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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 9, 1996
REGISTRATION NO. 333-2940
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
TITANIUM METALS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3339 13-5630895
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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1999 BROADWAY, SUITE 4300
DENVER, COLORADO 80202
TELEPHONE: (303) 296-5600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL OFFICES)
JOSEPH S. COMPOFELICE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
1999 BROADWAY, SUITE 4300
DENVER, COLORADO 80202
TELEPHONE: (303) 296-5600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH COPIES TO:
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JAMES L. PALENCHAR, ESQ. GEORGE W. BILICIC, JR., ESQ.
BARTLIT BECK HERMAN PALENCHAR & SCOTT CRAVATH, SWAINE & MOORE
511 SIXTEENTH STREET, SUITE 700 WORLDWIDE PLAZA, 825 EIGHTH AVENUE
DENVER, COLORADO 80202 NEW YORK, NEW YORK 10019
(303) 592-3100 (212) 474-1000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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==============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION
FEE(3)
- --------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value...... 16,675,000 $23.00 $383,525,000 $120,353.44
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(1) Includes 2,175,000 shares of Common Stock that the Underwriters have the
option to purchase from a certain Selling Stockholder solely to cover
overallotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Registration Fee is calculated on the basis of 1/29 of 1% of the aggregate
proposed maximum offering price of (i) $20 with respect to 11,500,000 shares
and (ii) $23 with respect to an additional 5,175,000 shares. $79,310.34 was
paid with the initial filing of this Registration Statement.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
TITANIUM METALS CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION
STATEMENT PROSPECTUS CAPTION
- ------------------------------------------------------- -------------------------------------
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1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................... Facing Page; Outside and Inside Front
Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Additional Information and Outside
Back Cover Page
3. Summary Information, Risk Factors, and Ratio of
Earnings to Fixed Charges........................ Prospectus Summary; Risk Factors
4. Use of Proceeds.................................. Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.................. Underwriting
6. Dilution......................................... Dilution
7. Selling Security Holders......................... Principal and Selling Stockholders;
Certain Relationships and Related
Transactions
8. Plan of Distribution............................. Outside Front Cover Page;
Underwriting
9. Description of Securities to be Registered....... Outside Front Cover Page; Prospectus
Summary; Description of Capital
Stock; Shares Eligible for Future
Sale
10. Interests of Named Experts and Counsel........... Inapplicable
11. Information with Respect to the Registrant....... Outside Front and Inside Front Cover
Pages; Prospectus Summary; Risk
Factors; Dividend Policy;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business; The
Company; Management; Principal and
Selling Stockholders; Certain
Relationships and Related
Transactions; Description of Capital
Stock; Shares Eligible for Future
Sale; Consolidated Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Management
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<PAGE> 3
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering of Common Stock in the United States and
Canada (the "U.S. Prospectus") and one to be used in a concurrent offering of
Common Stock outside the United States and Canada (the "International
Prospectus"). The U.S. Prospectus and the International Prospectus will be
identical with the exception of the front and back cover pages and the sections
entitled "Underwriting" and "Certain U.S. Tax Considerations for Non-U.S.
Holders." The U.S. Prospectus is included herein and is followed by those pages
to be used in the International Prospectus which differ from those in the U.S.
Prospectus. Each of the pages for the International Prospectus included herein
has been labelled "Alternate Page -- International Prospectus."
If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, ten copies of each of the Prospectuses in the
forms in which they are used after the Registration Statement becomes effective
will be filed with the Securities and Exchange Commission.
<PAGE> 4
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
SUBJECT TO COMPLETION
MAY 9, 1996
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PROSPECTUS LOGO
14,500,000 SHARES
TITANIUM METALS CORPORATION
</TABLE>
COMMON STOCK
($.01 PAR VALUE)
Of the 14,500,000 shares of common stock, $.01 par value per share (the "Common
Stock"), of Titanium Metals Corporation (the "Company"), being offered hereby
(the "Shares"), 6,200,000 Shares are being issued and sold by the Company and
8,300,000 Shares are being offered and sold by certain stockholders of the
Company named herein (the "Selling Stockholders"). The net proceeds to the
Company from the Offerings (as defined herein) will be used to prepay certain
indebtedness, including approximately $42.5 million of indebtedness owed to
certain of the Selling Stockholders. See "Use of Proceeds." The Company will not
receive any of the proceeds from the sale of Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
Of the 14,500,000 Shares being offered hereby, 12,325,000 Shares are being
offered in the United States and Canada (the "U.S. Offering") and 2,175,000
Shares are being offered in a concurrent international offering outside the
United States and Canada (the "International Offering" and, together with the
U.S. Offering, the "Offerings"), subject to transfers between the U.S.
Underwriters and the International Underwriters. The Price to Public and
Underwriting Discount per share will be identical for the U.S. Offering and the
International Offering. See "Underwriting." The closing of the U.S. Offering and
International Offering are conditioned upon each other.
Prior to the Offerings, there has been no public market for the Common Stock. It
is anticipated that the initial public offering price will be between $20 and
$23 per share. See "Underwriting" for a discussion of various factors considered
in determining the initial public offering price. At the request of the Company,
the U.S. Underwriters have reserved approximately 50,000 Shares for sale at the
initial public offering price to persons who are directors, officers, employees
or representatives of the Company.
The Company intends to apply for quotation of the Common Stock on the Nasdaq
National Market under the symbol "TIMT".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES BEING OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(1) STOCKHOLDERS(1)
Per Share........................... $ $ $ $
Total(2)............................ $ $ $ $
- --------------------------------------------------------------------------------------------------------
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(1) Before deducting offering expenses payable by the Company and the Selling
Stockholders, estimated to be approximately $1.3 million for the Company and
$10,000 for the Selling Stockholders. The Company will bear all expenses of
the Offerings other than the Underwriting Discount and a portion of the
incremental registration fees attributable to the Shares being offered by
the Selling Stockholders, which will be borne by the Selling Stockholders.
(2) One of the Selling Stockholders has granted to the U.S. Underwriters and the
International Underwriters 30-day options to purchase up to 1,848,750 and
326,250 additional Shares, respectively, at the Price to Public, less the
Underwriting Discount, solely to cover overallotments, if any. If the U.S.
Underwriters and the International Underwriters exercise their options in
full, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholders will be $ , $ and $ ,
respectively. See "Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INC
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
The date of this Prospectus is , 1996.
<PAGE> 5
[Graphics/Pictures]
2
<PAGE> 6
Certain statements under the captions "Prospectus Summary," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business" are forward-looking statements or discussions of trends which by
their nature involve substantial risks and uncertainties that could
significantly impact expected results. Actual future results and trends may
differ materially from those described under such captions depending on a
variety of factors, including those detailed under the caption "Risk Factors,"
under the captions noted above and elsewhere in this Prospectus.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (the "Registration Statement," which term shall encompass all amendments,
exhibits and schedules thereto) under the Securities Act with respect to the
Common Stock offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto, certain portions of which are omitted as permitted by the
rules and regulations of the Commission and to which reference is hereby made.
Statements contained in this Prospectus regarding the contents of any contract
or other document referred to herein or therein are not necessarily complete,
and in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference.
The Registration Statement and the exhibits and schedules thereto filed
with the Commission may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may also be obtained from the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by an independent public accounting
firm.
3
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and the consolidated financial
statements and notes thereto appearing elsewhere in this Prospectus. References
to the "Company" or "TIMET" in this Prospectus for periods beginning after
December 31, 1995, except where otherwise indicated, include the businesses
acquired by the Company from IMI plc (the "IMI Titanium Business") pursuant to
an acquisition completed on February 15, 1996 (the "IMI Titanium Acquisition").
See "Business -- Introduction." References to the "Company" or "TIMET" in this
Prospectus for periods prior to and including the three months ended March 31,
1996, except when otherwise indicated, exclude the IMI Titanium Business. Except
where otherwise indicated, the information in this Prospectus gives effect to
the Stock Split and the conversion of the Company's Class A and Class B Common
Stock into Common Stock (see "Description of Capital Stock") and assumes the
Underwriters' overallotment options are not exercised.
OVERVIEW
Titanium Metals Corporation ("TIMET" or the "Company") is one of the
world's leading integrated producers of titanium sponge and mill products and
believes it has a number one market share in sales volume worldwide. The Company
strives to be the low-cost producer in the industry and, due to its economies of
scale, manufacturing expertise and past investment in technology, believes that
it is well-positioned to capitalize on the improving fundamentals in the
titanium industry.
TIMET's products include: titanium sponge, the basic form of titanium metal
used in processed titanium products; titanium ingot and slab, the result of
melting sponge and titanium scrap, either alone or with various other alloying
elements; and forged and cast products produced from ingot or slab, including
billet, bar, flat products (plate, sheet, and strip), tubular products (welded
and seamless tubing and pipe), extrusions and wire.
Titanium is one of the newest specialty metals, having first been
manufactured for commercial use in the 1950s. Titanium's unique combination of
corrosion resistance, elevated-temperature performance and high
strength-to-weight ratio makes it particularly desirable for use in commercial
and military aerospace applications in which these qualities are essential
design requirements. While aerospace applications have historically accounted
for a substantial portion of the worldwide demand for titanium (more than half
of the Company's sales in 1995), the number of end-use markets for titanium has
expanded substantially. Today, numerous industrial uses for titanium exist,
including chemical manufacturing equipment, industrial power plants,
desalination plants and pollution control equipment. Customer demand for
titanium is also increasing in new and emerging uses such as medical implants,
golf club heads, other sporting equipment, offshore oil and gas production
installations, geothermal facilities, and automotive equipment.
The titanium industry is comprised of several manufacturers which, like the
Company, produce a relatively complete range of titanium products. The Company
believes that at least 90% of the world's titanium sponge is produced by six
companies. However, there are a significant number of producers worldwide that
manufacture a limited range of titanium mill products.
RECENT INDUSTRY RECOVERY
The titanium industry suffered a downturn in the early 1990s. In each of
the five years from 1991-1995, the Company had a net loss, with the Company's
largest net loss occurring in 1994. However, the titanium industry's prospects
have been improving due to a resurgence in commercial aerospace demand,
continuing and stable industrial demand, an end to customer inventory drawdowns,
and the emergence of new uses for titanium, particularly golf club heads. The
Company estimates that total 1995 U.S. industry mill product and castings
shipments were 43.5 million pounds, an increase of approximately 26% compared to
1994. Further, the Company estimates that 1995 U.S. mill product shipments to
the commercial aerospace market were approximately 16 million pounds, an
increase of 16% compared to 1994, and that 1995 U.S. mill product shipments to
the golf club market were 3 million pounds, up from virtually none in 1992.
4
<PAGE> 8
Beginning in 1995, demand for titanium strengthened substantially primarily
due to increased demand from the commercial aerospace market. Historically,
orders by commercial airlines for new aircraft have tended to be driven by the
operating profits or losses of the respective airlines. In 1995, due to improved
fundamentals, the domestic commercial airline industry reported operating
profits of $6.2 billion compared with $2.4 billion in 1994 and compared to
cumulative losses in excess of $5 billion in the four years prior to 1994.
According to recent published reports, most major carriers are now beginning to
invest in upgrading their fleets. As of March 31, 1996, the estimated firm order
backlog for The Boeing Company, McDonnell Douglas Corporation and Airbus
Industrie as reported by The Airline Monitor (an aerospace industry publication)
was 1,987 planes versus 1,699 planes on March 31, 1995, an increase of 17%. The
newer wide body planes, such as the Boeing 777, 747-500, 747-600 and the Airbus
A-330 and A-340, tend to use a higher percentage of titanium in their frames,
engines and parts (as measured by total fly weight) than narrow body planes.
"Fly weight" is the empty weight of a finished aircraft with engines but without
fuel or passengers. The Boeing 777, for example, utilizes titanium for
approximately 9% of total fly weight, compared to between 2% and 3% on the older
737, 747 and 767 models. As of March 31, 1996, the estimated firm order backlog
for wide body planes from Boeing, McDonnell Douglas and Airbus as reported by
The Airline Monitor was 748 (38% of total orders) compared to 647 as of March
31, 1995, an increase of 16%. The Airline Monitor's estimated firm order backlog
for the Boeing 777 was 247 as of March 31, 1996 compared to 144 as of March 31,
1995, an increase of 72%. Growth in firm order backlog for narrow body aircraft
has also been strong, having increased as reported by The Airline Monitor 18%
from 1,052 on March 31, 1995 to 1,239 on March 31, 1996.
The Company also expects titanium to become a preferred material used in
the manufacture of golf clubs. TIMET believes that the golf industry consumed
approximately 7% of U.S. titanium mill product shipments in 1995, up from
virtually none in 1992. Most major golf club manufacturers are currently
marketing titanium drivers and certain manufacturers are in the process of
developing titanium fairway woods and irons.
The Company's order backlog increased to $284 million (including $93
million related to the IMI Titanium Business) at April 30, 1996, from $213
million at December 31, 1995 (including $78 million related to the IMI Titanium
Business). The Company estimates that of its sales (excluding sponge) in 1996,
approximately 61% will be to the aerospace sector and approximately 8% will be
to the golf club industry.
The Company believes the prospects for the titanium industry are
encouraging given the resurgence of the commercial aerospace industry and the
emergence of the golf club market. Furthermore, while the titanium industry
remains cyclical and continues to be affected by a number of economic and
political factors, the Company believes that current conditions affecting the
titanium industry are different in several important respects from those that
existed during the last industry downturn that began in 1991. Following the
breakup of the former Soviet Union in 1990, military aerospace spending was cut
back significantly. In addition, demand for titanium within the former Soviet
Union declined substantially, which resulted in a sharp increase in shipments by
titanium suppliers within the former Soviet Union to the rest of the world.
After the Persian Gulf War in 1990, commercial aerospace profitability suffered
a sharp decrease and demand for commercial aircraft declined commensurately.
This confluence of events caused a severe titanium product supply and demand
imbalance which the Company believes is in the process of being corrected,
although other economic and political factors or developments that the Company
cannot predict could adversely affect the titanium industry in the future.
BUSINESS CONSIDERATIONS
In its effort to maintain and expand its leading market and competitive
position, the Company intends to focus on the following strategic objectives:
- MAXIMIZING ITS PARTICIPATION IN AEROSPACE INDUSTRY RECOVERY. The
Company's experience in the aerospace industry, its proprietary alloys
developed for that market and its ability to devote additional production
capacity to meet aerospace demand, position it to benefit from the
recovery
5
<PAGE> 9
of this market. The Company's mill products capacity utilization in 1995
was approximately 70%, which provides opportunity to satisfy expanded
demand.
- BENEFITING FROM ITS INVESTMENT IN TECHNOLOGY. Since 1991, TIMET has
invested over $120 million in capital expenditures aimed at enhanced
productivity and quality and expansion of production capacity. In
particular, TIMET has invested approximately $100 million in a new, cost-
effective Vacuum Distillation Process ("VDP") facility at its principal
manufacturing site in Henderson, Nevada. The VDP technology produces
higher-purity titanium sponge using less power and at higher throughput
rates than the traditional Kroll-leach technology. The IMI Titanium
Acquisition, described below, provides an opportunity for two leading
industry participants to exchange "best practices" technology and thereby
to capitalize on the manufacturing and process technology strengths of
each organization.
- BENEFITING FROM VERTICAL INTEGRATION. TIMET is one of only two companies
in North America which are vertically integrated in the production of
sponge and mill products. TIMET is one of the world's largest producers
and purchasers of titanium sponge. It is also a large producer and
purchaser of titanium scrap, another key material in the manufacture of
titanium mill products, which the Company consumes both through its own
operations and through the proprietary cold hearth melting operations of
its 50%-owned joint venture, Titanium Hearth Technologies ("THT"). The
ability to both produce and purchase sponge or scrap allows the Company
considerable flexibility in optimizing its mix of raw material purchases.
In addition, TIMET currently has approximately 10 million pounds of
unutilized sponge-making capacity. This capacity gives the Company
valuable latitude in responding to increases in demand for titanium
products by reducing the Company's dependence on purchasing sponge and
scrap in the open market.
- ESTABLISHING STRATEGIC ALLIANCES. Through various strategic alliances,
the most important of which is its interest in THT, the Company seeks to
gain access to unique process technologies and markets for titanium.
THT's cold hearth melting technology provides the Company with the
ability to use a larger percentage of titanium scrap than traditional
melting techniques and to produce slab products directly without
intermediate forging steps, thereby reducing costs. The Company has
explored and will continue to explore other strategic arrangements in the
area of product production and distribution.
- DEVELOPING NEW MARKETS, APPLICATIONS AND PRODUCTS. The Company continues
to work with existing and potential customers to identify and develop new
or improved applications for titanium which take advantage of its unique
qualities. Historically, the Company has developed many new and improved
applications for titanium with or for its customers. The Company believes
that substantially all of the proprietary titanium alloys of commercial
significance that have been engineered over the last 25 years have been
invented by TIMET or the IMI Titanium Business.
- IMPROVING FINANCIAL FLEXIBILITY. Because the Company operates in a
cyclical industry, management is seeking to improve the financial
flexibility of the Company by reducing debt. All of the Company's net
proceeds from the Offerings will be used to reduce indebtedness, thereby
strengthening the balance sheet and net cash flows available for
reinvestment in the Company. Additionally, based upon its internal study,
TIMET anticipates that once the integration of the IMI Titanium Business
is completed, the resulting manufacturing efficiencies, other cost
savings (including reduction in duties and tariffs and savings from
streamlining operations), and contributions from incremental sales will
provide a benefit to operating income of up to $10 million annually.
IMI TITANIUM ACQUISITION
In February 1996, the Company completed the IMI Titanium Acquisition from
IMI plc (which, together with its subsidiaries and affiliates is referred to
herein as "IMI"). The IMI Titanium Business was acquired for approximately 9.6
million shares of Common Stock and $20 million of the Company's subordinated
debt issued in exchange for a like amount of debt previously owed to IMI by one
of its titanium subsidiaries. In addition, Tremont and UTSC received an option
to acquire from IMI an aggregate of
6
<PAGE> 10
approximately 2 million shares of Common Stock. See "Certain Relationships and
Related Transactions -- Shareholders' Agreements."
The IMI Titanium Business is the largest titanium operation in Western
Europe, in addition to having two titanium castings operations located in the
United States. In 1995, the IMI Titanium Business had sales of $147 million and
a net loss of $33 million. Pro forma for the IMI Titanium Acquisition, TIMET's
1995 sales and titanium products shipments (including sponge and ingot) were
approximately $332 million and 28 million pounds, respectively. Pro forma for
the IMI Titanium Acquisition, TIMET's ingot production capacity is approximately
60 million pounds (including committed capacity from THT), and its mill products
and castings capacity is approximately 32 million pounds. Pro forma for the IMI
Titanium Acquisition, TIMET's sales were $70.7 million and $107.6 million for
the three-month periods ended April 2, 1995 and March 31, 1996, respectively.
The Company believes the IMI Titanium Acquisition will allow the Company to
enjoy a strong competitive advantage in several key areas and thus create
additional value for its shareholders. The Company believes the acquisition will
allow for: (i) combined manufacturing expertise, leading to lower costs and
improved overall quality; (ii) the integration of two world leaders in titanium
research and technology, advancing product and process development; (iii)
augmented scale and geographic reach, leading to efficiencies in marketing,
distribution and purchasing; and (iv) increased production flexibility through
the addition of European manufacturing facilities, allowing the Company to
better service global demand. The Company believes that, as a result of the IMI
Titanium Acquisition and its enhanced competitive position, it will be well
positioned to participate in the improving fundamentals of the titanium
industry.
THE COMPANY
The Company's outstanding Common Stock is currently held 46.3% by Tremont
Corporation ("Tremont"), 37.9% by IMI, 15.4% by Union Titanium Sponge
Corporation ("UTSC"), a consortium of Japanese companies, and .4% by members of
the Company's management. IMI Kynoch Ltd. and IMI Americas Inc. (subsidiaries of
IMI) and UTSC will participate as Selling Stockholders in the Offerings. If the
Underwriters' overallotment options are exercised, all of the shares offered
under the overallotment options will be sold by Tremont. After giving effect to
the Offerings and assuming no exercise of the Underwriters' overallotment
options, Tremont would hold 37.2%, IMI 6.4%, UTSC 10.0% and the Company's
management .3% of the outstanding Common Stock. See "Principal and Selling
Stockholders."
The Company is incorporated in Delaware and its principal offices are
located at 1999 Broadway, Suite 4300, Denver, Colorado 80202. Its telephone
number is (303) 296-5600.
RISK FACTORS
See "Risk Factors" beginning on page 9 for a discussion of certain factors
that should be considered by prospective purchasers of the Shares.
7
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THE OFFERINGS
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Common Stock offered by the Company
U.S. Offering....................................... 5,270,000 Shares
International Offering.............................. 930,000 Shares
------------
Total....................................... 6,200,000 Shares
Common Stock offered by the Selling Stockholders
U.S. Offering....................................... 7,055,000 Shares
International Offering.............................. 1,245,000 Shares
------------
Total....................................... 8,300,000 Shares
Common Stock outstanding after the Offerings(1)....... 31,454,255 Shares
Estimated proceeds to the Company..................... $124.0 million-$142.6 million
Use of proceeds by the Company........................ Repayment of certain indebtedness,
including approximately $42.5 million
of indebtedness to Tremont and IMI.
See "Use of Proceeds."
Nasdaq National Market Symbol......................... TIMT
</TABLE>
- ---------------
(1) Excludes approximately 437,500 shares issuable on exercise of stock options
to be outstanding upon completion of the Offerings and approximately
2,750,000 additional shares reserved for future issuance under the Company's
stock option and director compensation plans. See "Management -- Incentive
Plan," "Management -- Director Compensation Plan," "Description of Capital
Stock" and "Shares Eligible for Future Sale."
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The summary historical financial data for each of the years in the five
year period ended December 31, 1995 have been derived from the audited
consolidated financial statements of the Company. The Company uses a fiscal year
ending on the Sunday closest to December 31 of each year. The summary pro forma
financial data for the year ended December 31, 1995 give pro forma effect to the
IMI Titanium Acquisition, as if it had been consummated on January 2, 1995, the
beginning of fiscal 1996, give pro forma effect to the IMI Titanium Acquisition,
as if it had been consummated on January 1, 1996. The pro forma adjustments are
based upon available information and certain assumptions that management of the
Company believes are reasonable. The pro forma financial data do not purport to
represent the results of operations or the financial position of the Company
which actually would have occurred had the IMI Titanium Acquisition been
consummated on the aforesaid dates.
The following summary historical and pro forma financial data should be
read in conjunction with "Capitalization," "Pro Forma Condensed Consolidated
Financial Statements," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements of the Company and the IMI Titanium Business (including in
each case the notes thereto) included elsewhere in this Prospectus.
8
<PAGE> 12
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR
----------------------------------------------------- --------------------
PRO MARCH
FORMA(9) APRIL 2, 31,
1991 1992 1993 1994 1995 1995 1995 1996
------ ------ ------ ------ ------ -------- -------- --------
(IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales(1).............................. $155.7 $153.9 $151.2 $146.0 $184.7 $331.9 $ 41.7 $107.6
Operating income (loss)(2)................ 4.8 (9.7) (16.7) (34.7) 5.4 (32.8) (1.6) 6.8
Income (loss) before cumulative effect of
changes in accounting principles........ (.1) (9.7) (20.2) (42.1) (4.2) (34.7) (4.0) 2.1
Income (loss) per common share before
cumulative effect of changes in
accounting
principles(3)........................... (.01) (.86) (1.78) (2.80) (.27) (1.39) (.26) .10
Weighted average common shares
outstanding(3).......................... 11.3 11.3 11.3 15.0 15.4 25.0 15.0 20.5
PRO FORMA -- AS ADJUSTED(4):
Operating income (loss)................... $(32.8) $ 6.8
Interest expense.......................... 1.6 .2
Net income (loss)......................... (21.4) 5.4
Net income (loss) per common
share................................... (.69) .17
BALANCE SHEET DATA:
Working capital(5)........................ $ 73.3 $ 62.0 $ 44.6 $ 38.0 $ 52.3 $ 40.8 $111.0
Total assets.............................. 174.6 267.0 262.5 240.2 248.8 244.1 422.5
Long-term debt, including current
maturities(6)........................... 69.6 149.3 75.0 92.9 89.6 92.3 134.5
Stockholders' equity...................... 72.8 46.6 109.0 64.7 68.1 60.9 139.5
OTHER OPERATING DATA:
EBITDA(7)................................. $ 7.8 $ (6.1) $(12.3) $(26.7) $ 18.6 $ 1.4 $ 10.7
Cash flows provided from (used in):
Operating activities.................... 18.9 (3.6) 12.4 (20.0) (6.1) (2.8) (10.6)
Investing activities.................... (30.3) (71.3) (16.3) (4.6) (2.5) (.6) (4.1)
Financing activities.................... 17.4 70.1 4.7 17.7 8.6 3.7 14.0
------ ------ ------ ------ ------ ------ ------
Total................................. 6.0 (4.8) .8 (6.9) (--) .3 (.7)
Mill product shipments (millions of
pounds)................................. 10.2 10.8 11.2 10.5 12.2 20.5 3.2 5.9
Active employees at period end............ 1,120 1,170 1,070 880 1,020 2,250 1,174 2,338
Order backlog at period end(8)............ 80.0 90.0 80.0 85.0 125.0 213.0 93.0 262.0
Capital expenditures...................... 30.1 67.3 16.3 4.6 3.0 7.2 1.1 2.0
</TABLE>
- ---------------
(1) Net sales include $4 million in 1993 and $20 million in 1994 of sales
related to TIMET's arrangements with CEZUS. Based upon the structure of a
revised agreement entered into in March 1995, TIMET did not consolidate
CEZUS related sales in 1995 or for the three months ended March 31, 1996.
