-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, R7TtY6yTtoFcZ6gvKIRxG44OhVadOVbLHavGgfDcRGUWBzO/eYLmQheVKUvX03b4 bWkhb/R/JU+Eq6n5VxnKhw== /in/edgar/work/0000930661-00-002959/0000930661-00-002959.txt : 20001115 0000930661-00-002959.hdr.sgml : 20001115 ACCESSION NUMBER: 0000930661-00-002959 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMCO RECYCLING INC CENTRAL INDEX KEY: 0000202890 STANDARD INDUSTRIAL CLASSIFICATION: [3341 ] IRS NUMBER: 752008280 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07170 FILM NUMBER: 765889 BUSINESS ADDRESS: STREET 1: 5215 N OCONNOR BLVD STE 940 STREET 2: CENTRAL TOWERS AT WILLIAM SQUARE CITY: IRVING STATE: TX ZIP: 75007 BUSINESS PHONE: 2148696575 MAIL ADDRESS: STREET 1: 5215 N O CONNOR BOULVARD STE 940 CITY: IRVING STATE: TX ZIP: 75030 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER TEXAS CORP DATE OF NAME CHANGE: 19881012 FORMER COMPANY: FORMER CONFORMED NAME: PIONEER TEXAS CORP DATE OF NAME CHANGE: 19850416 10-Q 1 0001.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended September 30, 2000 [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Commission File No. 1-7170 IMCO Recycling Inc. (Exact name of registrant as specified in its charter) Delaware (State or other jurisdiction of incorporation or organization) 75-2008280 (I.R.S. Employer Identification No.) 5215 North O'Connor Blvd., Suite 1500 Central Tower at Williams Square Irving, Texas 75039 (Address of principal executive offices) (Zip Code) (972) 401-7200 (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 X No___ ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of business on September 29, 2000. Common Stock, $0.10 par value, 15,328,268 ----------------------------------------- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ------ IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands, except share data)
September 30, December 31, 2000 1999 ------------- ------------ (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 5,978 $ 2,578 Accounts receivable, net of allowance of $435 and $1,950 at September 30, 2000 and December 31, 1999, respectively 130,976 125,917 Inventories 57,062 74,568 Deferred income taxes 3,447 3,008 Other current assets 9,061 9,228 ------------- ------------ Total Current Assets 206,524 215,299 Property and equipment, net 188,828 189,987 Excess of acquisition cost over the fair value of net assets acquired, net of accumulated amortization of $14,369 and $11,149 at September 30, 2000 and December 31, 1999, respectively 118,972 117,861 Investments in joint ventures 14,477 13,901 Other assets, net 7,186 6,589 ------------- ------------ $535,987 $543,637 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 78,344 $101,458 Accrued liabilities 15,569 7,164 Current maturities of long-term debt 121 181 ------------- ------------ Total Current Liabilities 94,034 108,803 Long-term debt 230,885 214,993 Deferred income taxes 15,284 15,104 Other long-term liabilities 10,108 9,081 STOCKHOLDERS' EQUITY Preferred stock; par value $.10; 8,000,000 shares authorized; none issued - - Common stock; par value $.10; 40,000,000 shares authorized; 17,117,420 issued at September 30, 2000; 17,110,620 issued at December 31, 1999 1,712 1,711 Additional paid-in capital 106,127 106,549 Retained earnings 106,446 104,079 Accumulated other comprehensive loss from foreign currency translation adjustments (6,436) (3,131) Net unrealized loss on long-term marketable equity securities (517) - Treasury stock, at cost; 1,789,152 shares at September 30, 2000; 1,083,406 shares at December 31, 1999 (21,656) (13,552) ------------- ------------ Total Stockholders' Equity 185,676 195,656 ------------- ------------ $535,987 $543,637 ============= ============
Page 2 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (Unaudited) (in thousands, except per share data)
For the three months For the nine months ended September 30, ended September 30, ----------------------- ----------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- Revenues $205,619 $196,347 $654,697 $551,427 Cost of sales 192,687 178,147 612,132 498,348 ---------- ---------- ---------- ---------- Gross profits 12,932 18,200 42,565 53,079 Selling, general and administrative expense 6,864 6,319 20,468 17,494 Amortization expense 1,289 1,191 3,840 3,449 Interest expense 4,369 3,064 13,311 8,989 Interest and other (income) 203 (103) (42) (826) Equity in net earnings of affiliates (810) (798) (2,378) (1,818) ---------- ---------- ---------- ---------- Earnings before (benefit) provision for income taxes and minority interests 1,017 8,527 7,366 25,791 (Benefit) Provision for income taxes (41) 2,830 1,948 9,291 ---------- ---------- ---------- ---------- Earnings before minority interests 1,058 5,697 5,418 16,500 Minority interests, net of (benefit) provision for income taxes 41 52 299 241 ---------- ---------- ---------- ---------- Net earnings $ 1,017 $ 5,645 $ 5,119 $ 16,259 ========== ========== ========== ========== Net earnings per common share: Basic $ 0.07 $ 0.34 $ 0.33 $ 0.99 Diluted $ 0.07 $ 0.34 $ 0.33 $ 0.98 Weighted average shares outstanding: Basic 15,322 16,512 15,362 16,495 Diluted 15,446 16,682 15,421 16,628 Dividends declared per common share $ 0.06 $ 0.06 $ 0.18 $ 0.18
Page 3 IMCO RECYCLING INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands)
For the nine months ended September 30, -------------------------- 2000 1999 ---------- ---------- OPERATING ACTIVITIES Net earnings $ 5,119 $ 16,259 Depreciation and amortization 21,322 19,927 (Benefit) Provision for deferred income taxes (260) 2,621 Equity in earnings of affiliates (2,524) (1,818) Other non-cash charges 3,239 1,815 Changes in operating assets and liabilities: Accounts receivable (6,331) (34,716) Inventories 17,310 (7,113) Other current assets 2 797 Accounts payable and accrued liabilities (11,719) 20,385 ---------- ---------- Net cash from operating activities 26,158 18,157 INVESTING ACTIVITIES Payments for property and equipment (25,824) (20,617) Acquisitions, net of cash acquired - (21,480) Other (1,125) (899) ---------- ---------- Net cash used by investing activities (26,949) (42,996) FINANCING ACTIVITIES Net proceeds from long-term revolving credit facility 16,000 28,000 Proceeds from issuance of long-term debt - 679 Principal payments of long-term debt (155) (3,609) Dividends paid (2,751) (2,963) Purchases of treasury stock (9,120) (649) Other 475 164 ---------- ---------- Net cash from financing activities 4,449 21,622 ---------- ---------- Effect of exchange rate differences on cash and cash equivalents (258) (56) Net increase (decrease) in cash and cash equivalents 3,400 (3,273) Cash and cash equivalents at January 1 2,578 6,075 ---------- ---------- Cash and cash equivalents at September 30 $ 5,978 $ 2,802 ========== ========== SUPPLEMENTARY INFORMATION Cash payments for interest $ 12,153 $ 9,135 Cash payments for income taxes $ 707 $ 7,408
Page 4 IMCO RECYCLING INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) SEPTEMBER 30, 2000 (dollars in tables are in thousands, except per share data) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month and nine month periods ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. The accompanying financial statements include the accounts of IMCO Recycling Inc. and all of its subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. Certain reclassifications have been made to prior period statements to conform to the current period presentation. NOTE B - INVENTORIES The components of inventories are: September 30, December 31, 2000 1999 -------------- ------------ Finished goods $30,679 $35,130 Raw materials 23,688 36,768 Supplies 2,695 2,670 -------------- ------------ $57,062 $74,568 ============== ============ NOTE C - INCOME TAXES The Company recorded an effective tax rate of a negative four percent for the three month period ending September 30, 2000 and 26% for the nine month period ended September 30, 2000 compared to 33% and 36% for the comparable three and nine month periods in 1999, respectively. The decrease in the effective rate during these periods is due to lower earnings in 2000 and to a greater percentage of the Company's income derived from the VAW-IMCO venture, which is reported on an after-tax basis. Page 5 NOTE D - LONG-TERM DEBT As of September 30, 2000, the Company had $216,000,000 of indebtedness outstanding under the Second Amended and Restated Credit Agreement and had approximately $32,124,000 available for borrowing. On October 20, 2000, the Company amended the terms of its long-term credit facility with its lenders. The Second Amendment to the Second Amended and Restated Credit Agreement (the "Amendment") permitted the Company to sell, convey or otherwise contribute up to $100,000,000 in certain accounts receivable, and other related assets, to a Qualifying Special-Purpose Entity (the "QSPE"), a special purpose corporation which exists as a subsidiary of the Company, under the terms of an accounts receivables sale and securitization facility (the "Receivables Sale Facility"), with a simultaneous reduction in the maximum credit facility commitment from $250,000,000 to $175,000,000 upon the closing of the Receivables Sale Facility. The Amendment also eliminated the Company's option to request increases to the revolving credit commitment of up to $50,000,000 in the aggregate; eliminated the Company's option to issue up to $125,000,000 in convertible subordinated debt; amended the credit margins applied to alternate base rate loans and LIBOR loans; and amended certain financial covenants. The Credit Agreement, as amended by the Amendment, imposes certain restrictions on the Company, including: (i) a prohibition against incurring certain additional indebtedness, (ii) maintenance of certain financial ratios, (iii) limitations on dividends on and repurchases of shares of capital stock, (iv) limitations on capital expenditures, investments and acquisitions, except for mergers, consolidations and acquisitions in any fiscal year having an aggregate consideration of up to $75,000,000. The annual limitations on cash dividends on capital stock are as follows: $6,000,000 for 2000, and $8,000,000 for each year after 2000. The amended Credit Agreement limits repurchases of the Company's common stock to $5,000,000 under the terms of an existing forward share repurchase agreement (see NOTE E). The indebtedness under the amended credit facility is secured by substantially all of the Company's personal property (except for the accounts receivable and certain related assets, which were sold under the Receivables Sale Facility) and a first lien mortgage on certain real property at seven of the Company's operating plants, as well as a pledge of the capital stock of substantially all of the Company's subsidiaries. On November 2, 2000 the Company and various subsidiaries of the Company (the "Originators") entered into the Receivables Sale Facility with the QSPE under which the Originators sold their right, title and interest in and to certain accounts receivable, and other related assets, to the QSPE, which in turn sold undivided interests therein to an unrelated purchaser. The proceeds under this sale were $94,200,000, of which $89,000,000 was used to pay down the credit line and $5,200,000 was applied to working capital. As of November 3, 2000, the Company had $122,000,000 of indebtedness outstanding under the Credit Agreement and had approximately $51,124,000 available for borrowing. The Company believes that its cash on hand, the availability of funds under its credit facility and its anticipated Page 6 internally generated funds will be sufficient to fund its current needs, including its expected capital spending plans. NOTE E - NET EARNINGS PER SHARE The following table sets forth the reconciliation between weighted average shares used for calculating basic and diluted earnings per share (EPS):
Three months ended Nine months ended September 30, September 30, -------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Weighted average shares outstanding for basic earnings per share 15,322 16,512 15,362 16,495 Effect of equity forward contract 124 - 53 - Effect of employee stock options - 170 6 133 -------------- -------------- -------------- -------------- Weighted average shares outstanding for diluted earnings per share 15,446 16,682 15,421 16,628 ============== ============== ============== ==============
In May 2000, the Company entered into a forward share repurchase agreement (or equity forward contract). The contract, which must be settled by May 2001, provides at the Company's option for the Company to purchase up to 644,500 of the Company's shares from a financial institution. However, the Company, at its option, may also elect to settle the contract on a net share basis in lieu of a cash payment. As of September 30, 2000, 644,500 shares had been committed to the contract at an average price of $7.67 per share. The effect of this purchase agreement has been included in determining diluted EPS. NOTE F - OPERATIONS The Company's operations, like those of other basic industries, are subject to federal, state, local and foreign laws, regulations and ordinances. These laws and regulations (1) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes and (2) impose liability for costs of cleaning up, and certain damages resulting from past spills, disposals or other releases of hazardous substances. It can be anticipated that more rigorous environmental laws will be enacted that could require the Company to make substantial expenditures in addition to those described in this Form 10- Q. Page 7 From time to time, operations of the Company have resulted, or may result, in certain noncompliance with applicable requirements under environmental laws. However, the Company believes that any such noncompliance under such environmental laws would not have a material adverse effect on the Company's financial position or results of operations. In 1997, the Illinois Environmental Protection Agency ("IEPA") notified the Company that two of the Company's zinc subsidiaries are potentially responsible parties ("PRP") pursuant to the Illinois Environmental Protection Act for the cleanup of contamination at a site in Marion County, Illinois to which these subsidiaries, among others, in the past sent zinc oxide for processing and resale. These subsidiaries have joined a group of PRPs that is planning to negotiate with the IEPA regarding the cleanup of the site. The site has not been fully investigated and final cleanup costs have not yet been determined. Although no assurances can be made, based on current cost estimates and information regarding the amount and type of materials sent to the site by the subsidiaries, the Company does not believe that its potential liability at this site, if any, will have a material adverse effect on its financial position or results of operations. NOTE G - OTHER COMPREHENSIVE INCOME The following table presents the Company's calculation of other comprehensive income.
Three months ended Nine months ended September 30, September 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------ ------------ Net income $ 1,017 $5,645 $ 5,119 $16,259 Other comprehensive (loss) income, primarily translation (2,814) 1,035 (3,822) (1,222) ------------ ------------ ------------ ------------ Comprehensive income ($ 1,797) $6,680 $ 1,297 $15,037 ============ ============ ============ ============
NOTE H - NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities. The standard requires that entities value all derivative instruments at fair value and record the instruments on the balance sheet. The standard also significantly changes the requirements for hedge accounting. In June 1999, the FASB approved a delay in the effective date of this standard until January 2001. In June 2000, the FASB issued SFAS 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. SFAS 138 amended SFAS 133 to provide guidance on its implementation. The Company plans to adopt the amended standard effective January 1, 2001. The Company, which enters in to production derivatives to hedge the cost of energy and the sales price of certain aluminum and zinc products, has evaluated the impact of Statement No. 133 as amended by SFAS 138 and believes the impact will not have a material adverse effect upon the Company's future operating results. Page 8 In September 2000, the FASB issued SFAS 140, a replacement of Statement 125, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. SFAS 140 is effective for transfers after March 31, 2000 and is effective for disclosures about securitizations and collateral and for recognition and reclassification of collateral for fiscal years ending after December 15, 2000. The Company is currently reviewing this guidance in order to determine the impact of its provisions, if any, on its consolidated financial statements. NOTE I - SEGMENT REPORTING The Company has two reportable segments: aluminum and zinc. The aluminum segment represents all of the Company's aluminum melting, processing, alloying, brokering and salt cake recovery activities, including investments in joint ventures. In addition, this segment includes magnesium melting activities which represent less than 1% of consolidated revenues and production. The Company's zinc segment represents all of the Company's zinc melting, processing and brokering activities. There has been no material change in the Company's segment classifications during 2000.
