present or commenced in the future based in whole or
in part on facts which exist prior to or at the time of the first
Creditors' Meeting other than (i) a claim of a United States resident
against PSC, or (ii) a claim of a Canadian resident against PSC which the
holder of the claim has voluntarily agreed is to be subject to and bound
by the provisions of the U.S. Plan, and has consented to have the
allowance and priority of such claim determined in accordance with the
provisions of the U.S. Bankruptcy Code;
"CLAIMS OFFICER" means the claims officer designated by PSC and approved
by the Court;
"CLASS" means the Class consisting of all holders of Affected Secured
Lender Claims or holders of Affected Unsecured Claims, as the case may
be;
"COMERICA BANK ACCOUNT SERVICES" means "Comerica Bank Account Services"
as defined in the Credit Agreement;
"COMMON SHARES" means common shares in the capital of PSC;
"CONFIRMATION DATE" means the date that the Confirmation Order is made;
"CONFIRMATION ORDER" means the order of the Court sanctioning and
approving the Plan;
"CONTRIBUTION AND INDEMNITY CLAIMS" means any Claims of Deloitte &
Touche, any of the Canadian Underwriters or any of the Directors and
Officers against any of the Applicants for contribution and indemnity.
"COURT" means the Ontario Superior Court of Justice;
"CREDIT AGREEMENT" means the Credit Agreement dated as of August 11, 1997
among PSC, as borrower in Canada, PSI, as borrower in the United States,
the Lenders, CIBC, as administrative agent for the Lenders, BTCo, as
syndication agent, and CIBC and BTCo, as co-arrangers, as amended by
amending agreements dated as of October 31, 1997, February 19, 1998, June
24, 1998, October 20, 1998 and December 4, 1998;
<PAGE> 7
- 5 -
"CREDIT DOCUMENTS" means the "Credit Documents" as defined in the Credit
Agreement;
"CREDIT FACILITY AGREEMENTS" means the Credit Agreement, the Credit
Documents and the Lender Lock-Up Agreement;
"CREDITOR" means any Person having a Claim and may, if the context
requires, mean a trustee, receiver, receiver manager or other Person
acting on behalf of such Persons, but a Creditor shall not include a
Person having a Claim in respect of an Unaffected Obligation;
"CREDITORS' MEETINGS" means the meetings of the Creditors called for the
purpose of considering and voting upon this Plan and includes any
adjournment of such meeting;
"CREDITORS' MEETINGS DATES" means the dates fixed for the Creditors'
Meetings under the Creditors' Meetings Order;
"CREDITORS' MEETINGS ORDER" means the Order of the Court dated September
23, 1999 establishing procedures for proving Claims and setting the date
for the Creditors' Meetings, as amended or supplemented from time to
time;
"DATE OF FILING" means June 25, 1999;
"DELOITTE & TOUCHE" means Deloitte & Touche, its successors and
affiliates;
"DILUTION" means dilution subsequent to the Effective Date (a) to the
extent necessary to give effect to the convertibility of the New Secured
PIK Debt, the New Unsecured Convertible Notes (as defined in the U.S.
Plan) and the exercise of the Management Options or (b) otherwise as a
result of the issuance of Common Shares, implementation of other
management incentive programs or other action taken by the new board of
directors of PSC referred to in Section 6.1(2)(d).
"DIP AGENT" means BTCo, in its capacity as administrative agent under the
DIP Facility Agreement;
"DIP CO-ARRANGERS" means BTCo and CIBC, in their capacities as
co-arrangers of the DIP Facility;
"DIP FACILITY AGREEMENT" means the Credit Agreement between PSC and PSI
as borrowers, the Canadian Subsidiaries and U.S. Subsidiaries as
guarantors, certain other Subsidiaries as guarantors, the DIP Agent, and
the DIP Co-Arrangers, and the other lender signatories thereto;
<PAGE> 8
- 6 -
"DIP FACILITY" means the debtor-in-possession credit facility to be
provided to PSC, PSI, the Canadian Subsidiaries and the U.S. Subsidiaries
during the CCAA Proceedings and Chapter 11 Cases in the principal amount
of US$100 million of available credit pursuant to the DIP Facility
Agreement;
"DIP FACILITY CLAIM" means a Claim arising under or as a result of the
DIP Facility;
"DIRECTORS AND OFFICERS" means the current and former directors and
officers of the Applicants resident in Canada;
"DISBURSING AGENT" means PSC or any party designated by PSC, in its sole
discretion, to serve as disbursing agent under the Plan;
"DISCLOSURE STATEMENTS" means the written disclosure statements that
relate to this Plan or the U.S. Plan, as such documents may be amended,
supplemented or modified from time to time and "DISCLOSURE STATEMENT"
means any one of them;
"DISPUTED CLAIM AMOUNT" means the amount of a Disputed Unsecured Claim;
"DISPUTED CLAIMS RESERVE" means the reserve, if any, established and
maintained by the Disbursing Agent, into which the Applicants shall
deposit the amount of New Unsecured PIK Notes and New Common Shares that
would have been distributed on the Distribution Date to holders of
Disputed Unsecured Claims if such Claims had been Proven Claims on the
Distribution Date, pending the allowance of such Claims;
"DISPUTED UNSECURED CLAIM" means a Claim that is the subject of a
Distribution Dispute Notice;
"DISTRIBUTION DATE" means a date occurring as soon as practicable after
the Effective Date upon which distributions are made to holders of Proven
Claims under the Plan provided, however, that in no event shall the
Distribution Date occur later than thirty (30) Business Days after the
Effective Date;
"DISTRIBUTION DISPUTE NOTICE" means an "Applicants' Distribution Dispute
Notice" or a "Creditor Distribution Dispute Notice" as such terms are
defined in the Creditors' Meetings Order;
"DISTRIBUTION RECORD DATE" means the record date for the purposes of
making distributions under this Plan on account of Proven Claims, which
<PAGE> 9
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shall be the Confirmation Date or such other date designated in the
Confirmation Order;
"DOLLARS" or "$" means lawful money of Canada unless otherwise indicated;
"EFFECTIVE DATE" means the Business Day on which all conditions to
implementation of the Plan as set forth in Section 9.8 have been
satisfied or waived as provided in Section 9.9 and is the effective date
of the Plan;
"EMPLOYEES" means those Persons who are or were employed by any Applicant
or retained by any Applicant to perform services exclusively for such
Applicant;
"EXCESS PROCEEDS ACCOUNT" means a separate interest-bearing account
established by the DIP Agent into which Net Asset Sale Proceeds of all
asset sales of PSC and the Subsidiaries consummated on or after the Date
of Filing are deposited and into which all proceeds at any time deposited
into the Proceeds Account (without giving effect to any disbursements
from the Proceeds Account prior to the Date of Filing) in excess of
US$93,000,000 (after post-closing adjustments of no greater than
US$4,000,000 deposited into the Proceeds Account with respect to the sale
of certain assets of PSC's aluminium division prior to the Date of
Filing) shall also be deposited, which funds shall be held by the DIP
Agent to be distributed in accordance with this Plan and the U.S. Plan on
the Effective Date;
"EXCLUDED INDEMNIFICATION OBLIGATIONS" means, in the case of PSC,
"Excluded Indemnification Obligations" (as defined in the U.S. Plan) of
PSC to any Canadian resident and, in the case of any of the Canadian
Subsidiaries, means Claims of any Canadian residents against any of the
Canadian Subsidiaries that would be "Excluded Indemnification
Obligations" under the U.S. Plan if such Canadian Subsidiaries were U.S.
Plan Applicants and in each case includes Claims of any Canadian
residents against any of the Applicants that are not Assumed
Indemnification Obligations. For greater certainty, "Excluded
Indemnification Obligations" shall not affect the set-off rights, if any,
of any Person;
"EXIT FACILITY" means the new senior secured credit facility in an
aggregate principal amount of approximately US$125 million, which PSC,
PSI and the Subsidiaries anticipate entering into as a condition to the
consummation of the Plan;
"FACE AMOUNT" means (a) when used in reference to a Disputed Unsecured
Claim, the full stated amount claimed by the holder of such Claim in any
Proof of Claim or Distribution Dispute Notice timely filed with the Court
in
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accordance with this Plan or otherwise deemed timely filed by any Final
Order of the Court or other applicable bankruptcy law, and (b) when used
in reference to a Proven Claim, the as proven amount of such Claim;
"FINAL ORDER" means an order or judgment of the Court relating to the
Plan, the operation or effect of which has not been stayed, reversed or
amended and as to which order or judgment (or any revision, modification,
or amendment thereof) the time to appeal or seek review or rehearing has
expired and as to which no appeal or petition for review or rehearing was
filed, or if filed remains pending;
"INITIAL ORDER" means the Order of the Court dated June 25, 1999, as
amended from time to time, pursuant to which, among other things, the
Applicants were granted certain relief pursuant to the CCAA;
"INTERCOMPANY CLAIMS" means, as the case may be, any Claim of (a) any
Subsidiary against an Applicant, (b) any Subsidiary against a Subsidiary,
or (c) PSC against any Subsidiary;
"LC LENDERS" means the "LC Lenders" as defined in the Credit Agreement;
"LENDER" means a "Lender" as defined in the Credit Agreement, CIBC as
administrative agent, BTCo as syndication agent, CIBC and BTCo as
co-arrangers, and their individual successors and assigns;
"LENDER CLAIM" means a Claim of a Lender arising under or as a result of
the Credit Facility Agreements;
"LENDER LOCK-UP AGREEMENT" means the letter agreement dated as of April
5, 1999, as amended and restated as of June 21, 1999, as may be further
amended subsequent to the Date of Filing, among PSC and the Lenders
signatories thereto with respect to the principal terms and conditions of
this Plan and the U.S. Plan;
"LIEN" means a charge against or interest in property to secure payment
of debt or performance of an obligation;
"MANAGEMENT OPTION AGREEMENT(S)" means stock option agreement(s) to be
entered into by PSC and the Management Option Plan Participants, pursuant
to which the Management Options will be granted;
"MANAGEMENT OPTION PLAN" means a stock option plan to be adopted by the
new board of directors of PSC referred to in Section 6.1(2)(d) on or
after the Effective Date;
<PAGE> 11
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"MANAGEMENT OPTION PLAN PARTICIPANTS" means the employees of PSC entitled
to participate in the Management Option Plan;
"MANAGEMENT OPTIONS" means the options to be issued by PSC pursuant to
the Management Option Plan to Management Option Plan Participants to
purchase Common Shares pursuant to the provisions of the Management
Option Agreements, subject to Dilution;
"MONITOR" means Ernst & Young Inc. and any successor thereto appointed in
accordance with the Initial Order or any further Order;
"NET ASSET SALE PROCEEDS" means the cash proceeds of asset sales of PSC
and the Subsidiaries net only of reasonable costs and expenses and the
payment of Other Secured Claims (excluding the Secured Claims of the
Account Intermediaries) secured by Liens on such assets senior to the
Liens securing the Affected Secured Lender Claims on such assets;
"NET ASSET SALE PROCEEDS POOL" means the amount of cash in the Excess
Proceeds Account equal to sixty-six and two-thirds percent (66-2/3%) of
the first US$200,000,000 of any Net Asset Sale Proceeds of the U.S.
Ferrous division, if the US Ferrous division is sold, plus seventy-five
percent (75%) of all other Net Asset Sale Proceeds in the Excess Proceeds
Account;
"NEW COMMON SHARES" means the common shares of PSC to be issued pursuant
to this Plan and the U.S. Plan;
"NEW GUARANTEES" means, collectively, the secured guarantees of the
Canadian Subsidiaries and the other Restricted Subsidiaries to be entered
into as of the Effective Date to guarantee and secure the New Senior
Secured Term Debt and the New Secured PIK Debt;
"NEW SECURED PIK DEBT" means the ten percent (10%) Secured Convertible
PIK Debt due 2004 of PSC, in the aggregate principal amount of US$100
million, to be issued and distributed pursuant to this Plan and the U.S.
Plan on the Distribution Date and governed by the terms of the Amended
and Restated Term Credit Agreement, the original face amount of which
will be convertible until maturity at the option of the holders into
twenty-five percent (25%) of the PSC Common Shares, in the aggregate, on
a fully diluted basis as of the Effective Date and having the usual
anti-dilution provisions applicable in a public offering of convertible
debt, including giving effect to the issuance of any Common Shares under
the Shareholder Rights Plan;
"NEW SENIOR SECURED TERM DEBT" means the secured term debt of PSI due
2004, to be governed by the terms of the Amended and Restated Term Credit
<PAGE> 12
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Agreement, to be distributed under the Plan on the Distribution Date in
the aggregate principal amount of US$250 million minus an amount equal to
the Net Asset Sale Proceeds Pool;
"NEW UNSECURED PIK NOTES INDENTURE" means the indenture to be entered
into between PSC and an entity to be selected prior to the Effective
Date, as indenture trustee, under which the New Unsecured PIK Notes shall
be issued;
"NEW UNSECURED PIK NOTES" means the six percent (6%) unsecured
payment-in-kind notes due 2009 of PSC, in the aggregate principal amount
not to exceed US$60 million, to be issued and distributed pursuant to the
Plan and the U.S. Plan on the Distribution Date and governed by the terms
of the New Unsecured PIK Notes Indenture;
"ORDER" means any order of the Court in these proceedings;
"OTHER EQUITY SECURITIES" means, collectively, the outstanding options to
purchase Common Shares, as of the Date of Filing, together with any other
options, warrants, conversion rights, rights of first refusal or other
rights, contractual or otherwise, to acquire or receive any Common Shares
or other ownership interests in any Applicant, or of an affiliate of any
Applicant and any contracts, subscriptions, commitments or agreements
pursuant to which the non-Applicant party was or could have been entitled
to receive shares, securities or other ownership interests in any
Applicant, excluding Subsidiary Interests;
"OTHER SECURED CLAIMS" means, collectively, the Secured Claims of the
Account Intermediaries, the issuers of letters of credit issued under the
Permitted LC Facility established pursuant to Amending Agreement No. 3 to
the Credit Agreement and all other Secured Claims against the Applicants,
other than the Affected Secured Lender Claims;
"PERSON" means any individual, partnership, joint venture, trust,
corporation, unincorporated organization, government or any agency or
instrumentality thereof, or any other juridical entity howsoever
designated or constituted;
"PLAN" means this amended and restated plan of compromise and arrangement
dated September 24, 1999 of all of the Applicants under the CCAA, as same
may be amended or supplemented from time to time with the consent of the
Required Lenders and to the extent of any modification to the treatment
of the Account Intermediaries as holders of Secured Claims, the consent
of the Account Intermediaries;
"PLAN SUPPLEMENT" has the meaning ascribed thereto in Section 6.2;
<PAGE> 13
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"PROCEEDS ACCOUNT" means the account established under the Proceeds
Agreement into which proceeds of certain asset sales were deposited prior
to the Date of Filing;
"PROCEEDS AGREEMENT" means the Proceeds Agreement dated April 5, 1999, as
amended, made among PSC, the Subsidiaries and the Lenders;
"PROOF OF CLAIM" means a proof of claim in the form prescribed by the
Creditors' Meetings Order;
"PROTOCOL" means the Cross-Border Insolvency Protocol entered into by the
U.S. Bankruptcy Court in the Chapter 11 Cases and by the Court in respect
of the CCAA Proceedings;
"PROVEN ..... CLAIM" of a Creditor means the amount of the Claim of such
Creditor as finally determined in accordance with the provisions of the
CCAA, any applicable Order or this Plan;
"PSC" means Philip Services Corp. or its successor;
"PSC COMMON SHARES" means the Common Shares of PSC outstanding after
giving effect to the issuance of New Common Shares and the Stock
Consolidation;
"PSI" means Philip Services (Delaware), Inc.;
"REGISTRATION RIGHTS AGREEMENT" means an agreement to be entered into
between PSC and certain Affected Secured Creditors with respect to rights
of registration as to the Common Shares, substantially in the form to be
included in a supplement to the U.S. Plan;
"REQUIRED LENDERS" means the "Required Lenders" as defined in the Credit
Agreement;
"REQUIRED MAJORITY" means, in respect of each Class of Creditor, an
affirmative vote of two-thirds in value of all Proven Claims of such
Class voted in accordance with the voting procedures established
hereunder (whether in person or by proxy) and a majority in number of all
voting Creditors of such Class;
"RESTRICTED SUBSIDIARIES" means "Restricted Subsidiaries" as defined in
the Credit Agreement;
"SECURED CLAIM" means a Claim that is secured by a Lien or other interest
on property in which an Applicant has an interest, whether the Person
with such
<PAGE> 14
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Claim has a security interest by way of a mortgage, lease, chattel
mortgage, conditional sale agreement, debenture, security agreement or
other security instrument, to the extent of the value of the Claim
holder's interest in the Applicant's interests in such property;
"SECURITIES ACTIONS" means, collectively, (i) the consolidated, putative
class action entitled In re Philip Services Corp. Securities Litigation,
98 CV 835 (MBM), previously pending against PSC in the United States
District Court for the Southern District of New York and (ii) the
Canadian Securities Action;
"SECURITY AGENT" means the "Security Agent" as defined in the Credit
Agreement;
"SHAREHOLDERS' MEETING" means the meeting of shareholders of PSC referred
to in Section 6.1(2);
"SHAREHOLDER RIGHTS PLAN" means the shareholder rights plan to be
implemented on the Effective Date by PSC substantially in the form to be
included as a supplement to the U.S. Plan;
"STOCK CONSOLIDATION" means the consolidation of PSC's outstanding Common
Shares to be implemented simultaneously with the Effective Date pursuant
to which each 273 New Common Shares (including the Common Shares
outstanding prior to the Effective Date) shall be consolidated into one
PSC Common Share and as a result 24,000,000 PSC Common Shares will be
issued and outstanding;
"SUBSIDIARIES" means, collectively, all of the direct and indirect
subsidiaries of PSC;
"SUBSIDIARY INTERESTS" means, collectively, the issued and outstanding
shares in the stock of the Subsidiaries as of the Date of Filing;
"UNAFFECTED OBLIGATIONS" means Claims that are not Affected Claims;
"UNFUNDED LC CLAIM" means the amount, if any, by which the Agreed LC
Claim exceeds the amount actually drawn from the Date of Filing through
the Effective Date on letters of credit issued pursuant to the Credit
Agreement, which for greater certainty do not include letters of credit
issued under the Permitted LC Facility established in Amendment No. 3 to
the Credit Agreement;
"U.S. BANKRUPTCY COURT" means the United States Bankruptcy Court having
jurisdiction over the Chapter 11 Cases;
<PAGE> 15
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"U.S. IMPAIRED UNSECURED CLAIM" means a "Class 7 Claim" under the U.S.