See Note 3 to the Company's Consolidated Financial Statements.
(2) Operating income (loss) includes restructuring and other special charges of
$4.7 million in 1993, $10 million in 1994 and $4.2 million in the three
months ended March 31, 1996. A restructuring credit of $1.2 million is
included in 1995. See Note 5 to the Company's Consolidated Financial
Statements regarding restructuring and other special charges.
(3) Per common share data and weighted average common shares outstanding give
effect in all periods presented to the Stock Split. See Note 9 to the
Company's Consolidated Financial Statements.
(4) Reflects consummation of the Offerings and the application of the Company's
net proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(5) Working capital represents current assets minus current liabilities
(excluding current portion of long-term debt and current portion of capital
lease obligations).
(6) Includes loans and interest to related parties and capital lease
obligations, excludes trade and other payables to related parties.
(7) EBITDA represents income (loss) before cumulative effect of accounting
changes plus income taxes, interest expense, depreciation and amortization
less equity in earnings of nonoperating joint ventures. EBITDA is presented
because it is a widely accepted financial indicator of cash flow and the
ability to service debt. EBITDA should not be considered as an alternative
to, or more meaningful than operating income, net income or cash flow as an
indicator of the Company's performance.
(8) "Order backlog" is defined as firm purchase orders (which are generally
subject to cancellation by the customer upon payment of specified charges).
(9) Gives pro forma effect to the IMI Titanium Acquisition. See "Pro Forma
Condensed Consolidated Financial Statements."
9
<PAGE> 13
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the risk factors set forth below
before making an investment in the Common Stock.
CYCLICALITY; DEPENDENCE ON AEROSPACE INDUSTRY
Demand for the Company's titanium products is cyclical and is affected by,
among other things, the cyclical activity in the commercial and military
aerospace industry, particularly the strength of orders from commercial airlines
and aircraft leasing companies. Sales of the Company's products (excluding
sponge) to the commercial and military aerospace industry accounted for
approximately 67%, 70%, 60%, 60% and 62% of the Company's total sales in 1991,
1992, 1993, 1994 and 1995, respectively. Historically, commercial airlines'
orders for new aircraft have tended to be driven by the operating profits or
losses of the respective airlines. Purchases by customers in the military
aerospace sector tend to be driven by defense budgets. Events adversely
affecting the aerospace industry, such as reduced orders from commercial
airlines resulting from operating losses at the airlines, or reduced military
spending, could have a material adverse effect on the business, financial
condition, results of operations and cash flows of the Company. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations" and "Business -- Markets and Customer Base."
HISTORY OF LOSSES; PRO FORMA LOSSES
During the last five years, when the titanium industry was in a severe
downturn, the Company incurred net losses of $.1 million, $25.7 million, $20.2
million, $43.1 million and $4.2 million in 1991, 1992, 1993, 1994 and 1995,
respectively. Similarly, the IMI Titanium Business reported net losses of $11.2
million, $15.0 million and $32.8 million in 1993, 1994 and 1995, respectively.
Moreover, the Company on a pro forma basis, giving effect to the IMI Titanium
Acquisition, incurred a net loss of $34.7 million in 1995, including
restructuring and other special charges. During the last three years the
combined losses of the Company, the IMI Titanium Business, RMI Titanium Company
("RMI") and Oregon Metallurgical Company ("Oremet") were $181.3 million. Prior
to the last industry upturn in 1988 through 1990, the Company, excluding the IMI
Titanium Business, reported aggregate losses from continuing operations of $18.1
million from 1984 through 1987. There can be no assurance that additional losses
will not be incurred in future periods.
The ability of the Company to achieve profitability in the future is
dependent upon, among other things: market demand and prices for titanium
products, particularly demand and pricing in the aerospace industry; the
Company's ability to increase prices for titanium products to a level that
exceeds any increases in production costs; avoidance of any material adverse
developments in the capacity utilization for the production of titanium sponge
or availability of titanium scrap; the absence of titanium market instabilities
associated with the availability of titanium sponge and scrap from Russia and
other countries comprising the former Soviet Union; completion of a new labor
agreement without a work stoppage at the Company's Henderson, Nevada facility,
where the existing agreement expires in October 1996; and the absence of a
general economic downturn in North America, Europe or the rest of the world. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
HIGHLY COMPETITIVE INDUSTRY; SUBSTANTIAL EXCESS PRODUCTION CAPACITY
The titanium metals industry is highly competitive on a worldwide basis as
a result of many factors, particularly the presence of excess capacity in the
industry, which has intensified price competition for available business.
Integrated and non-integrated producers of mill products are located primarily
in the United States, Japan, Russia, Europe and China (the Company considers an
integrated producer one that produces at least titanium sponge and ingot). The
Company is one of two integrated producers in the United States and one of four
in the world. There are also a number of non-integrated producers which produce
mill products from purchased sponge, scrap or ingot. The Company believes that
the sponge production capacity and actual production in the former Soviet Union
may be as much as one-half
10
<PAGE> 14
of aggregate worldwide levels and that significant unused production capacity
may exist in this region. Russia is also known to have significant melting and
mill products production capacity.
In the U.S. market, the increasing presence of non-U.S. participants has
become a significant competitive factor. Until 1993, imports of foreign titanium
products into the U.S. had not been significant. This was primarily attributable
to relative currency exchange rates, tariffs and, with respect to Japan and
Russia, existing and prior duties (including antidumping duties). However,
imports of titanium sponge, scrap, and other products, principally from the
former Soviet Union, have increased in recent years and have had a significant
competitive impact on the U.S. titanium industry. To the extent the Company has
been able to take advantage of this situation by purchasing such sponge, scrap
or intermediate mill products for use in its own operations during the last
three years, the negative effect of these imports on the Company has been
somewhat diminished.
As the participation of non-U.S. companies increases, the competitive
environment for the Company may become more difficult, especially if existing
tariffs are eased and certain market participants are no longer subject to
antidumping duties. Currently, imports of titanium ingot and mill products from
countries that receive the most favored nation ("MFN") tariff rate are subject
to a 15% tariff. The tariff rate applicable to imports from countries that do
not receive MFN treatment is 45%. In addition to regular tariffs, imports of
titanium sponge from certain countries of the former Soviet Union (Russia,
Kazakhstan and Ukraine) are subject to antidumping duties of 84%. If these
antidumping duties are eased or removed, substantial additional capacity could
come onto the market and adversely affect titanium sponge and mill products
pricing and thus the business, financial condition, results of operations and
cash flows of the Company.
The ability of the producers in Russia to compete in the U.S. was enhanced
from September 1993 through July 1995 by the elimination of tariffs on most
titanium mill products (excluding titanium ingot, slab and billet, which
continued to carry a 15% duty) imported from that country. The Company currently
expects that these tariffs will again be eliminated or reduced as part of the
resolution of the ongoing budget negotiations between the U.S. Congress and the
President. Since the Company has been a significant purchaser of titanium
products from Russia in recent years, the failure to renew this program has had
and could, in the future, have an adverse effect on the Company's earnings as it
would be more costly to continue purchases of titanium mill products from
Russia. Given the current political and economic uncertainties in some of the
countries of the former Soviet Union, there can be no assurance that this supply
of titanium products will continue to be available to the Company without
interruption or at attractive prices. See "Business -- Competition."
LABOR; EXPIRATION OF LABOR CONTRACTS
As of March 1, 1996, approximately 70% of the Company's employees worked
under collectively bargained agreements. The Company's three-year agreement with
the union representing hourly workers at its Nevada facility expires in October
1996. Negotiations with respect to this contract have not yet commenced. All of
the collective bargaining agreements in place at the Company's U.K. facilities
have one-year terms expiring on December 31, 1996. The Company's sales and
operating results were adversely affected from late 1993 through the beginning
of 1995 due to work stoppages at two of its principal plants. The work stoppage
at the Henderson, Nevada, facility lasted for nine months and the work stoppage
at the Toronto, Ohio, facility lasted for six weeks. Each of these facilities is
material to the Company's operations, and the Henderson facility includes all of
the Company's titanium sponge production capacity.
While the Company considers its employee relations to be satisfactory,
there can be no assurance that new collective bargaining agreements will be
negotiated at the Company's Henderson or U.K. facilities or that the results of
such new agreements or further work stoppages in connection with the expiration
of such agreements would not have a material and adverse effect on the business,
financial condition, results of operations or cash flows of the Company. See
"Business -- Employees."
11
<PAGE> 15
CONTROL BY CERTAIN STOCKHOLDERS; POSSIBLE CONFLICTS OF INTEREST
Following completion of the Offerings, it is anticipated that approximately
54% of the Company's outstanding Common Stock will be held by current
stockholders, including approximately 37.2% by Tremont, 6.4% by IMI, 10.0% by
UTSC and .3% by members of the Company's management. Moreover, in addition to
having the right to designate nominees for the Board of Directors as discussed
below, these stockholders will be in a position effectively to control the
affairs of the Company, including the election of all of the Company's directors
and the approval or prevention of certain corporate transactions which require
majority stockholder approval.
Pursuant to an agreement entered into among the Company, Tremont and UTSC,
and an agreement entered into among the Company, Tremont and IMI, the number of
directors comprising the Board of Directors is limited to seven. At current
ownership levels, Tremont is entitled to designate four directors, IMI is
entitled to designate two directors, and UTSC is entitled to designate one
director. Depending on the results of the Offerings, the Company expects that
IMI will no longer be entitled to designate any directors (if all Shares are
sold), that Tremont will continue to be entitled to designate four directors,
and that UTSC will continue to be entitled to designate one director. The Board
of Directors would be entitled to fill any vacancies. See
"Management -- Directors and Executive Officers" and "Certain Relationships and
Related Transactions -- Shareholders' Agreements."
Tremont may be deemed to control the Company. Approximately 44% of
Tremont's outstanding common stock is held by Contran Corporation ("Contran")
and subsidiaries of Contran, which may be deemed to control Tremont. Contran may
be deemed to be controlled by Harold C. Simmons. See "The Company" and
"Principal and Selling Stockholders."
Certain of the Company's executive officers and directors also serve as
executive officers and directors of Tremont. For a discussion of possible
conflicts of interest resulting therefrom, see "Certain Relationships and
Related Transactions -- Relationships with Related Parties."
ENVIRONMENTAL REGULATION
Risk of environmental damage is inherent in the Company's operations. The
Company uses and produces substantial quantities of substances, chemicals and
compounds that are considered hazardous or toxic under federal, state and local
environmental and worker safety and health laws and regulations. In addition, at
the Company's Nevada facility, the Company produces and uses substantial
quantities of titanium tetrachloride, a material classified as extremely
hazardous under federal environmental laws. The Company has used such substances
and compounds throughout the history of its operations and may be responsible
for remediation as a result of past releases or disposal practices. Moreover,
the Company's Nevada facility is located within an area that is potentially
contaminated as a result of the historical operations of the Company and other
industrial and chemical manufacturing businesses. While the Company takes
environmental, safety and health precautions appropriate for the industry, the
Company's operations pose an ongoing risk of accidental releases of, and worker
exposure to, hazardous or toxic substances. In addition, the Company is subject
to a wide range of government environmental requirements, including the
extensive regulation of air and water emissions and waste management. There is a
risk that such requirements, or enforcement thereof, may become more stringent
in the future. There can be no assurances that some, or all, of the risks
discussed under this heading will not result in liabilities that would be
material to the Company's business, results of operations, financial condition
or cash flows. See "Business -- Regulatory and Environmental Matters."
POTENTIAL DIFFICULTIES IN INTEGRATING THE IMI TITANIUM BUSINESS
Successful completion of the IMI Titanium Acquisition requires the
integration of two companies that have previously operated independently. There
can be no assurance that the Company will not encounter difficulties in
integrating the IMI Titanium Business or that the potential benefits of such
integration, including cost savings and manufacturing efficiencies, will be
realized to the extent or on the schedule expected by the Company. Any delays or
unexpected costs incurred in connection with such integration could have a
material and adverse effect on the Company's business, operating results,
financial condition and cash flows.
12
<PAGE> 16
NO ASSURANCE OF NEW PRODUCT DEVELOPMENT
In an effort to lessen its dependence on the aerospace industry and to
increase participation in other markets, the Company, its competitors and
end-users are devoting significant efforts and resources to developing new
markets and applications for titanium, certain of which are still in the
preliminary stages. Developing these emerging applications involves substantial
risk and uncertainties due to the fact that titanium must compete with less
expensive alternative materials in these potential applications. There can be no
assurances the Company will be able to develop new markets and applications for
its products, or as to the time required for such development, or as to the
extent to which it will face competition in this regard. If the Company is
unable to develop these markets to a substantial degree, management expects the
Company's business to be largely dependent on the cyclical aerospace industry.
DEPENDENCE ON OTHERS FOR CERTAIN RAW MATERIALS AND SERVICES
While the Company is one of six major worldwide producers of titanium
sponge, a basic raw material in the production of titanium ingot and mill
products, under current market conditions it cannot supply all of its needs for
titanium sponge internally and is dependent, therefore, on third parties for a
portion of its titanium sponge needs. The Company obtains sponge from four
suppliers in Japan and the former Soviet Union, both on a spot purchase basis
and, with respect to a portion of these purchases from three of such producers,
pursuant to sponge contracts that permit the Company to purchase an aggregate of
10 million pounds of sponge at specified or fixed prices through the end of
1996. Each contract is subject to renegotiation or termination if certain events
occur.
Substantially all of the Company's supply of titanium-containing rutile
ore, one of the primary raw materials used in the production of titanium sponge,
is currently purchased from a limited number of suppliers. Although the Company
believes that the availability of rutile is adequate in the near-term, there can
be no assurance that the Company will not experience interruptions of its raw
material supplies.
An interruption in the Company's supply of rutile and titanium sponge could
have a material adverse effect on the Company's business, operating results,
financial condition and cash flows. See "Business -- Raw Materials."
The Company is dependent upon the services of outside processors to perform
important processing functions with respect to certain of its products. In
particular, the Company currently relies upon a single processor to perform
certain rolling steps with respect to some of its plate, sheet, and strip
products. The Company does not have a contract with this processor, and thus the
arrangement with such processor could be terminated at any time. Although the
Company believes that there are numerous metal producers having the capability
to perform these same processing functions, arranging for an alternative
processor could take several months and any interruption in these functions
could have a material and adverse effect on the Company's business, results of
operations, financial condition and cash flows in the short term. See
"Business -- Products and Operations."
SHARES ELIGIBLE FOR FUTURE SALE
No predictions can be made as to the effect, if any, that public sales of
Common Stock or the availability of Common Stock for sale will have on the
market price relating thereto prevailing from time to time. Nevertheless, sales
of substantial amounts of the Common Stock in the public market, or the
perception that such sales could occur, could have an adverse impact on such
market price. Upon consummation of the Offerings, the Company will have
outstanding 31,454,255 shares of Common Stock. The 14,500,000 Shares offered
hereby will be freely transferable by persons other than "affiliates" of the
Company without restriction or further registration under the Securities Act of
1933, as amended (the "Securities Act"). In addition, 3,187,500 shares are
reserved for issuance upon the exercise of stock options and as director
compensation shares (of which approximately 437,500 shares relate to options and
shares that will be outstanding upon completion of the Offerings). See
"Management -- Incentive Plan" and "Management -- Director Compensation Plan."
The remaining 16,954,255 outstanding shares of Common Stock will be "restricted
securities," as defined in Rule 144 promulgated
13
<PAGE> 17
under the Securities Act, and may be sold only pursuant to a registration
statement under the Securities Act or an applicable exemption from registration
thereunder, including pursuant to Rules 144 and 144A promulgated thereunder. See
"Shares Eligible for Future Sale" and "Underwriting."
In addition, each of Tremont, IMI and UTSC, who in the aggregate will hold
16,861,305 outstanding shares of Common Stock after consummation of the
Offerings (14,686,305 assuming the Underwriters' overallotment options have been
exercised), has registration rights with respect to such shares. See "Certain
Relationships and Related Transactions -- Registration Rights."
ABSENCE OF ESTABLISHED PUBLIC TRADING MARKET AND POSSIBLE VOLATILITY OF STOCK
PRICE
Prior to the Offerings, there has been no established public trading market
for the Common Stock. The initial public offering price of the Common Stock
offered hereby was determined through negotiation among the Company and the
representatives of the Underwriters. The initial offering price set forth on the
cover page of the Prospectus should not, however, be considered an indication of
the actual value of the Common Stock. The market trading price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial offering price. See "Underwriting." In
addition, the prices at which the Common Stock will trade and the volatility
thereof may be affected by trading in the common stocks of Tremont and NL
Industries, Inc. ("NL"), a company which may be deemed to be, with the Company,
under common control by Tremont and subsidiaries of Contran. Further, factors
such as announcements by the Company of quarterly variations in its financial
results and changes in general market conditions, among other things, could
cause the market price of the Common Stock to fluctuate significantly. In recent
years, the stock market has experienced significant price and volume
fluctuations.
POSSIBLE ISSUANCES OF PREFERRED STOCK
Pursuant to the Company's Amended and Restated Certificate of
Incorporation, shares of preferred stock may be issued in the future without
stockholder approval and upon such terms and conditions, and having such rights,
privileges and preferences, as the Board of Directors may determine in the
exercise of its business judgment. The rights of the holders of Common Stock
will be subject to, and may be adversely affected by, any preferred stock that
may be issued in the future. The issuance of preferred stock, while providing
desirable flexibility in connection with possible acquisitions, financing and
other corporate transactions, could have the effect of discouraging, or making
more difficult, a third party's acquisition of a majority of the Common Stock.
The Company has no present plans to issue any shares of preferred stock. See
"Description of Capital Stock -- Preferred Stock."
DILUTION
Purchasers of Common Stock in the Offerings will experience immediate and
substantial dilution of, and present stockholders will receive a substantial
increase in, the book value of their shares of Common Stock. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Common Stock being
offered by the Company are estimated to be approximately $123.2 million
(assuming an initial offering price of $21.50) and will be used to repay certain
indebtedness as follows: approximately $80.6 million to prepay a portion of the
outstanding indebtedness under the Company's U.S. credit facility and
approximately $42.5 million to prepay all outstanding indebtedness (other than
capital lease obligations) under the Company's existing obligations to two of
its stockholders, Tremont (approximately $22.5 million) and IMI (approximately
$20 million). To the extent the net proceeds to the Company from the sale of
Common Stock being offered by the Company exceed an amount required to repay all
indebtedness referred to above, such additional proceeds will be used by the
Company for general corporate purposes.
14
<PAGE> 18
Borrowings under the Company's U.S. credit facility bear interest at a
weighted average interest rate of 11% (as of March 31, 1996) and are due early
in fiscal 1997. The Company has reached an understanding with its lead lender
for a one-year extension of the maturity date of its U.S. credit facility to
December 31, 1997, a 1.5% reduction in the effective interest rates and an
increase in borrowing availability under this facility up to a maximum of $105
million, subject to definitive documents and acceptance of such terms by the
remaining lenders. See Note 8 to the Company's Consolidated Financial
Statements.
The Company's obligations to Tremont and IMI bear interest at 10.4%. The
Company's obligations to Tremont are due January 1, 2000, and the Company's
obligations to IMI are due in quarterly payments beginning March 31, 1997
through December 31, 1999. Debt owed to Tremont represents a portion of the
approximately $33 million that Tremont provided the Company since 1991, and debt
owed to IMI represents a portion of the more than $100 million invested by IMI
in the IMI Titanium Business.
The net proceeds to the Selling Stockholders from the sale of the Common
Stock being offered by the Selling Stockholders (assuming an initial offering
price of $21.50) are estimated to be $178.5 million ($225.2 million if the
Underwriters' overallotment options are exercised in full), and the Company will
not receive any of such proceeds.
15
<PAGE> 19
DILUTION
As of March 31, 1996, the Company had a net tangible book value of $126.4
million, or $5.00 per share of outstanding Common Stock (based on 25,254,255
shares outstanding and giving effect to the Stock Split). Net tangible book
value represents the amount of total tangible assets less total liabilities,
divided by the number of shares of Common Stock assumed to be outstanding. After
giving effect to the receipt of the estimated net proceeds from the Company's
sale of 6,200,000 shares of Common Stock at an initial public offering price of
$21.50 per share and the application of the net proceeds therefrom, the net
tangible book value of the Company at March 31, 1996 (giving effect to the Stock
Split and the conversion of 93,000 shares of Class B Common Stock issued to
senior executive officers in connection with the IMI Titanium Acquisition into
93,000 shares of Common Stock (the "Management Shares")) would have been $249.7
million, or $7.94 per share of outstanding Common Stock. This represents an
immediate increase in net tangible book value of $2.94 per share to existing
stockholders and an immediate dilution of net tangible book value of $13.56 per
share to purchasers of Common Stock in the Offerings. The following table
illustrates this per share dilution to new investors as of March 31, 1996:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $ 21.50
Net tangible book value per share at March 31, 1996............... $ 5.00
Increase in net tangible book value per share attributable to the
Offerings...................................................... $ 2.94
Net tangible book value per share after the Offerings............... $ 7.94
Dilution of net tangible book value per share to new investors...... $ 13.56
</TABLE>
The following table shows, as of March 31, 1996, giving effect to the Stock
Split, the conversion of the Management Shares and the Offerings, the difference
between existing stockholders and new investors with respect to the number of
shares of Common Stock purchased from the Company and the total consideration
and average price per share paid to the Company, before deducting the
underwriting discounts and estimated offering expenses:
<TABLE>
<CAPTION>
TOTAL AVERAGE
SHARES OWNED CONSIDERATION PURCHASE
---------------- ------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- -------- ------- ---------
(000) (000)
----- --------
<S> <C> <C> <C> <C> <C>
Existing Stockholders................... 25,254 80.3% $212,877 61.5% $ 8.43
=======
New Investors........................... 6,200 19.7 133,300 38.5 $ 21.50
------ ------ -------- ------ -------
Total................................... 31,454 100.0% $346,177 100.0% $ 11.00
====== ====== ======== ====== =======
</TABLE>
As of the date of this Prospectus, 3,187,500 shares of Common Stock are
reserved for issuance under the Company's stock option and director compensation
plans (under which approximately 437,500 shares and options exercisable at the
initial public offering price will be outstanding upon completion of the
Offerings).
DIVIDEND POLICY
The Company has not declared any cash dividends during the last four years
and does not anticipate paying dividends on its Common Stock in the foreseeable
future. Any payment of future dividends will be at the discretion of the
Company's Board of Directors and will depend upon, among other things, the
Company's earnings, financial condition, capital requirements, extent of
indebtedness and contractual restrictions with respect to the payment of
dividends. The Company's U.S. credit facility currently prohibits the payment of
dividends on the Common Stock in excess of 20% of the Company's consolidated net
income in any fiscal year.
16
<PAGE> 20
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1996, as adjusted for the sale of 14,500,000 shares of
Common Stock in the Offerings (assuming that the Underwriters' overallotment
options are not exercised) and the application of the Company's proceeds
therefrom, after deduction of estimated expenses and underwriting discounts.
This table should be read in conjunction with the historical financial
statements of the Company and the IMI Titanium Business, and the notes thereto,
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------
ACTUAL AS ADJUSTED(1)
------ --------------
<S> <C> <C>
(IN MILLIONS)
Short-term debt(2):
U.S. credit facility............................................. $ 81.0 $ .4
IMI and other.................................................... 1.4 .1
------ ------
Total short-term debt.................................... 82.4 .5
------ ------
Long-term debt, net of current portion:
Capital lease obligations payable to IMI......................... $ 9.6 $ 9.6
Loans and interest to related parties(3):
Tremont....................................................... 22.5 --
IMI........................................................... 18.8 --
Other............................................................ .1 .1
------ ------
Total long-term debt..................................... 51.0 9.7
------ ------
Class B redeemable common stock, $.01 par value, .1 million shares
authorized, .1 million shares and nil issued and
outstanding(4)................................................... 1.5 --
Stockholders' equity:
Preferred stock, $1 par value; 1 million shares authorized, none
outstanding................................................... --
Common stock, $.01 par value; 99 million shares authorized, 25.2
million and 31.5 million shares issued and outstanding,
respectively.................................................. .2 .3
Additional paid-in capital....................................... 212.7 337.3
Accumulated deficit.............................................. (70.5) (70.5)
Currency translation and pension adjustments..................... (2.9) (2.9)
------ ------
Total stockholders' equity............................... 139.5 264.2
------ ------
Total capitalization..................................... $274.4 $274.4
====== ======
</TABLE>
- ---------------
(1) Gives effect to the Offerings and application of the Company's net proceeds
therefrom. See "Use of Proceeds."
(2) Includes current portion of long-term debt.
(3) Excludes trade and other payables to related parties. See Note 13 to the
Company's Consolidated Financial Statements.