Three months ended Nine months ended September 30, September 30, -------------------------------- -------------------------------- 2000 1999 2000 1999 -------------- -------------- -------------- -------------- REVENUES: Aluminum $142,391 $146,315 $467,560 $412,902 Zinc 63,228 50,032 187,137 138,525 -------------- -------------- -------------- -------------- Total revenues $205,619 $196,347 $654,697 $551,427 ============== ============== ============== ============== INCOME: Aluminum $ 6,822 $13,436 $ 23,369 $ 40,796 Zinc 3,311 3,494 11,718 8,595 -------------- -------------- -------------- -------------- Total segment income 10,133 16,930 35,087 49,391 Unallocated amounts: General and administrative expense (3,665) (4,264) (11,087) (11,771) Amortization expense (1,289) (1,191) (3,840) (3,449) Interest expense (4,369) (3,064 (13,311) (8,989) Interest and other income 207 116 517 609 -------------- -------------- -------------- -------------- Income before provision for income taxes and minority interests $ 1,017 $ 8,527 $ 7,366 $ 25,791 ============== ============== ============== ==============
Page 9 NOTE J - SUBSEQUENT EVENTS On October 20, 2000, the Company amended the terms of its long-term credit facility with its lenders. The Second Amendment to the Second Amended and Restated Credit Agreement permited the Company to sell, convey or otherwise contribute up to $100,000,000 in certain accounts receivable and other related assets to a Qualifying Special-Purpose Entity (the "QSPE") under the terms of an accounts receivable sale and securitization facility (the "Receivables Sale Facility"). On November 2, 2000 the Company and various subsidiaries of the Company (the "Originators") entered into the Receivables Sale Facility with the QSPE under which the Originators sold their right, title and interest in and to certain accounts receivable totaling $112,844,000 to the QSPE, which in turn sold undivided interests therein to an unrelated purchaser. The proceeds under this sale were $94,200,000, of which $89,000,000 was used to pay down the credit line and $5,200,000 was applied to working capital. Page 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------ OF OPERATIONS A majority of the Company's processing consists of aluminum tolled for its customers. Tolling revenues reflect only the processing cost and the Company's profit margin. The Company's processing activities also consist of the processing, recovery and specialty alloying of aluminum and zinc metal and the production of other value-added zinc products for sale by the Company. The revenues from these sales transactions include the cost of the metal, as well as the processing cost and the Company's profit margin. Accordingly, tolling business produces lower revenues and costs of sales than does the product sales business. Variations in the mix between these two types of transactions could cause revenue amounts to change significantly from period to period. As a result, the Company has traditionally considered processing volume to be a more important determinant of performance than revenues. The following table shows total pounds processed, the percentage of total pounds processed represented by tolled metals, total revenues and total gross profits (in thousands, except percentages):
Three months ended Nine months ended September 30, September 30, ------------------------ ---------------------------- 2000 1999 2000 1999 ---------- ---------- ------------ ------------ Pounds processed 696,358 717,550 2,187,038 2,114,976 Percentage of pounds tolled 59% 62% 57% 61% Revenues $205,619 $196,347 $ 654,697 $ 551,427 Gross profits $ 12,932 $ 18,200 $ 42,565 $ 53,079
RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1999, AND NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1999 PRODUCTION. For the three month period ended September 30, 2000, the Company - ---------- melted 696.4 million pounds, three percent less metal compared to 717.6 million pounds during the same period in 1999. For the nine month period ended September 30, 2000 the Company melted 2.19 billion pounds, up three percent compared to 2.11 billion pounds during the first nine months of 1999. The aluminum segment production, for the three month period ending September 30, 2000, decreased four percent while the zinc segment partially offset this decline, increasing production over the same three month period last year, by ten percent. For the nine month period ending September 30, 2000, the aluminum and zinc segments accounted for 71% and 29% of the overall production Page 11 increase respectively. Tolling activity for the three month period ended September 30, 2000 represented 59% of total pounds processed, compared to 62% for the same period in 1999. For the nine months ended September 30, 2000, tolling represented 57% of total pounds processed compared to 61% for the first nine months of 1999. The following table shows the total pounds processed and the percentage tolled for the aluminum and zinc segments (in thousands, except percentages):
Three months ended Nine months ended September 30, September 30, ----------------------------- ----------------------------- 2000 1999 2000 1999 ------------ ------------ ------------- ------------ Pounds Processed: Aluminum 623,038 650,906 1,972,620 1,921,771 Zinc 73,320 66,644 214,418 193,205 ------------ ------------ ------------- ------------ Total Pounds Processed 696,358 717,550 2,187,038 2,114,976 ============ ============ ============= ============ Percentage Tolled: Aluminum 66% 67% 63% 66% Zinc 3% 5% 4% 5% Total Percentage Tolled 59% 62% 57% 61%
ALUMINUM PRODUCTION: For the three month period ended September 30, 2000, the Company melted four percent less aluminum than it did during the same period in 1999. For the nine month period ended September 30, 2000, the Company melted three percent more aluminum than in the first nine months of 1999. The decrease in aluminum production for the three month period was primarily due to a reduction in can stock volume and Company selectivity in scrap purchases in an attempt to improve profit margins. The reduction in can stock volume was mainly seen at the Post Falls, Idaho facility where a major customer discontinued its can body stock business, and at the Rockwood, Tennessee facility where its largest customer has reduced the amount of scrap used in its overall product mix due to the lack of availability of UBCs. For the nine month period ended September 30, 2000, the overall increase in production can be attributed to a significant increase at the Shelbyville, Tennessee facility (acquired in February 1999) and increases in production at the Uhrichsville, Ohio facility. The increase in the Ohio facility is the result of adding two new reverberatory furnaces in late 1999. The decrease in aluminum percentage tolled in 2000 compared to the three and nine month periods ending September 30, 1999 is primarily due to the Shelbyville, Tennessee facility's production, which is dedicated primarily to product sales serving the transportation market, and an increase in product sales volume at the Post Falls, Idaho facility. Page 12 ZINC PRODUCTION: For the three and nine month periods ended September 30, 2000, the Company melted 10% and 11% more zinc, respectively, than it did during the same periods in 1999, due to the strong demand for value-added products, especially zinc oxide from the Company's U.S. Zinc subsidiary. REVENUES. For the three month period ended September 30, 2000, the Company's - -------- consolidated revenues increased five percent to $205,619,000 compared to $196,347,000 for the same period in 1999. For the nine month period ended September 30, 2000, revenues increased 19% to $654,697,000 compared to $551,427,000 for the three quarters of 1999. The aluminum segment revenues decreased three percent for the three month period while the zinc segment offset this decrease with an increase of 26% compared to the same three month period in 1999. For the nine month period ended September 30, 2000, the aluminum and zinc segments accounted for 53% and 47% of the overall revenue increase, respectively. Increased product sales relative to tolling transaction revenues expose the Company to a greater degree of market risk because of fluctuations in the price of scrap metal which the Company must buy as raw material, and fluctuations in the then-prevailing aluminum and zinc market prices at which the Company sells the resulting processed metal. The Company's aluminum specialty alloying activities, which serve the transportation market, and the Company's zinc segment operations primarily consist of product sales business. The following table shows the total revenues for the aluminum and zinc segments (in thousands) (See NOTE I - SEGMENT REPORTING):
Three months ended Nine months ended September 30, September 30, -------------------------- ------------------------- 2000 1999 2000 1999 ---------- ----------- ----------- ----------- Revenues: Aluminum $142,391 $146,315 $467,560 $412,902 Zinc 63,228 50,032 187,137 138,525 ---------- ----------- ----------- ----------- Total Revenues $205,619 $196,347 $654,697 $551,427 ========== =========== =========== ===========
ALUMINUM REVENUES: For the three month period ended September 30, 2000, the Company's aluminum revenues decreased three percent compared to the same three month period in 1999. For the nine month period ended September 30, 2000, aluminum revenues increased 13% over the same nine month period in 1999. For the three month period, aluminum revenues decreased due to lower production volumes, as discussed previously. For the nine month period, aluminum revenues increased due to the combination of higher prevailing aluminum product sale prices and a decrease in the relative proportion of volumes from tolling transactions versus product sales (see "ALUMINUM PRODUCTION" above). As discussed above, increased product sales generally result in a higher increase in revenues than a similar increase in tolling business. Page 13 ZINC REVENUES: For the three and nine month periods ended September 30, 2000, the Company's zinc revenues increased 26% and 35%, respectively, compared to the same periods in 1999. Zinc revenues increased due to higher volumes, higher prevailing selling prices of zinc metal in 2000, an increase in zinc trading activities as well as an increase in demand for value-added products, especially zinc oxide. GROSS PROFITS. For the three month period ended September 30, 2000, the - ------------- Company's consolidated gross profits decreased 29% to $12,932,000 compared to $18,200,000 in the same period in 1999. For the nine month period, consolidated gross profits decreased 20% to $42,565,000 compared to $53,079,000 in the first nine months of 1999. The following table shows the total income for the aluminum and zinc segments and a reconciliation of segment income to the Company's consolidated gross profits (in thousands) (See NOTE H - SEGMENT REPORTING):
Three months ended Nine months ended September 30, September 30, ------------------------------- --------------------------- 2000 1999 2000 1999 ----------- ------------ ---------- ---------- Segment Income: Aluminum $ 6,822 $13,436 $23,369 $40,796 Zinc 3,311 3,494 11,718 8,595 ----------- ------------ ---------- ---------- Total segment income 10,133 16,930 35,087 49,391 Items not included in gross profits: Plant selling expense 1,380 463 4,109 1,562 Management SG&A expense 1,819 1,626 5,275 4,138 Equity in earnings of affiliates (810) (798) (2,378) (1,818) Other income 410 (21) 472 (194) ----------- ------------ ---------- ---------- Gross Profits $12,932 $18,200 $42,565 $53,079 =========== ============ ========== ==========
ALUMINUM INCOME: For the three and nine month periods ended September 30, 2000, the Company's aluminum income decreased 49% and 43%, respectively, compared to the same periods in 1999. The third quarter and year to date were affected by weaker volumes at several aluminum recycling plants, particularly those that serve the can stock producers, coupled with lower margins in the specification alloys business. The weak aluminum alloys margins resulted from both higher raw material costs and weaker selling prices for aluminum alloys. Recent capacity increases in the aluminum alloys business resulted in heightened competition for available scrap metal units, which the Company uses as raw material in its aluminum alloys production. This, in turn, produced more intense competition for metal units, causing higher purchase costs and lower selling Page 14 prices for the Company. An increase in natural gas prices during 2000 was also a major contributor to the overall decline in aluminum income. ZINC INCOME: For the three and nine month periods ended September 30, 2000, the Company's zinc income decreased 5% and increased 36%, respectively, compared to the same periods in 1999. The decrease in the quarter was due to an increase in administrative costs related to the payment of incentives to the management of U.S. Zinc that were provided for in the purchase agreement for that company. The overall increase year to date was primarily due to the higher overall zinc production volumes (see "ZINC PRODUCTION" above). In addition, the relative increase in zinc income was greater than the increase in zinc processing volumes due to higher zinc product sale prices and cost savings benefits from integrating the Company's previously owned zinc business with the U.S. Zinc and Clarksville, Tennessee facilities, as well as an increase in demand for value- added products, especially zinc oxide. SG&A EXPENSES. Selling, general and administrative expenses for the three month - ------------- periods ended September 30, 2000 and 1999 were $6,864,000 and $6,319,000, respectively, an increase of nine percent. For the nine month period ended September 30, 2000 selling, general and administrative expenses increased 17% to $20,468,000, compared to $17,494,000 for the first nine months of 1999. The increases in these periods resulted primarily from incentives paid to the management of U.S. Zinc (see "ZINC INCOME"), plus costs associated with the Company's investment in its new Enterprise Resource Planning (ERP) system. AMORTIZATION EXPENSE. Amortization expense for the three month periods ended - -------------------- September 30, 2000 and 1999 was $1,289,000 and $1,191,000, respectively, an increase of eight percent. For the nine month periods ended September 30, 2000 and 1999, amortization expense was $3,840,000 and $3,449,000, respectively, an increase of 11%. The increase, especially in the nine month period, is due almost entirely to amortization of additional goodwill recorded as a result of the Shelbyville and Clarksville, Tennessee acquisitions in February 1999. INTEREST EXPENSE. Interest expense for the three month periods ended September - ---------------- 30, 2000 and 1999 was $4,369,000 and $3,064,000, respectively, representing an increase of 43% in 2000 compared to the same three months of 1999. For the first nine months of 2000, interest expense increased 48% to $13,311,000 compared to $8,989,000 for the first nine months of 1999. The increases in these periods are the result of increased interest rates and higher amounts of debt outstanding in 2000 compared to 1999. The increased interest rates and outstanding debt are due to the Company's additional working capital requirements and higher capital spending levels. NET EARNINGS. Net earnings decreased 82% to $1,017,000 for the three month - ------------ period ended September 30, 2000 compared to $5,645,000 for the same period in 1999. For the nine month period ended September 30, 2000, net earnings decreased 69% to $5,119,000 compared to $16,259,000 for the same period in 1999. The decrease in these periods was Page 15 primarily the result of lower profits in the aluminum business (see "ALUMINUM INCOME" above). In addition, increases in interest expense and selling, general and administrative expense, as discussed above, reduced net earnings. The Company recorded an effective tax rate of a negative four percent for the three month period ending September 30, 2000 and 26% for the nine month period ended September 30, 2000 compared to 33% and 36% for the comparable three and nine month periods in 1999, respectively. The decrease in the effective rate during these periods is due to lower earnings in 2000 and to a greater percentage of the Company's income derived from the VAW-IMCO venture, which is reported on an after-tax basis. OUTLOOK The following statements are estimates based on current expectations for the fourth quarter of 2000 and for 2001. These statements are forward-looking in nature and actual results may differ materially due to a number of reasons, as more fully described under "Cautionary Statement for Purposes of Forward-Looking Statements" set forth below in this Item 2. These statements do not reflect the potential impact of acquisitions or divestitures that may be completed, or unforeseen events that may occur after the date of this filing. The Company expects the conditions currently prevailing in its aluminum alloys business and its aluminum recycling business to continue in to the foreseeable future. Continued weak demand from can stock customers and lower margins in the alloys business, coupled with higher fuel costs, will continue to negatively impact the Company's results of operations. However, management anticipates some margin improvement for its alloys business in the fourth quarter of 2000, and in 2001, due to expected increased demand in the automotive sector and changes in Company scrap buying procedures, coupled with reduced inventory. The Company currently expects that fourth quarter 2000 net earnings per share will approximate third quarter 2000 results. The Company also is focusing on other cost reduction initiatives to improve net earnings. In the aluminum alloys business, the Company is working to improve margins by revising contract terms with suppliers and customers where possible. The Company has reduced personnel headcount by seven percent from the beginning of 2000 and is focused on reducing discretionary spending. In addition, the Company is beginning to recover a portion of the higher gas costs incurred in 2000 through cost escalation clauses that are a part of some customer contracts. These escalator provisions generally take effect following the periods in which the Company actually incurs the higher fuel costs. Additional positive factors which may affect fourth quarter 2000 results and fiscal 2000 results include programs to improve the allocation of processing work throughout the Company's network of facilities Page 16 and planned furnace burner technology retrofits to reduce energy consumption and increase processing productivity. The Company is also continuing to review expansion opportunities, particularly in Europe and in Latin America, through expansion of its major customer relationships, and project venture partnering opportunities. No assurances can be made that any of these anticipated results will actually be achieved. In addition, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATIONS. Operations provided $26,158,000 and $18,157,000 of - -------------------------- cash during the first nine months of 2000 and 1999, respectively. Changes in operating assets and liabilities resulted in a net use of cash of $738,000 for the nine months ended September 30, 2000 compared to a use of $20,647,000 for the same period in 1999. The extent of the change in operating assets and liabilities was primarily due to a decrease in accounts payable and accrued liabilities totaling $11,719,000 in the first nine months of 2000, compared to an increase of $20,385,000 in the first nine months of 1999 and a decrease in the use of cash for accounts receivable from a use of $34,716,000 for the nine months ended September 30, 1999 to a use of $6,331,000 for the nine months ended September 30, 2000. A reduction in inventory levels of $17,310,000 for the first three quarters of 2000 compared to an increase of $7,113,000 in 1999, contributed to the increase in cash provided. Lower net earnings offset the favorable impact from the change in operating assets and liabilities. CASH FLOWS FROM INVESTING ACTIVITIES. During the nine months ended September - ------------------------------------ 30, 2000, net cash used by investing activities was $26,949,000 compared to $42,996,000 for the same period in 1999. The difference in these two periods is primarily due to the acquisition of the Shelbyville and Clarksville, Tennessee facilities during the first quarter of 1999. The Company spent approximately $21,600,000 (net of cash acquired) in the acquisitions of these two facilities during the comparable 1999 period. The Company's total payments for property, plant and equipment in the first nine months of 2000 increased to $25,824,000, compared to $20,617,000 spent in the first nine months of 1999. Capital expenditures for property, plant and equipment in 2000 are now expected to approximate $35,000,000. Major 2000 projects have included further installation of the Company's Enterprise Resource Planning (ERP) software system, installation of new furnaces at the Millington, Tennessee facility and the completion of a new aluminum alloying facility near Saginaw, Michigan. CASH FLOWS FROM FINANCING ACTIVITIES. Net cash provided by financing activities - ------------------------------------ was $4,449,000 for the nine months ended September 30, 2000, compared to net cash from financing of $21,622,000 for the same period of 1999. In the first nine months of 2000, the Company had net borrowings of $16,000,000 under its revolving credit facility, most of which was used to finance the construction of a new specialty alloys facility in Saginaw, Michigan. In the nine month period ended September 30, 1999 the Company had net borrowings of $28,000,000 on its long-term revolving credit Page 17 facility, the majority of which was used to fund the acquisitions of the Shelbyville and Clarksville, Tennessee facilities. At September 30, 2000 the Company had $216,000,000 in indebtedness outstanding under its long-term revolving credit facility and had approximately $32,124,000 available for borrowing. In addition, there were standby letters of credit outstanding with several banks totaling $2,717,000. Financing activities also included cash payments of $2,751,000 in dividends for the first nine months of 2000 compared to $2,963,000 for the same period in 1999. For the nine months ended September 30, 2000 and 1999, $9,120,000 and $649,000, respectively, were expended to purchase 788,900 and 55,000, respectively, shares of the Company's common stock in open market transactions. On October 20, 2000, the Company amended the terms of its long-term credit facility with its lenders. The Second Amendment to the Second Amended and Restated Credit Agreement (the "Amendment") permitted the Company to sell, convey or otherwise contribute up to $100,000,000 in certain accounts receivable, and other related assets to a Qualifying Special-Purpose Entity (the "QSPE") under the terms of an accounts receivables sale and securitization facility (the "Receivables Sale Facility"), with a simultaneous reduction in the maximum credit facility commitment from $250,000,000 to $175,000,000 upon the closing of the Receivables Sale Facility. The Amendment also eliminated the Company's