Plan;
"U.S. PLAN" means the joint plan of reorganization of the U.S. Plan
Applicants as filed with the U.S. Bankruptcy Court, as the same may be
amended, modified or supplemented from time to time with the consent of
the Required Lenders;
"U.S. PLAN APPLICANTS" means PSC, PSI and each of the U.S. Subsidiaries;
and
"U.S. SUBSIDIARIES" means PSI and the direct and indirect subsidiaries of
PSC set forth in the U.S. Plan.
SECTION 1.2 INTERPRETATION, ETC.
For purposes of the Plan:
(a) any reference in the Plan to a contract, instrument, release,
indenture, or other agreement or document's being in a particular
form or on particular terms and conditions means that such document
shall be substantially in such form or substantially on such terms
and conditions;
(b) any reference in the Plan to an existing document or exhibit
filed or to be filed means such document or exhibit as it may have
been or may be amended, modified, or supplemented;
(c) unless otherwise specified, all references in the Plan to
Sections, Articles and Schedules are references to Sections,
Articles and Schedules of or to the Plan;
(d) the words "herein" and "hereto" refer to the Plan in its
entirety rather than to a particular portion of the Plan;
(e) captions and headings to Articles and Sections are inserted
for convenience of reference only and are not intended to be a part
of or to affect the interpretation of the Plan;
(f) where the context requires, a word or words importing the
singular shall include the plural and vice versa;
(g) the words "includes" and "including" are not limiting;
(h) the phrase "may not" is prohibitive and not permissive; and
(i) the word "or" is not exclusive.
<PAGE> 16
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SECTION 1.3 DATE FOR ANY ACTION
In the event that any date on which any action is required to be taken
under this Plan by any of the parties is not a Business Day, that action shall
be required to be taken on the next succeeding day which is a Business Day.
SECTION 1.4 TIME
All times expressed in this Plan are local time Toronto, Ontario, Canada
unless otherwise stipulated.
SECTION 1.5 STATUTORY REFERENCES
Any reference in this Plan to a statute includes all regulations made
thereunder and all amendments to such statute or regulations in force from time
to time.
SECTION 1.6 SUCCESSORS AND ASSIGNS
This Plan shall be binding upon and shall enure to the benefit of the
heirs, administrators, executors, legal personal representatives, successors
and assigns of any Person named or referred to in this Plan.
SECTION 1.7 SCHEDULES
The following are the Schedules to this Plan, which are incorporated by
reference into this Plan and form part of it:
Schedule "A" - Canadian Subsidiaries
Schedule "B" - Affected Unsecured Claims List
ARTICLE 2
PURPOSE AND EFFECT OF THE PLAN
SECTION 2.1 BACKGROUND
The circumstances and events leading up to this Plan and the U.S. Plan are
summarized in the Disclosure Statement to be circulated to Affected Creditors
in connection with this Plan and to be distributed in accordance with the U.S.
Bankruptcy Code in connection with the U.S. Plan.
SECTION 2.2 PERSONS AFFECTED
This Plan and the U.S. Plan provide for a coordinated restructuring of
claims and interests against PSC, PSI, the Canadian Subsidiaries and the U.S.
Subsidiaries. This Plan will become effective on the Effective Date and shall
be binding on and enure to the benefit of the Applicants and the Creditors.
<PAGE> 17
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SECTION 2.3 PERSONS NOT AFFECTED
For greater certainty this Plan does not affect the holders of Unaffected
Obligations. Nothing shall affect any Applicant's rights and defences, both
legal and equitable, with respect to any Unaffected Obligations including, but
not limited to, all rights with respect to legal and equitable defenses to
setoffs or recoupments against such Claims. Notwithstanding the substantive
consolidation of Claims against the Applicants for certain purposes under this
Plan, Claims which are not Affected Claims of any particular Applicant remain
the obligations solely of such Applicant and shall not become obligations of
any other Applicant.
ARTICLE 3
CLASSIFICATION OF CREDITORS, VALUATION OF CLAIMS AND RELATED MATTERS
SECTION 3.1 CLASSES OF CLAIMS
The classes of Creditors for the purpose of considering and voting on the
Plan shall be Creditors holding Affected Secured Lender Claims and Affected
Unsecured Claims.
SECTION 3.2 AFFECTED CLAIMS
Creditors holding Affected Claims shall prove their Claims, vote in
respect of the Plan and receive the rights provided for under and pursuant to
this Plan.
SECTION 3.3 CREDITORS' MEETINGS
The Creditors' Meetings shall be held in accordance with this Plan, the
Creditors' Meetings Order and any further Order. The only persons entitled to
attend a Creditors' Meeting are those persons, including the holders of
proxies, entitled to vote at the Creditors' Meeting, their legal counsel and
advisors and the officers, directors and legal counsel of the Applicants. Any
other Person may be admitted on invitation of the chair of the relevant
Creditors' Meeting.
SECTION 3.4 APPROVAL BY CREDITORS
In order to be approved, the Plan must receive the affirmative vote of the
Required Majority of each Class of Creditors.
SECTION 3.5 ORDER TO ESTABLISH PROCEDURE FOR VALUING CLAIMS
The procedure for valuing Claims and resolving disputes is set forth in
the Creditors' Meetings Order. The Applicants reserve the right to seek the
assistance of the Court in valuing the Claim of any Affected Creditor, if
required, or to ascertain the result of any vote on the Plan or the amount
payable or to be distributed to such Affected Creditor under the Plan, as the
case may be.
<PAGE> 18
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SECTION 3.6 CLAIMS FOR VOTING PURPOSES
Each Creditor having a Claim in a Class entitled to vote shall be entitled
to attend and to vote at the Creditors' Meeting for such Class. Each Creditor
of a Class who is entitled to vote shall be entitled to that number of votes at
the Creditors' Meeting for such Class as is equal to the dollar value of its
Claim for voting purposes as determined in accordance with this Article 3 and
the provisions of the Creditors' Meetings Order.
ARTICLE 4
PROCEDURE FOR RESOLVING DISPUTED CLAIMS
SECTION 4.1 PROSECUTION OF OBJECTIONS
After the Confirmation Date, only the Applicants shall have the authority
to file objections, settle, compromise, withdraw or litigate to judgment
objections to Claims. From and after the Effective Date, the Applicants may
settle or compromise any Disputed Unsecured Claim without approval of the
Court.
SECTION 4.2 NO DISTRIBUTIONS PENDING ALLOWANCE
Notwithstanding any other provision of the Plan, no payments or
distributions shall be made with respect to all or any portion of a Disputed
Unsecured Claim unless and until some portion thereof, has become a Proven
Unsecured Claim.
SECTION 4.3 DISPUTED CLAIMS RESERVE
On the Effective Date (or as soon thereafter as is practicable) the
Disbursing Agent shall establish the Disputed Claims Reserve by withholding
from the initial distribution on account of Proven Unsecured Claims an amount
of New Unsecured PIK Notes and New Common Shares calculated as if all Affected
Unsecured Claims and U.S. Impaired Unsecured Claims were Proven Unsecured
Claims and allowed U.S. Impaired Unsecured Claims under the U.S. Plan as of
such date, in an amount equal to one hundred percent (100%) of their Disputed
Claim Amount and disputed U.S. Impaired Unsecured Claim amount under the U.S.
Plan.
SECTION 4.4 DISTRIBUTIONS AFTER DISPUTED CLAIMS RESOLVED
The Disbursing Agent shall make payments and distributions from the
Disputed Claims Reserve to each holder of a Disputed Unsecured Claim that has
become a Proven Unsecured Claim in accordance with the provisions of the Plan,
and to each holder of a disputed U.S. Impaired Unsecured Claim that has become
an allowed claim under the U.S. Plan. On the next succeeding interim
distribution date after the date that the value of a Proven Unsecured Claim has
been determined in accordance with this Plan, the Disbursing Agent shall
distribute to the holder of such Claim any New Unsecured PIK Notes and PSC
Common Shares in the
<PAGE> 19
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Disputed Claims Reserve that would have been distributed on the Distribution
Date had such Claim been a Proven Unsecured Claim on the Distribution Date
(after giving effect to the Stock Consolidation). After a Final Order has been
entered, or other final resolution has been reached, with respect to each
Disputed Unsecured Claim and each disputed U.S. Impaired Unsecured Claim (i)
any New Unsecured PIK Notes and PSC Common Shares that remain in the Disputed
Claims Reserve shall be distributed pro rata to holders of Proven Unsecured
Claims and holders of U.S. Impaired Unsecured Claims allowed under the U.S.
Plan. All distributions made under this Article 4 on account of a Proven
Unsecured Claim shall be made together with any payments or other distributions
made on account of, as well as any obligations arising from, the distributed
property, as if such Proven Unsecured Claim had been a Proven Unsecured Claim
on the Distribution Date. Notwithstanding the foregoing, the Disbursing Agent
shall not be required to make distributions under this Article 4 more
frequently than once every 180 days.
ARTICLE 5
TREATMENT OF AFFECTED CREDITORS
SECTION 5.1 AFFECTED CLASSES
(1) Affected Secured Lender Claims
(a) On the Effective Date, the Credit Facility Agreements shall
be amended and restated by the Amended and Restated Term Credit
Agreement without any further action by any party. Each holder of a
Proven Secured Lender Claim, in full satisfaction, settlement,
release and discharge of and in exchange for such Proven Secured
Lender Claim and its allowed Class 6 Claim in the U.S. Plan, shall
receive on or as soon as practicable after the Distribution Date its
pro rata share of (a) the Net Asset Sale Proceeds Pool, (b) the New
Secured PIK Debt, (c) the New Senior Secured Term Debt and (d) (i)
if the holders of U.S. Impaired Unsecured Claims vote to accept the
U.S. Plan and the holders of Proven Unsecured Claims vote to accept
the Plan, 5,967,052,592 New Common Shares which shall be ninety-one
percent (91%) of the PSC Common Shares issued and outstanding as of
the Effective Date (which shall equal 21,840,000 PSC Common Shares
after giving effect to the Stock Consolidation) subject to Dilution,
or (ii) if the holders of U.S. Impaired Unsecured Claims vote to
reject the U.S. Plan, but the holders of Proven Unsecured Claims
vote to accept the Plan, 22,800,000 PSC Common Shares which shall be
ninety-five percent (95%) of the PSC Common Shares issued and
outstanding as of the Effective Date plus an amount of PSC Common
Shares equal to the aggregate number of PSC Common Shares that would
have been available for distribution to holders of U.S. Impaired
Unsecured
<PAGE> 20
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Claims under the U.S. Plan had such holders voted to accept the
U.S. Plan (based on the Applicants' estimate of the aggregate
allowed amount of such claims), subject to Dilution, and an amount
of New Unsecured PIK Notes equal to the amount that would have been
distributed to holders of U.S. Impaired Unsecured Claims under the
U.S. Plan had such holders voted to accept the U.S. Plan (based on
the Applicants' estimate of the aggregate allowed amount of such
claims).
(b) Each LC Lender will fund its pro rata share of the Unfunded
LC Claim (i) in cash, or (ii) by foregoing distributions that it
would otherwise receive in respect of a Claim in the amount of its
pro rata share of the Unfunded LC Claim. If the distributions that
would otherwise be received by an LC Lender are insufficient to fund
its pro rata share of the Unfunded LC Claim, such deficiency may be
funded by foregoing distributions to the extent necessary by the
Lender that is an affiliate of such LC Lender. Any such cash paid
or distributions foregone shall be reallocated pro rata among the
holders of Proven Secured Lender Claims. Letters of credit issued
pursuant to the Credit Agreement that remain outstanding and undrawn
on the Effective Date shall be replaced or, with the consent of the
issuers of such letters of credit, supported by letters of credit
issued under the Exit Facility.
(c) On the Effective Date, PSC shall record the holders of Proven
Secured Lender Claims as holders of record of such New Common
Shares. Each holder of a Secured Lender Claim shall vote the New
Common Shares distributed to it under the Plan in favour of each of
the matters set forth in Section 6.1(2)(c) hereof.
(2) Affected Unsecured Claims
Subject to Section 5.2, on or as soon as reasonably practicable after, the
later of (i) the Distribution Date or (ii) the date such Affected Unsecured
Claim becomes a Proven Unsecured Claim,
(a) if the holders of Proven Unsecured Claims vote to accept the
Plan then each holder of a Proven Unsecured Claim shall receive in
full satisfaction, settlement, release and discharge of and in
exchange for such Proven Unsecured Claim, its pro rata share
(determined as described below) of (i) US$60 million of New
Unsecured PIK Notes to be issued pursuant to Article 7 of this Plan
and the U.S. Plan (subject to certain election rights of holders of
U.S. Impaired Unsecured Claims) and (ii) 327,860,033 New Common
Shares which shall be five percent (5%) of the PSC Common Shares
issued and outstanding as of the Effective Date (which shall equal
1,200,000 PSC Common Shares, after
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giving effect to the Stock Consolidation), subject to Dilution (in
each case, such distribution shall be shared pro rata with the
holders of U.S. Impaired Unsecured Claims under the U.S. Plan) and
the holders of Affected Unsecured Lender Claims shall be deemed to
have waived any and all distributions to which they would be
entitled under the Plan as holders of Affected Unsecured Lender
Claims, including the benefit of any and all contractual
subordination provisions in respect of their Unsecured Lender
Claims; or
(b) if the holders of Proven Unsecured Claims vote to reject the
Plan, then the holders of such Claims shall not receive anything on
account of such Claims.
For purposes of distributions to holders of Proven Unsecured Claims, the
pro rata calculations shall include in the determination of the Face Amount of
all Proven Unsecured Claims (i) if the class of holders of U.S. Impaired
Unsecured Claims under the U.S. Plan votes to accept the U.S. Plan, the
aggregate amount of all allowed U.S. Impaired Unsecured Claims or (ii) if the
class of holders of U.S. Impaired Unsecured Claims under the U.S. Plan votes to
reject the U.S. Plan, the Applicant's estimate of the aggregate amount of all
allowed U.S. Impaired Unsecured Claims. Claims under the Canadian Plan will be
converted to United States' dollars ("US$") for purposes of distributions at a
rate of CDN$1.465097244 per US$1.00.