(4) Upon completion of the Offerings, the Class B shares will convert to Common
Stock and no Class B shares will be authorized or outstanding.
17
<PAGE> 21
SELECTED FINANCIAL DATA
The selected financial data for each of the years in the five year period
ended December 31, 1995 have been derived from the audited consolidated
financial statements of the Company, and the selected financial data for the
three month periods ended April 2, 1995 and March 31, 1996 have been derived
from the unaudited consolidated financial statements of the Company. The Company
uses a fiscal year ending on the Sunday closest to December 31 of each year. The
pro forma financial data for the year ended December 31, 1995 gives pro forma
effect to the IMI Titanium Acquisition as if it had been consummated on January
2, 1995. The pro forma adjustments are based upon available information and
certain assumptions that management of the Company believes are reasonable. The
pro forma financial data does not purport to represent the results of operations
or the financial position of the Company which actually would have occurred had
the IMI Titanium Acquisition been consummated on the aforesaid dates.
The following selected and pro forma financial data should be read in
conjunction with "Capitalization," "Pro Forma Condensed Consolidated Financial
Statements," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Consolidated Financial Statements of the Company
and the IMI Titanium Business (including in each case the notes thereto)
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS THREE MONTHS ENDED
---------------------------------------------------------- ---------------------
PRO FORMA APRIL 2, MARCH 31,
1991 1992 1993 1994 1995 1995(12) 1995 1996(13)
------ ------ ------ ------ ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT EMPLOYEE AND PER SHARE DATA) (UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales:
Mill products(1)............................ $147.4 $145.6 $143.1 $138.3 $164.9 $ 273.3 $ 36.4 $ 88.7
VDP sponge(2)............................... -- -- .6 2.6 10.6 10.6 1.9 3.2
Castings.................................... -- -- -- -- -- 29.0 -- 10.7
Other....................................... 8.3 8.3 7.5 5.1 9.2 19.0 3.4 5.0
------ ------ ------ ------ ------ -------- -------- --------
Total net sales........................... 155.7 153.9 151.2 146.0 184.7 331.9 41.7 107.6
Cost of sales................................. 136.4 151.5 153.4 160.0 170.7 338.8 41.1 92.5
------ ------ ------ ------ ------ -------- -------- --------
Gross profit (loss)......................... 19.3 2.4 (2.2) (14.0) 14.0 (6.9) .6 15.1
Selling, general and administrative
expenses.................................... 11.9 9.9 9.5 10.9 12.2 23.5 2.6 5.1
Research and development costs................ 2.6 2.4 1.9 1.5 1.8 2.8 .4 .5
Equity in earnings of joint ventures(3)....... -- .2 1.4 1.6 3.7 3.7 .7 1.4
Other income.................................. -- -- .2 .1 .5 .5 .1 .1
Restructuring and other special (charges)
credit(4)................................... -- -- (4.7) (10.0) 1.2 (3.8) -- (4.2)
------ ------ ------ ------ ------ -------- -------- --------
Operating income (loss)(4).................. 4.8 (9.7) (16.7) (34.7) 5.4 (32.8) (1.6) 6.8
General corporate income (expense), net(3).... (.1) .2 1.9 .3 1.0 1.0 .1 (.1)
Interest expense.............................. 3.8 4.2 5.7 7.6 10.4 14.9 2.5 3.5
------ ------ ------ ------ ------ -------- -------- --------
Income (loss) before income taxes,
preacquisition earnings, and cumulative
effect of changes in accounting
principles................................ .9 (13.7) (20.5) (42.0) (4.0) (46.7) (4.0) 3.2
Income tax benefit (expense).................. (1.0) 4.0 .3 (.1) (.2) 12.0 -- (.7)
Preacquisition earnings....................... -- -- -- -- -- -- -- (.4)
Income (loss) before cumulative effect of
changes in accounting principles............ (.1) (9.7) (20.2) (42.1) (4.2) (34.7) (4.0) 2.1
Cumulative effect of changes in accounting
principles(5)............................... -- (16.0) -- (1.0) -- -- -- --
------ ------ ------ ------ ------ -------- -------- --------
Net income (loss)........................... $ (.1) $(25.7) $(20.2) $(43.1) $ (4.2) $ (34.7) $ (4.0) $ 2.1
====== ====== ====== ====== ====== ======== ======== ========
Per common share(6):
Income (loss) before cumulative effect of
changes in accounting principles.......... $ (.01) $ (.86) $(1.78) $(2.80) $ (.27) $ (1.39) $ (.26) $ .10
====== ====== ====== ====== ====== ======== ======== ========
Cash dividends.............................. .17 -- -- -- -- -- -- --
Weighted average common shares
outstanding(6).............................. 11.3 11.3 11.3 15.0 15.4 25.0 15.0 20.5
------ ------ ------ ------ ------ -------- -------- --------
PRO FORMA -- AS ADJUSTED(7):
Operating income (loss)..................... $ (32.8) $ 6.8
Interest expense............................ 1.6 .2
Net income (loss)........................... (21.4) 5.4
Net income (loss) per common share.......... (.69) .17
BALANCE SHEET DATA:
Working capital(8).......................... $ 73.3 $ 62.0 $ 44.6 $ 38.0 $ 52.3 $ 40.8 $ 111.0
Total assets................................ 174.6 267.0 262.5 240.2 248.8 244.1 422.5
Long-term debt, including current
maturities(9)............................. 69.6 149.3 75.0 92.9 89.6 92.3 134.5
Stockholders' equity........................ 72.8 46.6 109.0 64.7 68.1 60.9 139.5
OTHER OPERATING DATA:
EBITDA(10).................................. $ 7.8 $ (6.1) $(12.3) $(26.7) $ 18.6 $ 1.4 $ 10.7
Cash flows provided from (used in):
Operating activities...................... 18.9 (3.6) 12.4 (20.0) (6.1) (2.8) (10.6)
Investing activities...................... (30.3) (71.3) (16.3) (4.6) (2.5) (.6) (4.1)
Financing activities...................... 17.4 70.1 4.7 17.7 8.6 3.7 14.0
------ ------ ------ ------ ------ -------- -------- --------
Total................................... 6.0 (4.8) .8 (6.9) (--) .3 (.7)
Mill product shipments (millions of
pounds)................................... 10.2 10.8 11.2 10.5 12.2 20.5 3.2 6.0
Active employees at period end.............. 1,120 1,170 1,070 880 1,020 2,250 1,174 2,338
Order backlog at period end(11)............. 80.0 90.0 80.0 85.0 125.0 213.0 93.0 262.0
Capital expenditures........................ 30.1 67.3 16.3 4.6 3.0 7.2 1.1 2.0
</TABLE>
18
<PAGE> 22
- ---------------
(1) Net sales include $4 million in 1993 and $20 million in 1994 of sales
related to TIMET's arrangements with CEZUS. Based upon the structure of a
revised agreement entered into in March 1995, TIMET did not consolidate
CEZUS related sales in 1995 or during the three months ended March 31,
1996.
(2) Principally represents sales to UTSC.
(3) Equity in earnings of THT is included in operating income while equity in
earnings of other joint ventures is included in general corporate income
(expense), net.
(4) Operating income (loss) includes restructuring and other special charges of
$4.7 million in 1993, $10 million in 1994 and $4.2 million in the three
months ended March 31, 1996. A restructuring credit of $1.2 million is
included in 1995. See Note 5 to the Company's Consolidated Financial
Statements regarding restructuring and other special charges.
(5) Changes in accounting principles related to the effect of SFAS No. 106
(post-retirement benefits) and SFAS No. 109 (income taxes) in 1992 and SFAS
No. 112 (postemployment benefits) in 1994. See Note 12 to the Company's
Consolidated Financial Statements.
(6) Per common share data and weighted average common shares outstanding give
effect in all periods presented to the Stock Split. See Note 9 to the
Company's Consolidated Financial Statements.
(7) Reflects consummation of the Offerings and application of the Company's net
proceeds therefrom. See "Use of Proceeds" and "Capitalization."
(8) Working capital represents current assets minus current liabilities
(excluding current portion of long-term debt and current portion of capital
lease obligations.)
(9) Includes loans and interest to related parties and capital lease
obligations, excludes trade and other payables to related parties.
(10) EBITDA represents income (loss) before cumulative effect of accounting
changes plus income taxes, interest expense, depreciation and amortization
less equity in earnings of nonoperating joint ventures. EBITDA is presented
because it is a widely accepted financial indicator of cash flow and the
ability to service debt. EBITDA should not be considered as an alternative
to, or more meaningful than operating income, net income or cash flow as an
indicator of the Company's performance.
(11) "Order backlog" is defined as firm purchase orders (which are generally
subject to cancellation by the customer upon payment of specified charges).
(12) Gives pro forma effect to the IMI Titanium Acquisition. See "Pro Forma
Condensed Consolidated Financial Statements."
(13) See "Pro Forma Condensed Consolidated Financial Statements" at PF-7 for pro
forma Statement of Operations Data for the three-month period ended March
31, 1996.
19
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations should be read in conjunction with the financial statements of the
Company and notes thereto appearing elsewhere in this Prospectus. The following
discussion does not reflect the IMI Titanium Business except where otherwise
indicated. See "Business -- Introduction" and the financial statements of IMI
Titanium Business and the notes thereto appearing elsewhere in this Prospectus.
Certain statements in the following discussion are forward-looking statements or
discussions of trends which by their nature involve substantial risks and
uncertainties that could significantly impact expected results. Actual future
results and trends may differ materially from those described below depending on
a variety of factors, including those detailed under the caption "Risk Factors"
and elsewhere in this Prospectus.
OVERVIEW
In 1995, the Company and the titanium industry began recovering from the
depressed industry conditions that existed during the prior several years. The
aerospace industry historically has accounted for approximately 65% of U.S.
titanium mill products consumption and has had a significant effect on the
overall sales and profitability of the titanium industry. The aerospace
industry, and consequently the titanium metals industry, is highly cyclical.
Until recently, the Company and the industry had been significantly and
adversely affected by excess worldwide production capacity, depressed levels of
spending for both military and commercial aircraft, and depressed selling prices
resulting from, among other things, the availability of relatively inexpensive
titanium scrap, sponge and other mill products, principally from Russia and
other countries comprising the former Soviet Union. However, the Company
estimates that U.S. industry shipments of titanium mill products in 1995
increased 26% from 1994 levels to 43.5 million pounds. Annual U.S. shipments had
previously remained relatively flat in the period between 1991 and 1994 at about
35 million pounds. The Company estimates that U.S. industry mill products
shipments to the commercial aerospace market in 1995 approximated 16 million
pounds, a 16% increase over 1994. See "Risk Factors -- Cyclicality; Dependence
on Aerospace Industry."
The titanium industry's recent improvement is due to a combination of
factors, including a resurgence in commercial aerospace demand, continued and
stable industrial demand, an end to customer inventory drawdowns, and the
emergence of new uses of titanium metal, particularly golf club heads. The
economic health of the commercial airline industry, the largest end market for
titanium, has improved significantly compared to the substantial losses that the
industry reported in prior years. Reported orders for new commercial aircraft
have increased significantly, particularly for wide body aircraft like the
Boeing 777, which use more titanium per plane than narrow body aircraft.
Although military aircraft deliveries continue to remain lower than deliveries
in the 1980s due to constrained defense budgets, sales to industrial markets in
1995 have continued at strong levels.
On February 15, 1996, the Company completed the IMI Titanium Acquisition.
IMI previously conducted its titanium business principally through its
wholly-owned U.K. subsidiary, IMI Titanium Ltd., and its U.S. subsidiary, IMI
Titanium Inc. IMI Titanium Ltd. (now known as "TIMET UK") is Western Europe's
largest producer of titanium ingot and mill products for aerospace and
industrial applications. IMI Titanium Inc. (referred to herein as "TIMET
Castings") manufactures titanium castings for aerospace applications and golf
club heads. In connection with the IMI Titanium Acquisition, the Company issued
9,561,305 shares of Common Stock to IMI, and $20 million of subordinated debt to
IMI in exchange for a like amount of debt previously owed to IMI by IMI Titanium
Ltd. As a result of the IMI Titanium Acquisition and prior to the Offerings the
Company is owned 46.3% by Tremont, 37.9% by IMI, 15.4% by UTSC and .4% by
members of the Company's management. The Company has accounted for the IMI
Titanium Acquisition by the purchase method of accounting and has consolidated
the operating results of the IMI Titanium Business in its historical financial
statements as of January 1, 1996. See Note 3 to the Company's Consolidated
Financial Statements.
20
<PAGE> 24
OUTLOOK
The Company's order backlog increased to $284 million (including $93
million related to the IMI Titanium Business) at April 30, 1996, from $213
million at December 31, 1995 (including $78 million related to the IMI Titanium
Business). The Company defines "order backlog" as firm purchase orders (which
are generally subject to cancellation by the customer upon payment of specified
charges). The Company has historically experienced a high level of order
cancellations and deferrals in periods of industry downturns. The following
table summarizes the combined quarterly order backlog of the Company and the IMI
Titanium Business as of March 31, 1996 and for the three years ended December
31, 1995.
<TABLE>
<CAPTION>
FISCAL QUARTER
-------------------------------------
YEAR FIRST SECOND THIRD FOURTH
-------------------------------------------------- ----- ------ ----- ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
1996.............................................. $ 262
1995.............................................. 152 $158 $ 190 $213
1994.............................................. 112 118 124 125
1993.............................................. 130 114 103 123
</TABLE>
During the second half of 1995 and continuing into 1996, the Company has
experienced a significant increase in requests for quotations, increased orders
and increased prices on accepted orders. The Company estimates that as of April
30, 1996, orders for approximately 81% of its anticipated 1996 shipments have
been booked or shipped at average selling prices approximately 13% higher than
its 1995 average selling prices. The increase in average selling prices on new
orders is partly attributable to the expiration of certain long-term customer
agreements with below-market prices. The increase in demand has been driven
primarily by the recovery in the commercial aerospace market and the emergence
of the golf club market. The Company estimates that its sales to the golf club
market will be approximately 8% of its 1996 sales. As capacity utilization in
the titanium industry continues to grow and lead times lengthen, the Company
expects prices on new orders to continue to strengthen in 1996, although there
can be no assurance that this trend will continue or not be reversed.
The increase in demand for titanium products has contributed to the upward
pressure on prices for certain raw materials used by the Company, including
rutile, alloying materials, titanium scrap and titanium sponge. The Company
currently is a significant purchaser of titanium sponge, despite having 30
million pounds of internal practical sponge production capacity. Prices for
titanium sponge under the terms of the Company's sponge purchase contracts are
specified for 1996 for the contracted quantity. Purchases of sponge above the
contracted quantity would likely be at higher prices. The Company expects
increased selling prices to more than offset any raw material cost increases in
1996, although there can be no assurance that recent price increases will
continue or not be reversed.
With two significant exceptions, the Company currently contracts with its
customers at prices that reflect current market prices. UTSC has the right to
acquire up to approximately 20% of the Company's annual production capacity of
VDP sponge at agreed-upon prices through early 1997 and higher formula-
determined prices thereafter through 2008. This contract arose out of UTSC's
license of certain VDP technology to the Company. The pricing under this
contract significantly increases in early 1997 but is anticipated to remain
below market. In addition, the Company has another significant long-term supply
contract for mill products containing pricing provisions which are substantially
below current market prices but which will adjust at the end of 1996. At
anticipated 1996 volume levels under these two agreements (and assuming no
increase in average costs over 1995 levels), the improved pricing under these
agreements could result in an annual benefit to operating income of
approximately $7 million, with actual results depending on costs, prices and
volumes at the time and decisions by the particular customer to use alternative
sources as a result of the changed terms.
21
<PAGE> 25
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
CHANGE
------------------ THREE MONTHS
ENDED
FISCAL YEARS FISCAL YEARS ---------------------
-------------------------- ------------------ APRIL 2, MARCH 31,
1993 1994 1995 '93-'94 '94-'95 1995 1996 CHANGE
------ ------ ------ ------- ------- -------- --------- ------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $151.2 $146.0 $184.7 $ (5.2 ) $38.7 $ 41.7 $ 107.6 $65.9
====== ====== ====== ====== ====== ====== ====== ======
Operating income..................... $(16.7) $(34.7) $ 5.4 $(18.0 ) $40.1 $ (1.6) $ 6.8 $ 8.4
General corporate income (expense)... 1.9 .3 1.0 (1.6 ) .7 .1 (.1) (.2 )
Interest expense..................... 5.7 7.6 10.4 1.9 2.8 2.5 3.5 1.0
------ ------ ------ ------ ------ ------ ------ ------
Loss before income taxes........... $(20.5) $(42.0) $ (4.0) $(21.5 ) $38.0 $ (4.0) $ 3.2 $ 7.2
====== ====== ====== ====== ====== ====== ====== ======
Percent change:
Sales volume (in pounds)........... -1 % +20% +83 %
Average selling prices............. 0 % + 9% +18 %
</TABLE>
Fiscal quarter ended March 31, 1996 compared to fiscal quarter ended April 2,
1995
For the first quarter of 1996, sales volume of titanium sponge, ingot and
mill products increased to 8.4 million pounds compared to 4.6 million pounds in
the year-ago period. Shipments from TIMET UK and TIMET Castings aggregated 2.6
million pounds in the first quarter of 1996. TIMET UK's sales were $32.0 million
in the first quarter of 1996 while TIMET Castings' sales were $10.7 million.
Average selling prices in the first quarter of 1996 were up approximately 18%
over the first quarter of 1995. The selling price increases reflect both the
pass-through of cost increases, particularly raw material costs, and real price
improvement associated with increased market demand. Although the Company and
the titanium industry are continuing to experience a significant increase in the
cost of certain raw materials, the Company's increased selling prices more than
offset those cost increases. Prices on recent orders for titanium products have
continued to increase relative to 1995 levels, although there can be no
assurance that this trend will continue.
Operating levels at the Company's plants in the first quarter of 1996 were
higher than the same period in 1995 and contributed to the better operating
results. The VDP titanium sponge plant operated near its practical capacity of
20 million pounds annually in the first quarter of 1996 compared to about 75% of
practical capacity in 1995. Depreciation expense increased $1 million in the
first quarter of 1996 over the year ago period principally as a result of the
IMI Titanium Acquisition. The Company presently expects its VDP plant to operate
near practical capacity in 1996 if current conditions continue. The Company also
expects to restart production of titanium sponge at its original Kroll-leach
facility during 1996 in response to demand for certain grades of titanium
sponge. Anticipated costs to restart the Kroll-leach facility at a projected
annual production rate of approximately 4 million pounds are estimated to be
less than $1 million, of which approximately $.3 million was incurred in the
first quarter of 1996.
The Company's operating income in the first quarter of 1996 included $1.4
million related to equity in earnings of THT compared to $.7 million in the year
ago period.
See "-- Restructuring and Other Special Charges" for other items affecting
operating income (loss).
1995 compared to 1994
Sales volume of sponge, ingot and mill products in 1995 increased to 18.7
million pounds, a 20% improvement over 1994 levels. Shipments of titanium
products for industrial applications were up moderately compared to 1994 while
aerospace volumes showed greater improvement than industrial applications. Sales
volume from U.S.-based operations increased in 1995 relative to 1994; however,
this increase was partially offset by reduced sales associated with the
Company's revised agreements with Compagnie Europeenne du Zirconium -- CEZUS,
S.A. ("CEZUS"), a leading European zirconium and titanium producer located in
France, as discussed below. The Company's dollar denominated sales
22
<PAGE> 26
benefitted during 1995 from the relative weakness in the value of the U.S.
dollar versus certain other currencies. The 9% increase in average selling
prices in 1995 over 1994 reflects both the pass-through of certain cost
increases and real price improvement associated with increased market demand.
Operating levels at all of the Company's plants were higher in 1995 than
1994 and contributed to the better operating results relative to 1994. The
higher production levels were partly attributable to the absence of work
stoppages in 1995, and improved VDP related equipment reliability during the
second half of 1995. The VDP plant operated at about 75% of its practical
capacity in 1995, compared with 45% in 1994. Depreciation expense increased $4.9
million in 1995 over 1994 principally as a result of the units of production
method used to depreciate the VDP plant.
In March 1995, the Company and CEZUS entered into an agreement which
revised the distribution and manufacturing arrangement that had existed between
the Company and CEZUS since 1993. Among other things, the revised agreement
eliminated the Company's sharing in the profits or losses associated with CEZUS'
titanium business after 1994. Based upon the structure of the revised agreement,
the Company recognized only commission income from sales of CEZUS products in
1995 (approximately $.4 million) whereas the Company had previously consolidated
the titanium sales and related costs associated with its arrangement with CEZUS.
Revenues from CEZUS products included in the Company's consolidated sales were
about $4 million in 1993 and $20 million in 1994. The Company and CEZUS are
negotiating a new relationship which contemplates the formation of a
jointly-owned French company to manufacture and sell titanium products. The
Company expects to consolidate the jointly owned French company upon completion
of such transaction. See "Business -- Strategic Alliances."
The Company's operating income in 1995 included $3.7 million related to the
Company's equity in earnings of THT compared to $1.6 million in 1994.
1994 compared to 1993
The Company's sales and operating results were adversely affected in 1994
by depressed aerospace demand for titanium products, work stoppages at its two
principal plants (Henderson, Nevada, and Toronto, Ohio), and mechanical
difficulties at its VDP titanium sponge production facility. The Company's
sponge, ingot and mill products sales volume in 1994 was 15.6 million pounds
which was comparable to pounds shipped in 1993, as reduced sales from U.S.-based
operations were offset by increased sales associated with the Company's
then-existing agreements with CEZUS. Sales for aerospace applications in 1994
declined relative to 1993. However, sales for industrial applications in 1994
continued at 1993 levels as the economic recovery in the U.S. and other
countries resulted in continued levels of capital spending by the utility,
desalination and certain other industries. Additionally, the Company's dollar
denominated sales benefitted from the relative weakness in the value of the U.S.
dollar. Average 1994 selling prices approximated 1993 levels.
Costs associated with the Company's VDP plant had a negative impact on
operating margins in 1994, principally due to mechanical difficulties with
certain shearing and crushing equipment which resulted in the VDP plant
operating at about 45% of capacity. These difficulties required the Company to
operate both the VDP facility and its original Kroll-leach sponge production
facility during the first half of 1994. The Company increased its VDP sponge
production after the mechanical difficulties were addressed and then temporarily
closed its original Kroll-leach facility. Depreciation expense in 1994 increased
approximately $3.7 million compared to 1993 principally at the VDP facility due
to the depreciation method used at the VDP facility.
In October 1993, the United Steelworkers of America commenced a work
stoppage at the Company's Henderson, Nevada facility, affecting approximately
375 hourly workers at that plant. Production at the plant was continued through
the use of salaried personnel and temporary contract labor. In July 1994, the
Company hired approximately 150 of the contract workers as permanent
replacements and, subsequently, the union accepted the Company's contract
proposal, with minor modifications, ending the nine-month strike. The labor
agreement covered about 310 hourly workers at December 31, 1995, and expires in
October 1996. The contract gives the Company greater work rule
23
<PAGE> 27
flexibility and provides for the continuation of a lower-cost medical program.
See "Risk Factors -- Labor; Expiration of Labor Contracts."
In August 1994, approximately 375 hourly workers at the Company's Toronto,
Ohio, production facility, represented by the United Steelworkers of America,
commenced a work stoppage following expiration of their contract. Production was
continued in certain portions of the plant during the strike by salaried
personnel and contract workers. The strike ended in September 1994, and, in July
1995, the Company and the union agreed to the terms of a new four-year labor
agreement which includes, among other things, greater work rule flexibility and
continuation of a lower-cost medical program. This labor agreement covered about
330 hourly workers at December 31, 1995, and expires in June 1999.
RESTRUCTURING AND OTHER SPECIAL CHARGES
The Company's restructuring charges in 1993 and 1994 were related to cost
reduction and containment efforts taken in response to depressed industry
conditions existing in those years. Restructuring charges were $4.7 million in
1993 and $10.0 million in 1994. In the fourth quarter of 1995, the Company
determined that its restructuring costs would ultimately be less than previously
estimated and reversed $1.2 million of previously accrued restructuring charges.
The Company's restructuring charges were principally related to the
temporary closing of the Company's Kroll-leach sponge production facility, the
closing of certain sales and service center locations, and costs to reduce the
Company's workforce. The Company has continued to monitor its restructuring
activities and related accruals in light of changing business conditions.
Strikes at the Company's principal production facilities in 1993 and 1994,
improved industry conditions in 1995, and other events required the Company to
both defer and revise certain of the restructuring actions it previously
contemplated. As part of its restructuring actions, the Company had expected to
reduce its workforce by approximately 350 people. Since 1993, the Company's
workforce has been reduced by approximately 300 people in connection with its
restructuring activities. However, recently improved market demand for titanium
metal products and other changes in business conditions has resulted in the
Company's adding approximately 300 new employees in selected areas and expects
to restart production of titanium sponge at its original Kroll-leach facility.
The Company recorded $4.2 million of special charges in the first quarter
of 1996 related to the IMI Titanium Acquisition. Such charges included $3
million related to compensation of the Company's officers in consideration for
their services in connection with the IMI Titanium Acquisition, and $1.2 million
related to integration costs. The Company expects to incur additional special
charges related to integration costs during the balance of 1996 of approximately
$.8 million. See Note 5 to the Company's Consolidated Financial Statements.