option to request increases to the revolving credit commitment of up to $50,000,000 in the aggregate; eliminated the Company's option to issue up to $125,000,000 in convertible subordinated debt; amended the credit margins applied to alternate base rate loans and LIBOR loans; and amended certain financial covenants. The amended Second Amended and Restated Credit Agreement, as amended by the Amendment, imposes certain restrictions on the Company, including: (i) a prohibition against incurring certain additional indebtedness, (ii) maintenance of certain financial ratios, (iii) limitations on dividends on and repurchases of shares of capital stock, (iv) limitations on capital expenditures, investments and acquisitions, except for mergers, consolidations and acquisitions in any fiscal year having an aggregate consideration of up to $75,000,000. The annual limitations on cash dividends on capital stock are as follows: $6,000,000 for 2000, and $8,000,000 for each year after 2000. The amended Credit Agreement limits repurchases of the Company's common stock to $5,000,000 under the terms of an existing forward share repurchase agreement (see NOTE E - NET EARNINGS PER SHARE). The indebtedness under the amended credit facility is secured by substantially all of the Company's personal property (except for the accounts receivable and certain related assets, which were sold under the Receivables Sale Facility) and a first lien mortgage on certain real property at seven of the Company's operating plants, as well as a pledge of the capital stock of substantially all of the Company's subsidiaries. On November 2, 2000 the Company and various subsidiaries of the Company (the "Originators") entered into the Receivables Sale Facility with the QSPE under which the Originators sold their right, title and interest in and to certain accounts receivable to the QSPE, which in turn sold undivided interests therein to an unrelated purchaser. The Page 18 proceeds under this sale were $94,200,000, of which $89,000,000 was used to pay down the credit line and $5,200,000 was applied to working capital. As of November 3, 2000, the Company had $122,000,000 of indebtedness outstanding under the Credit Agreement and had approximately $51,124,000 available for borrowing. The Company believes that its cash on hand, the availability of funds under its credit facility and its anticipated internally generated funds will be sufficient to fund its current needs, including its expected capital spending plans. The Company's transactions under the Receivables Sales Facility may have the effect of reducing the Company's interest expense and should give the Company additional borrowing capacity under its revolving credit facility (although the maximum amount which could be drawn down under the facility was reduced from $250,000,000 to $175,000,000). ENVIRONMENTAL The Company's operations, like those of other basic industries, are subject to federal, state, local and foreign laws, regulations and ordinances. These laws and regulations (1) govern activities or operations that may have adverse environmental effects, such as discharges to air and water, as well as handling and disposal practices for solid and hazardous wastes and (2) impose liability for costs of cleaning up, and certain damages resulting from past spills, disposals or other releases of hazardous substances. It can be anticipated that more rigorous environmental laws will be enacted that could require the Company to make substantial expenditures in addition to those described in this Form 10- Q and in other filings made by the Company. From time to time, operations of the Company have resulted, or may result, in certain noncompliance with applicable requirements under such environmental laws. However, the Company believes that any such noncompliance under such environmental laws would not have a material adverse effect on the Company's financial position or results of operations. In 1997, the Illinois Environmental Protection Agency ("IEPA") notified the Company that two of the Company's zinc subsidiaries are potentially responsible parties ("PRP") pursuant to the Illinois Environmental Protection Act for the cleanup of contamination at a site in Marion County, Illinois to which these subsidiaries, among others, in the past sent zinc oxide for processing and resale. These subsidiaries have joined a group of PRPs that is planning to negotiate with the IEPA regarding the cleanup of the site. The site has not been fully investigated and final cleanup costs have not yet been determined. Although no assurances can be made, based on current cost estimates and information regarding the amount and type of materials sent to the site by the subsidiaries, the Company does not believe that its potential liability at this site, if any, will have a material adverse effect on its financial position or results of operations. Page 19 CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS Certain information contained in ITEM 2. "MANAGEMENT'S DISCUSSION AND ANALYSIS ------ OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" (as well as certain oral statements made by or on behalf of the Company from time to time) may be deemed to be forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995 and are subject to the "Safe Harbor" provisions in that enacted legislation. This information includes, without limitation, statements concerning whether currently prevailing conditions in the Company's aluminum alloys business, its aluminum recycling business, and its zinc business, will continue, anticipated margin improvements in the Company's alloys business, expected increased demand for the Company's products from the automotive sector, expected cost reductions through better allocation of processing work at Company facilities, technology changes affecting the Company's fuel usage, the effect of escalation provisions in Company supply agreements, and other cost reduction initiatives underway, potential expansion opportunities, and estimated net earnings. Other forward-looking information includes statements concerning future profit margins, plant capacity absorption, volumes, revenues, earnings, costs, energy costs, and expenses (including capital expenditures); future prices for metals; the ability of the Company to be able to continue to grow its domestic and foreign business through expansion, acquisition or partnering; access to adequate energy supplies at advantageous rates; the expected effects of strikes, work stoppages or production shutdowns at Company or customer facilities; future acquisitions or corporate combinations; expected effects of recent acquisitions; projected completion dates and anticipated technological advances; future (or extensions of existing) long-term supply contracts with its customers; anticipated environmental control measures; the outcome of and any liabilities resulting from any claims, investigations or proceedings against the Company or its subsidiaries; future levels of dividends (if any); potential effects of the Company's metals brokerage activities and metals and fuel price hedging transactions; the future mix of business (product sales vs. tolling); future costs and asset recoveries; future, demand and industry conditions; future sources of capital and future financial condition. When used in or incorporated by reference into this Quarterly Report on Form 10-Q, the words "anticipate," "estimate," "expect," "may," "project" and similar expressions are intended to be among the statements that identify forward-looking statements. These forward-looking statements are based on current expectations and involve a number of risks and uncertainties. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Important factors that could affect the Company's actual results and cause actual results to differ materially from those results that might be projected, forecasted, estimated or budgeted by the Company in these forward-looking statements include, but are not limited to, the following: competition for raw materials costs and pricing pressures from competitors; fluctuations in operating levels at the Company's facilities; fluctuations in demand from the automotive, construction and packaging markets, which are more subject to cyclical pressures; the increased percentage of product sales business compared to tolling business (with the accompanying higher working capital requirements and increased risk through metal markets price movements); unforeseen difficulties in the operation or performance of the Company's new ERP software system, and the Company's other operations and reporting systems; retention and financial condition of major customers; effects of future energy prices and related fuel costs; collectibility of receivables; the inherent unpredictability of adversarial or administrative proceedings; effects of environmental and other governmental regulations; currency exchange rate fluctuations; Page 20 trends in the Company's key markets and the price of and supply and demand for aluminum and zinc (and their derivatives) on world markets; the effects of shortages and oversupply in used aluminum beverage containers and can scrap at facilities; the continuation of reduced spreads between primary aluminum prices and aluminum scrap prices; business conditions and growth in the aluminum and zinc industries and recycling industries; and future levels and timing of capital expenditures. These statements are further qualified by the following: * Any estimates of future operating rates at the Company's plants are based on current expectations by management of the Company of future levels of volumes and prices for the Company's services or metal, and are subject to fluctuations in customer demand for the Company's services and prevailing conditions in the metal markets, as well as certain components of the Company's cost of operations, including energy and labor costs. Many of the factors affecting revenues and costs are outside of the control of the Company, including energy commodity prices; scrap prices; weather conditions; overall industry capacity online; general economic and financial market conditions; work stoppages, maintenance programs and other production shutdowns at customer facilities; and governmental regulation and factors involved in administrative and other proceedings. The future mix of product sales vs. tolling business is dependent on customers' needs and overall demand, world and U.S. market conditions then prevailing in the respective metal markets, and the operating levels at the Company's various facilities at the relevant time. * The price of primary aluminum, zinc and other metals is subject to worldwide market forces of supply and demand and other influences. An increase in demand for raw materials can and has adversely affected profit margins for the Company's product sales business. Prices can be volatile, which could adversely affect the Company's product sales business. The Company's use of contractual arrangements, including long-term agreements and forward contracts, may reduce the Company's exposure to this volatility but does not eliminate it. Lower market prices for primary metals may adversely affect the demand for the Company's recycling services and recycled metals. * The markets for most aluminum and zinc products are highly competitive. The major primary aluminum producers are larger than the Company in terms of total assets and operations and have greater financial resources. In addition, aluminum competes with other materials such as steel, vinyl, plastics and glass, among others, for various applications in the Company's key markets. Unanticipated actions or developments by or affecting the Company's competitors and/or willingness of customers to accept substitutions for aluminum products could affect the Company's financial position and results of operations. * Fluctuations in the costs of fuels, raw materials and labor can materially affect the Company's financial position and results of operations from period to period. Page 21 * The Company's key transportation market is cyclical, and sales within that market in particular can be influenced by economic conditions. Strikes and work stoppages by automotive customers of the Company may have a material adverse effect on the Company's financial condition and results of operations. * The Company spends substantial capital and operating sums on an ongoing basis to comply with environmental laws. In addition, the Company is involved in certain investigations and actions in connection with environmental compliance and past disposals of solid waste. Estimating future environmental compliance and remediation costs is imprecise due to the continuing evolution of environmental laws and regulatory requirements and uncertainties about their application to the Company's operations, the availability and applicability of technology and the allocation of costs among principally responsible parties. Unanticipated material legal proceedings or investigations could affect the Company's financial position and results of operations. Page 22 REVIEW BY INDEPENDENT ACCOUNTANTS The Company's independent accountants, Ernst & Young LLP, have reviewed the Company's consolidated financial statements at September 30, 2000, and for the three and nine month periods then ended prior to filing, and their report is included herein. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ------ There have been no material changes regarding market risk and the Company's derivative instruments during the third quarter of 2000 compared to that disclosed in the Company's Quarterly Report on Form 10-Q for the period(s) ended June 30, 2000. Accordingly, no additional disclosures have been provided in accordance with Regulation S-K Item 305 (c). PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - ------ On November 2, 2000, the Company and certain of its originating subsidiaries sold certain of their accounts receivable and related assets to a wholly-owned subsidiary of the Company, IMCO Funding Corp. ("IFC"), a special purpose corporation. Simultaneously, IFC entered into a three-year accounts receivables purchase and securitization facility with a financial institution and a third party purchaser unaffiliated with the Company whereby IFC can sell, on a revolving basis, an undivided interest in certain of its receivables and other related assets, and receive up to $100,000,000 from the unrelated third party purchaser at a cost of funds linked to commercial paper rates, plus a charge for administrative and credit support services. At November 2, 2000, the Company had received $94,200,000 under these arrangements, which funds were applied to reduce the outstanding debt under the Company's senior revolving credit facility ($89,000,000) and $5,200,000 was added to working capital. In connection with this transaction, the Company had entered into a Second Amendment to its Second Amended and Restated Credit Agreement dated as of October 20, 2000, which, among other modifications, permitted the receivables sale transactions referred to above, removed the provisions permitting under certain circumstances the Company to issue up to $125,000,000 in certain subordinated debt, and reduced the maximum amount available for borrowing under the Credit Agreement to $175,000,000. The Second Amendment also contains provisions limiting aggregate repurchases of common stock to those under the Company's equity forward share repurchase agreement, which may not exceed $5,000,000. The annual limitations on cash dividends on capital stock under the Credit Agreement as amended remain at $6,000,000 for fiscal 2000 and $8,000,000 for each fiscal year after 2000. See Page 23 Part I. Item 2. "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ------ (a) The following exhibits are included herein: 10.1 Second Amendment to the Second Amended and Restated Credit Agreement dated as of October 20, 2000 by and among the Company, the Subsidiary Guarantors named therein, the Lenders party thereto and The Chase Manhattan Bank in its capacity as Administrative Agent. 10.2 Receivables Purchase Agreement dated as of November 2, 2000 by and among IMCO Funding Corporation as the Seller, the Company as the Servicer, Market Street Funding Corporation as the Issuer and PNC Bank, National Association as the Administrator. 15.1 Acknowledgment letter regarding unaudited financial information from Ernst & Young LLP 27.1 Financial Data Schedule 27.2 Restated Financial Data Schedule (b) Reports on Form 8-K: No Current Reports on Form 8-K were filed during the quarter ended September 30, 2000. Page 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. IMCO Recycling Inc. (Registrant) Date: November 14, 2000 By: /s/ Robert R. Holian ------------------------------------- Robert R. Holian Senior Vice President Controller and Chief Accounting Officer Page 25 EX-10.1 2 0002.txt SECOND AMENDMENT TO SECOND AMENDED Exhibit 10.1 SECOND AMENDMENT TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT THIS SECOND AMENDMENT TO THE SECOND AMENDED AND RESTATED CREDIT AGREEMENT (the "Amendment") dated as of October 20, 2000, is executed by and among IMCO Recycling Inc. ("Borrower"), the Subsidiary Guarantors to the Credit Agreement (hereinafter defined), the Lenders to the Credit Agreement and The Chase Manhattan Bank (successor by merger to Chase Bank of Texas, National Association) in its capacity as Administrative Agent under the Credit Agreement (in such capacity, "Administrative Agent"), RECITALS A. Borrower, Subsidiary Guarantors, Lenders and Administrative Agent are parties to that certain Second Amended and Restated Credit Agreement, dated as of October 25, 1999, as amended by that certain First Amendment to the Second Amended and Restated Credit Agreement dated as of January 5, 2000 (the "Credit Agreement"), pursuant to which Lenders have made revolving credit commitments to Borrower in the amount of up to $250,000,000. B. Borrower, Subsidiary Guarantors, Lenders and Administrative Agent desire to amend the Credit Agreement in accordance with the terms hereinafter set forth pursuant to the amendment procedures specified in Section 12.04 of the Credit Agreement. NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I Definitions ----------- 1.1 Defined Terms. All capitalized terms used herein and not otherwise defined herein shall have the respective meanings given to such terms in the Credit Agreement. ARTICLE II Amendments ---------- 2.1 Amendment to Defined Terms. The definitions of the following defined terms set forth in Section 1.01 of the Credit Agreement are hereby amended to read in their respective entireties as follows: "Applicable Margin" shall mean (i) during the period ----------------- commencing on October 20, 2000 and continuing until the Delivery Date, the greater of 2.25% per annum or the percentage per annum based on the --------- Leverage Ratio determined from the Interest Rate Certificate and Financial Statements delivered under Sections 9.01(a) and (e) for the Measurement Period ended September 30, 2000, as specified in the table set forth below; and (ii) thereafter a percentage per annum based on --------- the Leverage Ratio determined from the most recently delivered Interest Rate Certificate and financial statements under Sections 9.01(a), (b) and (e), which percentage per --- annum shall be equal to the percentage per annum set forth opposite ----- --------- such Leverage Ratio below:
====================================================================================== Alternate Leverage Ratio Base Rate Loans LIBOR Loans -------------------------------------------------------------------------------------- **4.00:1.00 1.50% 2.75% -------------------------------------------------------------------------------------- **3.75:1.00 and *4.00:1.00 1.25% 2.25% -------------------------------------------------------------------------------------- **3.50:1.00 and *3.75:1.00 1.00% 2.00% -------------------------------------------------------------------------------------- **3.00:1.00 and *3.50:1.00 0.50% 1.75% -------------------------------------------------------------------------------------- **2.25:1.00 and *3.00:1.00 0.00% 1.50% -------------------------------------------------------------------------------------- *2.25:1.00 0.00% 1.25% ======================================================================================
Any change in the Leverage Ratio shall be effective to adjust the Applicable Margin as of the date of receipt by the Administrative Agent of the Interest Rate Certificate delivered for any period ending on or after December 31, 2000, and most recently delivered pursuant to Section 9.01(e). If Borrower fails to deliver the Interest Rate Certificates and financial statements after December 31, 2000 within the times specified in Sections 9.01(a), (b) and (e), such ratio shall be deemed to be ** 4.00 to 1.0 until Borrower delivers such Interest Rate Certificates and financial statements. "Applicable Revolving Credit Commitment Fee Percentage" shall ----------------------------------------------------- mean (i) during the period commencing on the date hereof and continuing until the Delivery Date, 0.500% per annum, and (ii) thereafter, a percentage per annum based on the Leverage Ratio determined from the --------- most recently delivered Interest Rate Certificate and financial statements under Sections 9.01(a), (b) and (e), which percentage per --- annum shall be equal to the percentage per annum set forth opposite ----- --------- such Leverage Ratio below:
================================================================================= Applicable Revolving Credit Leverage Ratio Commitment Fee Percentage --------------------------------------------------------------------------------- **3.50:1.00 0.500% --------------------------------------------------------------------------------- **2.25:1.00 and *3.50:1.00 0.375% --------------------------------------------------------------------------------- *2.25:1.00 0.250% =================================================================================