SECTION 5.2 SETTLEMENT OF CERTAIN CLAIMS
The proposed treatment of Affected Creditors set forth in Section 5.1 is
subject to the satisfaction of the following conditions prior to October 27,
1999:
(a) (i) the claims of the Applicants and the Lenders against
Deloitte & Touche, the Securities Actions, and all Contribution
and Indemnity Claims shall have been settled among all parties
on mutually acceptable terms, including as to the amount and
voting of the Contribution and Indemnity Claims; or
(ii) the amounts of the Contribution and Indemnity
Claims shall have been agreed to by the holders of such
Claims, the Applicants and the Lenders and the holders of the
Contribution and Indemnity Claims shall have agreed to vote
such Claims in favour of this Plan, and
(b) the Canadian Securities Action shall have been settled
between PSC and the plaintiffs and the settlement shall have been
approved by the Court.
<PAGE> 22
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ARTICLE 6
MEANS FOR IMPLEMENTATION OF THE PLAN
SECTION 6.1 PLAN IMPLEMENTATION
Subject to Section 5.2, if the Required Majority of each Class of
Creditors vote to accept the Plan, the transactions described in Section 6.1(1)
and the corporate actions described in Section 6.1(2) shall occur.
(1) Plan Transactions
(a) New Securities. As of the Effective Date the issuance by PSC
of US$100 million in principal amount of New Secured PIK Debt, up to
US$60 million in principal amount of New Unsecured PIK Notes, up to
6,426,056,637 New Common Shares, and Management Options to purchase
PSC Common Shares pursuant to the terms of the Management Option
Plan to be adopted by the new board of directors of PSC referred to
in Section 6.1(2)(d) on or after the Effective Date, subject to
Dilution (except with respect to the New Secured PIK Debt), is
hereby authorized without further act or action under applicable
law, regulation, order or rule.
(b) New Senior Secured Term Debt. On the Effective Date, PSC and
PSI shall execute and deliver the Amended and Restated Term Credit
Agreement to govern the New Secured PIK Debt and the New Senior
Secured Term Debt.
(c) New Guarantees. On the Effective Date, the Canadian
Subsidiaries shall enter into the New Guarantees and the related
security.
(d) Exit Facility. PSC and PSI, together with the Subsidiaries,
expect to enter into a post-confirmation loan facility, the Exit
Facility, in order to (a) refinance amounts outstanding on the
Effective Date under the DIP Facility, (b) make other payments
required to be made on the Effective Date or the Distribution Date,
and (c) provide the additional borrowing capacity required by PSC,
PSI and the Subsidiaries following the Effective Date to maintain
their operations.
(e) Tax Related Transactions. The following transactions shall
occur immediately prior to implementation of the Plan: (a) each
holder of a Claim under the Credit Agreement shall be deemed to have
exchanged such Claim for an undivided co-ownership interest in all
of the Claims under the Credit Agreement in the same aggregate
principal amount as the Claim so exchanged, and (b) each holder of a
Claim against one or more of the Applicants which becomes a Proven
Unsecured Claim
<PAGE> 23
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shall be deemed to have exchanged such Claim for an undivided
co-ownership interest in all Proven Unsecured Claims in the same
aggregate amount.
(2) Corporate Action
(a) Shareholder Rights Plan. On the Effective Date, PSC shall
implement the Shareholder Rights Plan.
(b) Stock Consolidation. On the Effective Date, if the holders
of U.S. Impaired Unsecured Claims under the U.S. Plan have voted to
accept the U.S. Plan and the holders of Affected Unsecured Claims
under this Plan have voted to accept this Plan, PSC shall take all
steps necessary to implement the Stock Consolidation.
(c) Shareholder Approval. On or immediately after the Effective
Date and the distribution of New Common Shares to holders of
Affected Secured Lender Claims, PSC shall hold a meeting of its
shareholders for the purposes of: (i) approving and ratifying the
Shareholder Rights Plan; (ii) electing the new board of directors
referred to in Section 6.1(2)(d); (iii) amending the articles of
incorporation of PSC to allow for the implementation of the Stock
Consolidation; (iv) authorizing the continuance of PSC under the
laws of New Brunswick; and (v) if the holders of U.S. Impaired
Unsecured Claims reject the U.S. Plan, cancelling the Common Shares
outstanding immediately prior to the Effective Date.
(d) Directors and Officers. On the Effective Date, the new board
of directors for PSC will consist of nine (9) directors, who will be
nominated by holders of Lender Claims. The nominees of the holders
of Lender Claims shall include two (2) members of the existing PSC
board of directors and will include two (2) members nominated by
High River Limited Partnership ("High River") provided that High
River and any holders of Lender Claims acting in concert with it
beneficially own at least twenty-five (25%) of the Lender Claims.
If one or both of the nominees from the existing board is a nominee
on that board of High River or persons acting in concert with it,
that person will be counted as a High River nominee on the slate for
the new board of directors.
SECTION 6.2 ASSET TRANSFERS
If the conditions set forth in Section 5.2 are not met, or if the holders
of Proven Unsecured Claims vote to reject this Plan, the reorganization of the
Applicants will be effected through the transfer of the business of the
Applicants as
<PAGE> 24
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a going concern to one or more direct or indirect subsidiaries of PSI. This
transfer will occur in conjunction with the implementation of the U.S. Plan
through the enforcement of remedies available to the Lenders, and will be more
fully described in a supplement to this Plan (the "Plan Supplement") that will
be filed prior to the meeting of the holders of Affected Secured Lender Claims.
The transferee(s) will assume the Claims which would have been Unaffected
Obligations if the arrangement described in Section 5.1 had been implemented.
The proceeds paid on the transfers will be distributed in accordance with the
legal priority of the claims against the transferred assets. In that case, the
Affected Unsecured Claims will not be compromised, but it is expected that no
distributions will be made to the holders of such Claims. The holders of
Affected Unsecured Claims will have the right, but will not be required, to
elect to participate in distributions under the U.S. Plan as provided in that
plan.
SECTION 6.3 PLAN RELEASES
Subject to Section 5.2 and to the approval of the Plan by the Required
Majority of each Class of Creditors, the following releases will become
effective on the Effective Date:
(1) Releases by Applicants
As of the Effective Date, for good and valuable consideration, the
adequacy of which is hereby confirmed, the Applicants and the Subsidiaries will
be deemed to release forever, waive and discharge all claims, obligations,
suits, judgments, damages, demands, debts, rights, causes of action and
liabilities (other than the rights of the Applicants to enforce the Plan and
the contracts, instruments, releases, indentures, and other agreements or
documents delivered thereunder) whether liquidated or unliquidated, fixed or
contingent, matured or unmatured, known or unknown, foreseen or unforeseen,
then existing or thereafter arising, in law, equity or otherwise that are based
in whole or part on any act, omission, transaction, event or other occurrence
taking place on or prior to the Effective Date in any way relating to the
Applicants or the Subsidiaries, the parties released pursuant to this Section
6.3(1), the CCAA Proceedings, the Lender Lock-Up Agreement or the Plan, and
that could have been asserted by or on behalf of the Applicants or their
Subsidiaries against (i) directors, officers and employees of the Applicants or
the Subsidiaries in each case, as of the Date of Filing or that have become
officers and/or directors thereafter but prior to the Effective Date (other
than for indebtedness owed by any such directors, officers or employees to any
of the Applicants or their Subsidiaries) and the Applicants' or Subsidiaries'
agents and professionals (including, for greater certainty, the Monitor but
excluding Deloitte & Touche and any insurance brokers retained by the
Applicants), (ii) the Lenders (other than any person excluded from the releases
in this Plan which has become a Lender), (iii) the ad hoc steering committee
and any other committee of holders of Lender Claims, (iv) CIBC, as
<PAGE> 25
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administrative agent and co-arranger under the Credit Agreement, (v) BTCo as
Syndication Agent and co-arranger under the Credit Agreement, (vi) any official
committees appointed by the Court in connection with the CCAA Proceedings or
the Chapter 11 Cases, (vii) the DIP Agent, the DIP Co-Arrangers and the holders
of DIP Facility Claims (other than any entity specifically excluded from the
releases in this Plan which has become a holder of a DIP Facility Claim),
(viii) the Security Agent, (ix) the Account Intermediaries, (x) any individual,
corporation or other entity that was at any time formerly one of the released
parties identified in subclauses (ii) - (viii) of this Section 6.3(1), and (xi)
the respective affiliates, current and former officers, directors, employees,
agents, shareholders and professionals (including, for greater certainty, the
Monitor but excluding Deloitte & Touche, Robert Waxman, Greg Madesker, Rik
Barrese and any insurance brokers retained by the Applicants) (including the
current and former directors, officers, employees, agents, shareholders and
professionals of the released professionals) of the entities released in
subclauses (ii)-(viii) of this Section 6.3(1) acting in such capacity;
provided, however, that the releases provided to any director, officer or
employee of the Applicants described in clause (i) of this Section 6.3(1) may
be revoked by the Applicants by written notice to such director, officer or
employee, in the event that the Applicants reasonably determine that any such
director, officer or employee has failed to provide factual information as
reasonably requested by the Applicants or any successor to the Applicants with
authority to direct such claim, or by the Administrative Agent, in connection
with any claim against Deloitte & Touche, Robert Waxman, Greg Madesker and/or
Rik Barrese arising out of or related to the same nucleus of operative facts
alleged as of the Date of Filing in the Securities Actions, the Chazen Actions
or the Liff Actions (as defined in the U.S. Plan), including, without
limitation, providing information and documents, attendance at meetings and
interviews, assisting counsel, attendance at discoveries, if required,
assistance at pre-trial preparation and attendance at trial, including as a
witness, but subject in the case of any person who is at the relevant time no
longer a director, officer or employee of any of the Applicants, to
reimbursement of that person's foregone income and reasonable expenses.
(2) Releases by Holders of Lender Claims
As of the Effective Date, in consideration for the obligations of the
Applicants and the Subsidiaries under the Plan and the Lender Lock-up
Agreement, and the cash, securities, contracts, instruments, releases and other
agreements or documents to be delivered in connection with the Plan, each of
the holders of Lender Claims, the ad hoc steering committee and any other
committee of holders of Lender Claims, CIBC as Administrative Agent and
co-arranger under the Credit Agreement, BTCo as Syndication Agent and
co-arranger under the Credit Agreement, the DIP Agent, the DIP Co-Arrangers,
the holders of DIP Facility Claims, the Security Agent, the Account
Intermediaries, and any individual, corporation or other entity that was at
<PAGE> 26
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any time formerly one of the foregoing releasing parties will be deemed to
forever release, waive and discharge all claims, obligations, suits, judgments,
damages, demands, debts, rights, causes of action and liabilities (other than
the rights to enforce the Applicants' obligations under the Plan and the
securities, contracts, instruments, releases and other agreements and documents
delivered thereunder), whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing
or thereafter arising, in law, equity or otherwise that are based in whole or
in part on any act, omission, transaction, event or other occurrence taking
place on or prior to the Effective Date in any way relating to the Applicants
and Subsidiaries, the CCAA Proceedings, the Lender Lock-up Agreement or the
Plan against (i) the Applicants and Subsidiaries; provided, however that this
release in clause (i) shall not be given by any Account Intermediary who is a
current Bank Account Services Provider, (ii) the directors, officers and
employees of the Applicants or Subsidiaries in each case as of the Date of
Filing (and in addition, those who become officers and/or directors thereafter
but prior to the Effective Date), (iii) the Lenders (other than any person
excluded from the releases in this Plan that has become a Lender), (iv) the ad
hoc steering committee and any other committee of holders of Lender Claims, (v)
CIBC, as Administrative Agent and co-arranger under the Credit Agreement, (vi)
BTCo as Syndication Agent and co-arranger under the Credit Agreement, (vii) any
official committees appointed in the CCAA Proceedings or the Chapter 11 Cases,
(viii) the DIP Agent, the DIP Co-Arrangers and the holders of DIP Facility
Claim (other than any entity specifically excluded from the releases granted in
this Section 6.3(2) that has become a holder of a DIP Facility Claim, (ix) the
Security Agent, (x) the Account Intermediaries, (xi) any individual,
corporation or other entity that was at any time formerly one of the released
parties identified in subclauses (iii)-(ix) of this Section 6.3(2), or (xii)
the respective current and former professionals of the entities in subclauses
(i)-(ix) of this Section 6.3(2) (including, for greater certainty, the Monitor
but excluding Deloitte & Touche and any insurance brokers retained by the
Applicants) (including the current and former officers, directors, employees,
shareholders and professionals of the released professionals), acting in such
capacity; provided, however, that the releases provided to any director,
officer or employee of the Applicants described in clause (ii) of this Section
6.3(2) may be revoked by the Administrative Agent or its successor, by written
notice to such director, officer or employee, in the event that the
Administrative Agent or its successor reasonably determines that any such
director, officer or employee has failed to provide factual information
reasonably requested by the Administrative Agent or its successor in connection
with any claim against Deloitte & Touche, Robert Waxman, Greg Madesker and/or
Rik Barrese arising out of or relating to the same nucleus of operative facts
alleged as of the Date of Filing in the Securities Actions, the Chazen Actions
or the Liff Actions, including, without limitation, providing information and
documents, attendance at meetings and interviews, assisting counsel, attendance
at discoveries, if required, assistance at pre-trial
<PAGE> 27
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preparation and attendance at trial, including as a witness, but subject in the
case of any person who is at the relevant time no longer a director, officer or
employee of any of the Applicants, to reimbursement of that person's foregone
income and reasonable expenses, provided further, that nothing contained herein
shall affect the rights and obligations of the parties designated in clauses
(iii), (v), (vi), (ix) and (x) of this Section 6.3(2) under the Priority and
Subordination Agreement, dated as of December 4, 1998, the Security Sharing
Agreement, dated as of November 30, 1998 and the Intercreditor Agreement, dated
as of June 25, 1999.
(3) Holders of Claims
As of the Effective Date, to the fullest extent permitted under applicable
law, in consideration for the obligations of the Applicants under the Plan and
the securities, contracts, instruments, releases and other agreements or
documents to be delivered in connection with the Plan, and the benefits
provided by the Lenders and the Account Intermediaries under the Plan, each
present and former holder of a Claim (other than the parties referred to in
Section 6.3(2) above or any individual, corporation or other entity that was at
any time formerly one of the foregoing releasing parties) will be deemed to
release forever, waive and discharge all claims, obligations, suits, judgments,
damages, demands, debts, rights, causes of action and liabilities (other than
the rights to enforce the Applicants' obligations under the Plan and the
securities, contracts, instruments, releases and other agreements and documents
delivered thereunder), whether liquidated or unliquidated, fixed or contingent,
matured or unmatured, known or unknown, foreseen or unforeseen, then existing
or thereafter arising, in law, equity or otherwise that are based in whole or
in part on any act, omission, transaction, event or other occurrence taking
place on or prior to the Effective Date in any way relating to the Applicants
or Subsidiaries, the parties released pursuant to this Section 6.3(3), the CCAA
Proceedings, the Lender Lock-up Agreement or the Plan against (i) the
Applicants and Subsidiaries, (ii) the Lenders as of September 15, 1999 or an
entity that subsequently becomes a Lender subject to the Applicants' consent,
the ad hoc steering committee or any other committee of holders of Lender
Claims, CIBC as Administrative Agent and co-arranger under the Credit
Agreement, BTCo as Syndication Agent and co-arranger under the Credit
Agreement, any official committees appointed in the CCAA Proceedings or the
Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims as of September 15, 1999 or an entity that subsequently becomes
a holder of a DIP Facility Claim subject to the Applicants' consent, the
Monitor and the Security Agent, (iii) the Account Intermediaries, (iv) any
individual, corporation or other entity that was formerly one of the foregoing
released parties identified in subclause (ii) of this Section 6.3(3) and (v)
the respective affiliates, current and former officers, directors, employees,
agents, shareholders and professionals of the entities referred to in subclause
(ii) of this Section 6.3(3) (excluding Deloitte & Touche and any insurance
<PAGE> 28
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brokers retained by the Applicants) acting in such capacity. Under the Plan,
holders of Claims (other than the Lenders) are not deemed to have released any
non-Applicant third party other than the Lenders and those parties explicitly
listed in clauses (ii), (iii), (iv) and (v) above.