GENERAL CORPORATE
General corporate items in each of the past three years principally consist
of the Company's equity in earnings of former real estate ventures. In October
1995, the Company made a pro rata distribution to its stockholders consisting of
all its interest in these ventures and certain real estate in Nevada at their
net carrying amount which approximated $5 million.
INTEREST EXPENSE
Interest expense in the first quarter of 1996 was higher than the year-ago
period principally due to higher average borrowings under TIMET's U.S. credit
agreement and the $20 million of subordinated debt issued to IMI in connection
with the IMI Titanium Acquisition. Interest expense increased in 1995 compared
to 1994 principally due to higher average borrowings under the Company's U.S.
credit facility and higher average interest rates effective on such debt. The
increase in interest expense in 1994 compared to 1993 reflects the net effect of
higher average outstanding borrowings, lower capitalized interest and cessation
of interest accruing after May 1993 on UTSC's $75 million of debentures.
Capitalized interest aggregated $3.1 million in 1993 and nil in 1994 and 1995.
Interest expense is
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<PAGE> 28
expected to decrease upon completion of the Offerings as a result of reduced
borrowings. See "-- Liquidity and Capital Resources."
INCOME TAXES
The Company's income tax rate in each of the past three years varied from
the U.S. statutory rate due to losses which resulted in temporary differences
between book and taxable income for which recognition of a deferred tax asset
was not considered appropriate at the time. The Company's income tax rate varied
from the U.S. statutory rate in the first quarter of 1996 principally due to
utilization of U.S. net operating loss ("NOL") carryforwards. See Note 10 to the
Company's Consolidated Financial Statements.
SFAS No. 109 requires a valuation allowance when it is more likely than not
that some portion or all of the deferred tax assets will not be realized. It
further states that forming a conclusion that a valuation allowance is not
needed is difficult when there is negative evidence such as cumulative losses in
recent years. The Company has incurred losses in each of its past five fiscal
years. Although the Company has reported net income in its two most recent
fiscal quarters, the Company does not believe the weight of evidence yet
supports release of any of its valuation allowance at March 31, 1996. The
ultimate realization of all or part of the Company's deferred income tax assets
depends on the Company's ability to generate sufficient taxable income in the
future. In making its assessment of realizability, the Company will continue to
consider a number of factors, including the length of time it has remained
profitable, its backlog level, general improvement in overall industry operating
conditions and business fundamentals in the Company's key market sectors. When
preparing future period interim and annual financial statements, the Company
will evaluate its strategic and business plans, in light of evolving business
conditions, and the valuation allowance will be adjusted for future expectations
resulting from that process, to the extent different from those inherent in the
valuation allowance as of March 31, 1996. The Company may release a portion of
its deferred tax asset valuation allowance in 1996, resulting in a tax benefit,
if it concludes that the "more likely than not" realization criteria of SFAS No.
109 are met.
At December 31, 1995, the Company had net operating loss carryforwards of
approximately $40 million. As a result of the IMI Titanium Acquisition, an
"ownership change," as defined in Section 382 of the Internal Revenue Code
occurred. The effect of an "ownership change" is to place an annual limitation
on the amount of NOL carryforwards that can be utilized. The limitation is
generally equal to the product of (i) the fair value of the Company's equity
immediately prior to the ownership change, and (ii) the long-term tax exempt
bond rate of return published monthly by the Internal Revenue Service. In the
event that the Company's U.S. taxable income exceeds the annual limitation, such
excess would not be reduced by NOL carryforwards and the Company's overall tax
rate would be higher than otherwise expected. While the Company has not
determined the amount of such limitation, the Company believes it will be
between $12 and $15 million annually.
CHANGES IN ACCOUNTING PRINCIPLES
The Company expects to elect the disclosure alternative proscribed by SFAS
No. 123, "Accounting for Stock-Based Compensation," and to account for
stock-based employee compensation with respect to the Company's Common Stock in
accordance with Accounting Principles Board Opinion ("APB") No. 25, "Accounting
for Stock Issued to Employees," and its various interpretations. Under APB No.
25, no compensation cost is generally recognized for fixed stock options in
which the exercise price is not less than the market price on the grant date.
Under the disclosure alternative of SFAS No. 123, the Company will disclose,
starting with its 1996 fiscal year, its respective pro forma net income and
earnings per share as if the fair value based accounting method of SFAS No. 123
had been used to account for stock-based compensation cost for all awards
granted by the Company after January 2, 1995. See Notes 9 and 12 to the
Company's Consolidated Financial Statements.
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<PAGE> 29
The Company adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits" in 1994 and recorded a related $1.0 million non-cash charge. See Note
12 to the Company's Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following table presents the Company's unaudited consolidated quarterly
financial data for fiscal years 1994 and 1995, and the first quarter of 1996.
<TABLE>
<CAPTION>
1994 FISCAL QUARTERS 1995 FISCAL QUARTERS 1996
-------------------------------- ------------------------------- FIRST
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH QUARTER
----- ------ ------ ------ ----- ------ ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....................... $40.9 $37.5 $ 32.8 $ 34.8 $41.6 $45.7 $47.9 $49.5 $107.6
Gross profit.................... .7 .4 (6.1) (9.0) .6 2.8 4.2 6.4 15.1
Operating income (loss)......... (1.8) (2.2 ) (8.4) (22.3) (1.6) 1.1 2.3 3.6 6.6
Income (loss) before accounting
changes....................... (3.1) (4.3 ) (10.3) (24.4) (4.0) (2.1 ) (.4) 2.3 2.1
Cumulative effect of accounting
changes....................... (1.0) -- -- -- -- -- -- -- --
----- ------ ------ ------ ----- ------ ----- ----- ------
Net income (loss)............... $(4.1) $(4.3 ) $(10.3) $(24.4) $(4.0) $(2.1 ) $ (.4) $ 2.3 $ 2.1
===== ====== ====== ====== ===== ====== ===== ===== ======
</TABLE>
The Company's operating loss includes restructuring charges of $10 million
in the fourth quarter of 1994 and restructuring credits of $1.2 million in the
fourth quarter of 1995. The Company recorded special charges of $4.2 million to
operating income in the first quarter of 1996 related to the IMI Titanium
Acquisition. Restructuring and other special charges are described in Note 5 to
the Company's Consolidated Financial Statements. See Note 4 to the Company's
Consolidated Financial Statements for additional information regarding operating
income (loss).
INFLATION
In general, costs are affected by inflation and the effects of inflation
may be experienced in the future. The Company believes, however, that such
effects have not been material to the Company in the first quarter of 1996 or in
the past three years.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company incurred significant losses in each of the past three
fiscal years, the Company's 1995 results improved relative to 1994, and the
Company's results for the first quarter of 1996 were significantly improved over
the year-ago period. The Company's results have included significant noncash
items. Depreciation expense increased to $3.9 million in the first quarter of
1996 compared to $2.9 million for the same period in 1995 principally as a
result of the IMI Titanium Acquisition. Depreciation expense was $13.2 million
in 1995 compared to $8.3 million in 1994. The increase in depreciation expense
in 1995 compared to 1994 was principally attributable to the Company's VDP plant
operating at higher levels in 1995 and the resulting impact associated with the
units of production basis of depreciation. In 1994, the Company recorded a
restructuring charge of $10 million (approximately $5 million of which was
noncash) and also provided a $5 million reserve for excess and slow moving
inventory. In 1993, the Company recorded a $4.7 million restructuring charge. In
1995, the Company determined that its ultimate restructuring costs would be less
than previously estimated and reversed $1.2 million of previously accrued
restructuring charges. During 1994 and 1995, cash costs of $1.2 million and $1.7
million, respectively, were charged against the restructuring accrual. The
Company recorded $4.2 million of special charges in the first quarter of 1996
related to the IMI Titanium Acquisition (approximately $1.5 million of which was
noncash). The Company's cash flow from operating activities in 1994 and 1993 was
favorably impacted by relative changes in assets and liabilities. Cash flow from
operations in both 1995 and the first quarter of 1996 was negatively impacted by
increases in inventories and accounts receivable, which were partially offset by
increases in accounts payable and accrued liabilities. Restructuring and other
special charges are further discussed in Note 5 to the Company's Consolidated
Financial Statements.
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<PAGE> 30
Capital expenditures decreased to $3 million in 1995 compared to $4.6
million in 1994 and $16.3 million in 1993. Construction of the Company's VDP
titanium sponge facility was completed in 1993 and accounted for the majority of
the Company's aggregate capital expenditures that year. The Company's capital
expenditures in the first quarter of 1996 were $2.4 million compared to $1.1
million in the year-ago period. The Company estimates capital expenditures in
1996 will be approximately $15 million, including $10 million relating to the
IMI Titanium Business, substantially all of which is expected to be supplied by
cash flow from operating activities. The Company's 1996 capital expenditures are
expected to be primarily directed toward manufacturing process improvements,
principally at TIMET UK and TIMET Castings. Additionally, the Company's expected
formation of a jointly-owned French company with CEZUS and the Company's
expected acquisition of the balance of the equity interests in TISTO should
consume about $3 million of cash in 1996.
Reductions of indebtedness in the first quarter of 1996 and fiscal 1995
include $.8 million and $5.4 million, respectively, of installments on the term
loan portion of the Company's U.S. credit facility, and payment in 1995 of the
final $1.7 million installment due on the note associated with the Company's
purchase of its interest in THT. In April 1994, the Company entered into its
current U.S. credit facility, which replaced its prior U.S. bank agreement and
the Company repaid $45 million of borrowings outstanding thereunder at closing.
The Company's net repayment of bank debt aggregated $4 million in 1993.
The Company consumed significant amounts of cash in the first quarter of
1996 and each of the past three years to fund operating losses, capital
expenditures, working capital and debt service, including about $16.2 million
consumed by the Company for such items in the first quarter of 1996 and $16
million in fiscal 1995. The consumption of cash has required the Company to both
increase its bank borrowings and obtain additional financial support from its
stockholders. The Company has taken and continues to take measures to manage its
near-term and long-term liquidity requirements including, among other things,
refinancing certain debt, containment of capital expenditures, and other efforts
to control both costs and the level of working capital.
The Company's $90 million U.S. credit facility provides for term loans
which aggregated $24 million at March 31, 1996. The balance of the facility is
available as a revolving credit/letter of credit facility. Borrowings under the
revolving portion are limited to a formula-determined amount of accounts
receivable and inventories (the "borrowing base"). Interest accrues at the prime
rate plus 2% to 2.5%. The weighted average interest rate on outstanding revolver
and term loan borrowings was 9% at December 31, 1994, and 11% at December 31,
1995 and March 31, 1996. The credit facility presently expires in early fiscal
1997. The Company has reached an understanding with its lead lender for a
one-year extension of the maturity date of its U.S. credit facility, a 1.5%
reduction in the effective interest rates, and an increase in borrowing
availability thereunder up to a maximum of $105 million, subject to definitive
documents and acceptance of such terms by the remaining lenders. Borrowings are
collateralized by substantially all of the Company's U.S. assets. The credit
facility prohibits the payment of dividends on the Company's Common Stock in
excess of 20% of the Company's net income in any fiscal year, limits the
Company's additional indebtedness and transactions with affiliates, requires the
maintenance of certain financial amounts and contains other covenants customary
in transactions of this type. At December 31, 1995, the Company had about $18
million of borrowings available under its U.S. credit facility and about $7
million of borrowings available at March 31, 1996. The borrowings available to
the Company under such facility would increase as a result of the application of
net proceeds to the Company from the Offerings. See "Use of Proceeds."
In connection with the IMI Titanium Acquisition, TIMET UK entered into a
short-term L10 million overdraft/revolving credit facility. The agreement
restricts payments of dividends from TIMET UK, loans and other transactions with
related parties and contains other covenants customary in transactions of this
type. Borrowings under this agreement are collateralized by substantially all of
TIMET UK's assets and accrue interest at the banks' base rate plus 2%. No
borrowings were outstanding under this facility at March 31, 1996.
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<PAGE> 31
In connection with amendments of its U.S. credit facility during 1995,
Tremont advanced the Company $8 million as additional subordinated debt ($2.5
million of which was advanced in 1994 and $5.5 million of which was advanced in
1995), guaranteed $5 million of the term loans, collateralized such guarantee
with approximately 600,000 shares of NL common stock held by Tremont, and agreed
to pledge additional NL shares as necessary to meet certain market value
thresholds. Contran, the principal stockholder of Tremont, entered into an
agreement with the Company's lenders whereby Contran is obligated to purchase
the pledged shares from the Company's lenders under certain conditions.
Additionally, in June 1995, the Company completed a recapitalization under
which, among other things, (i) Tremont made a $1 million cash capital
contribution to the Company and exchanged $8 million of intercompany
subordinated debt for Common Stock, (ii) the Company made a $1 million cash
prepayment of deferred interest to the Company's minority stockholder, UTSC, and
(iii) UTSC exchanged $3 million of deferred interest owed by the Company to UTSC
for Common Stock. The Company borrowed $10 million from Tremont during 1993.
Tremont's intercompany loans to the Company approximated $22.5 million at
December 31, 1995 (including accrued interest) and March 31, 1996. Such loans
are due January 1, 2000, although the Company's U.S. credit facility and other
agreements currently prohibit repayments of principal on such loans (except for
repayments from a percentage of the proceeds of a public offering of the
Company's equity securities as discussed below). The $20 million of subordinated
debt issued to IMI in connection with the IMI Titanium Acquisition requires
quarterly principal payments of $1.25 million beginning in 1997 through 1999,
except that principal payments in 1997 are subject to achievement of certain
financial tests under the Company's U.S. credit facility. The balance is due on
December 31, 1999. The subordinated debt to both Tremont and IMI accrues
interest at 10.4% and is payable quarterly. The terms of the notes to both
Tremont and IMI require the Company to apply not less than an aggregate of one-
third of the net proceeds to the Company from any public offering of the
Company's securities to prepayment of principal and accrued interest outstanding
thereunder. The Company has reached an understanding with its lead lender that
under certain circumstances the Company will be entitled to repay such
shareholder indebtedness (excluding capital lease obligations) in full. See
"Certain Relationships and Related Transactions -- Shareholders' Agreements."
In December 1993, UTSC exercised its option to convert its $75 million of
subordinated debentures into 25% of the Company's outstanding Common Stock. The
debentures provided the majority of the financing for the Company's VDP titanium
sponge plant and accrued interest at a weighted average rate of 8.4% through May
1993 when such interest ceased accruing. See "Certain Relationships and Related
Transactions -- Shareholders' Agreements." In connection with UTSC's conversion
of its debentures in 1993, Tremont made an aggregate $9 million capital
contribution of notes and accrued interest to the Company.
In the ordinary course of business, TIMET UK enters into foreign currency
exchange agreements to attempt to manage its exposure to the effects of currency
fluctuations related to changes in the value of monetary assets and liabilities;
and raw material purchase and product sales commitments denominated in
currencies other than the British pound sterling, TIMET UK's functional
currency. TIMET UK's principal foreign exchange agreements are for the forward
sale of U.S. dollars and forward purchase of Japanese yen. At December 31, 1995,
TIMET UK had approximately $40 million of foreign exchange agreements
outstanding which mature in 1996. Gains and losses on hedges of monetary assets
and liabilities are recognized in income as offsets of gains and losses on the
underlying transactions. Gains and losses which hedge firm commitments are
deferred until the underlying transactions are recognized. TIMET UK is exposed
to credit related losses if the counterparty fails to perform its obligations.
The fair value of outstanding foreign exchange agreements approximated $.7
million as of December 31, 1995.
At March 31, 1996, the Company had approximately $81 million of debt
outstanding under its U.S. credit facility and $42.5 million of indebtedness to
Tremont and IMI. The Company expects the net proceeds to it from the Offerings
will be approximately $123.2 million. The Company expects to use $42.5 million
of the net proceeds to repay existing indebtedness to stockholders (assuming any
required approval from the Company's lender is obtained, which the Company
expects to occur), and
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<PAGE> 32
$80.6 million to repay a portion of its bank indebtedness. To the extent that
the net proceeds from the Offerings exceed an amount necessary to repay all
indebtedness referred to above, the Company expects to use the balance for
general corporate purposes.
The Company periodically evaluates its liquidity requirements, capital
needs and availability of resources in view of, among other things, its
alternative uses of capital, its debt service requirements and estimated future
operating cash flows. As a result of this process, the Company has in the past
and may in the future seek to raise additional capital, restructure ownership
interests, refinance or restructure indebtedness, sell marketable securities or
other assets, or take a combination of such steps or other steps to increase or
manage its liquidity and capital resources. In the normal course of business,
the Company may investigate, evaluate and discuss acquisition, joint venture and
other business combination opportunities in the titanium and specialty metal
industries, and in this regard the Company has been exploring a potential
strategic relationship with a large titanium producer in Russia. In the event of
any future acquisition or joint venture opportunities, the Company may consider
using available cash, issuing equity securities or increasing its indebtedness
to the extent permitted by the agreements governing the Company's existing debt.
ENVIRONMENTAL MATTERS
See "Business -- Regulatory and Environmental Matters" for a discussion of
environmental matters.
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<PAGE> 33
BUSINESS
INTRODUCTION
The Company is one of the world's leading integrated producers of titanium
sponge and mill products and believes it has a number one market share in sales
volume worldwide. The Company strives to be the low-cost producer in the
industry and, due to its economies of scale, manufacturing expertise and past
investment in technology, believes that it is well-positioned to capitalize on
the improving fundamentals in the titanium industry.
On February 15, 1996, the Company completed the acquisition of TIMET UK and
TIMET Castings as a result of the IMI Titanium Acquisition. TIMET UK is Western
Europe's largest producer of titanium ingot and mill products for aerospace and
industrial applications. TIMET Castings manufactures titanium castings for
aerospace applications and golf club heads. The acquired businesses' 1995 sales
approximated $147 million. In connection with the IMI Titanium Acquisition, the
Company issued 9,561,305 shares of Common Stock to IMI and $20 million of the
Company's subordinated debt to IMI in exchange for a like amount of debt
previously owed to IMI by IMI Titanium Ltd. In addition, Tremont and UTSC
received an option to acquire from IMI an aggregate of approximately 2 million
shares of Common Stock. See "Certain Relationships and Related
Transactions -- Shareholders' Agreements." As a result of the IMI Titanium
Acquisition and prior to the Offerings, the Company is owned 46.3% by Tremont,
37.9% by IMI, 15.4% by UTSC and .4% by members of the Company's management.
The IMI Titanium Business was restructured in 1995 to improve its
competitive position. The restructuring included (i) a reduction in its work
force by approximately 180 employees, (ii) the renegotiation of certain
long-term customer contracts, and (iii) the discontinuance of certain product
lines. In connection with these actions, in 1995 the IMI Titanium Business
recorded a $5 million restructuring charge and a $16 million charge to write-off
excess and slow-moving inventories and to provide for losses on certain customer
contracts. Prior to the IMI Titanium Acquisition, the IMI Titanium Business'
liquidity needs were financed by IMI. In December 1995, IMI converted $80
million of an aggregate $100 million indebtedness into equity capital.
INDUSTRY OVERVIEW
Titanium is one of the newest specialty metals, having first been
manufactured for commercial use in the 1950s. Titanium's unique combination of
corrosion resistance, elevated-temperature performance and high
strength-to-weight ratio makes it particularly desirable for use in commercial
and military aerospace applications in which these qualities are essential
design requirements. Today, advanced aerospace applications account for a
substantial portion of the worldwide demand for titanium.
The cyclical nature of the aerospace industry has been the principal cause
of the fluctuations in performance of titanium companies. Over the past 19
years, total U.S. titanium mill product and casting shipments achieved cyclical
peaks of 54 million pounds in 1980 and 55 million pounds in 1989. Beginning in
1991, the industry experienced a slowdown, and domestic industry shipments fell
by 35% from 53 million pounds in 1990 to 34 million pounds in 1991 as customers
cut back orders and reduced inventory. In addition to falling demand, prices
also declined during the early 1990s. The downturn began in the context of
decreased military spending following the breakup of the former Soviet Union,
decreased profits at commercial airlines resulting in reduced demand for new
aircraft, and sharp increases in shipments of relatively inexpensive titanium
sponge and mill products from the former Soviet Union.
Aerospace demand for titanium products can be broken down into commercial
and military sectors. Since 1987, sales to the commercial aerospace sector have
been more significant than to the military aerospace markets, which remain
depressed. The commercial aerospace sector is expected to continue its dominance
as a result of the expected growth of worldwide airline traffic, new orders for
aircraft, and replacement and repair of the commercial airline fleet as well as
reduced military spending. In 1995, due to improved fundamentals, the domestic
commercial airline industry reported operating profits of $6.2 billion compared
to $2.4 billion in 1994 and compared to cumulative losses in excess of $5
billion in the
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<PAGE> 34
four years prior to 1994. According to recent published reports, most major
carriers are now beginning to invest in upgrading their fleets. The following
data, published in The Airline Monitor, illustrate the cyclical profitability of
worldwide members of the International Civil Aviation Organization (excluding
countries of the former Soviet Union) and the relationship between their
profitability and firm order backlog. The Company can give no assurance as to
the extent or duration of any recovery in the commercial aerospace market or the
extent to which such recovery will result in increases in demand for titanium
products. See "Risk Factors -- Cyclicality; Dependence on Aerospace Industry."
[WORLD AIRLINE PROFITABILITY AND AIRCRAFT FIRM ORDER BACKLOG CHART]
As of March 31, 1996, the estimated firm order backlog for Boeing,
McDonnell Douglas and Airbus as reported by The Airline Monitor was 1,987 planes
versus 1,699 planes on March 31, 1995, an increase of 17%. The newer wide body
planes, such as the Boeing 777, 747-500, 747-600 and the Airbus A-330 and A-340,
tend to use a higher percentage of titanium in their frames, engines and parts
(as measured by total fly weight) than narrow body planes. "Fly weight" is the
empty weight of a finished aircraft with engines but without fuel or passengers.
The Boeing 777, for example, utilizes titanium for approximately 9% of total fly
weight, compared to between 2% to 3% on the older 737, 747 and 767 models. As of
March 31, 1996, the estimated firm order backlog for wide body planes from
Boeing, McDonnell Douglas and Airbus as reported by The Airline Monitor was 748
(39% of total orders) compared to 647 as of March 31, 1995, an increase of 16%.
The Airline Monitor's estimated firm order backlog for the Boeing 777 was 247 as
of March 31, 1996, compared to 144 as of March 31, 1995, an increase of 72%.
Growth order backlog for narrow body aircraft has also been strong, having
increased as reported by The Airline Monitor 18% from 1,052 on March 31, 1995 to
1,239 on March 31, 1996.
Since titanium's initial aerospace applications, the number of end-use
markets for titanium has expanded substantially. Existing industrial uses for
titanium include chemical manufacturing equipment, industrial power plants,
desalination plants, and pollution control equipment. Titanium is also
experiencing increased customer demand in new and emerging uses such as medical
implants, golf club heads, other sporting equipment, offshore oil and gas
production installations, geothermal facilities, and possible automotive uses.
Several of these applications represent potential growth opportunities which may
reduce the industry's historical dependence on the aerospace market.
PRODUCTS AND OPERATIONS
The Company is a vertically integrated titanium producer whose products
include: titanium sponge, the basic form of titanium metal used in processed
titanium products; titanium ingot and slab, the result of melting sponge and
titanium scrap, either alone or with various other alloying elements; and forged
and
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cast products produced from ingot or slab, including billet, bar, flat products
(plate, sheet, and strip), tubular products (welded and seamless tubing and
pipe), extrusions and wire. The titanium product chain is illustrated on the
inside back cover of this Prospectus and described below.
Titanium sponge (so called because of its appearance) is the commercially
pure, elemental form of titanium metal. The first step in sponge production
involves the chlorination of titanium-containing rutile ores, derived from beach
sand, with chlorine and coke to produce titanium tetrachloride. Titanium
tetrachloride is purified and then reacted with magnesium in a closed system,
producing titanium sponge and magnesium chloride as co-products. The Company's
titanium sponge production facility in Henderson, Nevada, incorporates VDP
technology which removes the magnesium and magnesium chloride residues by
applying heat to the sponge mass while maintaining vacuum in the chamber. The
combination of heat and vacuum boils the residues from the reactor mass into the
condensing vessel. The titanium mass is then mechanically pushed out of the
original reactor, sheared and crushed, while the residual magnesium chloride is
electrolytically separated and recycled. The original Kroll-leach process
utilizes a leaching process rather than distillation to remove residues.
Titanium ingots and slab are solid shapes (cylindrical and rectangular,
respectively) that weigh up to 17,500 pounds and are formed by melting titanium
sponge or scrap or both, usually with various other alloying elements such as
vanadium, aluminum, molybdenum, tin and zirconium. Titanium scrap is a by-
product of milling and machining operations, and significant quantities of scrap
are generated in the production process for most finished titanium products. The
melting process is closely controlled and monitored utilizing computer control
systems to maintain product quality and consistency and meet customer
specifications.