* is less than. ** is greater than or equal to. 2 Any change in the Leverage Ratio shall be effective to adjust the Applicable Revolving Credit Commitment Fee Percentage as of the date of receipt by the Administrative Agent of the Interest Rate Certificate delivered for any period ending on or after December 31, 2000 and most recently delivered pursuant to Section 9.01(e). If Borrower fails to deliver the Interest Rate Certificates and financial statements after December 31, 2000 within the time specified in Sections 9.01(a), (b) and (e), such ratio shall be deemed to be **3.50 to 1.0 until Borrower delivers such Interest Rate Certificates and financial statements. "Collateral Account" is defined in Section 4.01 of the ------------------ Security Agreement. "Consolidated Interest Expense" shall mean, for any period, ----------------------------- for Borrower and its Consolidated Subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP), all cash interest expense in respect of Indebtedness during such period (whether or not actually paid during such period), including the interest component under the Permitted Receivables Financing. "Consolidated Net Worth" shall mean at a particular date, the ---------------------- sum (without duplication) of all amounts which would be included under shareholders' equity on a consolidated balance sheet of Borrower and its Consolidated Subsidiaries determined on a consolidated basis in accordance with GAAP as at such date. "Delivery Date" shall mean the date an Interest Rate ------------- Certificate is delivered to the Lenders for the fiscal quarter ended December 31, 2000, as required by Section 9.01(e). "Indebtedness" shall mean, for any Person, without ------------ duplication, (a) all indebtedness for borrowed money of such Person; (b) all obligations issued, undertaken or assumed by such Person as the deferred purchase price of Property or services (other than trade payables and accrued expenses not overdue by more than 60 days incurred in the ordinary course of business on ordinary terms); (c) all non-contingent reimbursement or payment obligations of such Person with respect to Surety Instruments (such as, for example, unpaid reimbursement obligations in respect of a drawing under a letter of credit); (d) all obligations of such Person evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of Property or businesses; (e) all indebtedness of such Person created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to Property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such Property); (f) all Capital Lease Obligations of such Person; (g) all net obligations of such Person with respect to Swap Contracts (such obligations to be equal at any time to the aggregate net amount that would have been payable by such Person at the most recent fiscal quarter end in connection with the termination of such Swap Contracts at such fiscal quarter end); (h) all indebtedness of other Persons referred to in clauses (a) through (g) above secured by (or for which the holder of such indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in Property (including accounts and contracts rights) owned by such Person, even though such Person has not assumed or become liable for ** is greater than or equal to 3 the payment of such indebtedness; (i) the outstanding Attributed Principal Amount under the Permitted Receivables Financing; and (j) all Contingent Obligations of such Person in respect of indebtedness or obligations of others of the kinds referred to in clauses (a) through (i) above. Indebtedness shall not include accounts extended by suppliers in the ordinary course on normal trade terms in connection with the purchase of goods and services. The Indebtedness of any Person shall include any Indebtedness of any partnership in which such Person is the general partner. "Interest Coverage Ratio" shall mean, for any Measurement ----------------------- Period, the ratio of (a) the remainder of Consolidated EBITDA for such period less Capital Expenditures for such period, except the Saginaw Capital Expenditures, to (b) Consolidated Interest Expense for such period. "Notes" shall mean the promissory notes provided for by ----- Section 2.08(a) and all promissory notes delivered in substitution or exchange therefor, in each case as the same shall be modified and supplemented and in effect from time to time. "Revolving Credit Commitment" shall mean, for each Lender, on --------------------------- any date of determination, the obligation of such Lender to make Revolving Credit Loans in an aggregate principal amount at any one time outstanding up to but not exceeding the amount set forth opposite the name of such Lender on Annex A under the caption "Revolving Credit ------- Commitment" (as the same may be reduced from time to time pursuant to Section 2.04(b) or 2.10, or changed pursuant to Section 12.06(b)). "Total Debt" shall mean at any date, the aggregate amount of ---------- Indebtedness of Borrower and the Subsidiaries determined on a consolidated basis in accordance with GAAP. 2.2 Addition of New Defined Terms. Section 1.01 of the Credit Agreement is hereby amended by adding definitions of the following defined terms, such definitions to read in their respective entireties as follows: "Attributed Principal Amount" shall mean, on any day, with --------------------------- respect to the Permitted Receivables Financing, the aggregate amount (the "Invested Amount") paid to, or borrowed by, the SPS as of such --------------- date under the Permitted Receivables Financing, minus the aggregate ----- amount received by the Receivables Financier and applied to the reduction of the Invested Amount under the Permitted Receivables Financing. "Invested Amount" has the meaning specified in the definition --------------- of "Attributed Principal Amount." "Permitted Receivables Financing" shall mean the receivables ------------------------------- financing described in the Indicative Summary of Terms and Conditions set forth on Annex C, as such terms may hereafter be amended from time ------- to time in accordance with clause (d) hereof, pursuant to which the Borrower and certain Subsidiaries from time to time sell, convey or otherwise contribute certain accounts receivable as more particularly described on Annex C (collectively, together with certain property ------- relating thereto and the right to collections thereon, being the "Transferred Assets") to the SPS, which SPS then sells to the ------------------ 4 Receivables Financier an ownership interest in the Transferred Assets, provided that (a) the aggregate Attributed Principal Amount for such -------- receivables financing shall not at any time exceed $100,000,000, (b) such receivables financing shall not involve any recourse to the Borrower or any Subsidiary other than (i) obligations to repurchase non-eligible receivables and (ii) indemnification and reimbursement obligations for claims, damages, expenses, costs, dilutions, liabilities and losses other than credit losses related to the receivables sold in such financing, and for breaches of representations and warranties under the related documents, (c) the Administrative Agent shall be reasonably satisfied with the structure of and documentation for such transaction and that the terms of such transaction, including the discount at which receivables are sold, the term of the commitment of the Receivables Financier thereunder and any termination events or liquidations events, shall be (in the good faith understanding of the Administrative Agent) consistent with those prevailing in the market for similar transactions involving a receivables originator/servicer of similar credit quality and a receivables pool of similar characteristics, (d) the documentation for such transaction shall not be amended or modified without the prior written approval of the Majority Lenders if such amendment or modification (i) increases the facility amount for such financing, (ii) increases or provides for any additional recourse or financial obligations of the Borrower or any Subsidiary, other than the SPS, beyond those described in clause (b) above, (iii) provides for any other obligations of the Borrower or any Subsidiary, other than the SPS, that would have a Material Adverse Effect, or (iv) requires that the Borrower or any Subsidiary provide cash or other collateral, a letter of credit or other credit enhancement for such financing, (e) the documentation for such transaction shall not be amended or modified without the prior written consent of the Administrative Agent, if such amendment or modification (i) reduces the facility amount for such financing, (ii) reduces the availability under such financing, including by way of increases to the reserves, or (iii) increases the financial obligations of the SPS thereunder in any material respect, except for changes in pricing consistent with prevailing market terms for similar transactions involving a receivables originator/servicer of similar credit quality and a receivables pool of similar characteristics, and (f) simultaneously with the closing of such receivables financing, the Revolving Credit Commitments shall be automatically reduced to $175,000,000 in accordance with Section 2.10(a)(vi) and the outstanding Revolving Credit Loans in excess of such reduced Revolving Credit Commitments shall be paid in accordance with Section 2.10(c). "Receivables Financier" shall mean Market Street Funding --------------------- Corporation, an independently-owned, bankruptcy-remote Delaware corporation, its successors and assigns, or such other receivables financier as shall be acceptable to the Administrative Agent. "Saginaw Capital Expenditures" shall mean Capital Expenditures ---------------------------- made during the quarters ending March 31, 2000, June 30, 2000, September 30, 2000, December 31, 2000 and March 31, 2001, for the construction of the Saginaw County, Michigan facility, in an aggregate amount not greater than $14,250,000. 5 "SPS" shall mean IMCO Funding Corporation, a Delaware --- corporation and a bankruptcy-remote special purpose Subsidiary of the Borrower created for the purpose of entering into the Permitted Receivables Financing. "Transferred Assets" has the meaning specified in the ------------------ definition of "Permitted Receivables Financing." 2.3 Deletion of Certain Defined Terms. Section 1.01 of the Credit Agreement is hereby amended by deleting the definitions of the following defined terms in their respective entireties: "Additional Lender," "Collateral Release Date," "Commitment Increase," "Increase Amount," "Debt Conversion Event," "Increase Request," "Increasing Lender," "Response Date," "Subordinated Debt," and "Trust Preferred Securities". 2.4 Fees. Section 2.05 of the Credit Agreement is hereby amended to add the following clause (c) to the end thereof, which clause (c) shall read in its entirety as follows: (c) The Borrower shall pay to the Administrative Agent for the account of each Lender that executes and delivers that certain Second Amendment to the Amended and Restated Credit Agreement dated as of October 20, 2000 (the "Second Amendment"), a fee in an amount equal to the Revolving Credit Commitment of each such Lender multiplied by 20 basis points, such fee to be payable on October 20, 2000. In the event the Permitted Receivables Financing does not close on or before February 19, 2001, the Borrower shall pay to the Administrative Agent for the account of each Lender that executes and delivers the Second Amendment an additional fee in an amount equal to each such Lender's pro rata share of the $75,000,000 reduction of the Revolving Credit Commitments that would have occurred on such closing pursuant to Section 2.10(a)(vi), multiplied by 15 basis points, such additional fee to be payable on February 19, 2001. 2.5 Amendment to Mandatory Reductions. Section 2.10 of the Credit Agreement is hereby amended as follows: (a) The phrase "until the Collateral Release Date" is deleted each time it appears in such Section. (b) Clause (a) of such Section 2.10 is hereby amended by adding the following clause (vi) to the end thereof, which clause shall read in its entirety as follows: (vi) Permitted Receivables Financing. Simultaneously with the ------------------------------- closing of the Permitted Receivables Financing, in an aggregate amount equal to $75,000,000, so that thereafter the aggregate principal amount of the Revolving Credit Commitments shall be $175,000,000 (or such applicable lesser amount in the event the Revolving Credit Commitments are otherwise reduced on or before such closing). (c) The second paragraph of clause (c) of such Section 2.10 is hereby amended to read in its entirety as follows: 6 Notwithstanding the foregoing, if the amount of any prepayment of Revolving Credit Loans required under this Section 2.10, except prepayment under clause (a)(vi), shall be in excess of the amount of the Alternate Base Rate Loans at the time outstanding, only the portion of the amount of such prepayment as is equal to the amount of such outstanding Alternate Base Rate Loans shall be immediately prepaid and, at the election of Borrower, the balance of such required prepayment shall be either (i) deposited in the Collateral Account and applied to the prepayment of LIBOR Loans on the last day of the then next-expiring Interest Period for LIBOR Loans or (ii) prepaid immediately, together with any amounts owing to the Lenders under Section 5.05. Notwithstanding any such deposit in the Collateral Account, interest shall continue to accrue on such Revolving Credit Loans until prepayment. If the amount of any prepayment of Revolving Credit Loans required under clause (a)(vi) of this Section 2.10 shall be in excess of the amount of the Alternate Base Rate Loans at the time outstanding, the portion of such prepayment as is equal to the amount of such Alternate Business Rate Loans shall be first prepaid, with the balance of such prepayment being made together with any amounts owing to the Lenders under Section 5.05. (d) Clause (d) of such Section 2.10 is hereby amended by deleting the last sentence thereof. 2.6 Amendment to Section 8.16. Section 8.16 of the Credit Agreement is hereby amended to read in its entirety as follows: 8.16 Security Interest. The Security Documents, once executed, ----------------- delivered, filed and/or recorded will create, in favor of the Administrative Agent for the benefit of the Lenders, as security for the obligations purported to be secured thereby, a valid and enforceable perfected first priority security interest in and Lien upon all of the Collateral, superior to and prior to the rights of all third persons and subject to no Liens except the Prior Liens applicable to such Collateral. 2.7 Amendment to Section 9.01. Clause (j) of Section 9.01 of the Credit Agreement is hereby amended to read in its entirety as follows: (j) written notice of (i) the incurrence of any material Lien (other than Liens permitted pursuant to Section 9.07) on, or claim asserted against any of the collateral security in the Security Documents or (ii) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the collateral under any Security Document; 2.8 Amendment to Section 9.05. Section 9.05 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.05 Issuance or Disposals of Capital Stock of Subsidiaries. ------------------------------------------------------ No Subsidiary shall issue, sell, assign, transfer or otherwise dispose of any shares (or other ownership interests) of any class of its capital stock or equity ownership interests or of any Equity Rights to purchase its capital stock or equity ownership interests or of other securities exchangeable for or convertible into its capital stock or equity ownership interests, except 7 (a) to Borrower or a Wholly Owned Subsidiary, and (b) directors' qualifying shares as required by law. Neither Borrower nor any Subsidiary shall effect the Disposition of any capital stock of any Subsidiary unless all capital stock owned by Borrower and the Subsidiaries is sold pursuant thereto and such sale is otherwise permitted herein. 2.9 Amendment to Section 9.06. Section 9.06 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.06 Fundamental Changes; Acquisitions; Dispositions. No ----------------------------------------------- Obligor or Subsidiary shall, directly or indirectly, (1) enter into any transaction of merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), (2) acquire any business or Property from, or capital stock of, or be a party to any acquisition of, any Person, or effect any Acquisition, or (3) effect any Disposition or convey, sell, lease, assign, transfer or otherwise dispose of, in one transaction or a series of transactions, all or a substantial part of its business or Property, whether now owned or hereafter acquired, including receivables and leasehold interests. Notwithstanding the foregoing provisions of this Section 9.06, each of the following shall be permitted: (a) purchases of inventory and other Property to be sold or used in the ordinary course of business; (b) Acquisitions permitted by Section 9.09(k), (u) or (v) and other Investments permitted by Section 9.09; (c) any Subsidiary may be merged or consolidated or dissolved or liquidated with or into: (i) Borrower if Borrower shall be the continuing or surviving corporation or (ii) any Wholly Owned Subsidiary which is an Obligor; provided, however, that a Wholly Owned Subsidiary -------- ------- which is an Obligor shall be the continuing or surviving corporation; (d) any Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its Property (upon voluntary liquidation or otherwise) to Borrower or to any Wholly Owned Subsidiary which is an Obligor; (e) any Wholly Owned Subsidiary that is a Foreign Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to another Wholly Owned Subsidiary that is a Foreign Subsidiary; (f) Dispositions of used, worn out, obsolete or surplus equipment or other Property by Borrower or any Subsidiary, all in the ordinary course of business; provided, however, that the proceeds -------- ------- thereof are reinvested in the business of Borrower or any Subsidiary within one year of such Disposition; (g) any Foreign Subsidiary may be merged or consolidated with or into any one or more Wholly Owned Subsidiaries that are Foreign Subsidiaries (provided that a Wholly Owned Subsidiary that is a Foreign Subsidiary shall be the continuing or surviving corporation); 8 (h) Borrower or any Subsidiary may sell or discount, in each case without recourse, accounts receivable arising in the ordinary course of business, but only in connection with the compromise or collection thereof; (i) the sale by any Foreign Subsidiary of its accounts receivable; provided, however, that the terms of each such sale are -------- ------- satisfactory in form and substance to the Administrative Agent; (j) Dispositions for fair market value not to exceed $15,000,000 in the aggregate after the date of this Agreement; provided, however, that the Net Available Proceeds therefrom are -------- ------- reinvested as specified in Section 2.10(a)(iii) or applied to the prepayment of the Revolving Credit Loans as specified in Section 2.10(a); (k) the sale of all or substantially all of the capital stock and/or equity interests in or assets of IMCO Recycling of California, Inc., a Subsidiary, owned by Borrower or any Subsidiary; provided, -------- however, that the Net Available Proceeds therefrom are reinvested as ------- specified in Section 2.10(a)(iii) or applied to the prepayment of the Revolving Credit Loans as specified in Section 2.10(a); (l) Dispositions of assets pursuant to the Commonwealth Option or the Commonwealth Right of First Refusal; provided, however, -------- ------- that the Net Available Proceeds therefrom are applied to the prepayment of the Revolving Credit Loans as specified in Section 2.10(a); (m) the transfer by Borrower to IMCO International, Inc., and subsequent transfer by IMCO International, Inc. to IMCO Recycling Holding B.V., of Borrower's share interests in IMCO Recycling (UK) Ltd. and its joint venture interests in VAW-IMCO Guss und Recycling GmbH; (n) the transfer by U.S. Zinc Corporation to IMCO International, Inc., and subsequent transfer by IMCO International, Inc. to IMCO Recycling Holding B.V., of U.S. Zinc's share interests in MetalChem Handel GmbH and in MetalChem Canada Incorporated; and (o) provided that the initial proceeds of the Permitted Receivables Financing shall be applied to pay in full all amounts payable under Section 2.10(c) in connection with the simultaneous reduction of the Revolving Credit Commitments pursuant to Section 2.10 (a)(vi), (i) the Borrower and the Subsidiaries shall be permitted to sell the Transferred Assets to the SPS in connection with the Permitted Receivables Financing, and (ii) the SPS shall be permitted to sell an ownership interest in the Transferred Assets to the Receivables Financier in connection with the Permitted Receivables Financing. To the extent the Majority Lenders waive the provisions of this Section 9.06 with respect to the sale or other disposition of any Collateral, or any Collateral is sold or otherwise disposed of as permitted by this Section 9.06 (and such Collateral is released (or permitted to be released) from the Liens created by the respective Security Document), such Collateral in each case shall be sold or otherwise disposed of free and clear of the Liens created by the Security Documents and the Administrative Agent shall take such 9 actions as are appropriate in connection therewith. Without in any way limiting the foregoing, the Administrative Agent shall release its security interest in the Transferred Assets concurrently with the closing of the Permitted Receivables Financing, provided that the initial proceeds of the Permitted Receivables Financing shall be applied to pay in full all amounts payable under Section 2.10(c) in connection with the simultaneous reduction of the Revolving Credit Commitments pursuant to Section 2.10(a)(vi). The Administrative Agent and the Obligors shall execute, deliver and file appropriate documents to effectuate and reflect such release by the Administrative Agent of its security interest in the Transferred Assets, including UCC partial releases and an amendment to the Security Agreement. 