SECTION 6.4 INJUNCTION RELATED TO RELEASES
The Confirmation Order will enjoin the prosecution, whether directly,
derivatively or otherwise, of any claim, obligation, suit, judgment, damage,
demand, debt, right, cause of action, liability or interest released,
discharged or terminated pursuant to the Plan.
SECTION 6.5 REVOCATION OF CERTAIN RELEASES
The revocation of any release of any director, officer or employee
pursuant to Section 6.3 hereof shall be void ab initio to the extent that a
court of competent jurisdiction, including, but not limited to the Court,
determines that such director, officer or employee has provided the factual
information reasonably requested by the Applicants or any successor pursuant to
Section 6.3(1) or the Administrative Agent or its successor pursuant to Section
6.3(2).
SECTION 6.6 SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF TREATING AFFECTED CLAIMS
The Plan is premised upon the substantive consolidation of the Applicants
only for purposes of treating Affected Secured Lender Claims and Affected
Unsecured Claims under the Plan, including for voting, Plan sanction and
distribution purposes. This Plan does not contemplate substantive
consolidation of the Applicants with respect to Unaffected Obligations.
Subject to Section 5.2 and the approval of the Plan by the Required Majority of
each Class of Creditors, on the Effective Date, (a) all guarantees of any
Applicants of the payment, performance or collection of another Applicant with
respect to Affected Claims shall be deemed eliminated and cancelled; (b) any
obligation of any Applicant and all guarantees with respect to Affected Claims
thereof executed by one or more of the other Applicants shall be treated as a
single obligation and any obligation of two or more Applicants, and all
multiple Affected Claims against such entities on account of such joint
obligations, shall be treated and allowed only as a single Affected Unsecured
Claim against the consolidated Applicants; and (c) each Affected Claim of any
Applicant shall be deemed filed against the consolidated Applicants and shall
be deemed one Affected Claim against and obligation of the consolidated
Applicants. Except as set forth in this Section 6.6, such substantive
consolidation shall not (other than for purposes related to the Plan) (a)
affect the legal and corporate structures of the Applicants, (b) cause any
Applicant to be liable for any Claim under the Plan, for which it otherwise is
not liable and the liability of any Applicant for any such Claim shall not be
affected by such substantive consolidation, (c) affect Intercompany Claims of
Applicants against Applicants, or (d) affect Subsidiary Interests.
<PAGE> 29
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SECTION 6.7 ASSUMED INDEMNIFICATION OBLIGATIONS
The Assumed Indemnification Obligations (other than Excluded
Indemnification Obligations) shall be deemed effective as of the Effective Date
without any further action by any party.
ARTICLE 7
PROVISIONS GOVERNING DISTRIBUTIONS
SECTION 7.1 DISTRIBUTIONS FOR CLAIMS ALLOWED AS OF THE EFFECTIVE DATE
Except as otherwise provided herein or as ordered by the Court,
distributions to be made on account of Claims that are Proven Unsecured Claims
and Proven Secured Lender Claims as of the Effective Date shall be made not
later than the Distribution Date. Distributions on account of Claims that
first become Proven Unsecured Claims or a Proven Secured Lender Claim after the
Effective Date shall be made pursuant to Articles 4, 5 and 7 of this Plan.
Notwithstanding the date on which any distribution of securities is actually
made to a holder of a Claim that is a Proven Unsecured Claim or a Proven
Secured Lender Claim on the Effective Date, as of the date of the distribution
such holder shall be deemed to have the rights of a holder of such securities
distributed as of the Effective Date.
SECTION 7.2 INTEREST ON CLAIMS
Unless otherwise specifically provided for in this Plan or the
Confirmation Order, interest shall not accrue or be paid on Claims after the
Date of Filing, and no holder of a Claim shall be entitled to interest accruing
on or after the Date of Filing on any Claim. Interest shall not accrue or be
paid upon any Disputed Unsecured Claim in respect of the period from the Date
of Filing to the date a final distribution is made thereon if and after such
Disputed Unsecured Claim becomes a Proven Unsecured Claim.
SECTION 7.3 DISTRIBUTIONS BY DISBURSING AGENT
(a) The Disbursing Agent shall make all distributions required
under this Plan (subject to the provisions of Articles 4, 5 and 7
hereof). If the Disbursing Agent is an independent third party
designated by the Applicants to serve in such capacity, such
Disbursing Agent shall receive, without further Court approval,
reasonable compensation for distribution services rendered pursuant
to the Plan and reimbursement of reasonable out-of-pocket expenses
incurred in connection with such services from the Applicants on
terms acceptable to the Applicants. No Disbursing Agent shall be
required to give any bond or surety or other security for the
performance of its duties unless otherwise ordered by the Court.
<PAGE> 30
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(b) At the close of business on the Distribution Record Date, the
transfer records for the Lender Claims shall be closed, and there
shall be no further changes in the record holders of Lender Claims.
The Applicants, the Disbursing Agent and the Administrative Agent
for the Lenders shall have no obligation to recognize any transfer
of Lender Claims after the Distribution Record Date and shall be
entitled instead to recognize and deal for all purposes hereunder
with only those record holders as of the close of business on the
Distribution Record Date.
SECTION 7.4 CALCULATION OF DISTRIBUTION AMOUNTS
(1) Common Shares
No fractional New Common Shares shall be issued or distributed under the
Plan or by PSC or the Disbursing Agent. Each Person entitled to receive New
Common Shares will receive the total number of whole New Common Shares to which
such Person is entitled. Whenever any distribution to a particular Person
would otherwise call for distribution of a fraction of a New Common Share, the
actual distribution of shares shall be rounded to the next higher or lower
whole number as follows: (a) fractions ? or greater shall be rounded to the
next higher whole number, and (b) fractions of less than ? shall be rounded to
the next lower whole number. The total number of New Common Shares to be
distributed to a Class of Claims shall be adjusted as necessary to account for
the rounding provided for in this Section 7.4. No consideration shall be
provided in lieu of fractional shares that are rounded down.
(2) New Unsecured PIK Notes
New Unsecured PIK Notes will be issued in denominations of US$1,000 and
such fractions thereof as is necessary.
SECTION 7.5 DELIVERY OF DISTRIBUTIONS
Distributions to holders of Proven Unsecured Claims shall be made by the
Disbursing Agent (a) at the last known address of such persons or at the
addresses set forth on the Proofs of Claim filed by such holders (b) at the
addresses reflected in the Affected Unsecured Creditors List, or (c) at the
addresses set forth in any written notices of address changes delivered to the
Disbursing Agent after the date of any related Proof of Claim. If any holder's
distribution is returned as undeliverable, no further distributions to such
holder shall be made unless and until the Disbursing Agent is notified of such
holder's then current address, at which time all missed distributions shall be
made to such holder without interest. No undeliverable distributions will go
back to the Applicants. All claims for undeliverable distributions in respect
of Proven Unsecured Claims must be made on or before the
<PAGE> 31
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expiration of the eighteenth (18th) month following the Effective Date, after
which date all unclaimed property shall be distributed pro rata to the other
holders of Proven Unsecured Claims and the Claim of any holder or successor of
such holder with respect to such property shall be discharged, and forever
barred, notwithstanding any federal or provincial laws to the contrary.
Nothing contained in the Plan shall require the Applicants or any Disbursing
Agent to attempt to locate any holder of a Proven Unsecured Claim.
SECTION 7.6 WITHHOLDING AND REPORTING REQUIREMENTS
In connection with this Plan and all distributions hereunder, the
Disbursing Agent shall, to the extent applicable, comply with all tax
withholding and reporting requirements imposed by any federal, state,
provincial, local, or foreign taxing authority, and all distributions hereunder
shall be subject to any such withholding and reporting requirements. The
Disbursing Agent shall be authorized to take any and all actions that may be
necessary or appropriate to comply with such withholding and reporting
requirements. Notwithstanding any other provision of the Plan: (i) each
holder of a Proven Claim that is to receive a distribution pursuant to the Plan
shall have sole and exclusive responsibility for the satisfaction and payment
of any tax obligations imposed by any governmental unit, including income,
withholding and other tax obligations, on account of such distribution, and
(ii) no distribution shall be made to or on behalf of such holder pursuant to
the Plan unless and until such holder has made arrangements satisfactory to the
Disbursing Agent for the payment and satisfaction of such tax obligations. Any
distributions to be distributed pursuant to the Plan shall, pending the
implementation of such arrangements, be treated as an undeliverable
distribution pursuant to Section 7.5. It is the Applicants' intent that
distributions under the Plan to holders of Claims are in respect of, and to be
applied to, principal first and then interest.
SECTION 7.7 SET-OFF TO APPLY
The Applicants may, but shall not be required to, set off against any
Claim, and the payments or other distributions to be made pursuant to the Plan
in respect of such Claims, claims of any nature whatsoever that the Applicants
may have against the holder of such Claim, provided, however, that neither the
failure to do so nor the allowance of any Claim hereunder shall constitute a
waiver or release by the Applicants of any such claim that the Applicants may
have against such holder. Notwithstanding anything to the contrary, the
Applicants will not exercise any right of setoff against any Lender, any agents
under the Credit Agreements or the DIP Facility Agreement, the Account
Intermediaries or the DIP Lenders.
<PAGE> 32
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ARTICLE 8
TREATMENT OF EXECUTORY CONTRACTS
AND UNEXPIRED LEASES
SECTION 8.1 CONTRACTS AND LEASES
Except as otherwise provided in the Plan, or in any contract, instrument,
release, indenture or other agreement or document entered into in connection
with the Plan, as of the Effective Date each Applicant shall be deemed to have
ratified each executory contract and unexpired lease to which it is a party,
unless such contract or lease (i) was previously repudiated or terminated by
such Applicant, (ii) previously expired or terminated pursuant to its own
terms, or (iii) as otherwise set forth in an amendment to the Affected
Unsecured Claims List as being an executory contract or unexpired lease to
repudiate or terminate. Without limiting the foregoing, all obligations of the
Applicants with respect to Other Equity Securities and Excluded Indemnification
Obligation shall be terminated and cancelled.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 CONFIRMATION OF PLAN
(a) Provided that the conditions in Section 5.2 are satisfied by
the deadline set forth therein and the Plan is approved by the
Required Majority of each Class of Creditors, the Applicants will
seek the Confirmation Order (which as proposed shall be in form and
substance acceptable to the Applicants and the Required Lenders) for
the sanction and approval of the Plan as provided in Sections 5.1
and 6.1; and
(b) subject only to the Confirmation Order being granted and
becoming a Final Order in form and substance reasonably acceptable
to the Applicants and the Required Lenders and the satisfaction of
those conditions precedent to implementation of the Plan described
in Section 9.8, the Plan will be implemented by the Applicants and
will be binding upon the Applicants and all Creditors.
SECTION 9.2 PARAMOUNTCY
Subject to the obligations of the Applicants pursuant to the Exit Facility
or the Amended and Restated Term Credit Agreement, from and after the Effective
Date, any conflict between the Plan and the covenants, warranties,
representations, terms, conditions, provisions or obligations, expressed or
implied, of any contract, mortgage, security agreement, indenture, trust
indenture, loan agreement, commitment letter, agreement for sale, by-laws of
the Applicants, lease or other agreement, written or oral and any and all
amendments or supplements thereto existing between one or more of the Creditors
and the Applicants as at the Effective
<PAGE> 33
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Date will be deemed to be governed by the terms, conditions and provisions of
the Plan and the Confirmation Order, which shall take precedence and priority.
SECTION 9.3 WAIVER OF DEFAULTS
Other than in relation to the Exit Facility or the Amended and Restated
Term Credit Agreement, from and after the Effective Date, each Creditor shall
be deemed to have waived any and all defaults then existing or previously
committed by the Applicants in any covenant, warranty, representation, term,
provision, condition or obligation, expressed or implied, in any contract,
agreement, mortgage, security agreement, indenture, trust indenture, loan
agreement, commitment letter, agreement for sale, lease or other agreement,
written or oral and any and all amendments or supplements thereto, existing
between such Creditor and the Applicants and any and all notices of default and
demands for payment under any instrument, including, without limitation any
guarantee, shall be deemed to have been rescinded.
SECTION 9.4 COMPROMISE EFFECTIVE FOR ALL PURPOSES
The payment, compromise or other satisfaction of any Claim under the Plan,
if sanctioned and approved by the Court shall be binding upon such Creditor,
its heirs, executors, administrators, successors and assigns, for all purposes.
SECTION 9.5 PARTICIPATION IN DIFFERENT CAPACITIES
Creditors whose Claims are affected by this Plan may be affected in more
than one capacity. Each such Creditor shall be entitled to participate
hereunder in each such capacity. Any action taken by a Creditor in any one
capacity shall not affect the Creditor in any other capacity unless the
Creditor agrees in writing.
SECTION 9.6 MODIFICATION OF PLAN
Subject to the consent of the Required Lenders, the Applicants reserve the
right to file any modification of, amendment or supplement to the Plan by way
of a supplementary plan or plans of compromise or arrangement or both filed
with the Court at any time or from time to time prior to the Creditors'
Meetings Dates, in which case any such supplementary plan or plans of
compromise or arrangement or both shall, for all purposes, be and be deemed to
be a part of and incorporated into the Plan. The Applicants shall give notice
by publication or otherwise to all Creditors in an affected Class of the
details of any modifications or amendments prior to the vote being taken to
approve the Plan. Subject to the consent of the Required Lenders, the
Applicants may propose an alteration or modification to the Plan at any
Creditors' Meeting. After such Creditors' Meetings (and both prior to and
subsequent to the Confirmation Order) and subject to the consent of the
Required Lenders, the Applicants may at any time and from time to time vary,
amend, modify or supplement the Plan if the Court determines that such
variation, amendment, modification or supplement is of a minor, immaterial or
technical
<PAGE> 34
- 32 -
nature that would not be materially prejudicial to the interests of any of the
Creditors under the Plan or the Confirmation Order and is necessary in order to
give effect to the substance of the Plan or the Confirmation Order.
SECTION 9.7 DEEMING PROVISIONS
In this Plan, the deeming provisions are not rebuttable and are
conclusive and irrevocable.
SECTION 9.8 CONDITIONS PRECEDENT TO IMPLEMENTATION OF PLAN
The implementation of the Plan is subject to the following conditions
precedent which may not be waived by the Applicants without the consent of the
Required Lenders:
(a) the Confirmation Order sanctioning the Plan, as such Plan may
have been modified, in form and substance reasonably satisfactory to
the Applicants and the Required Lenders, shall have been entered and
the operation and effect of the Confirmation Order shall not have
been stayed, reversed or amended, and shall provide that:
(i) the Applicants are authorized and directed to
take all actions necessary or appropriate to enter into,
implement and consummate the contracts, instruments, releases,
leases, indentures and other agreements or documents created
in connection with the Plan;
(ii) the provisions of the Confirmation Order are
nonseverable and mutually dependent;
(iii) PSC is authorized to issue the New Unsecured PIK
Notes, New Common Shares, and Management Options and incur the
New Senior Secured Term Debt and New Secured PIK Debt; and
(iv) the New Secured PIK Debt, New Unsecured PIK
Notes, and the New Common Shares issued under the Plan in
exchange for Claims against the Applicants and the first trade
of such securities are exempt from the dealer registration and
prospectus requirements of applicable Canadian securities laws
except to the extent that holders of New Secured PIK Debt, New
Unsecured PIK Notes and New Common Shares are control block
holders for the purposes of applicable Canadian securities
laws.
(b) the Applicants shall have credit availability under the Exit
Facility in an amount, form and substance acceptable to the
Applicants and the
<PAGE> 35
- 33 -
Required Lenders, to provide the Applicants and the Subsidiaries
with working capital to meet ordinary and peak requirements and
additional borrowings to support further projects;
(c) the following agreements, in form and substance satisfactory
to the Applicants and the Required Lenders shall have been executed
and delivered, and all conditions precedent thereto shall have been
satisfied:
(i) New Unsecured PIK Notes Indenture;
(ii) Amended and Restated Term Credit Agreement;
(iii) New Guarantees and related security documents;
(iv) Registration Rights Agreement;
(v) Exit Facility;
(vi) Shareholder Rights Plan; and
(vii) Agreements evidencing sufficient bonding to meet
the Applicants' projected bonding requirements;
(d) all actions, documents and agreements necessary to implement
the Plan shall have been effected or executed;
(e) the U.S. Bankruptcy Court shall have issued a final order
under the U.S. Bankruptcy Code confirming the U.S. Plan and all
conditions to the effectiveness of the U.S. Plan shall have been
satisfied other than the condition that this Plan shall have become
effective; and
(f) the new board of directors of PSC referred to in Section
6.1(2)(d) shall have been appointed.