Titanium mill products result from the forging, rolling, drawing and/or
extrusion of titanium ingots or slabs into mill products of various sizes and
grades. These mill products include titanium billet, bar, rod, wire, plate,
sheet, strip, extrusions, pipe and tube. The Company sends certain products to
outside vendors for further processing before being shipped to customers or to
the Company's service centers. The Company's customers usually process the
Company's products for their ultimate end-use or for sale to third parties.
Titanium cast products are produced by remelting ingot or billet and
pouring molten metal into a cast, the cavity of which has been created in the
shape of a part to be produced. After the metal has cooled and solidified, the
part is removed from the cast and delivered to the customer or a third party for
finishing. The casting process provides significant flexibility in the shapes
that can be produced and is frequently utilized in forming tolerance critical
components such as diffusers, fan frames, seal rings, fluid system components
and missile components.
During the production process and following the completion of products, the
Company performs extensive testing on its products, including sponge, mill
products and castings. Testing may involve chemical analysis, ultrasonic
testing, x-ray and dye penetration testing. The inspection process is critical
to ensuring that the Company's products meet the high quality requirements of
customers, particularly in aerospace components production.
The Company is dependent upon the services of outside processors to perform
certain important processing functions with respect to its products. In
particular, the Company's titanium strip is hot-rolled by a single outside
processor. The Company does not have a contract with this processor, and thus
the arrangement with such processor could be terminated at any time. Locating an
alternative source for hot-rolling services, if necessary, could take several
months, possibly increase the Company's costs, and, therefore, have a material
and adverse effect on the Company's business, financial condition and results of
operations in the short-term. However, the Company believes that, if necessary,
it could locate an alternate source for hot-rolling services or, alternatively,
purchase the intermediate product necessary to produce strip and tubing
products. As a result, the Company does not believe that the cessation of its
current relationship with its titanium strip processor would have a material
adverse effect on the Company's operations in the long-term.
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Over 90% of the Company's sales in the past three years were generated from
the sale of titanium ingot and mill products, with the balance from sales of
titanium tetrachloride, sponge, scrap and other by-products. Substantially all
of the 1995 revenues of the IMI Titanium Business were generated from the sale
of titanium ingot, mill products, castings and scrap.
RAW MATERIALS
The principal raw materials used in the production of titanium mill and
cast products are titanium sponge, titanium scrap and alloying materials. In
1995, the Company produced 15 million pounds of sponge, most of which was used
internally, and the Company intends to restart idled sponge production of up to
4 million pounds in 1996. Despite this capacity, the Company cannot supply all
of its needs for titanium sponge internally and is dependent, therefore, on
third parties for a portion of its titanium sponge needs. For example, all of
the sponge consumed in TIMET UK is acquired from suppliers in Japan and the
former Soviet Union. In 1995, the Company and the IMI Titanium Business
purchased approximately 8.6 million pounds of titanium sponge or about 34% of
their total requirements. Requirements for sponge vary based upon product mix
and the level of scrap usage.
The Company is the only domestic integrated titanium products producer
which processes rutile ore into titanium tetrachloride and further processes the
titanium tetrachloride into titanium sponge. As a result, the Company is less
susceptible to fluctuations in the market price of titanium sponge than its
competitors. Average spot prices of titanium sponge sold by producers in the
former Soviet Union have more than doubled since the first quarter in 1994,
thereby eliminating the benefit of relatively inexpensive sponge formerly
enjoyed by the Company, particularly TIMET UK.
The Company purchases sponges from four suppliers in Japan and in the
former Soviet Union, both on a spot purchase basis and, with respect to a
portion of these purchases from three such producers, pursuant to sponge
contracts that permit it to purchase an aggregate of 10.0 million pounds of
sponge at specified or fixed prices through the end of 1996. One of the sponge
contracts permits the Company to purchase up to 3.3 million pounds at specified
prices per pound during 1996, depending on the volume of sponge purchased. This
contract is subject to termination by either party on three months notice.
Another contract permits the Company to purchase up to 3.2 million pounds of
sponge during 1996 at fixed prices, while prices for purchases in excess of this
amount are subject to mutual agreement. This contract is subject to termination
by either party on three months notice. The third contract permits the Company
to purchase up to 3.5 million pounds at specified prices per pound during 1996.
The primary raw materials used in the production of titanium sponge are
titanium-containing rutile ore, chlorine, magnesium and coke. Chlorine,
magnesium, and coke are generally available from a number of suppliers.
Titanium-containing rutile ore is currently available from a limited number of
suppliers around the world, principally located in Australia, Africa (South
Africa and Sierra Leone), India and the United States. A majority of the
Company's supply of rutile ore is currently purchased from Australian suppliers.
The Company believes the availability of rutile ore will be adequate through the
remainder of the decade and does not anticipate any interruptions of its raw
material supplies, although political or economic instability in the countries
from which the Company purchases its raw materials could materially and
adversely affect availability. In addition, although the Company believes that
the availability of rutile ore is adequate in the near-term, there can be no
assurance that the Company will not experience interruptions. Various alloying
elements used in the production of titanium ingot are available from a number of
suppliers.
MARKETS AND CUSTOMER BASE
Over 55% of the Company's pro forma 1995 sales were to customers within
North America, with about 36% to European customers and the balance to other
regions. No single customer represents more than 10% of the Company's direct
sales. However, in 1995, about 75% of IMI Titanium Business' sales and
approximately 60% of the Company's sales were used by the Company's customers to
produce parts and other materials for the aerospace industry. This industry is
dominated by three major manufacturers of commercial aircraft and four major
manufacturers of aircraft engines. The Company
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expects that a majority of its 1996 sales will also be to this sector. If any of
these major aerospace manufacturers were to go out of business or significantly
reduce its activities, there could be a material adverse effect on certain of
the Company's direct customers who supply to such manufacturer and, therefore,
indirectly on the Company.
The Company believes that industrial markets will continue to represent a
significant portion of the Company's sales over the next few years. The
Company's and the IMI Titanium Business' combined order backlog was
approximately $213 million at December 31, 1995 compared to $125 million at
January 1, 1995. Over 70% of the 1995 year-end backlog is expected to be
delivered in 1996. The combined order backlog of the Company and the IMI
Titanium Business further increased to approximately $284 million at April 30,
1996. Although the Company believes that the backlog is a reliable indicator of
future business activity, conditions in the aerospace industry could change and
result in future cancellations or deferrals of existing aircraft orders and
materially and adversely affect the Company's existing backlog, orders, and
future financial condition and operating results. See Notes 4 and 14 to the
TIMET Consolidated Financial Statements and Notes 3 and 11 to the IMI Titanium
Business Combined Financial Statements.
PROPERTIES
Set forth below is a listing of the Company's manufacturing facilities. All
of the Company's production facilities other than those in Witton and Pomona are
owned.
<TABLE>
<CAPTION>
FACILITY/LOCATION PRODUCTS MANUFACTURED
------------------------------------- ---------------------------------------------
<S> <C>
Henderson, Nevada.................... Sponge, Ingot
Toronto, Ohio........................ Billet, Bar, Plate, Sheet, Strip, Tube, Pipe
Witton, England...................... Ingot, Billet, Wire, Extrusions
Waunarlwydd (Swansea), Wales......... Bar, Plate, Tube
Morristown, Tennessee................ Tube, Sheet, Plate
Albany, Oregon....................... Castings
Pomona, California................... Castings
</TABLE>
The Company's VDP facility commenced start-up in 1993. The VDP plant
operated at approximately 75% of its 22 million pound rated annual capacity
during 1995, and the Company expects it to operate near current practical
capacity of 20 million pounds during 1996, if current conditions continue. The
plant produces VDP sponge principally as a raw material for a 30 million pound
annual practical capacity ingot melting facility, also at the Nevada site, and
for the Company's cold hearth melting joint venture, THT, discussed below.
Titanium mill products are produced at the Company's forging and rolling
facility in Toronto, Ohio, which receives titanium ingots from the Nevada plant,
titanium slabs from THT and titanium slabs and hot bands purchased from outside
vendors including those located in Russia. Mill products are also produced at
the Company's finishing facility in Morristown, Tennessee.
The Company's facilities have operated below production capacity during
each of the past three years, principally because of lower demand levels but
also as a result of the work stoppages discussed below. The Henderson facility
operated at about 50% and 70% of capacity in 1994 and 1995, respectively. The
Ohio and Tennessee facilities operated at about 40% and 60%, respectively, of
capacity in 1995, compared to about 40% and 45%, respectively, in 1994. The
Company closed its original 32 million pound rated capacity Kroll-leach process
sponge production facility in Nevada in 1994. However, in connection with market
demand for certain grades of sponge, the Company expects to reopen its original
Kroll-leach plant. Resumption of production utilizing the Kroll-leach process at
an approximate annual production rate of 4 million pounds will require
expenditures of less than $1 million.
The Company's sales and operating results were adversely affected in 1994
by mechanical difficulties with the shearing and crushing equipment at the VDP
facility. The Company believes it has solved these mechanical difficulties.
While the Company believes that it adequately maintains its facilities, it is
possible that there could be future unforeseen mechanical and production
difficulties that could adversely affect the Company's business, financial
condition, results of operations or cash flows.
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In connection with the IMI Titanium Acquisition, the Company acquired TIMET
Castings, with plants located in Pomona, California, and Albany, Oregon. These
facilities produce titanium castings used principally for aerospace applications
and golf club heads. TIMET UK, also acquired in connection with the IMI Titanium
Acquisition, operates a 16 million pound practical capacity melting facility in
Witton, England which produces ingots sold to customers and used as raw material
feedstock for TIMET UK's forging and rolling operations in Witton which further
process the ingots principally into billet and wire. TIMET UK also has a
facility in Waunarlwydd, Wales, which principally produces bar and plate. TIMET
UK purchases its requirements of sponge principally from suppliers located in
Japan and the former Soviet Union.
MARKETING AND DISTRIBUTION
The Company's marketing and distribution system includes five Company-owned
service centers which sell the Company's products on a just-in-time basis, 56
sales people based in the U.S. and Europe and 26 independent agents worldwide.
The Company believes that it has a competitive sales and cost advantage
arising from the location of its production plants and service centers which are
in close proximity to major customers. These centers primarily sell value-added
and customized mill products including bar and flat-rolled sheets and strips.
The Company believes its centers give it a competitive advantage because of
their ability to foster customer relationships, customize products to suit
specific customer requirements and respond quickly to customer needs. The
Company maintains service centers and sales personnel in the following
locations:
<TABLE>
<CAPTION>
AREA SERVED FUNCTION
--------------------------------------------- --------------------------------
<S> <C>
Birmingham (U.K.)............................ Service Center, Sales
Dallas (Texas)............................... Sales
Denver (Colorado)............................ Sales
East Windsor (Connecticut)................... Service Center, Sales
Frankfurt (Germany).......................... Sales
Los Angeles (California)..................... Service Center, Sales
Paris (France)............................... Sales
St. Louis (Missouri)......................... Service Center, Sales
Toronto (Ohio)............................... Sales
Ugine (France)............................... Service Center
</TABLE>
STRATEGIC ALLIANCES
Through various strategic relationships, the Company seeks to gain access
to unique process technologies for the manufacture of its products and to expand
existing markets and create and develop new markets for titanium. The Company is
currently involved in or pursuing the following strategic relationships:
Titanium Hearth Technologies. The Company and Axel Johnson Metals, Inc.
formed THT as an equally owned joint venture in August 1992. The Company's
investment in THT was approximately $15.3 million at March 31, 1996. The
partnership owns and operates an 18 million pound annual capacity cold hearth
melting furnace located in Morgantown, Pennsylvania and a 5 million pound
capacity cold hearth melting facility in Verdi, Nevada. THT's proprietary
technology enables the Company to cast molten sponge and scrap directly into
high-quality slabs and ingots used in many industrial and aerospace
applications. This process reduces the Company's production costs by eliminating
the forging and blending steps in the production process and by improving
utilization of titanium scrap. In addition, several of the Company's customers
require that THT's electron beam melting process be used for certain aerospace
applications. Under an agreement with THT, the Company can purchase up to 50% of
total melting capacity at agreed upon rates through August 31, 1997,
automatically renewable annually thereafter unless cancelled on one year's
notice. Excess melting capacity is sold to unrelated parties at market rates.
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<PAGE> 39
CEZUS. CEZUS is a leading European zirconium and titanium producer that
markets titanium ingot, billet and other mill products to aerospace and
industrial customers, primarily in France. TIMET and CEZUS have had a
distribution and manufacturing relationship since 1993.
The Company and CEZUS are now negotiating a new relationship which, if
completed, could give the Company greater access to French industrial markets
and customers, including the Snecma Group, a leading aerospace company, and
further diversify the Company's European operations. The proposed agreement
contemplates the formation of a jointly owned French company, TIMET Savoie, to
manufacture and sell titanium products. The proposed company is expected to be
70% owned by the Company and 30% owned by CEZUS. Under the proposed transaction,
the Company and CEZUS would initially contribute to TIMET Savoie, among other
things, certain inventory, technology and equipment and certain CEZUS employees
would become employees of TIMET Savoie. The Company will contribute cash and
inventory of approximately $2 million and proprietary technology to the new
venture. TIMET Savoie would manufacture products inside CEZUS's production
facility in Ugine, France, under a separate manufacturing agreement with CEZUS
utilizing excess melting and forging capacity that exists at the plant. Any
transaction would be subject to, among other things, the approval of each
party's Board of Directors, regulatory approvals, negotiation of definitive
documents and approvals under debt agreements.
Russia. The Company has been exploring a potential strategic relationship
with a large titanium producer in Russia. The Company believes that such a
relationship could lead to a substantial expansion of the market for titanium
products worldwide, particularly in emerging applications. The establishment of
this relationship, which the Company does not currently anticipate would involve
significant investment, entails significant uncertainty and would be subject to
various conditions, including regulatory approval. No assurances can be given
that the relationship will be formed or, if formed, the nature of the
relationship.
TISTO. The Company currently owns 26% of TISTO Titan und Sonderlegierungen
GmbH ("TISTO"), a German distributor of titanium products. The Company's
investment in TISTO had no carrying value at March 31, 1996. The Company
believes that this strategic partnership improves the Company's access to the
market for titanium in Germany. The Company has agreed in principle to acquire
from the other shareholders of TISTO the remaining 74% interest for
approximately $2 million and a guarantee of approximately $2 million in existing
shareholder loans. Any such transaction would be subject to, among other things,
negotiation of definitive agreements and lender consent.
MZI, LLC. In 1995 the Company, Oremet and Teledyne Allvac formed a limited
liability company, MZI, LLC, which is owned one-third by each member. The
Company's investment in MZI was approximately $.2 million at March 31, 1996. MZI
owns a technologically advanced ultrasonic unit for inspecting titanium billet.
The unit is expected to result in higher quality billet shipments to the
Company's customers and the joint ownership is expected to result in lower
operating costs to the Company than a wholly-owned facility. MZI operates on a
break-even basis for its three owners and also sells inspection services to
third parties.
COMPETITION
The titanium metals industry is highly competitive on a worldwide basis as
a result of many factors, particularly the presence of excess capacity in the
industry, which has intensified price competition for available business.
Producers of mill products are located primarily in the United States, Japan,
Russia, Europe and China. The Company is one of two integrated producers in the
United States and one of four in the world. The Company regards an integrated
producer as one which produces at least both sponge and ingot. There are also a
number of non-integrated producers which produce mill products from purchased
sponge, scrap or ingot. The Company believes that the sponge production capacity
and actual production in the former Soviet Union may be as much as one-half of
aggregate worldwide levels and that significant unused production capacity may
exist in this region. Russia is also known to have significant melting and mill
product production capacity.
In the U.S. market, the increasing presence of non-U.S. participants has
become a significant competitive factor. Until 1993, imports of foreign titanium
products into the U.S. had not been significant.
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<PAGE> 40
This was primarily attributable to relative currency exchange rates, tariffs
and, with respect to Japan and the former Soviet Union, existing and prior
duties (including antidumping duties). However, imports of titanium sponge,
scrap, and other products, principally from the former Soviet Union, have
increased in recent years and have had a significant competitive impact on the
U.S. titanium industry. To the extent the Company has been able to take
advantage of this situation by purchasing such sponge, scrap or intermediate
mill products for use in its own operations, the negative effect of these
imports on the Company has been somewhat diminished.
As the participation of non-U.S. companies increases, the competitive
environment for the Company may become more difficult, especially if existing
tariffs are eased and certain market participants are no longer subject to
antidumping duties. Currently, imports of titanium ingot and mill products from
countries that receive MFN treatment are subject to a 15% tariff. The tariff
rate applicable to imports from countries that do not receive MFN treatment is
45%. In addition to regular tariffs, imports of titanium sponge from certain
countries of the former Soviet Union (Russia, Kazakhstan and Ukraine) are
subject to antidumping duties of 84%. If these antidumping duties are eased or
removed, substantial additional capacity could come onto the market and
adversely affect titanium sponge and mill products pricing and thus the
business, financial condition, results of operations and cash flows of the
Company.
The ability of the producers in Russia to compete in the U.S. was enhanced
from September 1993 through July 1995 by the elimination of tariffs on most
titanium mill products (excluding titanium ingot, slab and billet, which
continued to carry a 15% duty) imported from that country. The Company currently
expects that these tariffs will again be eliminated or reduced as part of the
resolution of the ongoing budget negotiations between the U. S. Congress and the
President. Since the Company has been a significant purchaser of titanium
products from Russia in recent years, the failure to renew this program has had
and could, in the future, have an adverse effect on the Company's earnings as it
would be more costly to continue purchases of mill products from Russia. Given
the current political and economic uncertainties in some of the countries of the
former Soviet Union, there can be no assurance that this supply of titanium
products will continue to be available to the Company without interruption or at
attractive prices.
The Company's principal U.S. competitors are RMI, Oremet, which is the
other U.S. integrated producer, and Teledyne Allvac. The Company estimates that
its share of U.S. sponge capacity in 1995 approximated 60%. The Company, RMI,
Oremet, and Teledyne Allvac represented an estimated aggregate 80% of U.S. sales
of titanium mill products in 1995, and the Company believes it has about a
one-third share of such sales. The Company's principal competitors in the U.S.
casting market are Precision Cast Parts and Howmet. The Company estimates that
its share of mill product shipments among Western European titanium producers is
in excess of 50%. The Company competes primarily on the basis of price, quality
of products, technical support and the availability of products to meet
customers' delivery schedules.
Producers of other metal products, such as steel and aluminum, maintain
forging, rolling and finishing facilities which could be modified without
substantial expenditures to produce titanium products. The Company believes,
however, that entry as a producer of titanium sponge would require a significant
capital investment and substantial technical expertise. Titanium mill products
also compete with stainless steels, nickel alloys, steel, plastics, aluminum and
composites in certain applications.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are directed toward
improving process technology, developing new alloys, enhancing the performance
of the Company's products in current applications, and searching for new uses of
titanium products. For example, one of the Company's proprietary alloys,
TIMETAL(R)21S, has been specified for a number of aerospace applications
including the Boeing 777. Additionally, TIMETAL LCB, a new low cost beta alloy,
is being tested for new non-aerospace applications; and TIMETAL 15-3 has been
introduced into the sporting goods markets. The Company conducts research and
development activities at its Nevada laboratory, which the Company believes is
one of the largest titanium research and development centers in the world. The
Company's expenditures
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<PAGE> 41
for research and development have been approximately $2 million annually during
each of the past three years. The IMI Titanium Business' expenditures for
research and development activities, which have primarily been directed towards
improving process technology, developing alloys and enhancing product
performance in aerospace applications, have averaged about $1 million annually
during the past three years.
PATENTS AND TRADEMARKS
The Company holds U.S. and foreign patents applicable to certain of its
titanium alloys and manufacturing technology. The Company continually seeks
patent protection with respect to its technical base and has occasionally
entered into cross-licensing arrangements with third parties. However, most of
the titanium alloys and manufacturing technology used by the Company do not
benefit from patent or other intellectual property protection. The Company
believes that the trademarks TIMET(R) and TIMETAL, which are protected by
registration in the U.S. and other countries, are significant to its business.
EMPLOYEES
As of March 31, 1996, the Company employed approximately 1,665 persons in
the U.S. and approximately 673 persons in Europe. As of December 31, 1995, prior
to the IMI Titanium Acquisition, the Company employed approximately 1,000 (860
at January 1, 1995) persons in the U.S. and approximately 20 (20 at January 1,
1995) persons in Europe. The Company's production and maintenance workers at its
facility in Nevada and its production, maintenance, clerical and technical
workers at its facility in Ohio are represented by the United Steelworkers of
America. The IMI Titanium Business employed approximately 1,230 employees at
December 31, 1995, with approximately 790 in Europe and 440 in the United
States. Substantially all of the salaried and hourly employees of the IMI
Titanium Business in Europe are members of one of three European labor unions
whose associated labor contracts expire on December 31, 1996. The Company's
employees at its Morristown facility and at the TIMET Castings' U.S. facilities
are not covered by a collective bargaining agreement.
The United Steelworkers of America commenced a work stoppage at the
Company's Henderson, Nevada, facility on October 2, 1993, affecting
approximately 375 hourly workers at that plant. Production at the plant was
continued through the use of salaried personnel and temporary contract labor. In
July 1994, the Company hired approximately 150 of the contract workers as
permanent replacements and, subsequently, the union accepted the Company's
contract proposal, with minor modifications, ending the nine-month strike. This
labor agreement covered about 310 hourly workers at December 31, 1995, and
expires in October 1996.
In August 1994, approximately 375 hourly workers at the Company's Toronto,
Ohio, production facility, represented by the United Steelworkers of America,
commenced a work stoppage following expiration of their contract. Production was
continued in certain portions of the plant during the strike by salaried
personnel and contract workers. The strike ended in September 1994, and in July
1995, the Company and the union agreed to terms for a new four-year labor
agreement, which will cover about 330 hourly workers and will expire in June
1999.
While the Company currently considers its employee relations to be
satisfactory, it is possible that there could be further work stoppages that
could materially and adversely affect its business, financial condition, results
of operations or cash flows. See "Risk Factors -- Labor; Expiration of Labor
Contracts."
REGULATORY AND ENVIRONMENTAL MATTERS
The Company's operations are governed by various federal, state, local and
foreign environmental and worker safety laws and regulations. In the U.S., such
laws include the Federal Clean Air Act, the Clean Water Act and the Resource
Conservation and Recovery Act. The Company uses and manufactures substantial
quantities of substances that are considered hazardous or toxic under
environmental and worker safety and health laws and regulations. In addition, at
the Company's Nevada facility, the
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<PAGE> 42
Company uses substantial quantities of titanium tetrachloride, a material
classified as extremely hazardous under federal environmental laws. The Company
has used such substances during substantially the entire history of its
operations. As a result, risk of environmental damage is inherent in the
Company's operations. The Company's operations pose a continuing risk of
accidental releases of, and worker exposure to, hazardous or toxic substances.
There is also a risk that government environmental requirements, or enforcement
thereof, may become more stringent in the future. There can be no assurances
that some, or all, of the risks discussed under this heading will not result in
liabilities that would be material to the Company's business, results of
operations, financial condition or cash flows.
The Company believes that its operations are in substantial compliance in
all material respects with applicable requirements of environmental laws. The
Company's policy is to continually strive to improve environmental performance.
From time to time, the Company may be subject to environmental regulatory
enforcement under various statutes, resolution of which typically involves the
establishment of compliance programs. Occasionally, resolution of these matters
may result in the payment of penalties, but to date no material penalties have
been incurred. The Company incurred capital expenditures for environmental
protection and compliance of less than $1 million in each of the past three
years and its capital budget provides less than $1 million for such expenditures
in 1996. However, the imposition of more strict standards or requirements under
environmental laws and resolutions could result in expenditures in excess of
amounts estimated to be required for such matters.
The Company's foreign operations are similarly subject to foreign laws and
regulations respecting environmental and worker safety matters, which laws are
generally less stringent than U.S. laws and which have not had, and are not
presently expected to have, a material adverse effect on the Company. There can
be no assurance that such foreign laws will not become more stringent.
Certain other companies, including Kerr-McGee Chemical Corporation,
Chemstar Lime Company and Pioneer Chlor Alkali Company, Inc. (successor to
Stauffer Chemical Company), also operate facilities in a complex (the "BMI
Complex") owned by Basic Management, Inc. ("BMI") adjacent to the Company's
Henderson, Nevada plant. In 1993, the Company and each of such companies, along
with certain other companies who previously operated facilities in the BMI
Complex (collectively, the "BMI Companies"), completed a Phase I environmental
assessment of the BMI Complex and each of the individual company sites pursuant
to a consent agreement with the Nevada Division of Environmental Protection
("NDEP"). In February 1996, the Company and each of the other BMI Companies
(other than Chemstar Lime Company) entered into a consent agreement with NDEP to
conduct a Phase II program of sampling and analysis of the portions of the BMI
Complex owned by BMI in response to the Phase I reports. In addition, within the
next several months the Company expects to finalize a consent agreement with the
NDEP regarding a Phase II assessment of the Company's separately owned Henderson
site. At December 31, 1995 and March 31, 1996, the Company had accrued $1
million with respect to this matter. Until the sampling and analysis that will
be involved in this Phase II assessment is completed, it is not possible to
provide a reasonable estimate of the additional remediation costs for this site,
if any, or the Company's likely share of any such costs.