2.10 Amendment to Section 9.07. Section 9.07 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.07 Liens and Related Matters. No Obligor or Subsidiary ------------------------- shall, directly or indirectly, create, incur, assume or suffer to exist any Lien upon or with respect to any of their respective Property (including Collateral), whether now owned or hereafter acquired, or sell any such property or assets subject to an understanding or agreement, contingent or otherwise, to repurchase such property or assets or assign any right to receive income, or file or permit the filing of any financing statement under the UCC or any other similar notice of Lien under any similar recording or notice statute, except the following, which are herein collectively referred to as "Permitted --------- Liens": ----- (a) Liens created pursuant to or permitted by the Security Documents; (b) Liens in existence on the date hereof and identified in Schedule 9.07; ------------- (c) Liens imposed by any Governmental Authority for taxes, assessments or charges not yet due or which are being contested in good faith and by appropriate proceedings if adequate reserves with respect thereto are maintained on the books of Borrower or the affected Subsidiary, as the case may be, in accordance with GAAP; (d) Liens in respect of Property of Borrower or any Subsidiary imposed by law which were incurred in the ordinary course of business, such as carriers', warehousemen's, landlords' and mechanics' Liens and other similar Liens arising in the ordinary course of business, in each case for sums the payment of which is not required by Section 9.03; (e) Pledges or deposits under worker's compensation, unemployment insurance and other social security legislation or the deposits securing the liability to insurance carriers; (f) Pledges or deposits to secure the performance of bids, trade contracts (other than for borrowed money), leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business; 10 (g) Easements, rights-of-way, restrictions or minor defects or irregularities in title incurred in the ordinary course of business and encumbrances consisting of zoning restrictions, easements, licenses, restrictions on the use of Real Property or minor imperfections in title thereto which, in the aggregate, are not material in amount, and which do not in any case materially detract from the value of the Real Property subject thereto or interfere with the ordinary conduct of the business of Borrower or any Subsidiary; (h) Liens upon tangible personal Property acquired after the Original Closing Date by Borrower or any Subsidiary, each of which Liens either (A) existed on such Property before the time of its acquisition and was not created in anticipation thereof, or (B) was created solely for the purpose of securing Indebtedness representing, or incurred to finance, refinance or refund, the cost of such Property or improvements thereon; provided, however, that (x) no such Lien shall -------- ------- extend to or cover any Property of Borrower or such Subsidiary other than the Property so acquired and improvements thereon and (y) the principal amount of Indebtedness secured by any such Lien shall at no time exceed 100% of the fair market value of such Property at the time it was acquired; (i) Liens existing on any Property of any Person at the time such Person becomes a Subsidiary or is merged or consolidated with or into a Subsidiary and, in each case, not created in contemplation of or in connection with such event; provided, however, that such Liens do -------- ------- not extend to any other Property of Borrower or the Subsidiaries; (j) Liens (excluding Liens on Collateral) not otherwise permitted hereunder securing obligations not at any time exceeding in the aggregate $15,000,000; (k) Liens securing obligations under Swap Contracts with any Lender or any Affiliate of any Lender; (l) Liens consisting of judgment or judicial attachment Liens (including prejudgment attachment) the enforcement of which is effectively stayed or payment of which is covered in full (subject to a customary deductible) by insurance or which do not otherwise result in an Event of Default under Section 10(h); (m) Liens securing obligations in respect of Capital Leases solely on Property subject to such Capital Leases; (n) The Commonwealth Option and the Commonwealth Right of First Refusal; (o) Any extension, renewal or replacement of the foregoing; provided, however, that the Liens permitted hereunder shall -------- ------- not cover any additional Indebtedness (other than Indebtedness permitted to be secured hereunder) or 11 Property (other than like Property substituted for Property covered by such Lien); and (p) Liens in favor of the SPS or the Receivables Financier created or deemed to exist in connection with the Permitted Receivables Financing (including any related filings of any financing statements), but only to the extent that any such Lien relates to the applicable Transferred Assets actually sold, contributed, financed or otherwise conveyed or pledged pursuant to such transaction. Except with respect to (i) specific Property encumbered pursuant to a Lien permitted to be incurred pursuant to this Section 9.07, (ii) specific Property to be sold pursuant to an executed agreement with respect to a Disposition consummated in accordance with this Agreement, or (iii) the documents and instruments executed in connection with the Permitted Receivables Financing (but only to the extent that the related prohibitions against other Liens pertain to the applicable Transferred Assets actually sold, contributed, financed or otherwise conveyed or pledged pursuant to the Permitted Receivables Financing), no Obligor will, nor will any of them permit any of their respective Subsidiaries to, directly or indirectly, enter into any agreement (other than the Basic Documents) prohibiting or restricting in any manner (directly or indirectly and including by way of covenant, representation or warranty or event of default) the creation or assumption of any Lien upon its Property, whether now owned or hereafter acquired. 2.11 Amendment to Section 9.08. Section 9.08 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.08 Indebtedness. No Obligor or Subsidiary shall, directly or ------------ indirectly, create, incur or suffer to exist or be or become liable for any Indebtedness, except (each of which shall be given independent effect): (a) Indebtedness under the Basic Documents; (b) Indebtedness outstanding on the date hereof and specified on Schedule 9.08 to remain outstanding after the date hereof, and any ------------- refinancings, refundings, renewals or extensions thereof on financial and other terms, in the reasonable judgment of Borrower, no more onerous to Borrower or any Subsidiary in the aggregate than the financial and other terms of such Indebtedness; provided, however, that the amount of such -------- ------- Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension and such Indebtedness shall not have a stated maturity or an average life shorter than that of the Indebtedness being refinanced; (c) Indebtedness of Borrower or any Wholly Owned Subsidiary owing to Borrower or any Wholly Owned Subsidiary which is an Obligor; provided, -------- however, that such Indebtedness shall not be held by any Person other than ------- Borrower or a Wholly Owned Subsidiary which is an Obligor and shall not be subordinate to any other Indebtedness or other obligation of the Obligor other than the Revolving Credit Loans; 12 (d) Indebtedness of Borrower and the Subsidiaries secured by Liens permitted under Section 9.07(h) or (m) not exceeding in the aggregate $15,000,000 at any one time outstanding; (e) Indebtedness arising from honoring a check, draft or similar instrument against insufficient funds; provided, however, that such -------- ------- Indebtedness is extinguished within two Business Days of its incurrence; (f) Obligations under operating leases permitted by Section 9.22 and Contingent Obligations permitted by Section 9.24; (g) Unsecured Indebtedness incurred by any Foreign Subsidiary not to exceed $15,000,000 in the aggregate for all Foreign Subsidiaries at any time outstanding; (h) Unsecured Indebtedness of Borrower or any Subsidiary, which is an Obligor in an aggregate principal amount not to exceed, together with Contingent Obligations (without duplication) under Section 9.24(d), $15,000,000 for Borrower and the Subsidiaries collectively at any time outstanding; (i) Unsecured Indebtedness in an amount not to exceed $10,000,000 incurred pursuant to certain solid waste disposal bonds or industrial revenue bonds issued after the date hereof by the City of Morgantown, Kentucky or any other governmental entity in a location in which Borrower or any Subsidiary owns any equipment, property, or other assets ; (j) Indebtedness represented by amounts declared, payable as, or set apart for, Dividends permitted by Section 9.10 and Swap Contracts entered into in the ordinary course of business and designed to protect the Obligors against fluctuations in interest rates, currency exchange rates, commodity prices or similar risks; and (k) Obligations in connection with the Permitted Receivables Financing. All intercompany debt shall be unsecured and subordinate in right of payment to the Obligations. 2.12 Amendment to Section 9.09. Section 9.09 of the Credit Agreement is hereby amended as follows: (a) Clauses (p) and (s) are hereby amended by deleting the phrase "until the Collateral Release Date," each time it appears therein. (b) Clause (r) is amended to read in its entirety as follows: (r) Investments by Borrower or any Subsidiary in the SPS in connection with the Permitted Receivables Financing; 2.13 Amendment to Section 9.10. Clause (b) of Section 9.10 of the Credit Agreement is hereby amended to read in its entirety as follows: 13 (b) The following Dividend Payments shall be permitted so long as no Default or Event of Default shall have occurred and be continuing at the time of such Dividend Payment nor would result therefrom: (i) purchases by Borrower of shares of its common stock pursuant to an existing equity forward contract, provided that the sum of the aggregate amount expended by Borrower for such purchases shall not exceed the principal amount of $5,000,000, and (ii) Borrower may declare and make cash Dividend Payments on its capital stock (other than purchases of its common stock permitted by clause (i) above) not to exceed in the aggregate $6,000,000 in each of fiscal 1999 and fiscal 2000, and $8,000,000 in any fiscal year thereafter. 2.14 Amendment to Section 9.11. Section 9.11 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.11 Financial Covenants. ------------------- (a) Maximum Debt to Capitalization Ratio. Borrower shall not permit ------------------------------------ the Debt to Capitalization Ratio for any Measurement Period ending during any period set forth in the table below to be more than the ratio set forth opposite such period in the table below: ========================================================================== Period Ratio -------------------------------------------------------------------------- Date of this Agreement through 12/31/2001 0.60:1.00 -------------------------------------------------------------------------- 1/1/2002 and thereafter 0.50:1.00 ========================================================================== (b) Minimum Interest Coverage Ratio. Borrower shall not permit the ------------------------------- Interest Coverage Ratio for each Measurement Period specified below to be less than the ratio set forth opposite such Measurement Period in the table below: =========================================================================== Measurement Period Ending Ratio --------------------------------------------------------------------------- 9/30/2000 1.50:1.00 --------------------------------------------------------------------------- 12/31/2000, 3/31/2001 and 6/30/2001 1.75:1.00 --------------------------------------------------------------------------- 9/30/2001 2.00:1.00 --------------------------------------------------------------------------- 12/31/2001 2.25:1.00 --------------------------------------------------------------------------- 3/31/2002, 6/30/2002, 9/30/2002 and 12/31/2002 2.50:1.00 --------------------------------------------------------------------------- 3/31/2003 and thereafter 2.75:1.00 =========================================================================== (c) Minimum Consolidated Net Worth. Borrower shall not permit ------------------------------ Consolidated Net Worth at any time to be less than $154,600,000 plus ---- the sum of 14 (x) 50% of consolidated net income of Borrower determined in accordance with GAAP for each such fiscal quarter (if positive) occurring after June 30, 1999 and (y) 100% of the net proceeds of all Equity Issuances occurring after the date hereof. (d) Leverage Ratio. Borrower shall not permit the Leverage -------------- Ratio for each Measurement Period specified below to exceed the ratio set forth opposite such Measurement Period in the table below: ================================================================================ Measurement Period Ending Ratio - -------------------------------------------------------------------------------- 9/30/2000, 12/31/2000, 3/31/2001 and 6/30/2001 4.25:1.00 - -------------------------------------------------------------------------------- 9/30/2001 4.00:1.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 12/31/2001 3.50:1.00 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 3/31/2002 and thereafter 3.00:1.00 ================================================================================ (e) Measurement Dates. The covenants in clauses (a), (b), (c) ----------------- and (d) of this Section 9.11 shall be measured as of the end of each fiscal quarter, beginning with September 30, 2000. 2.15 Amendment to Section 9.12. Section 9.12 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.12 Pledge of Additional Collateral. Promptly, and in any event ------------------------------- within 30 days, after the acquisition of any Property of the type that would have constituted Collateral at the Original Closing Date (including the capital stock of any Subsidiary hereafter created or acquired) other than Real Property (the "Additional Collateral"), each --------------------- Obligor and each Wholly Owned Subsidiary (other than the SPS and any Foreign Subsidiary) shall take all action necessary or desirable, including the execution and delivery of all such agreements, assignments, documents and instruments (including amendments to the Basic Documents) and the filing of appropriate financing statements under the provisions of the UCC or applicable governmental requirements in each of the offices where such filing is necessary or appropriate, to grant the Administrative Agent for the benefit of the Lenders a duly perfected first priority Lien on such Property pursuant to and to the full extent required by the Security Documents and this Agreement; provided, however, that not more than 65% of the capital stock of any -------- ------- "first tier" Foreign Subsidiary need be pledged, no capital stock of any Foreign Subsidiary which is not a "first tier" Foreign Subsidiary need be pledged, and no capital stock of the SPS need be pledged. The costs of all actions taken by the parties in connection with the pledge of Additional Collateral or in connection with any Mortgage, including reasonable costs of counsel for the Administrative Agent, shall be paid by the Obligors promptly following written demand. 15 2.16 Amendment to Section 9.13. Section 9.13 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.13 Security Interests. ------------------ (a) Each Obligor and each Subsidiary shall, promptly, upon the reasonable request of any Lender, at Borrower's expense, execute, acknowledge and deliver, or cause the execution, acknowledgment and delivery of, and thereafter register, file or record, or cause to be registered, filed or recorded, in an appropriate governmental office, any document or instrument supplemental to or confirmatory of the Security Documents or otherwise deemed by the Administrative Agent necessary or desirable for the continued validity, perfection and priority of the Liens on the collateral covered thereby. (b) Each Obligor and each Subsidiary shall deliver or cause to be delivered to the Administrative Agent from time to time such other documentation, consents, authorizations, approvals and orders in form and substance reasonably satisfactory to the Administrative Agent as the Administrative Agent shall reasonably deem necessary to perfect or maintain the Liens on the Collateral. 2.17 Amendment to Section 9.20. Section 9.20 of the Credit Agreement is hereby amended to read in its entirety as follows: Section 9.20 Limitation on Certain Restrictions Affecting -------------------------------------------- Subsidiaries. No Obligor or Subsidiary shall, directly or indirectly, ------------ create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any such Subsidiary to (a) pay dividends or make any other distributions on such Subsidiary's capital stock or any other interest or participation in its profits owned by Borrower or any Subsidiary, or pay any Indebtedness or any other obligation owed to Borrower or any Subsidiary, (b) make Investments in or to Borrower or any Subsidiary or (c) transfer any of its Property to Borrower or any Subsidiary, except for (i) such encumbrances or restrictions existing under or by reason of applicable law, (ii) such encumbrances or restrictions existing by, under or by reason of the Basic Documents, (iii) such restrictions with respect to the transfer of those assets subject to a Lien permitted under Section 9.07, (iv) customary provisions restricting subletting or assignment of any lease governing a leasehold interest of Borrower or any Subsidiary, (v) with respect to restrictions described in clause (c) only, restrictions in any agreement relating to any Disposition which is permitted under this Agreement, (vi) the Commonwealth Option and the Commonwealth Right of First Refusal, and (vii) such encumbrances or restrictions in respect of the SPS under the documents executed in connection with the Permitted Receivables Financing. 2.18 Amendment to Section 9.21. Section 9.21 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.21 Additional Obligors. Upon Borrower or any Wholly Owned ------------------- Subsidiary creating or acquiring a Wholly Owned Subsidiary (other than the SPS or a Foreign Subsidiary) after the Original Closing Date (each such Subsidiary referred to herein as an 16 "Additional Obligor" and collectively as the "Additional Obligors"), ------------------ ------------------- Borrower shall cause such Wholly Owned Subsidiary to execute and deliver a Joinder Agreement substantially in the Form of Exhibit K and --------- all such other agreements, guarantees, documents and certificates (including any amendments to the Basic Documents) as the Administrative Agent may reasonably request and do such other acts and things as the Administrative Agent may reasonably request in order to have such Wholly Owned Subsidiary guarantee the Obligations in accordance with the terms of the Basic Documents and pledge all Property (other than Real Property and stock of the SPS) pursuant to the Security Agreement. 2.19 Amendment to Section 9.23. Section 9.23 of the Credit Agreement is hereby amended to read in its entirety as follows: 9.23 Sale or Discount of Receivables. No Obligor or Subsidiary ------------------------------- shall, directly or indirectly, sell, with or without recourse, or discount, or otherwise sell for less than the face value thereof, notes or accounts receivables, other than in connection with trade discounts in the ordinary course of business or consistent with past practice and other than as permitted by Section 9.06(h), (i) or (o). 2.20 Amendment to Events of Default. Section 10 of the Credit Agreement is hereby amended as follows: (a) Clause (d) is amended by deleting the phrase ", until the Collateral Release Date," and the parenthetical phrase "(until the Collateral Release Date)" therefrom. (b) Clause (k) is hereby deleted in its entirety. (c) Clause (l) is hereby amended to read in its entirety as follows: (l) Any Security Document after delivery thereof at any time shall cease to be in full force and effect or shall for any reason fail to create or cease to maintain a valid and duly perfected first priority security interest in and Lien upon a material portion of the Collateral; or (d) Clauses (j) and (m) are each amended by adding the word "or" immediately following the semicolon at the end of each such clause. (e) The following clause (n) is added immediately following clause (m), such clause (n) to read in its entirety as follows: (n) The occurrence of any event of default, termination event, liquidation event, or other event however designated that causes or permits the liquidation or termination of the Permitted Receivables Financing or the termination of availability of advances under the Permitted Receivables Financing prior to the scheduled liquidation period. 17 2.21 Deletion of Certain Sections. The Credit Agreement is hereby amended by deleting Sections 2.12, 9.19 and 12.16 in their respective entireties. 2.22 Corrections. The Credit Agreement is hereby amended to make the following corrections: (a) Each reference to the word "subsidiary" or "subsidiaries" is hereby amended to read "Subsidiary" or "Subsidiaries", as the case may be, each time such word appears in (a) the definitions of "ERISA Group," "Net Cash Payments," "Net Proceeds" and "Taking" in Section 1.01 of the Credit Agreement, and (b) Sections 8.14, 9.03, 9.09(g) and (m), and 11.06 of the Credit Agreement. (b) Each reference to the word "obligor" or "obligors" is hereby amended to read "Obligor" or "Obligors", as the case may be, each time such word appears in (a) the definitions of "Net Award," "Net Proceeds" and "Taking" in Section 1.01 of the Credit Agreement, and (b) Sections 7.02(i)(b), 9.09(k), 9.22, 9.24 and 10(d) of the Credit Agreement. (c) Clause (ii) of Section 1.04(c) is hereby amended to read "(ii) a Section or other subdivision is to a Section or other subdivision of this Agreement." (d) Each reference to the phrase "wholly Owned Subsidiary" or "wholly owned Subsidiary" appearing in Section 9.09(c), (k) and (v) of the Credit Agreement is hereby amended to read "Wholly Owned Subsidiary". (e) Section 9.09(u) of the Credit Agreement is amended to delete the phrase "pursuant to Section 9.11(d)(2)" therefrom. 2.23 Amendment to Annex C. Annex C to the Credit Agreement is hereby amended to read in its entirety as set forth on Exhibit 1 hereto. 2.24 Amendment to Exhibit C. Exhibit C to the Credit Agreement is hereby amended to read in its entirety as set forth on Exhibit 2 hereto. 2.25 Amendment to Security Agreement. The Lenders hereby consent to the Administrative Agent entering into an appropriate amendment to the Security Agreement, concurrently with the closing of the Permitted Receivables Financing, (a) to amend the definition of "Pledged Collateral" therein to exclude the Transferred Assets released pursuant to Section 9.06 of the Credit Agreement, as amended hereby, and (b) to amend Schedule 2 to the Security Agreement to reflect the correct information regarding the Chief Executive Offices of certain Subsidiaries, as specified in Section 4.2 hereof. 18 ARTICLE III Conditions Precedent -------------------- 3.1 Conditions. The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent: (a) Representations and Warranties. The representations and ------------------------------ warranties contained herein and in all other Basic Documents, as amended hereby, shall be true and correct as of the date hereof as if made on the date hereof. (b) No Default. No Default or Event of Default shall have occurred ---------- and be continuing. (c) Corporate Matters. All corporate proceedings taken in connection ----------------- with the transactions contemplated by this Amendment and all documents, instruments, and other legal matters incident thereto shall be satisfactory to the Administrative Agent and its legal counsel, Locke Liddell & Sapp LLP. (d) Additional Documentation. The Administrative Agent shall have ------------------------ received such additional approvals, opinions, or documents as the Administrative Agent or its legal counsel, Locke Liddell & Sapp LLP, may reasonably request. (e) Additional Fixture Filings. Borrower shall have executed and -------------------------- delivered to Administrative Agent, UCC financing statements in form and substance satisfactory to Administrative Agent for filing in the real property records in each jurisdiction where any Collateral is located and fixture filings have not been filed in favor of Administrative Agent. (f) Fees. Borrower shall have paid any and all fees payable to any ---- Lender, the Administrative Agent or any of its Affiliates pursuant to the Credit Agreement or any fee letter or agreement entered into by such parties. ARTICLE IV Ratifications, Representations and Warranties --------------------------------------------- 4.1 Ratifications. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement and except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement and the other Basic Documents are ratified and confirmed and shall continue in full force and effect. The Obligors agree that the Credit Agreement, as amended hereby, and the other Basic Documents shall continue to be legal, valid, binding and enforceable in accordance with their respective terms. The Obligors ratify and confirm that all guaranties, assurances and Liens granted, conveyed or assigned to Administrative Agent under the Basic Documents (as they may have been renewed, extended and amended) are not released, reduced 19 or otherwise adversely affected by this Amendment and continue to guarantee, assure and secure full payment and performance of the present and future Obligations, and agree to perform such acts and duly authorize, execute, acknowledge, deliver, file and record such additional documents and certificates as Administrative Agent may reasonably request in order to create, perfect, preserve and protect those guaranties, assurances and Liens. 4.2 Representations and Warranties. Each Obligor hereby represents and warrants to the Administrative Agent and the Lenders that (a) the execution, delivery, and performance by the Obligors of this Amendment and compliance with the terms and provisions hereof have been duly authorized by all requisite action on the part of each such Person and do not and will not violate or conflict with, or result in a breach of, or require any consent under (i) the articles of incorporation, certificate of incorporation, bylaws, partnership agreement, regulations or other organizational documents of any such Person, (ii) any applicable law, rule, or regulation or any order, writ, injunction, or decree of any Governmental Authority, or (iii) any material agreement or instrument to which any such Person is a party or by which any of them or any of their property is bound or subject, (b) the representations and warranties contained in the Credit Agreement, as amended hereby, and any other Basic Document are true and correct on and as of the date hereof as though made on and as of the date hereof, except that the chief executive office of each Subsidiary specified on Exhibit 3 hereto is located at the address specified for such Subsidiary on Exhibit 3 hereto, rather than the address specified on Schedule 2 to the Security Agreement, (c) appropriate UCC financing statements have been filed in all appropriate filing offices and jurisdictions so as to perfect the security interests granted to the Administrative Agent under the Security Agreement, and (d) no Default or Event of Default has occurred and is continuing. ARTICLE V Miscellaneous ------------- 5.1 Survival of Representations and Warranties. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Lender or any closing shall affect the representations and warranties or the right of the Administrative Agent or any Lender to rely upon them. 5.2 Reference to Credit Agreement. Each of the Basic Documents, including the Credit Agreement and any and all other agreements, documents, or instruments now or hereafter executed and delivered pursuant to the terms hereof or pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference in such Basic Documents to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. 5.3 Expenses of the Administrative Agent. Borrower agrees to pay on demand all costs and expenses incurred by the Administrative Agent in connection with the preparation, negotiation, and execution of this Amendment and any and all amendments, modifications, and supplements thereto, including without limitation the costs and fees of the Administrative 20 Agent's legal counsel, and all costs and expenses incurred by the Administrative Agent in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby, or any other Basic Document, including without limitation the costs and fees of the Administrative Agent's legal counsel. 5.4 Severability. Any provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the provision so held to be invalid or unenforceable. 5.5 APPLICABLE LAW. THIS AMENDMENT SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS. 5.6 Successors and Assigns. This Amendment is binding upon and shall inure to the benefit of the Obligors, Lenders, the Syndication Agent, the Documentation Agent, the Administrative Agent and their respective successors and assigns, except Obligors shall not assign or transfer any of their respective rights or obligations hereunder without the prior written consent of the Administrative Agent. 5.7 Counterparts. This Amendment may be executed in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same instrument. This Amendment shall not be effective unless and until the Administrative Agent, the Lenders which constitute "Majority Lenders" as defined in the Credit Agreement and the Obligors have each executed and delivered a counterpart hereof and all conditions to the effectiveness hereof have been satisfied in full, whereupon this Amendment shall become a binding agreement, enforceable in accordance with its terms and the amendments effectuated hereby shall become effective as of the date first above written. 5.8 Headings. The headings, captions, and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. 5.9 Release of Claims. The Obligors each hereby acknowledge and agree that none of them has any and there are no claims or offsets against or defenses or counterclaims to the terms and provisions of or the obligations of any Obligor created or evidenced by the Credit Agreement or any of the other Basic Documents, and to the extent any such claims, offsets, defenses or counterclaims exist, each Obligor hereby waives, and hereby releases the Administrative Agent, the Syndication Agent, the Documentation Agent and each of the Lenders from, any and all claims, offsets, defenses and counterclaims, whether known or unknown, such waiver and release being with full knowledge and understanding of the circumstances and effects of such waiver and release and after having consulted legal counsel with respect thereto. 5.10 ENTIRE AGREEMENT. THIS AMENDMENT, THE OTHER BASIC DOCUMENTS AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED AND DELIVERED IN CONNECTION WITH THIS AMENDMENT EMBODY 21 THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO. [REMAINDER OF PAGE INTENTIONALLY BLANK] 22 EXECUTED as of the date first written above. OBLIGORS: IMCO RECYCLING INC. By:___________________________________________ Name: James B. Walburg Title: Senior Vice President IMCO INVESTMENT COMPANY IMCO RECYCLING OF INDIANA INC. IMCO ENERGY CORP. IMCO RECYCLING OF ILLINOIS INC. ALCHEM ALUMINUM, INC. IMCO RECYCLING OF MICHIGAN, L.L.C. PITTSBURG ALUMINUM, INC. INTERAMERICAN ZINC, INC. IMCO RECYCLING OF CALIFORNIA, INC. IMCO INTERNATIONAL, INC. IMCO RECYCLING OF OHIO INC. IMSAMET, INC. IMCO RECYCLING OF IDAHO INC. IMCO RECYCLING OF UTAH INC. ROCK CREEK ALUMINUM, INC. U.S. ZINC CORPORATION GULF REDUCTION CORPORATION MIDWEST ZINC CORPORATION WESTERN ZINC CORPORATION METALCHEM, INC. U.S. ZINC EXPORT CORPORATION ALCHEM ALUMINUM SHELBYVILLE INC. INDIANA ALUMINUM INC. By:___________________________________________ Name: James B. Walburg Title: Vice President of each of the above- named entities 23 IMCO INDIANA PARTNERSHIP L.P. By IMCO Energy Corp., its General Partner By:_________________________________________ Name: James B. Walburg Title: Vice President IMCO MANAGEMENT PARTNERSHIP, L.P. By IMCO Recycling Inc., its General Partner By:_________________________________________ Name: James B. Walburg Title: Senior Vice President LENDERS: THE CHASE MANHATTAN BANK (successor by merger to Chase Bank of Texas, National Association), as Administrative Agent and a Lender By: _________________________________________ Buddy Wuthrich Vice President BANK OF AMERICA, N.A., as Syndication Agent and a Lender By:_________________________________________ Name: Suzanne B. Smith Title: Managing Director 24 MERRILL LYNCH CAPITAL CORPORATION as a Lender By:____________________________________________ Name:_______________________________________ Title:______________________________________ BANK OF TOKYO-MITSUBISHI, LTD., as a Lender By:____________________________________________ Name: Douglas M. Barnell Title: Vice President By:____________________________________________ Name:_______________________________________ Title:______________________________________ BANK ONE, NA (formerly known as The First National Bank of Chicago) (Main Office Chicago), as a Lender By:____________________________________________ Name: Thomas R. Freas Title: Managing Director PNC BANK, NATIONAL ASSOCIATION, as Documentation Agent and a Lender By:____________________________________________ Name: Lynn Koncz Title: Vice President 25 DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG, as a Lender By:____________________________________________ Name: Mark K. Connelly Title: Vice President By:____________________________________________ Name:_______________________________________ Title:______________________________________ Title:______________________________________ AMSOUTH BANK (successor in interest by merger to First American National Bank), as a Lender By:____________________________________________ Name: Seth Butler Title: Corporate Bank Officer NATIONAL CITY BANK, as a Lender By:____________________________________________ Name: Wilmer J. Jacobs Title: Assistant Vice President COMERICA BANK, as a Lender By:____________________________________________ Name:_______________________________________ Title:______________________________________ 26 WELLS FARGO BANK TEXAS, NATIONAL ASSOCIATION, as a Lender By:_______________________________________ Name: Zachary S. Johnson Title: Assistant Vice President BANK HAPOALIM, SAN FRANCISCO BRANCH, as a Lender By:_______________________________________ Name:__________________________________ Title:_________________________________ 27 EX-10.2 3 0003.txt RECEIVABLES PURCHASE AGREEMENT Exhibit 10.2 ================================================================================ RECEIVABLES PURCHASE AGREEMENT dated as of November 2, 2000 among IMCO FUNDING CORPORATION, as the Seller IMCO RECYCLING INC., as the Servicer MARKET STREET FUNDING CORPORATION, as the Issuer and PNC BANK, NATIONAL ASSOCIATION, as the Administrator ================================================================================ Receivables Purchase Agreement THIS RECEIVABLES PURCHASE AGREEMENT (the "Agreement"), dated as of --------- November 2, 2000, among IMCO FUNDING CORPORATION, a Delaware corporation, as the seller (the "Seller"), IMCO RECYCLING INC., a Delaware corporation ("IMCO"), as ------ ---- initial servicer (in such capacity, together with its successors and permitted assigns in such capacity, the "Servicer"), MARKET STREET FUNDING CORPORATION, a -------- Delaware corporation (together with its successors and permitted assigns, the "Issuer"), and PNC BANK, NATIONAL ASSOCIATION, a national banking association ------ ("PNC"), as administrator (in such capacity, together with its successors and --- assigns in such capacity, the "Administrator"). ------------- DEFINITIONS ----------- Unless otherwise indicated herein, capitalized terms used in this Agreement are defined in Exhibit I to this Agreement. All references herein to months are to calendar months unless otherwise expressly indicated. BACKGROUND: ---------- The Seller desires to sell, transfer and assign an undivided variable percentage interest in a pool of receivables, and the Issuer desires to acquire such undivided variable percentage interest, as such percentage interest shall be adjusted from time to time based upon, in part, reinvestment payments that are made by the Issuer. NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto agree as follows: ARTICLE 1 AMOUNTS AND TERMS OF THE PURCHASES SECTION 1.1 Purchase Facility. (a) On the terms and conditions hereinafter set forth, the Issuer hereby agrees to purchase, and make reinvestments of, undivided percentage ownership interests with regard to the Purchased Interest from the Seller from time to time from the date hereof to the Facility Termination Date. Under no circumstances shall the Issuer make any such purchase or reinvestment if, after giving effect to such purchase or reinvestment, the aggregate outstanding Capital of the Purchased Interest would exceed the Purchase Limit. (b) The Seller may, upon at least 60 days' prior written notice to the Administrator, terminate the purchase facility provided in this Section in whole or, upon at least 30 days' written notice to the Administrator, from time to time, irrevocably reduce in part the unused portion of the Purchase Limit; provided that each partial reduction shall be in the amount of at least - -------- $5,000,000 or an integral multiple of $1,000,000 in excess thereof, and that, unless terminated in whole, the Purchase Limit shall in no event be reduced below $20,000,000. SECTION 1.2 Making Purchases. (a) Each purchase (but not reinvestment) of ---------------- undivided percentage ownership interests with regard to the Purchased Interest hereunder shall be made upon the Seller's irrevocable written notice in the form of Annex B delivered to the ------- Administrator in accordance with Section 5.2 (which notice must be received by ----------- the Administrator before 1:00 p.m., New York City time) at least two Business Days before the requested purchase date, which notice shall specify: (i) the amount requested to be paid to the Seller (such amount, which shall not be less than $1,000,000 and shall be in integral multiples of $100,000, being the Capital relating to the undivided percentage ownership interest then being purchased), (ii) the date of such purchase (which shall be a Business Day), and (iii) the pro forma calculation of the Purchased Interest after giving effect to the increase in Capital. (b) On the date of each purchase (but not reinvestment) of undivided percentage ownership interests with regard to the Purchased Interest hereunder, the Issuer shall, upon satisfaction of the applicable conditions set forth in Exhibit II, make available to the Seller in same day funds, at Chase Manhattan - ---------- Bank, account # 08500216028, ABA # 113000609, Ref. IMCO Funding Corporation, an amount equal to the Capital relating to the undivided percentage ownership interest then being purchased. (c) Effective on the date of each purchase pursuant to this Section and each reinvestment pursuant to Section 1.4, the Seller hereby sells ----------- and assigns to the Issuer an undivided percentage ownership interest in: (i) each Pool Receivable then existing, (ii) all Related Security with respect to such Pool Receivables, and (iii) all Collections with respect to, and other proceeds of, such Pool Receivables and Related Security. (d) To secure all of the Seller's obligations (monetary or otherwise) under this Agreement and the other Transaction Documents to which it is a party, whether now or hereafter existing or arising, due or to become due, direct or indirect, absolute or contingent, the Seller hereby grants to the Issuer a security interest in all of the Seller's right, title and interest (including any undivided interest of the Seller) in, to and under all of the following, whether now or hereafter owned, existing or arising: (i) all Pool Receivables, (ii) all Related Security with respect to such Pool Receivables, (iii) all Collections with respect to such Pool Receivables, (iv) the Lock-Box Accounts and all amounts on deposit therein, and all certificates and instruments, if any, from time to time evidencing such Lock-Box Accounts and amounts on deposit therein, (v) all books and records of each Receivable, and all Transaction Documents to which the Seller is a party, together with all rights (but not obligations) of the Seller, (vi) all proceeds of, and all amounts received or receivable under any or all of, the foregoing (collectively, the "Pool Assets"). The Issuer shall have, with respect to the Pool Assets, and ----------- in addition to all the other rights and remedies available to the Issuer, all the rights and remedies of a secured party under any applicable UCC. SECTION 1.3 Purchased Interest Computation. The Purchased Interest shall be ------------------------------ initially computed on the date of the initial purchase hereunder. Thereafter, until the Facility Termination Date, the Purchased Interest shall be automatically recomputed (or deemed to be recomputed) on each Business Day other than a Termination Day. The Purchased Interest as computed (or deemed recomputed) as of the day before the Facility Termination Date shall thereafter remain constant. The Purchased Interest shall become zero when the Capital thereof and Discount thereon shall have been paid in full, all the amounts owed by the Seller and the Servicer hereunder to the Issuer, the 2 Receivables Purchase Agreement Administrator and any other Indemnified Party or Affected Person are paid in full, and the Servicer shall have received the accrued Servicing Fee thereon. SECTION 1.4 Settlement Procedures. (a) The collection of the Pool --------------------- Receivables shall be administered by the Servicer in accordance with this Agreement. The Seller shall provide to the Servicer on a timely basis all information needed for such administration, including notice of the occurrence of any Termination Day and current computations of the Purchased Interest. (b) The Servicer shall, on each day on which Collections of Pool Receivables are received (or deemed received) by the Seller or the Servicer: (i) set aside and hold in trust (and shall, at the request of the Administrator, segregate in a separate account approved by the Administrator if, at the time of such request, there exists an Unmatured Termination Event or a Termination Event or if the failure to so segregate reasonably could be expected to cause a Material Adverse Effect), first, an ----- amount equal to the Discount accrued through such day for each Portion of Capital and not previously set aside, second, an amount equal to the fees ------ set forth in the Fee Letter accrued and unpaid through such day, and third, ----- to the extent funds are available therefor, an amount equal to the Servicing Fee accrued through such day and not previously set aside; (ii) Subject to Section 1.4(f), if such day is not a Termination ------------- Day, then, remit to the Seller, on behalf of the Issuer, the remainder of the Issuer's Share of such Collections and such remainder will be automatically reinvested in additional Receivables; provided, however, that after giving effect to such reinvestment, the Purchased Interest shall not exceed 100%; (iii) if such day is a Termination Day, set aside, segregate and hold in trust (and shall, at the request of the Administrator, segregate in a separate account approved by the Administrator) for the Issuer the entire remainder of the Collections; provided, that if amounts are set aside and -------- held in trust on any Termination Day of the type described in clause (a) of the definition of "Termination Day" and, thereafter, the conditions set forth in Section 2 of Exhibit II are satisfied or waived by the ---------- Administrator, such previously set-aside amounts shall be reinvested in accordance with clause (ii) on the day of such subsequent satisfaction or ---------- waiver of conditions; and (iv) release to the Seller (subject to Section 1.4(f)) for its own -------------- account any Collections in excess of: (x) amounts required to be reinvested in accordance with clause (ii) or the proviso to clause (iii) plus (y) the ---------- ----------- amounts that are required to be set aside pursuant to clause (i), the --------- proviso to clause (ii) and clause (iii) plus (z) the Seller's Share of the ----------- ----------- Servicing Fee accrued and unpaid through such day and all reasonable and appropriate out-of-pocket costs and expenses of the Servicer for servicing, collecting and administering the Pool Receivables. 3 Receivables Purchase Agreement (c) The Servicer shall deposit into the Administration Account (or such other account designated by the Administrator), on each Monthly Settlement Date, Collections held for the Issuer pursuant to clause (b)(i) or ------------ (f) plus the amount of Collections then held for the Issuer pursuant to clauses ---- ------- (b)(ii) and (iii) of Section 1.4, provided that if IMCO or an Affiliate thereof - ------ --- ----------- -------- is the Servicer, such day is not a Termination Day and the Administrator has not notified IMCO (or such Affiliate) that such right is revoked, IMCO (or such Affiliate) may retain the portion of the Collections set aside pursuant to clause (b)(i) that represents the Issuer's Share of the Servicing Fee. On the - ------------ last day of each Settlement Period, the Administrator will notify the Servicer by facsimile of the amount of Discount accrued with respect to each Portion of Capital during such Settlement Period or portion thereof. (d) On each Monthly Settlement Date, the Administrator shall cause funds on deposit in the account specified in Section 1.2(b) to be ------------- distributed as follows: (i) if such distribution occurs on a day that is not a Termination Day and the Purchased Interest does not exceed 100%, first to the Issuer in ----- payment in full of all accrued Discount and fees (other than Servicing Fees) with respect to each Portion of Capital, and second, if the Servicer ------ has set aside amounts in respect of the Servicing Fee pursuant to clause ------ (b)(i) and has not retained such amounts pursuant to clause (c), to the ----- --------- Servicer (payable in arrears on each Monthly Settlement Date) in payment in full of the Issuer's Share of accrued Servicing Fees so set aside; (ii) if such distribution occurs on a Termination Day or on a day when the Purchased Interest exceeds 100%, first to the Issuer in payment in ----- full of all accrued Discount with respect to each Portion of Capital, second to the Issuer in payment in full of Capital (or, if such day is not ------ a Termination Day, the amount necessary to reduce the Purchased Interest to 100%), third, to the Servicer in payment in full of all accrued and unpaid ----- Servicing Fees, fourth, if the Capital and accrued Discount with respect to ------ each Portion of Capital have been reduced to zero, and all accrued Servicing Fees payable to the Servicer have been paid in full, to the Issuer, the Administrator and any other Indemnified Party or Affected Person in payment in full of any other amounts owed thereto by the Seller hereunder. After the Capital, Discount, fees payable pursuant to the Fee Letter and Servicing Fees with respect to the Purchased Interest, and any other amounts payable by the Seller and the Servicer to the Issuer, the Administrator or any other Indemnified Party or Affected Person hereunder, have been paid in full, all additional Collections with respect to the Purchased Interest shall be paid to the Seller for its own account. (e) for the purposes of this Section 1.4: ----------- (i) if on any day the Outstanding Balance of any Pool Receivable is reduced or adjusted as a result of any defective, rejected, returned, repossessed or foreclosed goods or services, or any revision, cancellation, allowance, discount or other adjustment made by the 4 Receivables Purchase Agreement Seller or any Affiliate of the Seller, or any setoff or dispute between the Seller or any Affiliate of the Seller and an Obligor, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in the amount of such reduction or adjustment; (ii) if on any day any of the representations or warranties in Section 1(g) or (n) of Exhibit III is not true with respect to any Pool ----------- - ----------- Receivable, the