SECTION 9.9 WAIVER OF CONDITIONS
Each of the conditions set forth in Section 5.2 and 9.8 above, may be
waived in whole or in part by the Applicants with the written consent of the
Required Lenders, without any other notice to parties in interest or the Court
and without a hearing. The failure to satisfy or waive any condition to the
Effective Date may be asserted by the Applicants regardless of the
circumstances giving rise to the failure of such condition to be satisfied
(including any action or inaction by an Applicant). The failure of an
Applicant to exercise any of the foregoing rights shall not be deemed a waiver
of any other rights, and each such right shall be deemed an ongoing right that
may be asserted at any time.
<PAGE> 36
- 34 -
SECTION 9.10 DISCLOSURE STATEMENT
Copies of the Plan and the applicable Disclosure Statement will be mailed
in accordance with the procedures approved by the Court.
SECTION 9.11 NOTICES
Any notices or communication to be made or given hereunder shall be in
writing and shall refer to this Plan and may, subject as hereinafter provided,
be made or given by personal delivery, by courier, by prepaid mail or by
telecopier addressed to the respective parties as follows:
(a) if to the Applicants:
Philip Services Corp.
100 King Street West
Hamilton, Ontario
L8N 4J6
Attention: Colin Soule
Executive Vice-President, General Counsel and
Corporate Secretary
Telecopier: (905) 521-9160
(b) if to a Creditor:
to the address for such Creditor specified in the Proof of Claim
filed by a Creditor or, if no Proof of Claim has been filed, to
such other address at which the notifying party may reasonably
believe that the Creditor may be contacted.
(c) if to the Monitor:
P.O. Box 251
Ernst & Young Tower
222 Bay Street, 21st Floor
Toronto-Dominion Centre
Toronto, Ontario
M5K 1J7
Attention: Murray McDonald
President
Telecopier: (416) 943-3300
<PAGE> 37
- 35 -
or to such other address as any party may from time to time notify the others
in accordance with this Section 9.11. In the event of any strike, lock-out or
other event which interrupts postal service in any part of Canada, all notices
and communications during such interruption may only be given or made by
personal delivery or by telecopier and any notice or other communication given
or made by prepaid mail within the five (5) Business Day period immediately
preceding the commencement of such interruption, unless actually received,
shall be deemed not to have been given or made. All such notices and
communications shall be deemed to have been received, in the case of notice by
telecopier or by delivery prior to 5:00 p.m. (local time) on a Business Day,
when received or if received after 5:00 p.m. (local time) on a Business Day or
at any time on a non-Business Day, on the next following Business Day and, in
the case of notice mailed as aforesaid, on the fifth Business Day following the
date on which such notice or other communication is mailed. The unintentional
failure by the Applicants to give notice contemplated hereunder to any
particular Creditor shall not invalidate this Plan or any action taken by any
Person pursuant to this Plan.
SECTION 9.12 SEVERABILITY OF PLAN PROVISIONS
If, prior to the Confirmation Date, any term or provision of the Plan is
held by the Court to be invalid, void or unenforceable, the Court, at the
request of any Applicant, with the consent of the Required Lenders, and to the
extent of any modification to the treatment of the Account Intermediaries as
holders of Other Secured Claims, the consent of the Account Intermediaries,
shall have the power to alter and interpret such term or provision to make it
valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision shall then be applicable as altered
or interpreted. Notwithstanding any such holding, alteration or
interpretation, the remainder of the terms and provisions of the Plan shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated by such holding, alteration or interpretation. The Confirmation
Order shall constitute a judicial determination and shall provide that each
term and provision of the Plan, as it may have been altered or interpreted in
accordance with the foregoing, is valid and enforceable pursuant to its terms.
SECTION 9.13 SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred to in
the Plan shall be binding on, and shall inure to the benefit of, any heir,
executor, administrator, successor or assign of such entity.
SECTION 9.14 EXCULPATION AND LIMITATION OF LIABILITY
Neither the Applicants, the Subsidiaries, the Lenders, any individual,
corporation or other entity that was at any time formerly a Lender, the ad hoc
steering committee or any other committee of holders of Lender Claims, CIBC as
<PAGE> 38
- 36 -
Administrative Agent and co-arranger under the Credit Agreement, BTCo as
Syndication Agent and co-arranger under the Credit Agreement, any official
committees appointed in the CCAA Proceedings, the DIP Agent, the DIP
Co-Arrangers and the holders of DIP Facility Claims, the Security Agent, and
the Account Intermediaries, or any of their respective present or former
members, officers, directors, employees, advisors, attorneys, or agents, shall
have or incur any liability to any holder of a Claim or any other party in
interest, or any of their respective agents, employees, representatives,
financial advisors, attorneys, or affiliates, or any of their successors or
assigns, for any act or omission in connection with, relating to, or arising
out of, the CCAA Proceedings or the Chapter 11 Cases, formulating, negotiating
or implementing the Plan or the Lender Lock-up Agreement, the solicitation of
acceptances of the Plan or the Lender Lock-up Agreement, the pursuit of
confirmation of the Plan, the confirmation of the Plan, the consummation of the
Plan, or the administration of the Plan or the property to be distributed under
the Plan, except for their willful misconduct, and in all respects shall be
entitled to rely reasonably upon the advice of counsel with respect to their
duties and responsibilities under the Plan.
Notwithstanding any other provision of this Plan, no holder of a Claim, no
other party in interest, none of their respective agents, employees,
representatives, financial advisors, attorneys, or affiliates, and no
successors or assigns of the foregoing, shall have any right of action against
any Applicant, Subsidiary, any Lender, any individual, corporation or other
entity that was at any time formerly a Lender, the ad hoc steering committee or
any other committee of holders of Lender Claims, CIBC as Administrative Agent
and co-arranger under the Credit Agreement, BTCo as Syndication Agent and
co-arranger under the Credit Agreement, any official committees appointed in
CCAA Proceedings or the Chapter 11 Cases, the DIP Agent, the DIP Co-Arrangers
and the holders of DIP Facility Claims, the Security Agent, and the Account
Intermediaries, or any of their respective present or former members, officers,
directors, employees, advisors, attorneys, affiliates, or agents, for any act
or omission in connection with, relating to, or arising out of, the CCAA
Proceedings, formulating, negotiating or implementing the Plan or the Lender
Lock-up Agreement, the solicitation of acceptances of the Plan or the Lender
Lock-up Agreement, the pursuit of confirmation of the Plan, the consummation of
the Plan, the confirmation of the Plan, or the administration of the Plan or
the property to be distributed under the Plan, except for their willful
misconduct.
The Applicants and the Subsidiaries hereby jointly and severally fully
indemnify each of the Lenders, any individual, corporation or other entity that
was at any time a Lender, the ad hoc steering committee or any other committee
of holders of Lender Claims, CIBC as Administrative Agent and co-arranger under
the Credit Agreement, BTCo as Syndication Agent and co-arranger under the
Credit Agreement, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility
<PAGE> 39
- 37 -
Claims, the Security Agent, and the Account Intermediaries, and their
respective agents, affiliates, directors, officers, employees, and
representatives, including counsel (collectively, the "Indemnitees") against
any manner of actions, causes of action, suits, proceedings, liabilities and
claims of any nature, costs and expenses (including reasonable legal fees)
which may be incurred by such Indemnitee or asserted against such Indemnitee
arising out of or during the course of, or otherwise in connection with or in
any way related to, the negotiation, preparation, formulation, solicitation,
dissemination, implementation, confirmation and consummation of the Plan, other
than any liabilities to the extent arising from the gross negligence or willful
or intentional misconduct of any Indemnitee as determined by a final judgment
of a court of competent jurisdiction. If any claim, action or proceeding is
brought or asserted against an Indemnitee in respect of which indemnity may be
sought from any of the Applicants or any of the Subsidiaries, the Indemnitee
shall promptly notify the Applicants in writing, and the Applicants may assume
the defense thereof, including the employment of counsel reasonably
satisfactory to the Indemnitee, and the payment of all costs and expenses. The
Indemnitee shall have the right to employ separate counsel in any such claim,
action or proceeding and to consult with the Applicants in the defense thereof
and the fees and expenses of such counsel shall be at the expense of the
Applicants unless and until the Applicants shall have assumed the defense of
such claim, action or proceeding. If the named parties to any such claim,
action or proceeding (including any impleaded parties) include both the
Indemnitee and any of the Applicants or Subsidiaries, and the Indemnitee
reasonably believes that the joint representation of such entity and the
Indemnitee may result in a conflict of interest, the Indemnitee may notify the
Applicants in writing that it elects to employ separate counsel at the expense
of the Applicants, and the Applicants shall not have the right to assume the
defense of such action or proceeding on behalf of the Indemnitee. In addition,
the Applicants shall not effect any settlement or release from liability in
connection with any matter for which the Indemnitee would have the right to
indemnification from the Applicants, unless such settlement contains a full and
unconditional release of the Indemnitee, or a release of the Indemnitee
satisfactory in form and substance to the Indemnitee.
SECTION 9.15 BINDING EFFECT
The Plan shall be binding upon and inure to the benefit of the Applicants
and all present and former holders of Claims.
SECTION 9.16 REVOCATION, WITHDRAWAL, OR NON-CONSUMMATION
Subject to the approval of the Required Lenders, the Applicants reserve
the right to revoke or withdraw the Plan at any time prior to the Confirmation
Date and to file subsequent plans of reorganization or arrangement. If the
Applicants revoke or withdraw the Plan, or if the Confirmation does not occur,
(i) the Plan shall be null and void in all respects, (ii) any settlement or
compromise embodied in the Plan
<PAGE> 40
- 38 -
(including the fixing or limiting to an amount certain any Claim or Class of
Claims), assumption or termination, repudiation of executory contracts or
leases effected by the Plan, and any document or agreement executed pursuant to
the Plan shall be deemed null and void, and (iii) nothing contained in the
Plan, and no acts taken in preparation for consummation of the Plan, shall (a)
constitute or be deemed to constitute a waiver or release of any Claims by or
against any Applicant or any other Person; (b) prejudice in any manner the
rights of any Applicant or any Person in any further proceedings involving an
Applicant; or (c) constitute an admission of any sort by any Applicant or any
other Person.
SECTION 9.17 GOVERNING LAW
This Plan shall be governed by and construed in accordance with the laws
of the Province of Ontario and the federal laws of Canada applicable therein.
Subject to the Protocol, any questions as to the interpretation or application
of this Plan and all proceedings taken in connection with this Plan and its
provisions shall be subject to the exclusive jurisdiction of the Court.
<PAGE> 41
SCHEDULE "A"
CANADIAN SUBSIDIARIES
<TABLE>
<S> <C>
2766906 Canada Inc. ServTech Canada, Inc.
721646 Alberta Ltd. ST Delta Canada, Inc.
Allwaste of Canada Ltd. Sablix Inc.
Caligo Reclamation Ltd. Philip Analytical Services Corporation
Philip Enterprises Inc./ Philip Environmental (Atlantic) Limited
Les Entreprises Philip Inc.
1195613 Ontario Inc. Philip Environmental (Elmira) Inc.
1233793 Ontario Inc. Philip Environmental Services Limited
2842-7979 Quebec Inc. Delsan Demolition Limited
800151 Ontario Inc. Philip Investment Corp.
842578 Ontario Limited Philip Plasma Metals Inc.
912613 Ontario Ltd. PSC/IML Acquisition Corp.
Nortru, Ltd. Recyclage d'Aluminium Quebec Inc./Quebec
Aluminium Recycling Inc.
Allies Staffing Ltd.
</TABLE>
<PAGE> 42
SCHEDULE "B"
AFFECTED UNSECURED CLAIMS LIST
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- -------------------- ----------------------------------------------- ---------
<S> <C> <C>
1066424 Ontario Ltd. 39 Anne Street South, Barrie, ON L4N 2C7, 573,000
attention Brian D. Smith, President
1348040 Ontario Ltd. Mr. Rod Hudson, 48 Moorehead Crescent, 1,743,693
Brampton, ON L6Z 4K4
2418711 Canada Inc. 1100 Boulevard Cremazie est, bureau 805, 0
Montreal, Quebec H2P 2X2, attention Mr. Paul
Boyer
2819635 Canada Inc. 1100 Boulevard Cremazie est, bureau 805, 22,000
Montreal, Quebec H2P 2X2, attention Mr. Paul
Boyer
759082 Ontario Inc. 220 John St., Barrie, ON L4N 2L3, attention 38,000
Mary Kitchener
963767 Ontario Inc. c/o William R. Gilmour, Prouse, Dasht & 0
Crouch, 201-37 George Street West, Brampton,
Ontario L6X 1R5
Ablack, Krish 53 Challenger Cres., Scarborough, Ontario, 74,000
MIC 4Z4
Agglo Venture Inc., c/o William Black, McCarthy Tetrault,
Agglo Inc., Suite 4700, Toronto Dominion Bank Tower, Toronto
Dominion Centre, Toronto, Ontario, M5K 1E6 500,000
</TABLE>
<PAGE> 43
- 2 -
<TABLE>
<CAPTION>
AMOUNT
----------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- ------------------------------------- ----------------------------- ----------
<S> <C> <C>
Alexander Brown Inc. c/o David Wires of McCague, 500,000
Wires, Peacock, Borlack,
McInnis & Lloyd, Suite 2700,
P.O. Box 136, The Exchange
Tower, 2 First Canadian
Place, Toronto, Ontario,
M5X 1C7
B.A.C.C. Capital Corporation 250 University Avenue, 2nd. 2,324,747
Floor, Toronto, ON M5H 3E5,
attention Mr. Terry
Jaszkowski, Regional Manager
Bell Canada Inc. 2265 Roland Therrien Blvd., 260,000
Longueil, QC J4N 1C5,
attention M. Corbeil
Corporate Purchasing
Bernadin, Gilles 26 Rue du Coteau, Vaudreuil 40,000
Sur-le-Lac, Quebec, J7V 8P3
Boughton, Marvin 2023 Cheviot Cr., 40,000
Burlington, Ontario, L7P 1N7
Canadian Imperial Bank of Commerce 199 Bay St., 6th Floor, 22,058,824
Commerce Court West,
Toronto, Ontario M5L 1A2,
attention Mr. Wim Faassen
</TABLE>
<PAGE> 44
- 3 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- -------------------------------------- ---------------------------- ---------
<S> <C> <C>
Canadian Imperial Bank of CIBC Wood Gundy Capital, a 0
Commerce/Ontario division of Canadian
Teachers' Pension Plan Board/1067892 Imperial Bank of Commerce,
Ontario Limited/C.D.P.Q. Venture BCE Place, 161 Bay Street,
Capital Inc. 6th. Floor, Toronto, ON,
M5J 2S8; Ontario Teachers'
Pension Plan Board, 5650
Yonge Street, North York,
ON, M2M 4H5, attention
Portfolio Manager, Special
Situations and Legal
Counsel, Investments;
1067892 Ontario Limited, 1
Toronto Street, Suite 806,
Toronto, ON, M5C 2V6,
attention Derrick Rolf;
and, C.D.P.Q. Venture
Capital Inc., 1981 McGill
College, Montreal, QC,
H3A 3C7, attention
Vice-President, National
Corporate Investments
Chesterton Investments Limited & C/o Cassels Brock & 1,004,000
Morris Investments Limited Blackwell, Barristers &
Chodos, Peter Solicitors, Scotia Plaza,
Suite 2100, Toronto, ON M5H
3C2, attention Lorne S.