In November 1995, the Company and other BMI Companies were contacted by a
company proposing to develop a parcel of land adjacent to the BMI Complex,
alleging that the parcel had been contaminated by the BMI Companies through
their operations and threatening legal action to recover its development costs
to date of approximately $2.8 million. Further discussions and investigations
are being pursued by the parties to resolve this matter. At December 31, 1995
and March 31, 1996, the Company had not accrued any amounts with respect to this
matter.
The Company is conducting additional study and assessment work as required
by the California Regional Water Quality Control Board -- Los Angeles Region
related to soil and possible groundwater contamination at its Pomona, California
facility. The site is located near an area that has been designated as a U.S.
Environmental Protection Agency "Superfund" site. At March 31, 1996, the Company
had accrued $.6 million related to this matter. Although the Company does not
believe it will incur a material liability in respect of the Pomona facility,
the study and assessment by the Company is only at a
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<PAGE> 43
preliminary stage and regulators have not completed their review. Accordingly,
it is possible that liabilities could arise in respect of the Pomona facility
that could have a material adverse effect on the Company's business, results of
operations, financial condition and cash flows.
The Company recently received notice that it has been named as a defendant,
along with approximately 100 additional companies, in an action in the United
States District Court for the District of New Jersey in connection with the
remediation of a Superfund site located in Fairfield, New Jersey (Caldwell
Trucking PRP Group v. ADT Automotive, Inc., et al., No. 95-1690 (WGB)). The
complaint alleges that the Company arranged to have septic and/or industrial
waste containing hazardous substances disposed of at the site from the Company's
former research and development facility in Caldwell, New Jersey. The Company
has been offered the opportunity to participate in "de minimus" settlement
discussions. Based upon the Company's investigation into this matter and the
lack of meaningful evidence linking the Company to the site, the Company does
not believe it will incur any material liability in connection with this matter.
At December 31, 1995 and March 31, 1996, the Company had not accrued any amount
with respect to this matter.
The Company determines the amount of its accruals for environmental matters
on a quarterly basis by analyzing and estimating the range of possible costs in
light of the available information. Because of a lack of relevant information,
it is not possible to estimate the range of costs for certain sites. The
imposition of more stringent standards or requirements under environmental laws
or regulations, the results of future testing and analysis undertaken by the
Company at its operating or non-operating facilities, or a determination that
the Company is potentially responsible for the release of hazardous substances
at other sites, could result in expenditures in excess of amounts currently
estimated to be required for such matters. No assurance can be given that actual
costs will not exceed accrued amounts or that costs will not be incurred with
respect to sites as to which no problem is currently known or where no estimate
can presently be made. Further, there can be no assurance that additional
environmental matters will not arise in the future. However, the Company
currently believes the disposition of all environmental matters, individually or
in the aggregate, should not have a material adverse effect on the Company's
business, results of operations, financial condition, or cash flows.
LEGAL PROCEEDINGS; CERTAIN CONTINGENCIES
From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. The Company is
not a party to any material litigation. Certain contingencies are described
below and in Note 14 of the Company's Consolidated Financial Statements.
Cadmus/Sutherin. In May 1995, the Company received notice of two separate
actions naming the Company as a defendant, each brought by a former employee
alleging that the Company intentionally exposed such employee to dangerous
levels of certain chemicals and/or metals during his employment at TIMET's plant
in Toronto, Ohio (Sutherin v. Titanium Metals Corporation, No. 95 CV 00168,
Court of Common Pleas, Jefferson County, Ohio; Cadmus v. Titanium Metals
Corporation, No. 94 CV 00469, Court of Common Pleas, Jefferson County, Ohio).
The complaints seek compensatory and punitive damages totaling approximately
$2.5 million each. Both of these cases were subsequently removed to U.S.
District Court for the Southern District of Ohio (Sutherin, No. C2-95-551;
Cadmus, No. C2-95-586) and are currently in discovery.
Based upon its preliminary investigation, the Company believes that
plaintiff's claims in Sutherin are without merit and intends to vigorously
defend this action. Plaintiff's claims in Cadmus are similar to previous claims
made by plaintiff and rejected by the Ohio Industrial Commission (which decision
is currently on appeal in state court in Ohio). The Company intends to
vigorously defend this action as well. At December 31, 1995 and March 31, 1996,
the Company had not accrued any amounts related to either of these matters.
Tungsten contamination. In 1993, the Company discovered an anomaly in
certain alloyed titanium material manufactured by the Company for shipment to a
jet engine manufacturer, resulting from tungsten carbide contaminated chromium
sold to the Company by a third-party vendor and used as an alloying addition to
this titanium material. At December 31, 1995 and March 31, 1996, the Company had
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accrued a $1 million liability, net of its estimated recoveries (which are not
material) from the chromium supplier and/or its own liability insurance carrier,
related to this matter. The amount of the liability is based on management's
judgment of the likely outcome based on facts and circumstances known at the
time. Such amounts are subject to future revisions based on changes in known
facts and circumstances, settlement negotiations, and other events.
In addition, in 1995 the Company learned that a jet engine disk that had
been in service since 1989 was discovered during routine inspection to have a
high density inclusion that was not identified during manufacture and testing by
the Company or the subsequent forger of the material. The inclusion was
completely intact and showed no signs of cracking or fatigue that would suggest
that it posed a safety problem. Subsequent metallurgical inspection identified
the inclusion as pure tungsten, which the Company believes would have resulted
from contaminated chromium used in the manufacture of the titanium alloy. The
Company currently believes that the engine manufacturer will require that
engines containing disks manufactured from titanium having a link to the
potentially contaminated lot of chromium be subjected to a higher level of
inspection or to more frequent inspection to assure that there is no safety
issue involved. While the Company does not currently anticipate that it will
incur any material liability in connection with this matter, no assurances can
be given in this regard. At December 31, 1995 and March 31, 1996, the Company
had not accrued any amounts with respect to this matter.
THE COMPANY
The Company, headquartered in Denver, Colorado, was incorporated in 1955
and has been engaged in the titanium metals business since incorporation. The
Company is 46.3% owned by Tremont, a holding company with operations conducted
through the Company and NL. Tremont may be deemed to control the Company.
Contran holds, directly or through subsidiaries, approximately 44% of Tremont's
outstanding common stock. Substantially all of Contran's outstanding voting
stock is held by trusts established for the benefit of the children and
grandchildren of Harold C. Simmons of which Mr. Simmons is the sole trustee. Mr.
Simmons, Chairman of the Board, President and Chief Executive Officer of
Contran, and a director of Tremont, may be deemed to control each of such
companies and the Company. See "Principal and Selling Stockholders."
The Company is incorporated in Delaware and its principal offices are
located at 1999 Broadway, Suite 4300, Denver, Colorado 80202. Its telephone
number is (303) 296-5600.
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<PAGE> 45
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) HELD
----------------------------------- --- -----------------------------------------------
<S> <C> <C>
J. Landis Martin................... 50 Chairman and Chief Executive Officer
Gary J. Allen...................... 51 Director
Andrew R. Dixey.................... 46 President, Chief Operating Officer and Director
Edward C. Hutcheson, Jr. .......... 50 Director
R. B. Pointon...................... 49 Director
Gen. Thomas P. Stafford............ 65 Director
Yukiji Tadokoro.................... 63 Director
Paul J. Bania...................... 46 Vice President -- Quality and Technology
Thomas A. Buck..................... 47 Vice President -- U.S. Manufacturing
Joseph S. Compofelice.............. 46 Vice President and Chief Financial Officer
Brian J. Hadley.................... 54 Vice President -- European Manufacturing
Richard D. McKinney................ 53 Vice President -- Castings Operations
John P. Monahan.................... 50 Vice President -- Sales and Marketing
Robert E. Musgraves................ 41 Vice President -- Administration, General
Counsel and Secretary
Mark A. Wallace.................... 38 Vice President -- Finance and Treasurer
</TABLE>
The directors of the Company have been designated by Tremont, IMI and UTSC
pursuant to the terms and conditions of the agreements among the Company and
such stockholders, which fix the number of directors at seven. Tremont's
designees are Messrs. Martin, Dixey, Hutcheson and Stafford, IMI's designees are
Messrs. Allen and Pointon, and UTSC's designee is Mr. Tadokoro. Depending on the
results of the Offerings, the Company expects that IMI will no longer be
entitled to designate any directors (if all Shares are sold), that Tremont will
continue to be entitled to designate four directors, and that UTSC will continue
to be entitled to designate one director. The Board of Directors will be
entitled to fill the resulting vacancies. See "Certain Relationships and Related
Transactions -- Shareholders' Agreements."
J. LANDIS MARTIN has been Chairman of the Company since 1987 and Chief
Executive Officer of the Company since January 1995. He also served as
President of the Company from January 1995 to February 1996. Mr. Martin has
served as Chairman of Tremont since 1990 and as Chief Executive Officer and
a director of Tremont since 1988. Mr. Martin has served as President and
Chief Executive Officer of NL, a manufacturer of specialty chemicals, since
1987 and as a director of NL since 1986. From 1990 until its acquisition by
Dresser Industries, Inc. ("Dresser") in 1994, Mr. Martin served as Chairman
of the Board and Chief Executive Officer of Baroid Corporation ("Baroid"),
an oilfield services company. In addition to Tremont and NL, Mr. Martin is
a director of Dresser, which is engaged in the petroleum services,
hydrocarbon processing and engineering industries, and Apartment Investment
Management Corporation, a real estate investment trust.
GARY J. ALLEN has been a director of the Company since February 1996. He
joined IMI in 1965 and has been a director of IMI since 1978. He was
appointed Chief Executive of IMI in 1986. He is a non-executive director of
the London Stock Exchange Limited; Deputy Chairman of Marley plc, a leading
international manufacturer of plastic, concrete and clay building and home
improvement products; and a non-executive director of N.V. Bekaert S.A, a
Belgium company which is the world's largest manufacturer of steel wire.
ANDREW R. DIXEY has been President, Chief Operating Officer and a director
of the Company since February 1996. Prior to this appointment, Mr. Dixey
was, from September 1995, Managing Director of IMI Titanium Ltd. and IMI
Titanium Export Ltd., where he had responsibility for IMI's titanium
interests in both Europe and North America. During 1995, Mr. Dixey was
Chief Executive Officer of Helix plc, which is engaged in the scholastic
supplies business, and from 1990 to 1994, Mr. Dixey
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<PAGE> 46
held various executive positions in the GKN plc Group of companies, a
manufacturer of automobile components.
EDWARD C. HUTCHESON, JR. has been the President, Chief Executive Officer
and a director of Castle Tower Corporation ("Castle Tower"), an owner and
manager of wireless communication antenna sites, since 1994. From January
1994 until September 1994, he was involved in private investment activities
leading to the creation of Castle Tower. From 1990 until 1993, Mr.
Hutcheson served as the President, Chief Operating Officer and a director
of Baroid.
R. B. POINTON has been a director of the Company since February 1996. He
has been employed by IMI since 1981. He joined IMI as Production Director
of IMI Yorkshire Fittings Limited, Leeds, becoming IMI's Operations
Director, UK & Europe, in 1988 and Managing Director in 1989. He joined the
Board of IMI in December 1994 and currently has responsibility for IMI's
Building Products Group and certain of the businesses of IMI's Special
Engineering Group, including IMI's titanium interests.
GENERAL THOMAS P. STAFFORD (RETIRED) has served as co-founder of Stafford,
Burke and Hecker, Inc., a Washington-based consulting firm, since prior to
1991. General Stafford graduated from the United States Naval Academy in
1952. He was commissioned as an officer in the United States Air Force
("USAF") and attended the USAF Experimental Flight Test School in 1958. He
was selected as an astronaut in 1962, piloted Gemini VI in 1965 and
commanded Gemini IX in 1966. In 1969, General Stafford was named Chief of
the Astronaut Office and was the Apollo X commander for the first lunar
module flight to the moon. He commanded the Apollo-Soyuz joint mission with
the Soviet cosmonauts in 1975. After his retirement from the USAF in 1979
as Lieutenant General, in which his last assignment was Deputy Chief of
Staff for research, development and acquisitions, he became Chairman of
Gibraltar Exploration Limited, an oil and gas exploration and production
company, and served in that position until 1984, when he joined General
Technical Services, Inc., a consulting firm. General Stafford is a director
of Allied-Signal Inc., CMI Corporation, Fischer Scientific, Inc., Pacific
Scientific Corporation, Seagate Technologies, Inc., The Wackenhut
Corporation and Wheelabrator Technologies, Inc., and is Chairman of the
Board of the Omega Watch Corporation of America, the United States
affiliate of the Omega Watch Company.
YUKIJI TADOKORO has been a director of the Company since 1990. Mr. Tadokoro
has been Managing Director of Toho Titanium Co., Ltd. (Tokyo) since 1989.
Mr. Tadokoro has also been President of UTSC since 1992.
PAUL J. BANIA has been Vice President -- Quality and Technology since 1994.
Dr. Bania was the Company's Vice President -- Research and Market
Development from 1992 to 1994 and Director of Product Development from 1989
until 1992.
THOMAS A. BUCK has been Vice President -- U.S. Manufacturing since 1991.
From 1990 to 1991, Mr. Buck was General Manager of the Company's Henderson
facility.
JOSEPH S. COMPOFELICE has been Vice President and Chief Financial Officer
of the Company since February 1996 and was director of the Company from
1994 until March 1996. Since 1994, he has been Vice President and Chief
Financial Officer of Tremont and NL and, since 1995, a director of NL.
Since 1994, Mr. Compofelice has also been Executive Vice President of
Valhi, Inc. ("Valhi"), which is engaged in sugar, building and hardware
products, fast food, and, through NL, chemical industries, and may be
deemed to be an affiliate of the Company. From 1990 until 1993, he was Vice
President and Chief Financial Officer of Baroid.
BRIAN J. HADLEY has been Vice President -- European Manufacturing since
February 1996. He has been Operations Director for TIMET UK since 1987.
Prior to joining IMI he was Works Director of APV Paramount, Ltd., an
operator of high alloy and stainless steel foundries.
RICHARD D. MCKINNEY has been Vice President -- Castings Operations since
February 1996. He has been President and Chief Executive Officer of TIMET
Castings since 1994. From 1993 until 1994, he served as Vice President
Operations of Teledyne Casting Services, which produces iron
43
<PAGE> 47
sand castings, and from 1989 until 1993 he was the President of Teledyne
Metal Forming, which manufactures formed metal shapes.
JOHN P. MONAHAN has been Vice President -- Sales and Marketing since 1995,
and was Vice President -- North American Sales and Marketing from 1990 to
1995.
ROBERT E. MUSGRAVES has been Vice President and General Counsel of the
Company since 1990. He has also served as Secretary of the Company since
1991 and Assistant Secretary of the Company from 1990 to 1991. Since 1993,
Mr. Musgraves has been General Counsel and Secretary of Tremont, and since
1994 has also served as Vice President of Tremont. He was an Assistant
Secretary of Tremont from 1990 to 1993. Prior to joining the Company in
1990, Mr. Musgraves was a partner with the law firm of Kirkland & Ellis.
MARK A. WALLACE has been Vice President -- Finance and Treasurer of the
Company since 1992. He has also served as Vice President and Controller of
Tremont since 1992. From 1990 to 1992, Mr. Wallace was Assistant Controller
of Valhi. Prior to joining Valhi, Mr. Wallace was a Senior Manager with
Arthur Andersen & Co.
COMPENSATION OF DIRECTORS
Current directors of the Company receive no compensation for serving as
directors. Following the completion of the Offerings, directors of the Company
who are not employees of the Company will be paid an annual retainer of $8,000
in cash plus a number of shares of Common Stock annually equal to $8,000 divided
by the initial public offering price, rounded up to a multiple of 100. In
addition, non-employee directors will receive an attendance fee of $1,000 per
day for each day on which they attend a meeting of the Board of Directors or a
committee of the Board of Directors. Directors will also be reimbursed for
reasonable expenses incurred in attending Board of Directors and committee
meetings.
The Company has adopted its 1996 Non-Employee Director Compensation Plan
(the "Director Compensation Plan") pursuant to which each non-employee director
will, upon consummation of the Offerings, be granted an option to acquire 625
shares of Common Stock at the initial public offering price, and will also be
granted 625 options annually commencing in 1996 at the last reported sales price
of the Common Stock on the Nasdaq National Market on the last trading day of the
Company's fiscal year. See "-- Director Compensation Plan."
EXECUTIVE COMPENSATION
The following table sets forth compensation awarded by the Company during
the fiscal year ended December 31, 1995 to (i) the Company's Chief Executive
Officer, (ii) the Company's Chief Financial Officer, (iii) the Company's five
other most highly compensated executive officers for services rendered during
the fiscal year ended December 31, 1995 and (iv) a former officer who served as
chief executive officer of the Company until January 5, 1995.
44
<PAGE> 48
SUMMARY COMPENSATION TABLE(1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(4) COMPENSATION(5)
-------------------------------------- ---- -------- ------- --------------
<S> <C> <C> <C> <C>
J. Landis Martin(2)................... 1995 $ 60,000 $ -0- $ 2,650
Chairman and CEO
Joseph S. Compofelice(2).............. 1995 $ 45,000 $50,000 $ 4,476
Vice President and
Chief Financial Officer
Paul J. Bania......................... 1995 $100,000 $26,000 $ 4,070
Vice President -- Quality and
Technology
Thomas A. Buck........................ 1995 $120,000 $31,200 $ 4,935
Vice President -- U.S. Manufacturing
John P. Monahan....................... 1995 $120,000 $31,200 $ 4,968
Vice President -- Sales and
Marketing
Robert E. Musgraves(2)................ 1995 $ 60,000 $15,600 $ 4,821
Vice President -- Administration and
General Counsel
FORMER OFFICER:
Kirby C. Adams(3)..................... 1995 $ -0- $ -0- $229,905
</TABLE>
- ---------------
(1) Columns required by the rules and regulations of the Securities and Exchange
Commission (the "Commission") which contain no entries have been omitted.
(2) The amounts shown as salary and bonus for Messrs. Martin, Compofelice and
Musgraves represent the full amount paid by the Company for services
rendered by such persons during 1995, less the portion (50%) of such
compensation for which Tremont reimbursed the Company in 1995. Mr.
Compofelice was not an executive officer of the Company during 1995.
(3) Mr. Adams resigned as an executive officer of the Company on January 5,
1995. In connection with Mr. Adams' resignation, the Company agreed to (i)
continuation of salary and benefits for up to two years, (ii) continued
vesting of certain Tremont options for the duration of the salary
contribution period, and (iii) payment of certain other expenses. The
aggregate amount payable to, or on behalf of, Mr. Adams pursuant to this
agreement is estimated to range from approximately $375,000 to $565,000.
(4) Under the Company's variable compensation plan, a portion of the
compensation payable to the Company's officers is based upon the Company's
financial performance. Based on the Company's 1995 financial results, no
compensation with respect to the Company's performance was payable for 1995.
The balance of the compensation payable to the Company's officers under the
plan is based on the assessed performance of the individual officer. In
1995, all compensation paid under the plan related to individual
performance. Neither Mr. Martin nor Mr. Compofelice participated in the plan
as of December 31, 1995. Based upon the recommendation of the Chief
Executive Officer and TIMET's and Tremont's Management Development and
Compensation Committees, the TIMET and Tremont Boards approved a bonus of
$100,000 for Mr. Compofelice with respect to his services on behalf of TIMET
and Tremont during 1995.
(5) Such amounts represent (i) matching contributions made by the Company
pursuant to the savings feature of the Company's Thrift/Retirement Plan
($250 for Mr. Martin, $900 for Mr. Compofelice, $1,000 for Mr. Bania, $1,200
for Mr. Buck, $1,200 for Mr. Monahan, $1,230 for Mr. Musgraves and $1,000
for Mr. Adams), (ii) retirement contributions accrued by the Company
pursuant to the Thrift/Retirement Plan ($2,400 for Mr. Martin, $2,520 for
Mr. Bania, and $3,000 for each other person named in the table) and (iii)
life insurance premiums paid by the Company ($0 for Mr. Martin, $576 for Mr.
Compofelice, $550 for Mr. Bania, $735 for Mr. Buck, $765 for Mr. Monahan,
$591 for Mr. Musgraves and $905 for Mr. Adams).
J. Landis Martin, the Company's Chairman and Chief Executive Officer,
Joseph S. Compofelice, the Company's Vice President and Chief Financial Officer
(as of March 1996), Robert E. Musgraves, the Company's Vice
President -- Administration and General Counsel, and Mark A. Wallace, the
Company's Vice President -- Finance and Treasurer also serve as officers of
Tremont, and during 1995 Tremont reimbursed the Company for 50% of the salary
and bonus each person received from the Company. Messrs. Martin and Compofelice
also serve as officers of NL and are compensated directly by NL for such
services. The Company expects that, commencing in 1996, (i) Mr. Martin will
spend approximately one-half of his time on matters related directly to the
Company, (ii) Mr. Compofelice will spend approximately one-third of his time on
matters related directly to the Company, and (iii) Mr. Musgraves will spend
substantially all of his time on matters directly related to the Company.
Tremont will reimburse the Company for 20% of the 1996 compensation for Messrs.
Martin, Compofelice and Musgraves pursuant to
45
<PAGE> 49
an intercorporate services agreement. See "Certain Relationships and Related
Transactions -- Contractual Relationships."
No options issued by the Company to acquire shares of Common Stock exist.
In the past, Tremont has issued options to acquire Tremont common stock to
executive officers of the Company and Tremont in consideration for such
officers' services to the Company or to the Company and Tremont. See "Principal
and Selling Stockholders" for information concerning Tremont options held by the
Company's executives named in the Summary Compensation table above. See Note 9
to the Company's Consolidated Financial Statements in connection with grants of
Management Shares to such persons in 1996.
INCENTIVE PLAN
General. The 1996 Long Term Performance Incentive Plan of Titanium Metals
Corporation (the "Incentive Plan") was approved on March 29, 1996, by the Board
of Directors and stockholders of the Company. The purpose of the Incentive Plan
is to advance and promote the interests of the Company and its employees and
stockholders by encouraging and enabling the acquisition of Common Stock by its
key employees or individuals who perform significant services for the benefit of
the Company. The Incentive Plan is also intended as a further means of
attracting and retaining outstanding employees and of promoting a closer
commonality of interests between employees and stockholders of the Company. The
Incentive Plan authorizes the issuance of up to 3,125,000 shares of Common Stock
(which may be authorized and unissued shares, treasury shares or a combination
thereof) and authorizes grants of shares of Common Stock containing vesting and
other restrictions ("Restricted Stock"), nonqualified stock options
("Nonqualified Stock Options"), incentive stock options ("ISOs" and, together
with Nonqualified Stock Options, "Options") and stock appreciation rights
("SARs") or any combination of such grants as the Company's Compensation
Committee (the "Compensation Committee") determines in its sole discretion to
grant to eligible employees of the Company and its subsidiaries or individuals
who perform significant services for the benefit of the Company during the term
of effectiveness of the Incentive Plan.
Officers and key employees of the Company or any subsidiary, including
officers who are members of the Board of Directors and individuals who perform
significant services for the benefit of the Company, are eligible to participate
in the Incentive Plan. No member of the Committee is eligible to be granted an
award under the Incentive Plan while serving on the Committee. No director is
eligible to serve on the Committee if he is eligible to receive grants under the
Incentive Plan or a similar plan of the Company during the year preceding his
election. The total number of persons who may receive grants of Options, SARs or
awards of Restricted Stock under the Incentive Plan will be designated by the
Committee at its sole discretion and is estimated by the Company to be
approximately 100 persons. All grants or awards under the Incentive Plan will be
made in consideration of services rendered or to be rendered by the recipients
thereof.
The Incentive Plan provides for adjustments to reflect any future stock
dividends, stock splits or other relevant capitalization changes. The Incentive
Plan provides that the aggregate number of underlying shares issuable pursuant
to grants of Nonqualified Stock Options, ISOs, SARs and Restricted Stock awards
to a given individual pursuant to the Incentive Plan may not exceed 250,000
during any fiscal year. Options and SARs are not transferrable except by will or
under the laws of descent and distribution, except that the Committee may permit
transfer to immediate family members and trusts or partnerships for family
members of grantees.
Nonqualified Stock Options. Nonqualified Stock Options (those that are not
qualified under Section 422 of the Internal Revenue Code of 1986, as amended) to
be granted under the Incentive Plan generally become exercisable only after
specified periods of service subsequent to the grant (for example, 40% after two
years, 60% after three years, 80% after four years and 100% after five years)
and may be exercised in any sequence, regardless of the date of award or the
existence of any outstanding Nonqualified Stock Option or ISO. The Committee
shall have the authority to accelerate the date on which a Nonqualified Stock
Option shall become exercisable by the grantee. The number of shares and other
terms of the grant of Nonqualified Stock Options are determined by the Committee
at the time of the
46
<PAGE> 50
award. A Nonqualified Stock Option may be granted to an eligible employee either
alone or with an attached SAR. Nonqualified Stock Options will be exercisable
for not more than ten years from the date of the grant (unless extended within
the discretion of the Committee for a further period of up to three years). No
Nonqualified Stock Option will be granted at a price of less than 100% of the
fair market value per share of Common Stock at the time the Nonqualified Stock
Option is granted. As determined by the Committee in granting any Nonqualified
Stock Option, upon exercise of such Nonqualified Stock Option, the Nonqualified
Stock Option price, and any withholding tax required by law, may be paid in
cash, or, at the discretion of the Committee, shares of Common Stock (valued at
their fair market value on the date of exercise) or by a combination of cash and
such shares. The Committee may grant to one or more holders of Nonqualified
Stock Options, in exchange for their voluntary surrender and the cancellation of
such Nonqualified Stock Options and their corresponding SARs, if any, new
Options having different exercise prices than the exercise prices provided in
the Nonqualified Stock Options so surrendered and canceled and containing such
other terms and conditions as the Committee may deem appropriate.