Seller shall be deemed to have received on such day a Collection of such Pool Receivable in full; (iii) except as provided in clause (i) or (ii), or as otherwise --------- -- required by applicable law or the relevant Contract, all Collections received from an Obligor of any Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates in writing its payment for application to specific Receivables; and (iv) if and to the extent the Administrator or the Issuer shall be required for any reason to pay over to an Obligor (or any trustee, receiver, custodian or similar official in any Insolvency Proceeding) any amount received by it hereunder, such amount shall be deemed not to have been so received by the Administrator or the Issuer but rather to have been retained by the Seller and, accordingly, the Administrator or the Issuer, as the case may be, shall have a claim against the Seller for such amount, payable when and to the extent that any distribution from or on behalf of such Obligor is made in respect thereof. (f) If at any time the Seller shall wish to cause the reduction of Capital or a portion thereof (but not to commence the liquidation, or reduction to zero, of the entire Capital of the Purchased Interest), the Seller may do so as follows: (i) the Seller shall give the Administrator and the Servicer written notice in the form of Annex C at least two Business Days prior to ------- the date of such reduction for any reduction of Capital less than or equal to $20,000,000 and (B) at least five Business Days prior to the date of such reduction for any reduction of Capital greater than $20,000,000; and (ii) on the proposed date of such reduction, (A) the Seller shall remit to the Administration Account cash and instructions to apply such cash to the reduction of such Capital and Discount to accrue (until such cash can be used to pay Notes) with respect to such Capital, and to pay all costs related to such Capital reduction, or (B) at the election of the Seller, on the proposed date of commencement of such reduction and on each day thereafter, the Servicer shall cause Collections with respect to such Portion of Capital not to be reinvested until the amount thereof not so reinvested shall equal the desired amount of reduction and the Servicer shall hold such Collections in trust for the Purchasers, for payment to the Administrator on the last day of the current Settlement Period relating to such Portion of Capital (as specified by the Seller), and the applicable Portion of Capital shall be deemed reduced in the amount to be paid to the Agent only when in fact finally so paid; 5 Receivables Purchase Agreement provided that the amount of any such reduction shall be not less than $1,000,000 - -------- and shall be an integral multiple of $100,000, and the entire Capital of the Purchased Interest after giving effect to such reduction shall be not less than $20,000,000 and shall be in an integral multiple of $100,000. SECTION 1.5 Fees. The Seller shall pay to the Administrator certain fees in ---- the amounts and on the dates set forth in a fee letter, dated the date hereof, among IMCO, the Seller and the Administrator (as such letter agreement may be amended, supplemented or otherwise modified from time to time, the "Fee --- Letter"). - ------ SECTION 1.6 Payments and Computations, Etc. (a) All amounts to be paid or ------------------------------ deposited by the Seller or the Servicer hereunder shall be made without reduction for offset or counterclaim and shall be paid or deposited no later than 1:00 p.m. (New York City time) on the day when due in same day funds to the Administration Account. All amounts received after 1:00 p.m. (New York City time) will be deemed to have been received on the next Business Day. (b) The Seller or the Servicer, as the case may be, shall, to the extent permitted by law, pay interest on any amount not paid or deposited by the Seller or the Servicer, as the case may be, when due hereunder, at an interest rate equal to 2.0% per annum above the Base Rate, payable on demand. (c) The Seller or the Servicer, as the case may be, shall, during the existence of a Termination Event, pay interest on the outstanding amount of the Capital at an interest rate equal to 2.0% per annum above the Base Rate, payable on demand. (d) All computations of interest under clause (b) and all --------- computations of Discount, fees and other amounts hereunder shall be made on the basis of a year of 360 (or 365 or 366, as applicable, with respect to Discount or other amounts calculated by reference to the Base Rate) days for the actual number of days elapsed. Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next Business Day and such extension of time shall be included in the computation of such payment or deposit. SECTION 1.7 Increased Costs. (a) If the Administrator, the Issuer, any --------------- Purchaser, any other Program Support Provider or any of their respective Affiliates (each an "Affected Person") reasonably determines that the existence --------------- of or compliance with: (i) any law or regulation or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof, or (ii) any request, guideline or directive from any central bank or other Governmental Authority (whether or not having the force of law) issued or occurring after the date of this Agreement, affects the amount of capital required or expected to be maintained by such Affected Person, and such Affected Person determines that the amount of such capital is increased by or based upon the existence of any commitment to make purchases of (or otherwise to maintain the investment in) Pool Receivables related to this Agreement or any related liquidity facility, credit enhancement facility and other commitments of the same type, then, upon demand by such Affected Person (with a copy to the Administrator), the Seller shall promptly pay to the Administrator, for 6 Receivables Purchase Agreement the account of such Affected Person, from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person in the light of such circumstances, to the extent that such Affected Person reasonably determines such increase in capital to be allocable to the existence of any of such commitments. A certificate as to such amounts submitted to the Seller and the Administrator by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either: (i) the introduction of or any change in or in the interpretation of any law or regulation or (ii) compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to any Affected Person of agreeing to purchase or purchasing, or maintaining the ownership of, the Purchased Interest in respect of which Discount is computed by reference to the Euro-Rate, then, upon demand by such Affected Person, the Seller shall promptly pay to such Affected Person, from time to time as specified by such Affected Person, additional amounts sufficient to compensate such Affected Person for such increased costs. A certificate as to such amounts submitted to the Seller and the Administrator by such Affected Person shall be conclusive and binding for all purposes, absent manifest error. (c) If such increased costs affect the related Affected Person's portfolio of financing transactions, such Affected Person shall use reasonable averaging and attribution methods to allocate such increased costs to the transactions contemplated by this Agreement. SECTION 1.8 Requirements of Law. If any Affected Person reasonably ------------------- determines that the existence of or compliance with: (a) any law or regulation or any change therein or in the interpretation or application thereof, in each case adopted, issued or occurring after the date hereof, or (b) any request, guideline or directive from any central bank or other Governmental Authority (whether or not having the force of law) issued or occurring after the date of this Agreement: (i) does or shall subject such Affected Person to any tax of any kind whatsoever with respect to this Agreement, any increase in the Purchased Interest or in the amount of Capital relating thereto, or does or shall change the basis of taxation of payments to such Affected Person on account of Collections, Discount or any other amounts payable hereunder (excluding taxes imposed on the overall pre-tax net income of such Affected Person, and franchise taxes imposed on such Affected Person, by the jurisdiction under the laws of which such Affected Person is organized or a political subdivision thereof), (ii) does or shall impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, purchases, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Affected Person that are not otherwise included in the determination of the Euro-Rate or the Base Rate hereunder, or (iii) does or shall impose on such Affected Person any other expense or liability with respect to the transactions contemplated by this Agreement, 7 Receivables Purchase Agreement and the result of any of the foregoing is: (A) to increase the cost to such Affected Person of acting as Administrator, or of agreeing to purchase or purchasing or maintaining the ownership of undivided percentage ownership interests with regard to the Purchased Interest (or interests therein) or any Portion of Capital, or (B) to reduce any amount receivable hereunder (whether directly or indirectly), then, in any such case, upon demand by such Affected Person, the Seller shall promptly pay to such Affected Person additional amounts necessary to compensate such Affected Person for such additional cost or reduced amount receivable. All such amounts shall be payable as incurred. A certificate from such Affected Person to the Seller and the Administrator certifying, in reasonably specific detail, the basis for, calculation of, and amount of such additional costs or reduced amount receivable shall be conclusive and binding for all purposes, absent manifest error; provided, however, that no Affected -------- ------- Person shall be required to disclose any confidential or tax planning information in any such certificate. SECTION 1.9 Inability to Determine Euro-Rate. (a) If the Administrator -------------------------------- determines before the first day of any Settlement Period (which determination shall be final and conclusive) that, by reason of circumstances affecting the interbank eurodollar market generally, deposits in dollars (in the relevant amounts for such Settlement Period) are not being offered to banks in the interbank eurodollar market for such Settlement Period, or adequate means do not exist for ascertaining the Euro-Rate for such Settlement Period, then the Administrator shall give notice thereof to the Seller. Thereafter, until the Administrator notifies the Seller that the circumstances giving rise to such suspension no longer exist, (a) no Portion of Capital shall be funded at the Alternate Rate determined by reference to the Euro-Rate and (b) the Discount for any outstanding Portions of Capital then funded at the Alternate Rate determined by reference to the Euro-Rate shall, on the last day of the then current Settlement Period, be converted to the Alternate Rate determined by reference to the Base Rate. (b) If, on or before the first day of any Settlement Period, the Administrator shall have been notified by any Purchaser that such Purchaser has determined (which determination shall be final and conclusive) that, any enactment, promulgation or adoption of or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by a governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by such Purchaser with any guideline, request or directive (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for such Purchaser to fund or maintain any Portion of Capital at the Alternate Rate and based upon the Euro-Rate, the Administrator shall notify the Seller thereof. Upon receipt of such notice, until the Administrator notifies the Seller that the circumstances giving rise to such determination no longer apply, (a) no Portion of Capital shall be funded at the Alternate Rate determined by reference to the Euro-Rate and (b) the Discount for any outstanding Portions of Capital then funded at the Alternate Rate determined by reference to the Euro-Rate shall be converted to the Alternate Rate determined by reference to the Base Rate either (i) on the last day of the then current Settlement Period if such Purchaser may lawfully continue to maintain such Portion of Capital at the Alternate Rate determined by reference to the Euro- Rate to such day, or (ii) immediately, if such Purchaser may not lawfully continue to maintain such Portion of Capital at the Alternate Rate determined by reference to the Euro-Rate to such day. 8 Receivables Purchase Agreement ARTICLE II REPRESENTATIONS AND WARRANTIES; COVENANTS; TERMINATION EVENTS SECTION 2.1 Representations and Warranties; Covenants. Each of the Seller, ----------------------------------------- IMCO and the Servicer hereby makes the representations and warranties, and hereby agrees to perform and observe the covenants, applicable to it set forth in Exhibits III and IV respectively. ------------ -- SECTION 2.2 Termination Events. If any of the Termination Events set forth ------------------ in Exhibit V shall occur, the Administrator may, by notice to the Seller, --------- declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred); provided that -------- automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (f) of Exhibit ------- V, the Facility Termination Date shall occur. Upon any such declaration, - - occurrence or deemed occurrence of the Facility Termination Date, the Issuer and the Administrator shall have, in addition to the rights and remedies that they may have under this Agreement, all other rights and remedies provided after default under the New York UCC and under other applicable law, which rights and remedies shall be cumulative. ARTICLE III INDEMNIFICATION SECTION 3.1 Indemnities by the Seller. Without limiting any other rights ------------------------- that the Administrator, the Issuer, any Program Support Provider or any of their respective Affiliates, employees, officers, directors, agents, counsel, successors, transferees or assigns (each, an "Indemnified Party") may have hereunder or under applicable law, the Seller hereby agrees to indemnify each Indemnified Party from and against any and all claims, damages, expenses, costs, losses and liabilities (including Attorney Costs) (all of the foregoing being collectively referred to as "Indemnified Amounts") arising out of or resulting from this Agreement (whether directly or indirectly), the use of proceeds of purchases or reinvestments, the ownership of the Purchased Interest, or any interest therein, or in respect of any Receivable, Related Security or Contract, excluding, however: (a) Indemnified Amounts to the extent resulting from gross negligence or willful misconduct on the part of such Indemnified Party or its officers, directors, agents or counsel, (b) recourse (except as otherwise specifically provided in this Agreement) for Receivables, or (c) any overall net income taxes or franchise taxes imposed on such Indemnified Party by the jurisdiction under the laws of which such Indemnified Party is organized or any political subdivision thereof. Without limiting or being limited by the foregoing, and subject to the exclusions set forth in the preceding sentence, the Seller shall pay on demand (which demand shall be accompanied by documentation of the Indemnified Amounts, in reasonable detail) to each Indemnified Party any and all amounts necessary to indemnify such Indemnified Party from and against any and all Indemnified Amounts relating to or resulting from any of the following: (a) the failure of any Receivable included in the calculation of the Net Receivables Pool Balance as an Eligible Receivable to be an Eligible Receivable, the failure of any 9 Receivables Purchase Agreement information contained in an Information Package to be true and correct, or the failure of any other information provided to the Issuer or the Administrator with respect to Receivables or this Agreement to be true and correct, (b) the failure of any representation or warranty made or deemed made by the Seller (or any of its officers) under or in connection with this Agreement to have been true and correct as of the date made or deemed made in all material respects when made, (c) the failure by the Seller to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, or the failure of any Pool Receivable or the related Contract to conform to any such applicable law, rule or regulation, (d) the failure to vest in the Issuer a valid and enforceable: (A) perfected undivided percentage ownership interest, to the extent of the Purchased Interest, in the Receivables in, or purporting to be in, the Receivables Pool and the other Pool Assets, or (B) first priority perfected security interest in the Pool Assets, in each case, free and clear of any Adverse Claim, (e) the failure to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables in, or purporting to be in, the Receivables Pool and the other Pool Assets, whether at the time of any purchase or reinvestment or at any subsequent time, (f) any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool (including a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the goods or services related to such Receivable or the furnishing or failure to furnish such goods or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by the Seller or any of its Affiliates acting as Servicer or by any agent or independent contractor retained by the Seller or any of its Affiliates), (g) any failure of the Seller (or any of its Affiliates acting as the Servicer) to perform its duties or obligations in accordance with the provisions hereof or under the Contracts, (h) any products liability or other claim, investigation, litigation or proceeding arising out of or in connection with merchandise, insurance or services that are the subject of any Contract, (i) the commingling of Collections at any time with other funds, (j) the use of proceeds of purchases or reinvestments, or 10 Receivables Purchase Agreement (k) any reduction in Capital as a result of the distribution of Collections pursuant to Section 1.4(d), if all or a portion of such ------------- distributions shall thereafter be rescinded or otherwise must be returned for any reason. SECTION 3.2 Indemnities by the Servicer. Without limiting any other rights --------------------------- that the Administrator, the Issuer or any other Indemnified Party may have hereunder or under applicable law, the Servicer hereby agrees to indemnify each Indemnified Party from and against any and all Indemnified Amounts arising out of or resulting from (whether directly or indirectly): (a) the failure of any information contained in an Information Package to be true and correct, or the failure of any other information provided to the Issuer or the Administrator by, or on behalf of, the Servicer to be true and correct, (b) the failure of any representation, warranty or statement made or deemed made by the Servicer (or any of its officers) under or in connection with this Agreement to have been true and correct as of the date made or deemed made in all respects when made, (c) the failure by the Servicer to comply with any applicable law, rule or regulation with respect to any Pool Receivable or the related Contract, (d) any dispute, claim, offset or defense of the Obligor to the payment of any Receivable in, or purporting to be in, the Receivables Pool resulting from or related to the collection activities with respect to such Receivable, or (e) any failure of the Servicer to perform its duties or obligations in accordance with the provisions hereof. ARTICLE IV ADMINISTRATION AND COLLECTIONS SECTION 4.1 Appointment of the Servicer. (a) The servicing, administering --------------------------- and collection of the Pool Receivables shall be conducted by the Person so designated from time to time as the Servicer in accordance with this Section. Until the Administrator gives notice to IMCO (in accordance with this Section) of the designation of a new Servicer, IMCO is hereby designated as, and hereby agrees to perform the duties and obligations of, the Servicer pursuant to the terms hereof. Upon the occurrence of a Termination Event (but not prior thereto), the Administrator may designate as Servicer any Person (including itself) to succeed IMCO or any successor Servicer, on the condition in each case that any such Person so designated shall agree to perform the duties and obligations of the Servicer pursuant to the terms hereof. (b) Upon the designation of a successor Servicer as set forth in clause (a), IMCO agrees that it will terminate its activities as Servicer - --------- hereunder in a manner that the Administrator determines will facilitate the transition of the performance of such activities to the new Servicer, and IMCO shall cooperate with and assist such new Servicer. Such cooperation shall include access to and transfer of related records and use by the new Servicer of all licenses, hardware or software necessary or desirable to collect the Pool Receivables and the Related Security. (c) IMCO acknowledges that, in making their decision to execute and deliver this Agreement, the Administrator and the Issuer have relied on IMCO's agreement to act as Servicer hereunder. Accordingly, IMCO agrees that it will not voluntarily resign as Servicer. 