Silver
157 Beechwood Avenue, 700,000
Willowdale, Ontario,
M2L l1J9
CIBC Equipment Finance Limited C/o Newcourt Credit Group 75,000
Inc., Newcourt Centre, 207
Queens Quay West, Suite
700, Toronto, ON, Canada,
M5J 1A7, attention Dan
Billard
CIBC Equipment Finance Limited C/o Newcourt Credit Group 621,726
Inc., Newcourt Centre, 207
Queens Quay West, Suite
700, Toronto, ON, Canada,
M5J 1A7, attention Dan
Billard
</TABLE>
<PAGE> 45
- 4 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- ---------------------------------------- --------------------------- ---------
<S> <C> <C>
Cinicorp Holdings Limited C/o Feigt Nawrocki & Baker 312,000
Company, Suite 3300, 130
Adelaide Street West,
Toronto, Ontario M5H 3P5
City of Toronto Economic Development C/o Conway Kleinman 1,494,000
Corporation Kornhauser & Gotlieb, 390
Clark, Brad Bay Street, 5th. Floor,
Toronto, ON M5H 2Y2,
attention Michael A.
Kleinman
c/o Mr. Shane M. Watson, 2,000
Barrister and Solicitor,
760 Brant Street,
Suite 407B, Burlington,
ON L7R 4B7
Close Quarters Inc. PO Box 520, Alliston, ON 162,744
L9R 1V9
Close Quarters Inc. / Tom Close PO Box 520, Alliston, ON 745,313
L9R 1V9
Comdisco Canada Ltd. Royal Bank Plaza, South 0
Tower, 200 Bay Street,
Suite 2200, Toronto, ON
M5J 2J3
Compagnie de Gestion, M.P.F. Inc. C/o Chaurette Levesque, 2,426,000
410 Saint-Nicholas, Bureau
006, Montreal, QC,
H2Y 2P5, attention Alida
Gualtieri
Coristine, Bruce 257 Lakeview Road, Bell 366,176
River, Ontario N0R 1A0
Coristine, Bruce 257 Lakeview Road, Bell 61,765
River, Ontario N0R 1A0
Coristine, Bruce 257 Lakeview Road, Bell 745,313
River, Ontario N0R 1A0
</TABLE>
<PAGE> 46
- 5 -
<TABLE>
<CAPTION>
AMOUNT
----------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- ------------------------------------------ ------------------------ ----------
<S> <C> <C>
Coristine, Bruce / Close Quarters Inc. 257 Lakeview Road, Bell 229,102
River, Ontario N0R 1A0
Crawford, Kevin 213 Chebucto Dr., 90,000
Oakville, Ontario
L6J 5R1
D'Allessandro, Gino c/o Corrent & Macri, 0
Barristers and
Solicitors,
110 Tecumseh Road East,
Windsor, ON N8X 2P8,
attention John L. Rossi
Enterprises Delcapitale Limitee c/o Koskie Minsky, 0
20 Queen Street West,
Suite 900, Box 52,
Toronto, Ontario M5H
3R5, attention Larry
Banack
FP Commodity Master Trust c/o Canadian Imperial 24,849,240
Bank of Commerce,
199 Bay St., 6th Floor,
Commerce Court West,
Toronto, Ontario
M5L 1A2, attention Mr. Wim
Faassen
Fracassi, Philip RR#1, 1087 Old Mohawk 76,000
Road, Ancaster,
Ontario, L9G 3K9
Gallagher, John c/o Findlay & McCarthy, 20,000
Barristers and
Solicitors, 66 James
Street North, Hamilton,
ON L8R 2K5, attention
Mr. John Findlay
Goldblatt, Marvin 45 St. James Place, 1,216,000
Hamilton, Ontario
L8P 2N4
Gore, Reginald J., Gore, Alma P., Gore, c/o McCarthy Tetrault, 1,280,000
Larry R., Sebele, Sandra P., and Sebele, Barristers and
Terry C. Solicitors, Suite 2000,
One London Place, 255
Queens Avenue, London,
ON N6A 5R8, attention
Ms. Alissa K. Mitchell
</TABLE>
<PAGE> 47
- 6 -
<TABLE>
<CAPTION>
AMOUNT
-------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- ---------------------------------------- ----------------------------- -------
<S> <C> <C>
Green, John/Green, Lilla/Stasiuk, c/o Weir & Foulds, 35,000
John/Dynamic Industrial Services Inc. Barristers and Solicitors,
Exchange Tower, Suite 1600,
130 King Street West,
Toronto, ON M5X 1J5,
attention Mr. Gary M. Caplan
GUSO Ltd. c/o Re-Tech Products 31,695
Limited, 582 Bowes Rd.,
Concord, Ontario L4K 1K2,
attention Gary Grant
Hamilton Harbour Commissioners 605 James Street North, 825,000
Hamilton, Ontario L8L 1K1
Hilson, Michael c/o Findlay & McCarthy, 10,000
Barristers and Solicitors,
66 James Street North,
Hamilton, ON L8R 2K5,
attention Mr. John Findlay
Hoey, Graham 2005 Woodglen Crescent, 29,000
Gloucester, Ontario, K1J 6G7
c/o Imperial Oil Limited,
237 Fourth Avenue, Station 0
"M", Calgary, Alberta, T2P
Imperial Oil Limited/McColl Frontenac 3M9, attention Mr. D. J.
Petroleum Inc. Saretzky, Contracts Manager
Kimco Steel Sales Limited c/o Willoughby, MacLeod, 734 6,000
Arlington Park Place,
Kingston, Ontario K7M 8H9
Kumer, Sheldon 41 Terrace Drive, Dundas, 512,000
Ontario L9H 3X1
Leasing Solutions (Canada) Inc. 151 Yonge Street, Suite 1710 0
Toronto, Ontario M5C 2W7
Attention: Rick Morrison
</TABLE>
<PAGE> 48
- 7 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- ------------------------------------ ------------------------------ ---------
<S> <C> <C>
Lethbridge, Thomas c/o of Elliot, Porter, 29,000
McFayden & McFayden, Kendall
Street. Point Edwards,
Ontario, N7V 4G6, attention
George F. McFayden
Lions Wrecking Ltd.; Lions Disposal
and Excavation; Lions Disposal C/o Polsinelli and DaRe, 3700 0
Excavation & Demolition Ltd.; Jose Steeles Ave. West, Suite 502,
Nunes; Honorina Nunes; Olivio Woodbridge, Ontario, L4L 8K8,
Ricardo; Maria Ricardo attention John DaRe
Liquid Cargo Lines Limited C/o Armstrong, Meakings, 0
Barristers, Solicitors,
Notaries, 111 Toronto Street,
Barrie, ON L4N 1V1, attention
Gordon V. Meakings Esq.
McQuillan, Peter 34 Davidson Blvd., Dundas, 31,000
Ontario, L9H 6X9
c/o SITQ Inc. / Division 62,000
Industrielle, 3300 Blvd. Cote
MD Realty Canada Inc. Vertu, Suite 400, Ville Saint
Abrim 11 Inc. & 132001 Canada Inc., Laurent, QC H4R 2B7,
Sitq Inc. attention Charles Bourgeois
MDS Environmental Services Limited MDS Inc. 100 International 1,200,000
Blvd., Etobicoke, ON M9W
6J6, attention Peter E.
Brent, Vice-President, Legal
Affairs and Corporate
Secretary
MTC Leasing Inc. 3310 South Service Road, PO 24,000
Box 906, Burlington, ON, L7R
3Y7, attention Kelly Peters,
Collections Department
</TABLE>
<PAGE> 49
- 8 -
<TABLE>
<CAPTION>
AMOUNT
---------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- ---------------------------------------- -------------------------- ---------
<S> <C> <C>
Myrtle Eva Harrington; Harrington c/o Winchie, Lamont, 250,000
Acquisition Corporation; Nancy Paquette, 105 Main Street
Hamilton; Myrtle Eva Harrington as East, Suite 1001,
Trustee for the estate of Frederick Hamilton, ON L8N 1G6,
John Harrington; Bruce Hamilton attention Terry Winchie
Newcourt Credit Group Inc./Newcourt Newcourt Centre, 207 746,000
Financial Ltd. Queens Quay West, Suite
Nortel Networks Corporation 700, Toronto, ON, Canada,
M5J 1A7, attention
Gunther Boenisch
8200 Dixie Road, 1,018,000
Brampton, ON L6T 5P6
OE Leasing, a division of OE Financial P.O. Box 5027, 4145 North 1,320
Service Inc. Service Road, #401,
Burlington, Ontario,
L7R 3Y8
Ontario Paving Inc.; Carmen Alfano c/o of Piersanti & 0
Company Royal Centre,
3300 Highway Number 7,
Suite #800, Vaughan,
Ontario, L4K 4M3,
attention David D'Angela
Palango, Paul c/o Weir & Foulds, 0
Barristers and
Solicitors, Exchange
Tower, Suite 1600, 130
King Street West,
Toronto, ON M5X 1J5,
attention Mr. Barnet H.
Kussner
Paletta International Corporation 4480 Paletta Court, 2,035,000
Burlington, ON L7L 5R2
PDQ Mechanical c/o Bishop & McKenzie, 13,000
2500, 10104-103rd Ave.,
Edmonton, Alberta T5J
1V3, attention Robert A.
Fariner
Perron, Victor 1494 Powerline Rd. West, 31,000
RR#2 Lynden, Ontario, L0R
1T0
</TABLE>
<PAGE> 50
- 9 -
<TABLE>
<CAPTION>
AMOUNT
-----------
CREDITOR CREDITOR'S ADDRESS (CDN$)
- ---------------------------------------- ------------------------ -----------
<S> <C> <C>
Poplack, Bernard 65 Wembley Road, 121,000
Toronto, Ontario, M6C
2G1
Port of Quebec Authority c/o Boily Morency, 98,832
Advocates, 70
Dalhousie, bureau 230,
Quebec City, QC G1K
4B2, attention
Jean-Paul Boily
Royal Bank of Canada 20 King Street West, 3,676,471
9th. Floor, Toronto, ON
M5H 1C4, attention
Bernie A. A, LaCroix,
Vice-President,
Business Banking
Teperman and Sons Inc. Suite 1500, 151 Yonge 0
Street, Toronto,
Ontario, M5C 2W7
Utter, Christopher/ Buleychuk, Susan 22 Green Mountain Rd. 0
W., Stoney Creek,
Ontario L8J 2W4,
attention Susan
Buleychuk
Woodcroft, John 88 Highland Park Drive, 1,053,000
Dundas, Ontario L9H
6G8
Woodstock Sufferance Warehouse Ltd. 430 Springbank Avenue 271,487
South, Woodstock, ON
N4V 1B2, attention Bill
Hamilton
Xerox Canada Ltd. 33 Bloor Street East, 8,621
Toronto, ON M4W 3H1
TOTAL $76,769,069
</TABLE>
<PAGE> 1
EXHIBIT 10.19
Court File No.: 99-CL-3442
SUPERIOR COURT OF JUSTICE
(Commercial List)
IN THE MATTER OF THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C.
1985, c. C-36., AS AMENDED
AND IN THE MATTER OF THE COURTS OF JUSTICE ACT, R.S.O. 1990, c. C-43, AS AMENDED
AND IN THE MATTER OF A PLAN OF COMPROMISE AND ARRANGEMENT OF PHILIP
SERVICES CORP. AND THE APPLICANTS LISTED ON SCHEDULE "A".
APPLICATION UNDER THE COMPANIES' CREDITORS ARRANGEMENT ACT, R.S.C.
1985, c. C.-36, AS AMENDED.
SUPPLEMENT TO THE AMENDED AND RESTATED PLAN OF COMPROMISE AND ARRANGEMENT DATED
SEPTEMBER 24, 1999
October 27, 1999
<PAGE> 2
PLAN SUPPLEMENT
This Plan Supplement amends and restates the Amended and Restated Plan of
Compromise and Arrangement dated September 24, 1999 of Philip Services Corp.
and its Canadian subsidiaries listed on Schedule "A" hereto pursuant to the
Companies' Creditors Arrangement Act, R.S.C. 1995, c. C-36, as amended.
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINITIONS
In this Amended Plan (including the Schedules hereto), unless otherwise
stated or the context otherwise requires:
"ACCOUNT INTERMEDIARIES" means (a) CIBC in its capacity as the provider
of the CIBC Bank Account Services, and (b) Comerica Bank and its
affiliates in their respective capacities as the providers of the
Comerica Bank Account Services;
"ADMINISTRATIVE AGENT" means CIBC or its successor as administrative
agent for the Lenders under the Credit Agreement;
"AFFECTED CLAIM" means an Affected Secured Lender Claim;
"AFFECTED CREDITOR" means a holder of an Affected Claim;
"AFFECTED SECURED LENDER CLAIM" means a Secured Claim of a Lender against
the Applicants arising under or as a result of the Credit Facility
Agreements other than any Other Secured Claims;
"AFFECTED SECURED CREDITOR" means a holder of an Affected Secured Lender
Claim;
"APPLICANTS" means PSC and each of the Canadian Subsidiaries and
"APPLICANT" means any one of the Applicants;
"BTCO" means Bankers Trust Company;
"BUSINESS DAY" means a day which is not (i) a Saturday or a Sunday; or
(ii) a day observed as a holiday under the laws of the Province of
Ontario or the applicable federal laws of Canada;
"CANADIAN SUBSIDIARIES" means, collectively, the direct and indirect
subsidiaries of PSC listed on Schedule "A" hereto;
<PAGE> 3
- 2 -
"CCAA" means the Companies' Creditors Arrangement Act, R.S.C. 1985, c.
C-36, as amended;
"CCAA PROCEEDINGS" means the CCAA cases of PSC and the Canadian
Subsidiaries before the Court pursuant to the CCAA;
"CHAPTER 11 CASES" means the jointly administered Chapter 11 cases of
PSI, PSC and the U.S. Subsidiaries before the United States Bankruptcy
Court pursuant to the provisions of Chapter 11 of the United States
Bankruptcy Code;
"CIBC" means Canadian Imperial Bank of Commerce;
"CIBC BANK ACCOUNT SERVICES" means "CIBC Bank Account Services" as
defined in the Credit Agreement;
"CLAIM" means any right of any Person against any Applicant in connection
with any indebtedness, liability or obligation of any kind of any
Applicant whether or not reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal,
equitable, secured, unsecured, present, future, known, unknown, by
guarantee, by surety or otherwise and whether or not such a right is
executory in nature, including, without limitation, the right or ability
of any person to advance a claim for contribution or indemnity or
otherwise with respect to any matter, action, cause or chose in action
whether existing at present or commenced in the future based in whole or
in part on facts which exist prior to or at the time of the first
Creditors' Meeting other than (i) a claim of a United States resident
against PSC, or (ii) a claim of a Canadian resident against PSC which the
holder of the claim has voluntarily agreed is to be subject to and bound
by the provisions of the U.S. Plan, and has consented to have the
allowance and priority of such claim determined in accordance with the
provisions of the U.S. Bankruptcy Code;
"CLASS" means the Class consisting of all holders of Affected Secured
Lender Claims;
"COMERICA BANK ACCOUNT SERVICES" means "Comerica Bank Account Services"
as defined in the Credit Agreement;
"COMMON SHARES" means common shares in the capital of PSC;
"CONFIRMATION DATE" means the date that the Confirmation Order is made;
"CONFIRMATION ORDER" means the order of the Court sanctioning and
approving the Amended Plan appointing the Receiver as of the Effective
Date
<PAGE> 4
- 3 -
and authorizing and directing the Selling Applicants and the Receiver to
enter into and perform the Sale Agreement;
"COURT" means the Ontario Superior Court of Justice;
"CREDIT AGREEMENT" means the Credit Agreement dated as of August 11, 1997
among PSC, as borrower in Canada, PSI, as borrower in the United States,
the Lenders, CIBC, as administrative agent for the Lenders, BTCo, as
syndication agent, and CIBC and BTCo, as co-arrangers, as amended by
amending agreements dated as of October 31, 1997, February 19, 1998, June
24, 1998, October 20, 1998 and December 4, 1998;
"CREDIT DOCUMENTS" means the "Credit Documents" as defined in the Credit
Agreement;
"CREDIT FACILITY AGREEMENTS" means the Credit Agreement, the Credit
Documents and the Lender Lock-Up Agreement;
"CREDITOR" means any Person having a Claim and may, if the context
requires, mean a trustee, receiver, receiver manager or other Person
acting on behalf of such Persons, but a Creditor shall not include a
Person having a Claim in respect of an Unaffected Obligation;
"CREDITORS' MEETING" means the meeting of the Affected Secured Creditors
called for the purpose of considering and voting upon this Amended Plan
and includes any adjournment of such meeting;
"CREDITORS' MEETINGS ORDER" means the Order of the Court dated September
23, 1999 establishing procedures for proving Claims and setting the date
for the Creditors' Meetings, as amended or supplemented from time to
time;
"DATE OF FILING" means June 25, 1999;
"DIP AGENT" means BTCo, in its capacity as administrative agent under the
DIP Facility Agreement;
"DIP CO-ARRANGERS" means BTCo and CIBC, in their capacities as
co-arrangers of the DIP Facility;
"DIP FACILITY AGREEMENT" means the Credit Agreement between PSC and PSI
as borrowers, the Canadian Subsidiaries and U.S. Subsidiaries as
guarantors, certain other Subsidiaries as guarantors, the DIP Agent, and
the DIP Co-Arrangers, and the other lender signatories thereto;
<PAGE> 5
- 4 -
"DIP FACILITY" means the debtor-in-possession credit facility to be
provided to PSC, PSI, the Canadian Subsidiaries and the U.S. Subsidiaries
during the CCAA Proceedings and Chapter 11 Cases in the principal amount
of US$100 million of available credit pursuant to the DIP Facility
Agreement;
"DIP FACILITY CLAIM" means a Claim arising under or as a result of the
DIP Facility;
"DIRECTORS AND OFFICERS" means the current and former directors and
officers of the Applicants resident in Canada;
"DISCLOSURE STATEMENTS" means the written disclosure statements that
relate to the Plan or the U.S. Plan, as such documents may be amended,
supplemented or modified from time to time and "DISCLOSURE STATEMENT"
means any one of them;
"DOLLARS" or "$" means lawful money of Canada unless otherwise indicated;
"EFFECTIVE DATE" means the Business Day on which all conditions to
implementation of the Plan as set forth in Section 5.4 have been
satisfied or waived as provided in Section 5.5 and is the effective date
of this Amended Plan;
"EXCLUDED INDEMNIFICATION OBLIGATIONS" means, in the case of PSC,
"Excluded Indemnification Obligations" (as defined in the U.S. Plan) of
PSC to any Canadian resident and, in the case of any of the Canadian
Subsidiaries, means Claims of any Canadian residents against any of the
Canadian Subsidiaries that would be "Excluded Indemnification
Obligations" under the U.S. Plan if such Canadian Subsidiaries were U.S.