Incentive Stock Options. An ISO may be granted to an employee either alone
or with an attached SAR. The number of shares and other terms of grant are
determined at the time of the grant, provided, however, that in no event shall
the term of an ISO be more than ten years (no more than five years in the case
of a more-than-10% stockholder). The price payable upon exercise shall be not
less than 100% of the fair market value of shares at the time of grant (110% for
a more-than-10% stockholder), and may be paid either in cash or with other
shares of the Company's Common Stock or a combination of cash and shares.
In the absence of acceleration by the Committee or otherwise under the
Incentive Plan, ISOs generally become exercisable only after specified periods
of service subsequent to the grant (for example, 50% after three years or 100%
after four years). The aggregate fair market value (at the time an ISO is
granted) of shares with respect to which ISOs become exercisable for the first
time during any calendar year may not exceed $100,000.
If an ISO is granted with an attached SAR, the features of such SAR will be
similar to those discussed below under "-- Stock Appreciation Rights," but it
will be subject to the same terms as the related ISO as to date of expiration,
difference between fair market value on the Appreciation Date (defined below)
and date of award, transferability and eligibility to exercise. In addition,
such SAR may be exercised only when the market price of the shares subject to
the ISO exceeds the option exercise price.
Stock Appreciation Rights. The Incentive Plan authorizes the Committee to
grant a SAR to eligible employees either separately or attached to an Option. In
the case of a SAR that is related to an Option, such SAR may be granted either
at the time of grant of such Option or at any time thereafter and would be
exercisable only to the extent the related Option is exercisable. Each grantee
of SARs is permitted to designate an appreciation date ("Appreciation Date")
with respect to which stock appreciation will be measured. Upon the exercise of
a SAR, the holder is entitled to receive from the Company without the payment of
any cash (except for any withholding taxes) an amount equal to the product of
(i) the excess of (x) the per share market value of the Common Stock at the
Appreciation Date, over (y) the per share fair market value on the date of
grant, and (ii) the number of shares of Common Stock subject to such SAR. The
right to designate an Appreciation Date generally arises only after specified
periods of service which are the same as the periods for exercise of an Option.
The Committee shall, however, have the authority to advance the grantee's right
to designate an Appreciation Date. Generally, the SAR terminates ten years from
the date of grant. Payment with respect to a SAR may be made in cash, shares of
Common Stock or a combination of both as determined by the Committee. Upon the
exercise of a SAR, the related Option (if any), or the portion thereof for which
such SAR is exercised, shall terminate. Upon the exercise or expiration of an
Option related to a SAR, such SAR, or such portion thereof for which such Option
is exercised, shall terminate.
Restricted Stock. The Committee will have the authority to award
Restricted Stock and to determine the terms, conditions and restrictions in
connection with the issuance or transfer of Restricted Stock, including the
period during which the restrictions are applicable. The terms, conditions and
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<PAGE> 51
restrictions, including the lapse of such restrictions, may differ with respect
to each grantee. In addition, awards of Restricted Stock may be made on a
selective basis. Shares of Restricted Stock awarded under the Incentive Plan
will be restricted as to transfer and subject to forfeiture during a specified
period or periods. Shares awarded, and the right to vote such shares and to
receive dividends thereon, may not be sold, assigned, transferred, pledged or
otherwise encumbered during the period of restriction applicable to such shares
other than by will or by the laws of descent and distribution. During such
period of restriction, the recipient has all other rights of a stockholder,
including but not limited to the right to receive dividends and vote such
Restricted Stock. The Committee has the discretion to remove any or all
restrictions whenever it may determine that such action is appropriate.
Generally, the restriction period expires three years from the date of the
original grant. No award of Restricted Stock may be made under the Incentive
Plan after the tenth anniversary of the effective date of the Incentive Plan.
Termination and Amendment. The Board may amend or terminate the Incentive
Plan at any time, but no such action may affect or in any way impair any rights
which have accrued under the Incentive Plan, and no amendment may increase the
total number of shares which may be issued under the Incentive Plan, reduce the
minimum purchase price for shares subject to options, or extend the period
during which Options, SARs and Restricted Stock may be granted without the
approval of the holders of a majority of shares of the Common Stock.
Federal Income Tax Consequences. The following is a summary of the
principal current federal income tax consequences of transactions under the
Incentive Plan. It does not describe all federal tax consequences under the
Incentive Plan, nor does it describe state, local or foreign tax consequences.
ISOs. No taxable income is realized by the optionee upon the grant or
exercise of an ISO. However, the exercise of an ISO may result in
alternative minimum tax liability for the optionee. If no disposition of
shares issued to an optionee pursuant to the exercise of an ISO is made by
the optionee within two years from the date of grant or within one year
after the transfer of such shares to the optionee, then upon sale of such
shares, any amount realized in excess of the exercise price will be taxed
to the optionee as a long-term capital gain and any loss sustained will be
a long-term capital loss, and no deduction will be allowed to the Company
for federal income tax purposes.
If the shares of Common Stock acquired upon the exercise of an ISO are
disposed of prior to the expiration of the two-year and one-year holding
periods described above, generally the optionee will realize ordinary
income in the year of disposition in an amount equal to the excess (if any)
of the fair market value of the shares at exercise (or, if less, the amount
realized on an arms'-length sale of such shares) over the exercise price
thereof, and the Company will be entitled to deduct such amount. Any
further gain realized will be taxed as short-term or long-term capital gain
and will not result in any deduction by the Company. Special rules may
apply where all or a portion of the exercise price of the incentive stock
option is paid by tendering shares of Common Stock.
If an ISO is exercised at a time when it no longer qualifies for the
tax treatment described above, the Option is treated as a Nonqualified
Stock Option. Generally, an ISO will not be eligible for the tax treatment
described above if it is exercised more than three months following
termination of employment (one year following termination of employment by
reason of permanent and total disability), except in certain cases where
the ISO is exercised after the death of an optionee.
Nonqualified Stock Options. With respect to Nonqualified Stock
Options granted under the Incentive Plan, no income is realized by the
optionee at the time the Option is granted. Generally, at exercise,
ordinary income is realized by the optionee in an amount equal to the
difference between the exercise price and the fair market value of the
shares on the date of exercise, and the Company receives a tax deduction
for the same amount, and at disposition, appreciation or depreciation after
the date of exercise is treated as either short-term or long-term capital
gain or loss, depending on how long the shares have been held.
SARs. The grant of an SAR does not result in income for the grantee
or in a deduction for the Company. Upon the exercise of an SAR, the grantee
generally recognizes ordinary income and the
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<PAGE> 52
Company is entitled to a deduction measured by the fair market value of the
shares plus any property received by the grantee.
Restricted Stock. A recipient of Restricted Stock generally will be
subject to tax at ordinary income rates on the fair market value of the
stock at the time the stock is either transferable or is no longer subject
to forfeiture, less any amount paid for such stock. The Company is entitled
to a corresponding tax deduction for the amount of ordinary income
recognized by the recipient. However, a recipient who so elects under
Section 83(b) of the Internal Revenue Code of 1986, as amended (the
"Code"), within 30 days of the date of issuance of the Restricted Stock
will realize ordinary income on the date of issuance equal to the fair
market value of the shares of Restricted Stock at that time (measured as if
the shares were unrestricted and could be sold immediately), less any
amount paid for such stock. If the shares subject to such election are
forfeited, the recipient will not be entitled to any deduction, refund or
loss for tax purposes with respect to the forfeited shares. Upon sale of
the shares after the forfeiture period has expired, the appreciation or
depreciation since the shares became transferable or free from risk of
forfeiture (or, if a Section 83(b) election was made, since the shares were
issued) will be treated as long-term or short-term capital gain or loss.
The holding period to determine whether the recipient has long-term or
short-term capital gain or loss begins when the restriction period expires
(or upon earlier issuance of the shares, if the recipient elected immediate
recognition of income under Section 83(b)). If Restricted Stock is received
in connection with another award under the Incentive Plan (for example,
upon exercise of an Option), the income and the deduction, if any,
associated with such award may be deferred in accordance with the rules
described above for Restricted Stock.
The preceding description of the 1996 Plan is a summary and is qualified in
its entirety by the provisions of the 1996 Plan, a copy of which has been filed
as an exhibit to the Company's Registration Statement of which this Prospectus
is a part.
DIRECTOR COMPENSATION PLAN
The Director Compensation Plan was adopted by the Company's Board of
Directors on April 15, 1996 and by the Company's stockholders on May 8, 1996.
The purpose of the Director Compensation Plan is to promote the interests of the
Company by providing an inducement to qualified persons who are neither
employees nor officers of the Company to serve as members of the Company's Board
of Directors.
The aggregate number of shares of Common Stock authorized to be issued
pursuant to the Director Compensation Plan is 62,500, subject to adjustment in
certain instances as described below. Options may be granted only to directors
of the Company who are neither employees of the Company nor any of its
subsidiaries or parents nor, in certain cases, members of committees
administering other stock option plans of the Company. Directors who are
currently eligible to participate in the Director Compensation Plan are Messrs.
Allen, Hutcheson, Pointon, Stafford and Tadokoro.
The Director Compensation Plan provides that each eligible non-employee
director will automatically be granted an annual option to purchase 625 shares
of Common Stock on the last day of the Company's fiscal year commencing in 1996
and will also be granted an initial option to purchase 625 shares, upon pricing
(and subject to completion) of the Offerings. Other than the initial grant of
options, the exercise price of the options will be equal to the last reported
sale price of Common Stock on the Nasdaq National Market on the last day of the
Company's previous fiscal year. Each option granted under the Director
Compensation Plan becomes exercisable one year after the date of grant and
expires on the fifth anniversary following the date of grant. The Director
Compensation Plan will automatically terminate when all options granted
thereunder have been exercised or have expired. Options become fully exercisable
upon the death or disability of an optionee or upon an optionee's ceasing to be
a director of the Company. Options must be fully exercised within three months
from the date the optionee terminates his or her performance of services for the
Company. However, if termination of the performance of services occurs because
of death or disability, then options may be exercised within one year of the
date of such
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<PAGE> 53
death or disability. Options granted under the Director Compensation Plan are
not intended to constitute "incentive stock options" within the meaning of
Section 422A of the Code.
The Director Compensation Plan provides for adjustments to reflect any
future stock dividends, stock splits or other relevant capitalization changes.
If any options under the Director Compensation Plan expire or are terminated for
any reason, the shares reserved for issuance thereunder will revert to the
status of available shares.
Directors of the Company who are not eligible to participate in the
Director Compensation Plan shall serve as administrators of the Director
Compensation Plan. The ineligible directors presently consist of Messrs. Martin
and Dixey. Ineligible directors shall remain eligible to participate in the
other stock option plans of the Company and its affiliates, including the
Incentive Plan. The Board of Directors may amend or terminate the Director
Compensation Plan at any time, except that no amendment may be made to the
Director Compensation Plan that materially changes the benefits to participants
in the Director Compensation Plan without the affirmative vote of the holders of
a majority of the Common Stock eligible to vote with respect to such amendment;
provided, however, that the Director Compensation Plan may not be amended more
than once every six months (other than to comply with changes to the Code or the
Employee Retirement Income Security Act of 1974, as amended), and any amendment
to the Director Compensation Plan shall comply with all applicable laws and
other requirements.
Optionees generally will not be subject to federal income taxation at the
time the options are granted. Taxable income will be recognized by optionees
upon the exercise of an option in the amount of the difference between the
exercise price paid and the market value of the shares received at the time of
exercise or the date restrictions on resale of such shares lapse (in which case
taxable income will not be recognized until such lapse). An optionee's basis in
the shares received on the exercise of an option is equal to the exercise price
paid, plus any income recognized. The Company will be entitled to a tax
deduction equal to the amount of income recognized by optionees.
The preceding description of the Director Compensation Plan is a summary
and is qualified in its entirety by the provisions of the Director Compensation
Plan, a copy of which has been filed as an exhibit to the Company's Registration
Statement of which this Prospectus is a part.
PENSION PLAN
The Defined Benefit Retirement Plan for Salaried Employees of Titanium
Metals Corporation (the "TIMET Retirement Plan") covers substantially all of the
Company's salaried employees who were employed by the Company as of or prior to
December 31, 1988. Such employees generally became eligible to receive a vested
retirement benefit under such plan after completion of five years of service.
Benefits under the TIMET Retirement Plan are generally based upon the number of
years of service credit, up to 40 years, the final average compensation of each
individual employee, and a percentage of such employee's eligible earnings.
Final average compensation is calculated using the highest 60 consecutive
calendar months of compensation during the last 120 months prior to the date of
calculation. Effective December 31, 1988, employees ceased accruing additional
years of service credit under the TIMET Retirement Plan. Effective April 2,
1994, employees also ceased accruing additional credit for increases in salary
under such plan. Paul Bania, John P. Monahan and Kirby C. Adams, the only
individuals named in the "Summary Compensation Table" above who have
participated in the TIMET Retirement Plan, will be entitled to receive annual
payments of approximately $11,000, $24,000, and $24,200 respectively, pursuant
to the TIMET Retirement Plan upon reaching age 65.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1995, J. Landis Martin, the Company's Chairman and Chief Executive
Officer, Susan E. Alderton and Dr. Ralph Cotton served as members of the
Company's compensation committee. During 1995, Mr. Martin also served as an
executive officer and director of each of Tremont and NL, and Joseph S.
Compofelice, the Company's Vice President and Chief Financial Officer, served as
an executive officer and director of NL.
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<PAGE> 54
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Company's Certificate of Incorporation provides that no director shall
be liable personally to the Company or its stockholders for monetary damages for
breach of fiduciary duty as a director; provided that, the Certificate of
Incorporation does not eliminate the liability of a director for (i) any breach
of the director's duty of loyalty to the Company or its stockholders; (ii) acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law; (iii) acts or omissions in respect of certain unlawful
dividend payments or stock redemptions or repurchases; or (iv) any transaction
from which such director derives improper personal benefit. The effect of this
provision is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv) above.
The limitations summarized above, however, do not affect the ability of the
Company or its stockholders to seek non-monetary remedies, such as an injunction
or rescission, against a director for breach of his fiduciary duty.
The Company's Bylaws provide that the Company shall indemnify and advance
expenses to the currently acting and former directors, officers, employees and
agents of the Company or of another corporation, partnership, joint venture,
trust or other enterprise if serving at the request of the Company arising in
connection with their acting in such capacities. In addition, Section 145 of the
Delaware General Corporation Law permits the Company to indemnify an officer or
director who was or is a party or is threatened to be made a party to any
proceeding because of his or her position, if the officer or director acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the Company pursuant to
the foregoing provisions, the Company has been informed that in the opinion of
the Commission, such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
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<PAGE> 55
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding beneficial ownership,
as defined by the regulations of the Securities and Exchange Commission, of the
Company's Common Stock as of May 8, 1996, and as adjusted to reflect the Stock
Split (see "Description of Capital Stock") and the sale of the Common Stock
offered hereby, for (i) each director and each current executive officer named
in the Summary Compensation Table set forth in "Management," (ii) all directors
and current executive officers of the Company as a group, and (iii) each person
known by the Company to own beneficially 5% or more of the outstanding shares of
Common Stock, each of which is also a Selling Stockholder. All beneficial
ownership is sole and direct unless otherwise indicated.
See footnote 2 for information concerning individuals and entities which
may be deemed to indirectly beneficially own those shares of Common Stock
directly beneficially owned by Tremont. Information concerning ownership of
Tremont, which may be deemed to be the Company's parent company, is contained in
footnote 2 and the table below, captioned "'Ownership of Tremont Common Stock."
OWNERSHIP OF TIMET COMMON STOCK
<TABLE>
<CAPTION>
PERCENT OF COMMON
STOCK(1)
------------------------
AMOUNT AND NATURE OF BEFORE THE AFTER THE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OFFERINGS OFFERINGS
- -------------------------------------------------- -------------------- ---------- ---------
<S> <C> <C> <C>
5% AND SELLING STOCKHOLDERS:
Tremont Corporation(2)(3)......................... 11,700,000 46.3% 37.2%
1999 Broadway, Suite 4300
Denver, Colorado 80202
IMI plc(3)(4)..................................... 9,561,305 37.9 6.4%
P.O. Box 218
Birmingham, England B6 7BA
Union Titanium Sponge Corporation(3).............. 3,900,000 15.4 10.0%
c/o Toho Titanium Company Ltd.
2-13-31 Kohnan
Minato-ku
Tokyo 108, Japan
DIRECTORS:(5)
J. Landis Martin................................ 31,850 * *
Gary J. Allen................................... -0-
Andrew R. Dixey................................. 15,925 * *
Edward C. Hutcheson, Jr......................... -0-
R. B. Pointon................................... -0-
Gen. Thomas P. Stafford......................... -0-
Yukiji Tadokoro................................. -0-
EXECUTIVE OFFICERS:(5)
Joseph S. Compofelice........................... 12,675 * *
Paul J. Bania................................... 6,500 * *
Thomas A. Buck.................................. 6,500 * *
John P. Monahan................................. 6,500 * *
Robert E. Musgraves............................. 6,500 * *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(15 PERSONS):(5)................................ 92,950 * *
</TABLE>
- ---------------
* Less than 1%.
(1) Gives effect to (i) the issuance of a total of 6,200,000 shares sold in the
Offerings by the Company, and 7,550,000, and 750,000 shares sold in the
Offerings by IMI and UTSC, respectively, and (ii) the Stock Split, to be
consummated immediately prior to the Offerings. Percentages do not take into
account shares, if any, purchased in the Offerings. If the Underwriters'
overallotment options are exercised in full, Tremont will sell a total of
2,175,000 shares, and, giving effect to such sales, Tremont will hold
approximately 30.3%, of the outstanding Common Stock.
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<PAGE> 56
(2) Contran is the holder of approximately 3.1% of Tremont's outstanding common
stock. Valhi Group, Inc. ("VGI") and National City Lines, Inc. ("National")
are the holders of approximately 34.6% and 4.6%, respectively, of Tremont's
outstanding common stock. In addition, NL, Valmont Insurance Company
("Valmont") and the Combined Master Retirement Trust (the "Master Trust")
are the holders of 36,137, 30,490 and 3,506 shares, respectively, of Tremont
common stock, less than 1% of the outstanding Tremont common stock.
Valhi is the holder of 100% of the outstanding common stock of Valmont.
Valhi and Tremont are the holders of approximately 53.9% and 17.7%,
respectively, of the outstanding common stock of NL. VGI, National and
Contran are the holders of approximately 75.1%, 10.1% and 6.2%,respectively,
of the outstanding common stock of Valhi, and the Master Trust is the holder
of approximately .1% of the outstanding common stock of Valhi. National,
NOA, Inc. ("NOA") and Dixie Holding Company ("Dixie Holding") are the
holders of approximately 73.3%, 11.4% and 15.3%, respectively, of the
outstanding common stock of VGI. Contran and NOA are the holders of
approximately 85.7% and 14.3%, respectively, of the outstanding common stock
of National. Contran and Southwest Louisiana Land Company, Inc.
("Southwest") are the holders of approximately 49.9% and 50.1%,
respectively, of the outstanding common stock of NOA. Dixie Rice
Agricultural Corporation, Inc. ("Dixie Rice") is the holder of 100% of the
outstanding common stock of Dixie Holding. Contran is the holder of
approximately 88.7% and 54.3% of the outstanding common stock of Southwest
and Dixie Rice, respectively. Substantially all of Contran's outstanding
voting stock is held by trusts established for the benefit of Harold C.
Simmons' children and grandchildren (the "Trusts"), of which Harold C.
Simmons is the sole trustee. As sole trustee of the Trusts, Harold C.
Simmons has the power to vote and direct the disposition of the shares of
Contran common stock held by the Trusts. However, Mr. Simmons disclaims
beneficial ownership thereof. The Master Trust is a trust formed by Valhi to
permit the collective investment by trusts that maintain the assets of
certain employee benefit plans adopted by Valhi and related companies.
Harold C. Simmons is sole trustee of the Master Trust and sole member of the
Trust Investment Committee for the Master Trust. The trustee and members of
the Trust Investment Committee for the Master Trust are selected by Valhi's
Board of Directors. Harold C. Simmons and Glenn R. Simmons are each members
of Valhi's Board of Directors and are participants in one or more of the
employee benefit plans which invest through the Master Trust. However, each
such person disclaims beneficial ownership of the Valhi common stock and
Tremont common stock held by the Master Trust, except to the extent of his
individual vested beneficial interest in the assets held by the Master
Trust.
Contran's ownership percentages of Valhi and Tremont reported above
include 0.2% of the outstanding shares of Valhi common stock and 2.1% of the
outstanding shares of Tremont common stock, respectively, which shares are
directly held by the Contran Deferred Compensation Trust No. 2 (the "CDCT
No. 2"). NationsBank of Texas, N.A. serves as trustee (the "Trustee") of the
CDCT No. 2. Contran established the CDCT No. 2 as an irrevocable "rabbi
trust" to assist Contran in meeting certain deferred compensation
obligations that it owes to Harold C. Simmons. If the CDCT No. 2 assets are
insufficient to satisfy such obligations, Contran must satisfy the balance
of such obligations. Pursuant to the terms of the CDCT No. 2, Contran (i)
retains the power to vote the shares held by the CDCT No. 2, (ii) shares
dispositive power with the Trustee over such shares and (iii) may be deemed
the indirect beneficial owner of such shares.
Harold C. Simmons is Chairman of the Board of NL, Chairman of the Board,
President and Chief Executive Officer of Contran, Dixie Holding, NOA,
National, VGI and Valhi, is Chairman of the Board and Chief Executive
Officer of Dixie Rice and Southwest, and a director of Tremont. By virtue of
the holding of such offices, the stock ownership described above and Mr.
Simmons' service as trustee as described above, Mr. Simmons may be deemed to
control Contran, Southwest, Dixie Rice, Dixie Holding, NOA, National, VGI,
Valhi, Tremont, the Company and NL, and Mr. Simmons, VGI, National, NOA,
Dixie Rice, Dixie Holding, Southwest and Contran may be deemed to possess
indirect beneficial ownership of the Common Stock directly beneficially
owned by Tremont and the Tremont common stock held by Contran and its
subsidiaries. However, Mr. Simmons disclaims beneficial ownership of the
shares of Common Stock and Tremont common stock beneficially owned, directly
and indirectly, by such entities.
(3) The shares of Common Stock shown as beneficially owned by Tremont and UTSC
exclude 1,509,690 shares and 503,230 shares, respectively, obtainable within
60 days of the date of this Prospectus upon exercise an option expiring
February 15, 1999 granted by IMI Americas Inc. to Tremont (25% of which was
concurrently assigned to UTSC) in connection with the IMI Titanium
Acquisition (the "IMI Option"). If the IMI Option was fully exercised,
Tremont would hold 13,209,690 shares or 52.3% of the outstanding Common
Stock prior to the Offerings and approximately 42% of the outstanding Common
Stock giving effect to the Offerings (approximately 34% if the Underwriters'
overallotment options are exercised in full), UTSC would hold 4,403,230
shares of Common Stock or approximately 17.4% of the outstanding Common
Stock prior to the Offerings and 3,653,230 shares or approximately 11.6% of
the outstanding Common Stock giving effect to the Offerings, and IMI would
hold 7,548,385 shares of Common Stock or approximately 29.9% of the
outstanding Common Stock prior to the Offerings and approximately 6.4% of
the outstanding Common Stock giving effect to the Offerings.
UTSC is a Delaware corporation, the shareholders of which are Toho
Titanium Company, Ltd. ("Toho"), Nippon Mining and Metals Company, Ltd.
("NMMS"), Nippon Steel Corporation ("NSC"), Mitsui & Co., Ltd. ("Mitsui
Japan") and Mitsui & Co. (U.S.A.), Inc. ("Mitsui USA"). The shareholders of
UTSC may be deemed to share beneficial ownership of the Common Stock held of
record by UTSC by virtue of being shareholders of UTSC, but each expressly
disclaims such beneficial ownership. The business address for Toho is
Shinagawa NSS Building 2-13-31, Kohnan, Minato-ku, Tokyo 108, Japan; for
NMMS is 10-1, Toranomon 2-chome, Minato-ku, Tokyo 105, Japan; for NSC is 6-3
Ohtemachi 2-chome, Chiyoda-ku, Tokyo 100-71, Japan; for Mitsui Japan is 2-1
Ohtemachi 1-chome, Chiyoda-ku, Tokyo, Japan; and for Mitsui USA is 200 Park
Avenue, New York, New York 10166-0130.
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<PAGE> 57
(4) IMI Americas Inc. holds 2,390,310 shares of Common Stock and IMI Kynoch Ltd.
holds 7,170,995 shares of Common Stock. All of the outstanding capital stock
of IMI Americas Inc. and IMI Kynoch Ltd. is held, directly or indirectly, by
IMI plc.