11 Receivables Purchase Agreement (d) The Servicer may delegate its duties and obligations hereunder to any subservicer (each a "Sub-Servicer"); provided, that, in each such ------------ -------- delegation: (i) such Sub-Servicer shall agree in writing to perform the duties and obligations of the Servicer pursuant to the terms hereof, (ii) the Servicer shall remain primarily liable for the performance of the duties and obligations so delegated, (iii) the Seller, the Administrator and the Issuer shall have the right to look solely to the Servicer for performance, and (iv) the terms of any agreement with any Sub-Servicer shall provide that the Administrator may terminate such agreement upon the termination of the Servicer hereunder by giving notice of its desire to terminate such agreement to the Servicer (and the Servicer shall provide appropriate notice to each such Sub-Servicer); provided, -------- however, that if any such delegation is to any Person other than an Originator, - ------- the Administrator shall have consented in writing in advance to such delegation. SECTION 4.2 Duties of the Servicer. (a) The Servicer shall take or cause ---------------------- to be taken all such action as may be necessary or advisable to administer and collect each Pool Receivable from time to time, all in accordance with this Agreement and all applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policies. The Servicer shall set aside, for the accounts of the Seller and the Issuer, the amount of the Collections to which each is entitled in accordance with Article ------- I. The Servicer may, in accordance with the applicable Credit and Collection - - Policies, extend the maturity of any Pool Receivable (but not beyond 30 days) and extend the maturity or adjust the Outstanding Balance of any Defaulted Receivable as the Servicer may determine to be appropriate to maximize Collections thereof; provided, however, that: (i) such extension or adjustment -------- ------- shall not alter the status of such Pool Receivable as a Delinquent Receivable or a Defaulted Receivable or limit the rights of the Issuer or the Administrator under this Agreement and (ii) if a Termination Event has occurred and IMCO or an Affiliate thereof is serving as the Servicer, IMCO or such Affiliate may make such extension or adjustment only upon the prior approval of the Administrator. The Seller shall deliver to the Servicer and the Servicer shall hold for the benefit of the Seller and the Administrator (individually and for the benefit of the Issuer), in accordance with their respective interests, all records and documents (including computer tapes or disks) with respect to each Pool Receivable. Notwithstanding anything to the contrary contained herein, the Administrator may direct the Servicer (whether the Servicer is IMCO or any other Person) to commence or settle any legal action to enforce collection of any Pool Receivable or to foreclose upon or repossess any Related Security, provided that -------- no such direction may be given unless a Termination Event or an Unmatured Termination Event has occurred and is continuing. (b) The Servicer shall, as soon as practicable following actual receipt of collected funds, turn over to the Seller the collections of any indebtedness that is not a Pool Receivable, less, if IMCO or an Affiliate thereof is not the Servicer, all reasonable and appropriate out-of-pocket costs and expenses of such Servicer of servicing, collecting and administering such collections. The Servicer, if other than IMCO or an Affiliate thereof, shall, as soon as practicable upon demand, deliver to the Seller all records in its possession that evidence or relate to any indebtedness that is not a Pool Receivable, and copies of records in its possession that evidence or relate to any indebtedness that is a Pool Receivable. Receivables Purchase Agreement 12 (c) The Servicer's obligations hereunder shall terminate on the later of: (i) the Facility Termination Date and (ii) the date on which all amounts required to be paid to the Issuer, the Administrator and any other Indemnified Party or Affected Person hereunder shall have been paid in full. After such termination, if IMCO or an Affiliate thereof was not the Servicer on the date of such termination, the Servicer shall promptly deliver to the Seller all books, records and related materials that the Seller previously provided to the Servicer, or that have been obtained by the Servicer, in connection with this Agreement. SECTION 4.3 Lock-Box Arrangements. On or prior to the initial purchase --------------------- hereunder, the Seller shall enter into Lock-Box Agreements with all of the Lock- Box Banks and deliver original counterparts thereof to the Administrator. Upon the occurrence of a Termination Event, the Administrator may at any time thereafter give notice to each Lock-Box Bank that the Administrator is exercising its rights under the Lock-Box Agreements to do any or all of the following: (a) to have the exclusive ownership and control of the Lock-Box Accounts transferred to the Administrator and to exercise exclusive dominion and control over the funds deposited therein, (b) to have the proceeds that are sent to the respective Lock-Box Accounts redirected pursuant to the Administrator's instructions rather than deposited in the applicable Lock-Box Account, and (c) to take any or all other actions permitted under the applicable Lock-Box Agreement. The Seller hereby agrees that if the Administrator at any time takes any action set forth in the preceding sentence, the Administrator shall have exclusive control of the proceeds (including Collections) of all Pool Receivables and the Seller hereby further agrees to take any other action that the Administrator may reasonably request to transfer such control. Any proceeds of Pool Receivables received by the Seller or the Servicer thereafter shall be sent immediately to the Administrator. The parties hereto hereby acknowledge that if at any time the Administrator takes control of any Lock-Box Account, the Administrator shall not have any rights to the funds therein in excess of the unpaid amounts due to the Administrator, the Issuer or any other Person hereunder, and the Administrator shall promptly distribute or cause to be distributed such funds in accordance with Section 4.2(b) and Article I (in each ------------- --------- case as if such funds were held by the Servicer thereunder). The Seller hereby agrees to take all actions necessary to ensure that all Lock-Box Accounts are maintained in the name of the Servicer. SECTION 4.4 Enforcement Rights. (a) At any time following the occurrence ------------------ of a Termination Event: (i) the Administrator may direct the Obligors that payment of all amounts payable under any Pool Receivable is to be made directly to the Administrator or its designee, (ii) the Administrator may instruct the Seller or the Servicer to give notice of the Issuer's interest in Pool Receivables to each Obligor, which notice shall direct that payments be made directly to the Administrator or its designee, and the Seller or the Servicer, as the case may be, shall give such notice at the expense of the Seller or the Servicer, as the case Receivables Purchase Agreement may be; provided that if the Seller or the Servicer, as the case may -------- be, fails to so notify each Obligor, the Administrator (at the Seller's or the Servicer's, as the case may be, expense) may so notify the Obligors, and (iii) the Administrator may request the Servicer to, and upon such request the Servicer shall: (A) assemble all of the records necessary or desirable to collect the Pool Receivables and the Related Security, and transfer or license to a successor Servicer the use of all software necessary or desirable to collect the Pool Receivables and the Related Security, and make the same available to the Administrator or its designee at a place selected by the Administrator, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections in a manner acceptable to the Administrator and, promptly upon receipt, remit all such cash, checks and instruments, duly endorsed or with duly executed instruments of transfer, to the Administrator or its designee. (b) The Seller hereby authorizes the Administrator, and irrevocably appoints the Administrator as its attorney-in-fact with full power of substitution and with full authority in the place and stead of the Seller, which appointment is coupled with an interest, to take any and all steps in the name of the Seller and on behalf of the Seller necessary or desirable, in the determination of the Administrator, to collect any and all amounts or portions thereof due under any and all Pool Assets, including endorsing the name of the Seller on checks and other instruments representing Collections and enforcing such Pool Assets. The Administrator hereby agrees that it shall not exercise such power or authority unless a Termination Event or an Unmatured Termination Event has occurred and is continuing. Notwithstanding anything to the contrary contained in this subsection, none of the powers conferred upon such attorney- in-fact pursuant to the preceding sentence shall subject such attorney-in-fact to any liability if any action taken by it shall prove to be inadequate or invalid, nor shall they confer any obligations upon such attorney-in-fact in any manner whatsoever. SECTION 4.5 Responsibilities of the Seller. (a) Anything herein to the ------------------------------ contrary notwithstanding, the Seller shall: (i) perform all of its obligations, if any, under the Contracts related to the Pool Receivables to the same extent as if interests in such Pool Receivables had not been transferred hereunder, and the exercise by the Administrator or the Issuer of their respective rights hereunder shall not relieve the Seller from such obligations, and (ii) pay when due any taxes, including any sales taxes payable in connection with the Pool Receivables and their creation and satisfaction. The Administrator and the Issuer shall not have any obligation or liability with respect to any Pool Asset, nor shall either of them be obligated to perform any of the obligations of the Seller, IMCO or an Originator thereunder. (b) IMCO hereby irrevocably agrees that if at any time it shall cease to be the Servicer hereunder, it shall act (if the then-current Servicer so requests) as the data-processing agent of the Servicer and, in such capacity, IMCO shall conduct the data-processing functions of the administration of the Receivables and the Collections thereon in substantially the same way that IMCO conducted such data-processing functions while it acted as the Servicer. Receivables Purchase Agreement 14 SECTION 4.6 Servicing Fee. (a) Subject to clause (b), the Servicer shall be ------------- ---------- paid a fee equal to 0.50% per annum (the "Servicing Fee Rate") of the daily --------- ------------------ average aggregate Outstanding Balance of the Pool Receivables. The Issuer's Share of such fee shall be paid through the distributions contemplated by Section 1.4(d), and the Seller's Share of such fee shall be paid by the Seller - -------------- on each Monthly Settlement Date. (b) If the Servicer ceases to be IMCO or an Affiliate thereof, the servicing fee shall be the greater of: (i) the amount calculated pursuant to clause (a), and (ii) an alternative amount specified by the successor Servicer - ---------- not to exceed 110% of the aggregate reasonable costs and expenses incurred by such successor Servicer in connection with the performance of its obligations as Servicer. ARTICLE V MISCELLANEOUS SECTION 5.1 Amendments, Etc. No amendment or waiver of any provision of --------------- this Agreement or any other Transaction Document, or consent to any departure by the Seller or the Servicer therefrom, shall be effective unless in a writing signed by the Administrator, and, in the case of any amendment, by the other parties thereto; and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure on the part of the Issuer or the Administrator to exercise, and no delay in exercising any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right hereunder preclude any other or further exercise thereof or the exercise of any other right. SECTION 5.2 Notices, Etc. All notices and other communications hereunder ------------ shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and be sent or delivered to each party hereto at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto. Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by first class mail), and notices and communications sent by other means shall be effective when received. SECTION 5.3 Assignability. (a) This Agreement and the Issuer's rights and ------------- obligations herein (including ownership of the Purchased Interest or an interest therein) shall be assignable, in whole or in part, by the Issuer and its successors and assigns with the prior written consent of the Seller; provided, -------- however, that such consent shall not be unreasonably withheld; and provided - ------- -------- further, that no such consent shall be required if the assignment is made to - ------- PNC, any Affiliate of PNC (other than a director or officer of PNC), any Purchaser or other Program Support Provider or any Person that is: (i) in the business of issuing Notes and (ii) controlled or administered by PNC or any Affiliate of PNC (other than a director or officer of PNC). Each assignor may, in connection with the assignment, disclose to the applicable assignee (that shall have agreed to be bound by Section 5.6) any information relating to the ----------- Servicer, the Seller or the Pool Receivables furnished to such assignor by or on behalf of the Servicer, the Seller, the Issuer or the Administrator. The Administrator shall give prior written notice of any assignment of the Issuer's rights and obligations Receivables Purchase Agreement 15 (including ownership of the Purchased Interest to any Person other than a Program Support Provider). (b) The Issuer may at any time grant to one or more banks or other institutions (each a "Purchaser") party to the Liquidity Agreement, or to any --------- other Program Support Provider, participating interests in the Purchased Interest. In the event of any such grant by the Issuer of a participating interest to a Purchaser or other Program Support Provider, the Issuer shall remain responsible for the performance of its obligations hereunder. The Seller agrees that each Purchaser or other Program Support Provider shall be entitled to the benefits of Sections 1.7 and 1.8. ------------ --- (c) This Agreement and the rights and obligations of the Administrator hereunder shall be assignable, in whole or in part, by the Administrator and its successors and assigns; provided, that unless: (i) such assignment is to an Affiliate of PNC, (ii) it becomes unlawful for PNC to serve as the Administrator or (iii) a Termination Event exists, the Seller has consented to such assignment, which consent shall not be unreasonably withheld or delayed. (d) Except as provided in Section 4.1(d), none of the Seller, IMCO or -------------- the Servicer may assign its rights or delegate its obligations hereunder or any interest herein without the prior written consent of the Administrator. (e) Without limiting any other rights that may be available under applicable law, the rights of the Issuer may be enforced through it or by its agents. SECTION 5.4 Costs, Expenses and Taxes. (a) In addition to the rights of ------------------------- indemnification granted under Section 3.1, the Seller agrees to pay on demand ----------- (which demand shall be accompanied by documentation thereof in reasonable detail) all reasonable costs and expenses in connection with the preparation, execution, delivery and administration (including periodic internal audits by the Administrator of Pool Receivables) of this Agreement, the other Transaction Documents and the other documents and agreements to be delivered hereunder (and all reasonable costs and expenses in connection with any amendment, waiver or modification of any thereof), including: (i) Attorney Costs for the Administrator, the Issuer and their respective Affiliates and agents with respect thereto and with respect to advising the Administrator, the Issuer and their respective Affiliates and agents as to their rights and remedies under this Agreement and the other Transaction Documents, and (ii) all reasonable costs and expenses (including Attorney Costs), if any, of the Administrator, the Issuer and their respective Affiliates and successors and permitted assigns in connection with the enforcement of this Agreement and the other Transaction Documents. (b) In addition, the Seller shall pay on demand any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and agrees to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees. Receivables Purchase Agreement 16 SECTION 5.5 No Proceedings; Limitation on Payments. Each of the Seller, -------------------------------------- IMCO, the Servicer, the Administrator, each assignee of the Purchased Interest or any interest therein, and each Person that enters into a commitment to purchase the Purchased Interest or interests therein, hereby covenants and agrees that it will not institute against, or join any other Person in instituting against, the Issuer any bankruptcy, reorganization, arrangement, insolvency or liquidation proceeding, or other proceeding under any federal or state bankruptcy or similar law, for one year and one day after the latest maturing Note issued by the Issuer is paid in full. The provision of this Section 5.5 shall survive any termination of this Agreement. - ----------- SECTION Confidentiality. Unless otherwise required by applicable law or the --------------- terms of any material credit agreement to which the Seller is a party, each of the Seller and the Servicer agrees to maintain the confidentiality of this Agreement and the other Transaction Documents (and all drafts thereof) in communications with third parties and otherwise; provided, that this Agreement may be disclosed to: (a) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the Administrator, and (b) the Seller's legal counsel and auditors if they agree to hold it confidential. Unless otherwise required by applicable law, each of the Administrator and the Issuer agrees to maintain the confidentiality of non-public financial information regarding IMCO and its Subsidiaries and Affiliates; provided, that such information may be disclosed\ -------- to: (i) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to IMCO, (ii) legal counsel and auditors of the Issuer or the Administrator if they agree to hold it confidential, (iii) the rating agencies rating the Notes to the extent such information relates to the Receivables Pool or the transactions contemplated by this Agreement, or if not so related, upon obtaining the prior consent of IMCO (such consent not to be unreasonably withheld), (iv) any Program Support Provider or potential Program Support Provider (if they agree to hold it confidential) to the extent such information relates to the Receivables Pool or the transactions contemplated by this Agreement, or if not so related, upon obtaining the prior consent of IMCO (such consent not to be unreasonably withheld), (v) any placement agent placing the Notes and (vi) any regulatory authorities having jurisdiction over PNC, the Issuer, any Program Support Provider or any Purchaser. SECTION 5.7 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT SHALL BE ------------------------------ DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING FOR SUCH PURPOSE SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK) EXCEPT TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF A SECURITY INTEREST OR REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK. (b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY FEDERAL COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK; AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF Receivables Purchase Agreement 17 THE PARTIES HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, THAT IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH OF THE PARTIES HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH SERVICE MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. SECTION 5.8 Execution in Counterparts. This Agreement may be executed in ------------------------- any number of counterparts, each of which, when so executed, shall be deemed to be an original, and all of which, when taken together, shall constitute one and the same agreement. SECTION 5.9 Survival of Termination. The provisions of Sections 1.7, 1.8, ----------------------- ------------ --- 3.1, 3.2, 5.4, 5.5, 5.6, 5.7, 5.10 and 5.13 shall survive any termination of - --- --- --- --- --- --- ---- ---- this Agreement. SECTION 5.10 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO WAIVES THEIR -------------------- RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS OR OTHERWISE. EACH OF THE PARTIES HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING THAT SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. SECTION 5.11 Entire Agreement. This Agreement and the other Transaction ----------------- Documents embody the entire agreement and understanding between the parties hereto, and supersede all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof, except for any prior arrangements made with respect to the payment by the Issuer of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Seller, the Servicer and the Administrator. SECTION 5.12 Headings. The captions and headings of this Agreement and any -------- Exhibit, Schedule or Annex hereto are for convenience of reference only and shall not affect the interpretation hereof or thereof. Receivables Purchase Agreement 18 SECTION 5.13 Issuer's Liabilities. The obligations of the Issuer under the -------------------- Transaction Documents are solely the corporate obligations of the Issuer. No recourse shall be had for any obligation or claim arising out of or based upon any Transaction Document against any stockholder, employee, officer, director or incorporator of the Issuer; provided, however, that this Section shall not relieve any such Person of any liability it might otherwise have for its own gross negligence or willful misconduct. [Signature Pages Follow] Receivables Purchase Agreement IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. IMCO FUNDING CORPORATION, as the Seller By:__________________________________ Name: James B. Walburg Title: President Address: 5215 North O'Connor Blvd. Suite 1500 Irving, Texas 75039 Attention: Jeffrey S. Mecom Telephone: (972) 401-7200 Facsimile: (972) 401-7342 IMCO RECYCLING INC., as the Servicer By:___________________________________ Name: James B. Walburg Title: Senior Vice President Address: 5215 North O'Connor Blvd. Suite 1500 Irving, Texas 75039 Attention: Jeffrey S. Mecom Telephone: (972) 401-7200 Facsimile: (972) 401-7342 Receivables Purchase Agreement S-1 MARKET STREET FUNDING CORPORATION, as the Issuer By:__________________________________ Name: Title: Address: c/o AMACAR Group, LLC 6525 Morrison Boulevard, Suite 318 Charlotte, North Carolina 28211 Attention: Douglas K. Johnson Telephone: (704) 365-0569 Facsimile: (704) 365-1362 With a copy to: PNC Bank, National Association Address: One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222-2707 Attention: John Smathers Telephone: (412) 762-6440 Facsimile: (412) 762-9184 PNC BANK, NATIONAL ASSOCIATION, as Administrator By:________________________________ Name: Title: Address: One PNC Plaza 249 Fifth Avenue Pittsburgh, PA 15222-2707 Attention: John Smathers Telephone: (412) 762-6440 Facsimile: (412) 762-9184 Receivables Purchase Agreement S-2 EX-15.1 4 0004.txt ACKNOWLEDGMENT LETTER Exhibit 15.1 We are aware of the incorporation by reference in the Registration Statements (Form S-8 No. 33-26641, Form S-8 No. 33-34745, Form S-8 Nos. 33-76780, 333- 00075, and 333-71339, Form S-8 Nos. 333-07091 and 333-71335, and Form S-8 No. 333-81949) pertaining to the Nonqualified Stock Option Plan of IMCO Recycling Inc, the IMCO Recycling Inc. Amended and Restated Stock Option Plan, the IMCO Recycling Inc. 1992 Stock Option Plan, the IMCO Recycling Inc. Annual Incentive Program and the IMCO Recycling Inc. Employee Stock Purchase Plan, respectively, of our report dated November 13, 2000 relating to the unaudited consolidated interim financial statements of IMCO Recycling Inc. which are included in its Form 10-Q for the quarter ended September 30, 2000. Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a part of the registration statements prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. /s/ ERNST & YOUNG LLP Dallas, Texas November 13, 2000 EX-27.1 5 0005.txt FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 5,978 0 131,411 435 57,062 206,524 297,390 108,562 535,987 94,034 230,885 0 0 1,712 183,964 535,987 654,697 654,697 612,132 612,132 0 400 13,311 7,366 1,948 5,119 0 0 0 5,119 0.33 0.33
EX-27.2 6 0006.txt RESTATED FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 2,802 0 123,385 2,682 60,780 192,573 273,218 87,727 517,134 100,328 194,992 0 0 1,711 197,922 0 551,427 551,427 498,348 498,348 0 1,200 8,989 25,791 9,291 16,259 0 0 0 16,259 0.99 0.98
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