Plan Applicants and in each case includes Claims of any Canadian
residents against any of the Applicants that are not Assumed
Indemnification Obligations. For greater certainty, "Excluded
Indemnification Obligations" shall not affect the set-off rights, if any,
of any Person;
"EXIT FACILITY" means the new senior secured credit facility in an
aggregate principal amount of approximately US$125 million, which PSI and
the Subsidiaries anticipate entering into as a condition to the
consummation of the U.S. Plan;
"INITIAL ORDER" means the Order of the Court dated June 25, 1999, as
amended from time to time, pursuant to which, among other things, the
Applicants were granted certain relief pursuant to the CCAA;
<PAGE> 6
- 5 -
"INTERCOMPANY CLAIMS" means, as the case may be, any Claim of (a) any
Subsidiary against an Applicant, (b) any Subsidiary against a Subsidiary,
or (c) PSC against any Subsidiary;
"LENDER" means a "Lender" as defined in the Credit Agreement, CIBC as
administrative agent, BTCo as syndication agent, CIBC and BTCo as
co-arrangers, and their individual successors and assigns;
"LENDER CLAIM" means a Claim of a Lender arising under or as a result of
the Credit Facility Agreements;
"LENDER LOCK-UP AGREEMENT" means the letter agreement dated as of April
5, 1999, as amended and restated as of June 21, 1999, as may be further
amended subsequent to the Date of Filing, among PSC and the Lenders
signatories thereto with respect to the principal terms and conditions of
this Amended Plan and the U.S. Plan;
"LENDERS' SECURITY" means the security granted by the Applicants in
favour of the Security Agent or the Administrative Agent on behalf of the
Lenders;
"LIEN" means a charge against or interest in property to secure payment
of debt or performance of an obligation;
"MONITOR" means Ernst & Young Inc. and any successor thereto appointed in
accordance with the Initial Order or any further Order;
"NEW GUARANTEES" means, collectively, the secured guarantees of the
Subsidiaries to be entered into as of the Effective Date to guarantee and
secure the New Senior Secured Term Debt and the New Secured PIK Debt (as
defined in the U.S. Plan);
"ORDER" means any order of the Court in these proceedings;
"OTHER SECURED CLAIMS" means, collectively, the Secured Claims of the
Account Intermediaries, the issuers of letters of credit issued under the
Permitted LC Facility established pursuant to Amending Agreement No. 3 to
the Credit Agreement and all other Secured Claims against the Applicants,
other than the Affected Secured Lender Claims;
"PERSON" means any individual, partnership, joint venture, trust,
corporation, unincorporated organization, government or any agency or
instrumentality thereof, or any other juridical entity howsoever
designated or constituted;
<PAGE> 7
- 6 -
"PLAN" means the amended and restated plan of compromise and arrangement
dated September 24, 1999 of all of the Applicants under the CCAA;
"PROTOCOL" means the Cross-Border Insolvency Protocol entered into by the
U.S. Bankruptcy Court in the Chapter 11 Cases and by the Court in respect
of the CCAA Proceedings;
"PROVEN ..... CLAIM" of a Creditor means the amount of the Claim of such
Creditor as finally determined in accordance with the provisions of the
CCAA, any applicable Order or this Plan;
"PSC" means Philip Services Corp. or its successor;
"PSI" means Philip Services (Delaware), Inc.;
"RECEIVER" has the meaning set forth in Section 4.1;
"REQUIRED LENDERS" means the "Required Lenders" as defined in the Credit
Agreement;
"REQUIRED MAJORITY" means, in respect of the Class, an affirmative vote
of two-thirds in value of all Proven Claims of the Class voted in
accordance with the voting procedures established hereunder (whether in
person or by proxy) and a majority in number of all voting Creditors of
the Class;
"SALE AGREEMENT" has the meaning set forth in Section 4.1;
"SECURED CLAIM" means a Claim that is secured by a Lien or other interest
on property in which an Applicant has an interest, whether the Person
with such Claim has a security interest by way of a mortgage, lease,
chattel mortgage, conditional sale agreement, debenture, security
agreement or other security instrument, to the extent of the value of the
Claim holder's interest in the Applicant's interests in such property;
"SECURITY AGENT" means the "Security Agent" as defined in the Credit
Agreement;
"SELLING APPLICANTS" has the meaning set forth in Section 4.1;
"SUBSIDIARIES" means, collectively, all of the direct and indirect
subsidiaries of PSC and following completion of the Sale Transactions (as
defined in Section 4.1) means, collectively, all of the direct and
indirect subsidiaries of PSI;
<PAGE> 8
- 7 -
"SUBSIDIARY INTERESTS" means, collectively, the issued and outstanding
shares in the stock of the Subsidiaries as of the Date of Filing;
"TRANSFERRED ASSETS" means the assets and shares sold under the Sale
Agreement;
"TRANSFERRED SUBSIDIARIES" means the corporations whose shares are
included in the Transferred Assets;
"UNAFFECTED OBLIGATIONS" means Claims that are not Affected Claims;
"U.S. BANKRUPTCY COURT" means the United States Bankruptcy Court having
jurisdiction over the Chapter 11 Cases;
"U.S. PLAN" means the joint plan of reorganization of the U.S. Plan
Applicants as filed with the U.S. Bankruptcy Court, as the same may be
amended, modified or supplemented from time to time with the consent of
the Required Lenders;
"U.S. PLAN APPLICANTS" means PSC, PSI and each of the U.S. Subsidiaries;
and
"U.S. SUBSIDIARIES" means PSI and the direct and indirect subsidiaries of
PSC set forth in the U.S. Plan.
SECTION 1.2 INTERPRETATION, ETC.
For purposes of the Amended Plan:
(a) any reference in the Amended Plan to a contract, instrument,
release, indenture, or other agreement or document's being in a
particular form or on particular terms and conditions means that
such document shall be substantially in such form or substantially
on such terms and conditions;
(b) any reference in the Amended Plan to an existing document or
exhibit filed or to be filed means such document or exhibit as it
may have been or may be amended, modified, or supplemented;
(c) unless otherwise specified, all references in the Amended
Plan to Sections, Articles and Schedules are references to Sections,
Articles and Schedules of or to the Amended Plan;
(d) the words "herein" and "hereto" refer to the Amended Plan in
its entirety rather than to a particular portion of the Amended
Plan;
<PAGE> 9
- 8 -
(e) captions and headings to Articles and Sections are inserted
for convenience of reference only and are not intended to be a part
of or to affect the interpretation of the Amended Plan;
(f) where the context requires, a word or words importing the
singular shall include the plural and vice versa;
(g) the words "includes" and "including" are not limiting;
(h) the phrase "may not" is prohibitive and not permissive; and
(i) the word "or" is not exclusive.
SECTION 1.3 DATE FOR ANY ACTION
In the event that any date on which any action is required to be taken
under this Plan by any of the parties is not a Business Day, that action shall
be required to be taken on the next succeeding day which is a Business Day.
SECTION 1.4 TIME
All times expressed in this Amended Plan are local time Toronto, Ontario,
Canada unless otherwise stipulated.
SECTION 1.5 STATUTORY REFERENCES
Any reference in this Amended Plan to a statute includes all regulations
made thereunder and all amendments to such statute or regulations in force from
time to time.
SECTION 1.6 SUCCESSORS AND ASSIGNS
This Amended Plan shall be binding upon and shall enure to the benefit of
the heirs, administrators, executors, legal personal representatives,
successors and assigns of any Person named or referred to in this Amended Plan.
SECTION 1.7 SCHEDULES
The following are the Schedules to this Amended Plan, which are
incorporated by reference into this Amended Plan and form part of it:
Schedule "A" - Canadian Subsidiaries
Schedule "B" - Sale Agreement
<PAGE> 10
- 9 -
ARTICLE 2
PURPOSE AND EFFECT OF THE PLAN
SECTION 2.1 BACKGROUND
The circumstances and events leading up to the Plan and the U.S. Plan are
summarized in the Disclosure Statement that was circulated to Affected
Creditors in connection with the Plan and distributed in accordance with the
U.S. Bankruptcy Code in connection with the U.S. Plan.
SECTION 2.2 PERSONS AFFECTED
This Amended Plan and the U.S. Plan provide for a coordinated
restructuring of claims and interests against PSC, PSI, the Canadian
Subsidiaries and the U.S. Subsidiaries. This Amended Plan will become
effective on the Effective Date and shall be binding on and enure to the
benefit of the Applicants and the holders of Affected Secured Lender Claims.
SECTION 2.3 PERSONS NOT AFFECTED
For greater certainty this Amended Plan does not affect the holders of
Unaffected Obligations. Nothing shall affect any Applicant's rights and
defences, both legal and equitable, with respect to any Unaffected Obligations
including, but not limited to, all rights with respect to legal and equitable
defenses to setoffs or recoupments against such Claims. Notwithstanding the
substantive consolidation of Claims against the Applicants for certain purposes
under this Amended Plan, Claims which are not Affected Claims of any particular
Applicant remain the obligations solely of such Applicant and shall not become
obligations of any other Applicant.
ARTICLE 3
CLASSIFICATION OF CREDITORS, VALUATION OF CLAIMS AND
RELATED MATTERS
SECTION 3.1 CLASSES OF CLAIMS
The only classes of Creditors for the purpose of considering and voting on
the Amended Plan shall be Creditors holding Affected Secured Lender Claims.
SECTION 3.2 AFFECTED CLAIMS
Creditors holding Affected Secured Lender Claims shall prove their Claims,
vote in respect of the Amended Plan and receive the rights provided for under
and pursuant to this Amended Plan.
<PAGE> 11
- 10 -
SECTION 3.3 CREDITORS' MEETING
The Creditors' Meeting of holders of Affected Secured Lender Claims shall
be held in accordance with this Amended Plan, the Creditors' Meetings Order and
any further Order. The only persons entitled to attend the Creditors' Meeting
are those persons, including the holders of proxies, entitled to vote at the
Creditors' Meeting, their legal counsel and advisors and the officers,
directors and legal counsel of the Applicants. Any other Person may be
admitted on invitation of the chair of the Creditors' Meeting.
SECTION 3.4 APPROVAL BY CREDITORS
In order to be approved, the Amended Plan must receive the affirmative
vote of the Required Majority of the holders of Affected Secured Lender Claims.
SECTION 3.5 VOTING CLAIMS
The Claim of the holders of Affected Secured Lender Claims has been
accepted as filed.
SECTION 3.6 CLAIMS FOR VOTING PURPOSES
Each Creditor having an Affected Secured Lender Claim shall be entitled to
attend and to vote at the Creditors' Meeting. Each Creditor who is entitled to
vote shall be entitled to that number of votes at the Creditors' Meeting as is
equal to the dollar value of its Claim for voting purposes as determined in
accordance with this Article 3 and the provisions of the Creditors' Meetings
Order.
ARTICLE 4
TREATMENT OF AFFECTED CREDITORS
SECTION 4.1 AFFECTED SECURED LENDER CLAIMS
Subject to approval by the Required Majority of holders of Affected
Secured Lender Claims,
(a) The Applicants listed as vendors ("Selling Applicants") in
the form of agreement of purchase and sale (the "Sale Agreement")
attached as Schedule "B" to this Amended Plan will enter into an
agreement to sell their businesses as a going concern to the parties
(the "Purchasers") substantially on the terms set out in the Sale
Agreement, subject to such amendments as do not materially adversely
affect the financial arrangements set out in the Sale Agreement and
are approved in the Confirmation Order or other Order (collectively
in this section 4.1, the "Order");
<PAGE> 12
- 11 -
(b) On the Effective Date, the Sale Agreement will be assumed and
completed by a receiver and manager or interim receiver (the
"Receiver") appointed as of the Effective Date by the Order to
convey the assets of the Applicants other than such assets as may be
excluded by the terms of the Order. The proceeds of sale will be
distributed by the Receiver on the Effective Date in accordance with
the legal priorities of the claims against the assets that are to be
sold under the Sale Agreement (the "Transferred Assets");
(c) The holders of Affected Secured Lender Claims consent to the
sale of the Transferred Assets substantially on the terms set forth
in the Sale Agreement and this Section 4.1 (the "Sale
Transactions"), provided that the net proceeds of sale remain
subject to the Lenders' Security;
(d) All assets of the Applicants that are excluded from the Sale
Transactions will remain the property of the relevant Applicant.
All such assets and the assets of the Applicants other than the
Selling Applicants will remain subject to the Lenders' Security;
(e) The indebtedness of the Applicants to the Lenders will be
reduced;
(i) on completion of the distribution of proceeds of the Sale
Transactions to holders of Affected Secured Lender Claims, by
an amount equal to the Purchase Price less the Assumed Senior
Liabilities, both as defined under the Sale Agreement;
(ii) on the first distribution date under the U.S. Plan, by the
value of the debt and equity to be distributed to the holders
of Class 6 Claims (as defined in the U.S. Plan) on the
implementation of the U.S. Plan), and on each subsequent
distribution date under the U.S. Plan, by an amount equal to
the value of the Class 6 Additional Distribution, if any, on
such date,
but, in each case, without duplication (ie. the reduction of
indebtedness on account of distributions in one country will only
be to the extent that the distributions in such country are not
already taken into account in the calculation of the distributions
in the other country).
The balance of the indebtedness of the Applicants to the Lenders will
remain outstanding and will continue to be subject to the terms of the
Credit Agreement and secured by the Lenders' Security, which will remain
in full force and effect. The Lenders will not be deemed to have waived
any Default or Event of Default under the Credit Agreement or under the
Lenders'
<PAGE> 13
- 12 -
Security or any remedies thereunder and following the Effective Date may
exercise any remedies they may have under the Credit Agreement or the
Lenders' Security.
(f) The following transactions shall occur immediately prior to
implementation of the Amended Plan;
(i) Each holder of a Claim under the Credit Agreement
shall be deemed to have exchanged such Claim for an undivided
co-ownership interest in all of the Claims under the Credit
Agreement in the same aggregate amount as the Claim so
exchanged; and
(ii) Each holder of an Affected Secured Lender Claim
will assign to PSI the portion of its Affected Secured Lender
Claim which will be repaid from the proceeds of the Sale
Transactions to which the holders of Affected Secured Lender
Claims are entitled. This assignment will be part of the
exchange of debt and other rights with PSI under the U.S. Plan
for the debt and equity to be issued by PSI to the holders of
Class 6 Claims in the U.S. Plan, and will be on the terms set
out in the U.S. Plan, effective after the step described in
clause (f)(i) and immediately prior to the distribution of the
proceeds of the Sale Transactions to which the holders of
Affected Secured Lender Claims are entitled. From and after
the assignment, PSI will be entitled to receive all proceeds
from the Sale Transactions that would otherwise be distributed
to holders of Affected Secured Lender Claims.
SECTION 4.2 OTHER CLAIMS
Claims that would have been Affected Unsecured Claims (as defined in the
Amended and Restated Plan of Compromise and Arrangement of the Applicants dated
September 24, 1999) will not be compromised. The holders of Affected Unsecured
Claims will have the right, but will not be required, to elect to participate
in distributions under the U.S. Plan as provided for therein.
SECTION 4.3 SUBSTANTIVE CONSOLIDATION FOR PURPOSES OF TREATING AFFECTED CLAIMS
The Amended Plan is premised upon the substantive consolidation of the
Applicants only for purposes of treating Affected Secured Lender Claims under
the Amended Plan, including for voting, sanction and distribution purposes.
This Amended Plan does not contemplate substantive consolidation of the
Applicants with respect to Unaffected Obligations. Except as set forth in this
Section 4.3, such substantive consolidation shall not (other than for purposes
related to the Amended
<PAGE> 14
- 13 -
Plan) (a) affect the legal and corporate structures of the Applicants, (b)
cause any Applicant to be liable for any Claim under the Amended Plan, for
which it otherwise is not liable and the liability of any Applicant for any
such Claim shall not be affected by such substantive consolidation, (c) affect
Intercompany Claims of Applicants against Applicants, or (d) affect Subsidiary
Interests.
ARTICLE 5
MISCELLANEOUS
SECTION 5.1 CONFIRMATION OF PLAN
(a) Provided that the Amended Plan is approved by the Required
Majority of holders of Affected Secured Lender Claims, the
Applicants will seek the Confirmation Order (which as proposed shall
be in form and substance acceptable to the Applicants and the
Required Lenders) for the sanction and approval of the Amended Plan;
and
(b) subject only to the Confirmation Order being granted in form
and substance reasonably acceptable to the Applicants and the
Required Lenders and the satisfaction of those conditions precedent
to implementation of the Amended Plan described in Section 5.3, the
Amended Plan will be implemented by the Applicants and will be
binding upon the Applicants and all holders of Affected Secured
Lender Claims.
SECTION 5.2 PARTICIPATION IN DIFFERENT CAPACITIES
Creditors whose Claims are affected by this Amended Plan are affected only
in their capacities as holders of such Claims.
SECTION 5.3 DEEMING PROVISIONS
In this Amended Plan, the deeming provisions are not rebuttable and are
conclusive and irrevocable.
SECTION 5.4 CONDITIONS PRECEDENT TO IMPLEMENTATION OF PLAN
The implementation of the Amended Plan is subject to the following
conditions precedent which may not be waived by the Applicants without the
consent of the Required Lenders:
(a) the Confirmation Order sanctioning the Amended Plan, as such
Amended Plan may have been modified, in form and substance
reasonably satisfactory to the Applicants and the Required Lenders,
shall have been entered and the operation and effect of the
Confirmation Order shall not have been stayed, reversed or amended,
and shall:
<PAGE> 15
- 14 -
(i) approve the Sale Transactions and authorize and
direct the Applicants to take all actions necessary or
appropriate to enter into, implement and consummate the
contracts, instruments, releases, leases, indentures and other
agreements or documents created in connection with the Amended
Plan;
(ii) declare that the provisions of the Confirmation
Order are nonseverable and mutually dependent;
(iii) appoint the Receiver as of the Effective Date
and authorize and direct the Receiver to enter into the Sale
Agreement and complete the transactions contemplated thereby;
and
(iv) authorize and direct the Receiver to distribute
the shares of the Purchasers to PSI on the Effective Date.
(b) the following agreements, in form and substance satisfactory
to the Applicants, the Purchasers and the Required Lenders shall
have been executed and delivered by the Purchasers and the
Transferred Subsidiaries, and all conditions precedent thereto shall
have been satisfied:
(i) New Guarantees and related security documents;
(ii) If necessary, the Exit Facility;
(iii) Agreements evidencing sufficient bonding to meet
the projected bonding requirements of the Purchasers and the
Transferred Subsidiaries;
(iv) Such other documents and agreements as are
required to be executed and delivered by subsidiaries of PSI
pursuant to the terms of the U.S. Plan; and
(c) all actions, documents and agreements necessary to implement
the Amended Plan and the Sale Agreement shall have been effected or
executed; and
(d) either (i) the U.S. Bankruptcy Court shall have issued a
final order under the U.S. Bankruptcy Code confirming the U.S. Plan
and all conditions to the effectiveness of the U.S. Plan shall have
been satisfied other than the condition that the Alternate Canadian
Transactions shall have been authorized to be implemented in
accordance with Canadian law and all conditions to the
implementation of the Alternate Canadian Transactions (as defined in
the U.S. Plan) shall have been
<PAGE> 16
- 15 -
satisfied or waived by the Required Lenders other than the
conditions that the Plan shall have become effective, and the
Alternate Canadian Transactions shall be capable of being
implemented on the Effective Date and the only unsatisfied
condition to the transactions shall be the effectiveness of the
U.S. Plan or (ii) if the Canadian Plan Condition (as defined in the
U.S. Plan) has been waived, the U.S. Plan shall have become
effective.
SECTION 5.5 WAIVER OF CONDITIONS
Each of the conditions set forth in Section 5.4 above, may be waived in
whole or in part by the Applicants with the written consent of the Required
Lenders, without any other notice to parties in interest or the Court and
without a hearing. The failure to satisfy or waive any condition to the
Effective Date may be asserted by the Applicants regardless of the
circumstances giving rise to the failure of such condition to be satisfied
(including any action or inaction by an Applicant). The failure of an
Applicant to exercise any of the foregoing rights shall not be deemed a waiver
of any other rights, and each such right shall be deemed an ongoing right that
may be asserted at any time.
SECTION 5.6 NOTICES
Any notices or communication to be made or given hereunder shall be in
writing and shall refer to this Amended Plan and may, subject as hereinafter
provided, be made or given by personal delivery, by courier, by prepaid mail or
by telecopier addressed to the respective parties as follows:
(a) if to the Applicants:
Philip Services Corp.
100 King Street West
Hamilton, Ontario
L8N 4J6
Attention: Colin Soule
Executive Vice-President, General Counsel and
Corporate Secretary
Telecopier: (905) 521-9160
(b) if to a Creditor:
to the address for such Creditor specified in the Proof of Claim
filed by a Creditor or, if no Proof of Claim has been filed, to
such other address at which the notifying party may reasonably
believe that the Creditor may be contacted.
<PAGE> 17
- 16 -
(c) if to the Monitor:
P.O. Box 251
Ernst & Young Tower
222 Bay Street, 21st Floor
Toronto-Dominion Centre
Toronto, Ontario
M5K 1J7
Attention: Murray McDonald
President
Telecopier: (416) 943-3300
or to such other address as any party may from time to time notify the others
in accordance with this Section 5.6. In the event of any strike, lock-out or
other event which interrupts postal service in any part of Canada, all notices
and communications during such interruption may only be given or made by
personal delivery or by telecopier and any notice or other communication given
or made by prepaid mail within the five (5) Business Day period immediately
preceding the commencement of such interruption, unless actually received,
shall be deemed not to have been given or made. All such notices and
communications shall be deemed to have been received, in the case of notice by
telecopier or by delivery prior to 5:00 p.m. (local time) on a Business Day,
when received or if received after 5:00 p.m. (local time) on a Business Day or
at any time on a non-Business Day, on the next following Business Day and, in
the case of notice mailed as aforesaid, on the fifth Business Day following the
date on which such notice or other communication is mailed. The unintentional
failure by the Applicants to give notice contemplated hereunder to any
particular Creditor shall not invalidate this Amended Plan or any action taken
by any Person pursuant to this Amended Plan.
SECTION 5.7 SEVERABILITY OF PLAN PROVISIONS
If, prior to the Confirmation Date, any term or provision of the Amended
Plan is held by the Court to be invalid, void or unenforceable, the Court, at
the request of any Applicant, with the consent of the Required Lenders, and to
the extent of any modification to the treatment of the Account Intermediaries
as holders of Other Secured Claims, the consent of the Account Intermediaries,
shall have the power to alter and interpret such term or provision to make it
valid or enforceable to the maximum extent practicable, consistent with the
original purpose of the term or provision held to be invalid, void or
unenforceable, and such term or provision shall then be applicable as altered
or interpreted. Notwithstanding any such holding, alteration or
interpretation, the remainder of the terms and provisions of the Amended Plan
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated by such holding, alteration or interpretation. The
<PAGE> 18
- 17 -
Confirmation Order shall constitute a judicial determination and shall provide
that each term and provision of the Amended Plan, as it may have been altered
or interpreted in accordance with the foregoing, is valid and enforceable
pursuant to its terms.
SECTION 5.8 SUCCESSORS AND ASSIGNS
The rights, benefits and obligations of any entity named or referred to in
the Amended Plan shall be binding on, and shall inure to the benefit of, any
heir, executor, administrator, successor or assign of such entity.
SECTION 5.9 EXCULPATION AND LIMITATION OF LIABILITY
Neither the Applicants, the Subsidiaries, the Lenders, any individual,
corporation or other entity that was at any time formerly a Lender, the ad hoc
steering committee or any other committee of holders of Lender Claims, CIBC as
Administrative Agent and co-arranger under the Credit Agreement, BTCo as
Syndication Agent and co-arranger under the Credit Agreement, any official
committees appointed in the CCAA Proceedings, the DIP Agent, the DIP
Co-Arrangers and the holders of DIP Facility Claims, the Security Agent, and
the Account Intermediaries, or any of their respective present or former
members, officers, directors, employees, advisors, attorneys, or agents, shall
have or incur any liability to any holder of an Affected Secured Lender Claim
or any other party in interest, or any of their respective agents, employees,
representatives, financial advisors, attorneys, or affiliates, or any of their
successors or assigns, for any act or omission in connection with, relating to,
or arising out of, the CCAA Proceedings or the Chapter 11 Cases, formulating,
negotiating or implementing the Amended Plan or the Lender Lock-up Agreement,
the solicitation of acceptances of the Amended Plan or the Lender Lock-up
Agreement, the pursuit of confirmation of the Amended Plan, the confirmation of
the Amended Plan, the consummation of the Amended Plan, or the administration
of the Amended Plan or the property to be distributed under the Amended Plan,
except for their willful misconduct, and in all respects shall be entitled to
rely reasonably upon the advice of counsel with respect to their duties and
responsibilities under the Amended Plan.
The Applicants and the Subsidiaries hereby jointly and severally fully
indemnify each of the Lenders, any individual, corporation or other entity that
was at any time a Lender, the ad hoc steering committee or any other committee
of holders of Lender Claims, CIBC as Administrative Agent and co-arranger under
the Credit Agreement, BTCo as Syndication Agent and co-arranger under the
Credit Agreement, the DIP Agent, the DIP Co-Arrangers and the holders of DIP
Facility Claims, the Security Agent, and the Account Intermediaries, and their
respective agents, affiliates, directors, officers, employees, and
representatives, including counsel (collectively, the "Indemnitees") against
any manner of actions, causes of action, suits, proceedings, liabilities and
claims of any nature, costs and expenses
<PAGE> 19
- 18 -
(including reasonable legal fees) which may be incurred by such Indemnitee or
asserted against such Indemnitee arising out of or during the course of, or
otherwise in connection with or in any way related to, the negotiation,
preparation, formulation, solicitation, dissemination, implementation,
confirmation and consummation of the Amended Plan, other than any liabilities
to the extent arising from the gross negligence or willful or intentional
misconduct of any Indemnitee as determined by a final judgment of a court of
competent jurisdiction. If any claim, action or proceeding is brought or
asserted against an Indemnitee in respect of which indemnity may be sought from
any of the Applicants or any of the Subsidiaries, the Indemnitee shall promptly
notify the Applicants in writing, and the Applicants may assume the defense
thereof, including the employment of counsel reasonably satisfactory to the
Indemnitee, and the payment of all costs and expenses. The Indemnitee shall
have the right to employ separate counsel in any such claim, action or
proceeding and to consult with the Applicants in the defense thereof and the
fees and expenses of such counsel shall be at the expense of the Applicants
unless and until the Applicants shall have assumed the defense of such claim,
action or proceeding. If the named parties to any such claim, action or
proceeding (including any impleaded parties) include both the Indemnitee and
any of the Applicants or Subsidiaries, and the Indemnitee reasonably believes
that the joint representation of such entity and the Indemnitee may result in a
conflict of interest, the Indemnitee may notify the Applicants in writing that
it elects to employ separate counsel at the expense of the Applicants, and the
Applicants shall not have the right to assume the defense of such action or
proceeding on behalf of the Indemnitee. In addition, the Applicants shall not
effect any settlement or release from liability in connection with any matter
for which the Indemnitee would have the right to indemnification from the
Applicants, unless such settlement contains a full and unconditional release of
the Indemnitee, or a release of the Indemnitee satisfactory in form and
substance to the Indemnitee.
SECTION 5.10 BINDING EFFECT
The Amended Plan shall be binding upon and inure to the benefit of the
Applicants and all present and former holders of Affected Secured Lender
Claims.
SECTION 5.11 GOVERNING LAW
This Amended Plan shall be governed by and construed in accordance with
the laws of the Province of Ontario and the federal laws of Canada applicable
therein. Subject to the Protocol, any questions as to the interpretation or
application of this Amended Plan and all proceedings taken in connection with
this Amended Plan and its provisions shall be subject to the exclusive
jurisdiction of the Court.
<PAGE> 20
SCHEDULE "A"
CANADIAN SUBSIDIARIES
<TABLE>
<S> <C>
2766906 Canada Inc. ServTech Canada, Inc.
721646 Alberta Ltd. ST Delta Canada, Inc.
Allwaste of Canada Ltd. Sablix Inc.
Caligo Reclamation Ltd. Philip Analytical Services Corporation
Philip Enterprises Inc./ Philip Environmental (Atlantic) Limited
Les Entreprises Philip Inc.
1195613 Ontario Inc. Philip Environmental (Elmira) Inc.
1233793 Ontario Inc. Philip Environmental Services Limited
2842-7979 Quebec Inc. Delsan Demolition Limited
800151 Ontario Inc. Philip Investment Corp.
842578 Ontario Limited Philip Plasma Metals Inc.
912613 Ontario Ltd. PSC/IML Acquisition Corp.
Nortru, Ltd. Recyclage d'Aluminium Quebec Inc./Quebec
Aluminium Recycling Inc.
Allies Staffing Ltd.
</TABLE>
<PAGE> 21
SCHEDULE "B"
SALE AGREEMENT
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 58,643
<SECURITIES> 0
<RECEIVABLES> 309,630
<ALLOWANCES> (23,629)
<INVENTORY> 34,121
<CURRENT-ASSETS> 534,528
<PP&E> 557,307
<DEPRECIATION> (216,852)
<TOTAL-ASSETS> 947,798
<CURRENT-LIABILITIES> 232,916
<BONDS> 0
0
0
<COMMON> 1,351,482
<OTHER-SE> (1,889,966)
<TOTAL-LIABILITY-AND-EQUITY> 947,798
<SALES> 0
<TOTAL-REVENUES> 1,055,481
<CGS> 0
<TOTAL-COSTS> 925,327
<OTHER-EXPENSES> 177,908
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,490
<INCOME-PRETAX> (176,734)
<INCOME-TAX> 5,587
<INCOME-CONTINUING> (182,321)
<DISCONTINUED> 34,668
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (147,653)
<EPS-BASIC> (1.13)
<EPS-DILUTED> (1.13)
</TABLE>