(5) All shares of Common Stock shown as beneficially owned represent Management
Shares. The address of all such persons is 1999 Broadway, Suite 4300,
Denver, Colorado 80202.
The following table sets forth information regarding beneficial ownership
of Tremont's common stock as of March 25, 1996, for (i) each director and each
current executive officer named in the Summary Compensation Table set forth in
"Management," and (ii) all directors and current executive officers of the
Company as a group. All information has been taken from or based upon ownership
filings made by such persons with the Commission or upon information provided by
such persons to Tremont. All beneficial ownership is sole and direct unless
otherwise indicated.
OWNERSHIP OF TREMONT COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP COMMON STOCK
------------------------------------------------- -------------------- ------------
<S> <C> <C>
DIRECTORS:
J. Landis Martin(1).............................. 163,418 2.2%
Gary J. Allen.................................... -0-
Andrew R. Dixey.................................. -0-
Edward C. Hutcheson, Jr. ........................ -0-
R. B. Pointon.................................... -0-
Gen. Thomas P. Stafford(2)....................... 4,000 *
Yukiji Tadokoro.................................. -0-
EXECUTIVE OFFICERS:
Joseph S. Compofelice(2)......................... 20,000 *
Paul J. Bania(2)................................. 10,200 *
Thomas A. Buck(2)................................ 14,200 *
John P. Monahan(2)............................... 12,273 *
Robert E. Musgraves(2)........................... 14,200 *
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP
(15 PERSONS)(1)(2)............................. 247,691 3.3%
</TABLE>
- ---------------
* Less than 1%.
(1) The shares of Tremont common stock shown as beneficially owned by J. Landis
Martin include 42,500 shares which Mr. Martin has the right to acquire by
exercise of options within 60 days of March 25, 1996 and 510 shares held for
the benefit of Mr. Martin under the Savings Plan for Employees of NL. Such
shares also include 2,300 shares held by Mr. Martin's wife, 1,900 shares
held by the Martin's Children Trust No. II for which Mr. Martin is trustee,
and 100 shares held by one of Mr. Martin's daughters, with respect to which
shares beneficial ownership is disclaimed by Mr. Martin.
(2) The shares of Tremont common stock shown as beneficially owned by General
Thomas P. Stafford, Joseph S. Compofelice, Paul J. Bania, Thomas A. Buck,
John P. Monahan and Robert E. Musgraves and all directors and executive
officers as a group include 3,000, 10,000, 10,200, 14,200, 10,200, 14,200
and 113,700 shares, respectively, which such persons have the right to
acquire by the exercise of options within 60 days of March 25, 1996.
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<PAGE> 58
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIPS WITH RELATED PARTIES
The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (i) intercorporate transactions with related
companies such as guarantees, management and expense sharing arrangements,
shared fee arrangements, joint ventures, partnerships, loans, options, advances
of funds on open account, and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties and (ii) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases, and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and
have included transactions which resulted in the acquisition by one related
party of a publicly-held minority equity interest in another related party. The
Company continuously considers, reviews and evaluates, and understands that
Contran, Tremont and related entities consider, review and evaluate such
transactions. Depending upon the business, tax and other objectives then
relevant, it is possible that the Company might be a party to one or more such
transactions in the future. It is the policy of the Company to engage in
transactions with related parties on terms which are, in the opinion of the
Company, no less favorable to the Company than could be obtained from unrelated
parties.
J. Landis Martin, Chairman of the Board and Chief Executive Officer of the
Company, is also currently Chairman of the Board, Chief Executive Officer and
President of Tremont. Mr. Martin also serves as a director, and President and
Chief Executive Officer of NL. Joseph S. Compofelice, Vice President and Chief
Financial Officer, is also Vice President and Chief Financial Officer of
Tremont. Mr. Compofelice also serves as a director, and Vice President and Chief
Financial Officer of NL. Robert E. Musgraves, Vice President -- Administration
and General Counsel of the Company, is also Vice President and General Counsel
of Tremont. Mark A. Wallace, Vice President -- Finance and Treasurer of the
Company, is also Vice President and Controller of Tremont. Such management
interrelationships and intercorporate relationships may lead to possible
conflicts of interest. These possible conflicts of interest may arise from the
duties of loyalty owed by persons acting as corporate fiduciaries to two or more
companies under circumstances in which such companies may have conflicts of
interest. Such individuals divide their time among the companies for which they
serve as executive officers.
Although no specific procedures are in place which govern the treatment of
transactions among the Company and Tremont, the board of directors of each
includes one or more members who are not officers or directors of any entity
that may be deemed to be related to the Company. Additionally, under applicable
principles of law, in the absence of stockholder ratification or approval by
directors who may be deemed disinterested, transactions involving contracts
among companies under common control must be fair to all companies involved.
Furthermore, directors and officers owe fiduciary duties of good faith and fair
dealing to all stockholders of the companies for which they serve.
The Company understands that Tremont and related entities may consider
acquiring or disposing of shares of Common Stock through open-market or
privately-negotiated transactions depending upon future developments, including,
but not limited to, the availability and alternative uses of funds, the
performance of the Common Stock in the market, an assessment of the business of
and prospects for the Company, financial and stock market conditions and other
factors. The Company does not presently intend, and understands that Tremont
does not presently intend, to engage in any transaction or series of
transactions which would result in the Common Stock becoming eligible for
termination of registration under the Securities Exchange Act of 1934, as
amended, or ceasing to be traded on a national securities exchange.
Under the Investment Company Act of 1940 (the "1940 Act"), companies such
as mutual funds that engage in the investment business are subject to regulation
by the Commission as investment companies. The 1940 Act defines an investment
company to include an issuer that (i) is engaged or
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<PAGE> 59
proposes to engage in the business of investing, reinvesting, owning, holding or
trading in securities and (ii) owns or proposes to acquire investment securities
having a value exceeding 40% of the fair value of such issuer's total assets on
an unconsolidated basis (exclusive of cash and cash items). Investment
securities are defined generally to include all securities other than those
issued by majority-owned subsidiaries of the issuer.
Tremont is, and has been for the past several years, primarily engaged in
the business of operating manufacturing businesses through the Company and NL.
Tremont does not now nor has it ever engaged or intended to engage in the
business of investing, reinvesting, owning, holding or trading of securities.
Nevertheless, following the IMI Titanium Acquisition, Tremont ceased to own a
majority of the Company's Common Stock. As a result, the Common Stock and NL
shares held by Tremont might both be deemed to be investment securities.
Based on the technical provisions of the 1940 Act and because Tremont
believes that regulation as an investment company would be undesirable for a
company that engages in a manufacturing business, Tremont has taken the steps
necessary to give itself the benefit of a temporary exemption under the 1940
Act, and may seek an order from the Commission that Tremont is primarily
engaged, through the Company and NL, in a non-investment company business. The
Company also understands that Tremont intends to study the future direction and
opportunities available to Tremont with a view to obviating, within one year
(the time period afforded by the exemption), any argument concerning Tremont's
possible status as an investment company under the 1940 Act.
CONTRACTUAL RELATIONSHIPS
Effective January 1, 1996, the Company and Tremont entered into an
intercorporate services agreement which provides that the parties will render
certain management, financial, tax and administrative services to each other.
The term of the agreement is one year, subject to renewal on a quarterly basis.
Prior to entering into the intercorporate services agreement, the Company
charged Tremont a net amount of approximately $.3 million in 1993 and nil in
1994 for such services (including payments for salary, bonus and stock-based
compensation). Tremont charged the Company a net amount of approximately $.9
million in 1995 for such services (including payments for salary, bonus and
stock-based compensation). See "Management -- Executive Compensation." The
Company expects to charge Tremont approximately $.4 million under the
intercorporate services agreement in 1996.
As of March 31, 1996, Tremont had loans of $17.7 million to the Company
together with accrued but unpaid interest of $4.8 million. It is anticipated
that a portion of the proceeds of the Offerings will be used to prepay such
amounts. Loans from Tremont accrue interest at 10.4% and are due January 1,
2000. Interest is payable quarterly in arrears. See "Use of Proceeds."
In connection with the operations of the Company's Henderson, Nevada
facility, the Company purchases utility services from Basic Investments, Inc.
and its subsidiaries (collectively, "BII") pursuant to various agreements.
During 1995, the aggregate amount paid by the Company to BII was less than $1
million. A 75%-owned subsidiary of Tremont owns approximately 32% of BII. The
Company believes that the terms of the foregoing transactions with Tremont and
BII were no less favorable to the Company than it might have obtained from
unaffiliated third parties.
In connection with the IMI Titanium Acquisition, the Company issued $20
million of subordinated debt to IMI in exchange for a like amount of debt
previously owed to IMI by IMI Titanium Ltd. It is anticipated that a portion of
the proceeds of the Offerings will be used to prepay such debt. The subordinated
debt accrues interest at 10.4% and interest payments are due quarterly in
arrears beginning March 31, 1996. Quarterly principal payments are due beginning
March 31, 1997 through December 31, 1999. Principal payments in 1997 are subject
to the achievement of certain financial tests under the Company's U.S. credit
facility. See "Use of Proceeds."
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<PAGE> 60
Also in connection with the IMI Titanium Acquisition, TIMET UK leased its
manufacturing facility in Witton, England from IMI. The leases on the principal
facilities are for 30-year terms. TIMET UK pays aggregate rental thereunder of
approximately L 650,000 per year, which amount is subject to adjustment every
five years based on changes in the Retail Prices Index for all items excluding
housing as published by HM Government's Central Statistical Office. The Company
has guaranteed the obligations of TIMET UK under these leases.
In connection with the construction and financing of the Company's VDP
plant, UTSC licensed certain technology to the Company and received, among other
consideration, the right to acquire up to 20% of the Company's annual production
capacity of VDP sponge at agreed-upon prices through early 1997 and higher
formula-determined prices thereafter through 2008. The Company believes its
selling prices to UTSC to be below fair market value and that such discount
represents consideration to UTSC for the licensed technology. Sales to UTSC in
1993, 1994 and 1995 were $1 million, $2 million and $9 million, respectively.
The foregoing transactions with IMI and UTSC were entered into in
connection with those entities becoming stockholders of this Company.
Toho Titanium Company, Ltd., a shareholder of UTSC, through an intermediary
trading company, is a party to a contract with TIMET UK pursuant to which TIMET
UK purchases sponge. The contract covers up to 3.2 million pounds during 1996 at
fixed prices. The Company believes that the terms of the agreement are no less
favorable to the Company than the Company might have obtained from unaffiliated
third parties.
SHAREHOLDERS' AGREEMENTS
In connection with the investment by UTSC in the Company, the Company,
Tremont, UTSC, and the stockholders of UTSC entered into an agreement dated May
30, 1990, as amended (the "Investors' Agreement"), that regulates certain
aspects of the governance of the Company. The Investors' Agreement (as recently
amended, as discussed below) provides, among other things, that so long as UTSC
and its stockholders hold at least 10% of the "Adjusted Outstanding TMC Voting
Securities" (defined to include Company voting securities outstanding at the
time of the UTSC investment in the Company plus Company voting securities issued
thereafter with respect to which UTSC was afforded pre-emptive rights): (i) the
Board of the Company shall be composed of seven members, of whom one shall be
designated by UTSC; (ii) UTSC's approval shall be required for the dissolution
or liquidation of the Company or any of its subsidiaries or the filing by the
Company of a petition in bankruptcy or the commencement by the Company of any
other proceeding seeking relief from its creditors; and (iii) UTSC shall be
entitled to receive certain periodic information about the Company.
The Investors' Agreement also provides for: (i) mutual rights of
indemnification between UTSC and the Company for losses arising from any
material breach of a covenant or agreement contained in the Investors' Agreement
with respect to various representations and warranties made in connection with
UTSC's investment in the Company; (ii) certain limitations on the right of UTSC
to transfer its shares of Common Stock; (iii) a right of first refusal, under
certain circumstances, in favor of Tremont on a proposed transfer of UTSC's
Common Stock; (iv) provisions for the arbitration of certain disputes arising
under the Investors' Agreement; and (v) termination of the Investors' Agreement
in the event that UTSC and its stockholders or their affiliates, as a group,
hold less than 5% of the Adjusted Outstanding TMC Voting Securities.
In connection with the Offerings, the Company, Tremont, UTSC and the
shareholders of UTSC entered into an amendment to the Investors Agreement to
become effective upon the effectiveness of the Company's Registration Statement
of which this Prospectus is a part. The amendment, among other things, modifies
the definition of "Adjusted Outstanding TMC Voting Securities" such that it will
include (i) all Common stock outstanding at the time of the amendment, (ii) all
shares of Common Stock issued in the Offerings (so long as such number of
shares, when taken together with the number of shares proposed to be sold by
UTSC as a Selling Stockholder in the Offerings, does not cause UTSC's
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<PAGE> 61
ownership to fall below 10% of the Adjusted Outstanding TMC Voting Securities),
and (iii) shares of Common Stock issued following the Offerings (unless the
issuance of such shares would cause UTSC to lose its rights associated with
owning 10% of the Adjusted Outstanding TMC Voting Securities or the termination
of the Investors' Agreement, in which case such shares will be counted only if
UTSC is afforded certain pre-emptive rights to avoid such dilution), but does
not include 92,950 shares issued to certain members of management or shares
issued in connection with any existing or future employee or director stock
option or compensation plan.
In addition, the amendment extends UTSC's registration rights to all shares
held by UTSC immediately following the Offerings, any shares acquired by UTSC
from IMI under the IMI Option, and shares acquired by UTSC to avoid a dilutive
consequence as described above. In a related amendment of the agreement pursuant
to which UTSC acquires titanium sponge from the Company, the parties agreed that
VDP-related capital expenditures in excess of $2 million per instance that are
not approved by UTSC may not (with certain exceptions) be applied in calculating
the cost of titanium sponge to UTSC under its formula-determined pricing that
applies beginning in early 1997.
In connection with the IMI Titanium Acquisition, the Company, Tremont, IMI
and two of its affiliates, IMI Kynoch Ltd. and IMI Americas Inc., entered into
an agreement dated February 15, 1996, as amended March 29, 1996 (the
"Shareholders' Agreement") to regulate certain matters relating to the
governance of the Company as among the Company, Tremont and its affiliates, and
IMI and its affiliates. UTSC is not a party to the Shareholders' Agreement and
has no rights or obligations as a party to the Shareholder's Agreement. Certain
rights granted to Tremont and IMI and their permitted transferees ("Holders")
under the Shareholders' Agreement depend on the percentage of Common Stock held
at any given time. With respect to representation on the Company's Board of
Directors, the Shareholders' Agreement generally provides that: (i) Tremont
shall be entitled to designate four members of the Board of Directors so long as
it holds at least 30% of the outstanding Common Stock; (ii) a Holder of 20% or
more of the outstanding Common Stock (a "20% Holder") shall be entitled to
designate two directors; and (iii) a Holder of 10% or more of the outstanding
Common Stock (a "10% Holder") shall be entitled to designate one director.
The Company has agreed in the Shareholders' Agreement that, without the
approval of each 20% and 10% Holder, it shall not cause or permit the
dissolution or liquidation of the Company or any of its subsidiaries or the
filing by the Company of a petition in bankruptcy or the commencement by the
Company of any other proceeding seeking relief from its creditors. The Company
has also agreed to provide each 10% Holder certain periodic information about
the Company and its subsidiaries, which right is subject to confidentiality
restrictions.
The Shareholders' Agreement also provides for: (i) rights of
indemnification among the Company, Tremont and IMI with respect to various
representations and warranties made in connection with the IMI Titanium
Acquisition; (ii) certain limitations on the rights of a Holder to transfer its
shares of Common Stock; (iii) restrictions on the ability of a Holder to
transfer certain of the rights accorded by the Shareholders' Agreement; (iv)
agreements not to engage in competition with the Company if the Holder is a 20%
Holder; (v) grant of the IMI Option described below; (vi) the arbitration of
certain disputes arising under the Shareholders' Agreement; and (vii)
termination of the Shareholders' Agreement in the event no Holder of 5% of the
outstanding Common Stock exists.
In connection with the IMI Titanium Acquisition, IMI Americas, Inc. granted
Tremont the IMI Option, an option giving Tremont the right to acquire 2,012,920
shares of Common Stock. Concurrently with the grant of the IMI Option, Tremont
assigned to UTSC the right to acquire 503,230 shares of Common Stock from IMI.
See "Principal and Selling Stockholders."
The preceding description of the Investors' Agreement, the Shareholders'
Agreement and the IMI Option is a summary and is qualified in its entirety by
the provisions of the Investors' Agreement and Shareholders' Agreement, copies
of which have been filed as exhibits to the Company's Registration Statement of
which this Prospectus is a part.
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REGISTRATION RIGHTS
Under the Investors' Agreement (as amended) and subject to certain
limitations, so long as UTSC or its stockholders hold at least 5% of the
outstanding Common Stock of the Company, UTSC and its stockholders are entitled
to certain rights with respect to registration under the Securities Act of the
shares of Common Stock that are held by UTSC. Immediately following the
Offerings, UTSC will hold 3,150,000 shares (10% of the outstanding Common Stock)
and, pursuant to the IMI Option, will have the right to acquire an additional
503,230 shares from IMI. The Investors' Agreement provides that (i) UTSC and its
stockholders and their permitted transferees have one right (the "Demand Right")
to request the Company to register under the Securities Act at least 50% of the
shares of Common Stock and any equity securities of the Company convertible
into, or exercisable or exchangeable for, any shares of Common Stock held by
them or their permitted transferees (the "Registrable Securities"); and (ii) if
the Company proposes to register any securities under the Securities Act (other
than a registration on Form S-4 or Form S-8, or any successor or similar form),
whether or not pursuant to registration rights granted to other holders of its
securities and whether or not for sale for its own account, UTSC and its
stockholders and their permitted transferees have two rights to request the
Company to include in such registration the Registrable Securities held by them
or their permitted transferees (the "Piggyback Right"), provided that such
Piggyback Right shall remain in effect if the Company fails to effect the
registration of all Registrable Securities requested to be registered. Under
most circumstances, substantially all of the expenses for a registration
pursuant to a Demand Right are to be borne by UTSC, and substantially all of the
expenses for a registration pursuant to a Piggyback Right are to be borne by the
Company, other than underwriting commissions and discounts on, and incremental
registration fees relating, to the Registrable Securities included in the
registration. Under certain circumstances, the number of shares included in such
registrations may be limited. The Company has agreed to indemnify the holders of
any Registrable Securities being registered by the Company pursuant to the
Investors' Agreement, as well as the holder's directors and officers and any
underwriters and selling agents, against certain liabilities, including
liabilities under the Securities Act.
Under the Shareholders' Agreement, IMI, Tremont and their affiliates are
entitled to certain rights with respect to the registration under the Securities
Act of the shares of Common Stock that are held by each of them. The
Shareholders' Agreement generally provides, subject to certain limitations, that
(i) 10% Holders shall have two rights, only one of which can be on Form S-1, to
request the Company to register under the Securities Act an amount of not less
than $25 million of Registrable Securities; and (ii) if the Company proposes to
register any securities under the Securities Act (other than a registration on
Form S-4 or Form S-8, or any successor or similar form), whether or not pursuant
to registration rights granted to other holders of its securities and whether or
not for sale for its own account, IMI, Tremont and their affiliates have the
right to request the Company to include in such registration the Registrable
Securities held by them or their permitted transferees so long as each holds in
excess of 5% of the outstanding shares of Common Stock (or to sell the entire
balance of any such Registrable Securities even though less than 5%). The
Company is obligated to pay all registration expenses in connection with a
registration under the Shareholders' Agreement. Under certain circumstances, the
number of shares included in such registrations may be limited. The Company has
agreed to indemnify the holders of any Registrable Securities to be covered by a
registration statement pursuant to the Shareholders' Agreement, as well as the
holder's directors and officers and any underwriters and selling agents, against
certain liabilities, including liabilities under the Securities Act.
The preceding description of the Investors' Agreement and Shareholders'
Agreement is a summary and is qualified in its entirety by the provisions of the
Investors' Agreement and Shareholders' Agreement, copies of which have been
filed as exhibits to the Company's Registration Statement of which this
Prospectus is a part.
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DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offerings, the authorized capital stock of the
Company will consist of 99,000,000 shares of Common Stock, $.01 par value per
share, of which 31,454,255 shares will be issued and outstanding, and 1,000,000
shares of preferred stock, $.01 par value per share (the "Preferred Stock"),
none of which will be outstanding. Immediately prior to the completion of the
Offerings, the Company will convert each outstanding share of its Class A Common
Stock and Class B Common Stock into 65 shares of Common Stock pursuant to a
stock split (the "Stock Split"). The following description of the capital stock
of the Company and certain provisions of the Company's Amended and Restated
Certificate of Incorporation and Bylaws is a summary and is qualified in its
entirety by the provisions of the Amended and Restated Certificate of
Incorporation and Bylaws, copies of which have been filed as exhibits to the
Company's Registration Statement of which this Prospectus is a part. As of the
date hereof, the Company's Common Stock is held by 12 stockholders of record.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. Accordingly, holders of a majority of the shares of Common Stock
entitled to vote in any election of directors may elect all of the directors
standing for election if they choose to do so. The Amended and Restated
Certificate of Incorporation does not provide for cumulative voting for the
election of directors. Holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor, and are entitled to receive,
pro rata, all assets of the Company available for distribution to such holders
upon liquidation. Holders of Common Stock have no preemptive, subscription or
redemption rights, except as noted under the heading "Certain Relationships and
Related Transactions -- Shareholders' Agreements."
PREFERRED STOCK
Pursuant to the Amended and Restated Certificate of Incorporation, the
Company is authorized to issue "blank check" Preferred Stock, which may be
issued from time to time in one or more series upon authorization by the
Company's Board of Directors. The Board of Directors, without further approval
of the stockholders, is authorized to fix the dividend rights and terms,
conversion rights, voting rights, redemption rights and terms, liquidation
preferences, and any other rights, preferences, privileges and restrictions
applicable to each series of the Preferred Stock. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes could, among other things, adversely affect the voting
power of the holders of Common Stock and, under certain circumstances, make it
more difficult for a third party to gain control of the Company, discourage bids
for the Company's Common Stock at a premium or otherwise adversely affect the
market price of the Common Stock.
The Company has no current plans to issue any Preferred Stock. The Company
is not aware of any plans by a third party to seek control of the Company.
DELAWARE GENERAL CORPORATION LAW
The provisions of Section 203 of the Delaware General Corporation Law do
not apply to the Company. Such provisions, if they were to apply to the Company,
would restrict the Company's ability to enter into business combinations with
certain stockholders of the Company and would render an unsolicited takeover
attempt of the Company more difficult.
Any action required to be taken at any annual or special meeting of the
Company's stockholders may be taken without a meeting, without prior notice and
without a vote upon the written consent of the minimum number of stockholders
necessary to authorize such action.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York will be the Transfer Agent and
Registrar for the Common Stock.
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NASDAQ NATIONAL MARKET
The Company intends to apply for quotation of the Common Stock on the
Nasdaq National Market under the symbol "TIMT".
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offerings, the Company will have outstanding
31,454,255 shares of Common Stock. Of these shares, all of the 14,500,000 shares
(16,675,000 shares if the Underwriters' overallotment options are exercised in
full) sold in the Offerings will be freely transferable by persons other than
"affiliates" of the Company without restriction under the Securities Act. In
addition, 3,187,500 shares reserved for issuance pursuant to the Company's stock
option and director compensation plans (of which approximately 437,500 shares
relate to options and shares that will be outstanding upon completion of the
Offerings).
The remaining 16,954,255 outstanding shares of Common Stock will be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration under the Securities Act
unless an exemption from registration is available, including the exemption
contained in Rule 144. A total of 14,850,000 of such restricted securities will
be eligible for sale under Rule 144 commencing 90 days after the Company has
been subject to certain reporting requirements under the Securities Exchange Act
of 1934, as amended. In addition, other than holders of Management Shares,
holders of all restricted shares of Common Stock, including Tremont, IMI and
UTSC, have registration rights with respect to such shares. See "Certain
Relationships and Related Transactions -- Registration Rights." Tremont, IMI,
UTSC and certain senior executive officers of the Company, who will beneficially
hold an aggregate of 16,921,755 shares following the Offerings, have agreed not
to offer to sell, sell or otherwise dispose of such shares, for at least 180
days after the date of the Underwriting Agreement without the prior written
consent of Salomon Brothers Inc, as representative of the Underwriters. Salomon
Brothers Inc currently does not intend to release any securities subject to such
lock-up agreements, but may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to such lock-up
agreements.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate of the Company, who has
beneficially owned his or her shares for at least two years is entitled to sell,
within any three-month period, that number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock of the Company
(314,000 shares after consummation of the Offerings) or (ii) the average weekly
trading volume of the then outstanding shares during the four calendar weeks
preceding each such sale. A person (or persons whose shares are aggregated) who
is not deemed an affiliate of the Company and who has beneficially owned shares
for at least three years is entitled to sell such shares under Rule 144 without
regard to the volume limitations described above. Affiliates, including members
of the Board of Directors and senior management, continue to be subject to such
limitations. The Commission has proposed reducing the two year holding period to
one year and permitting sales without any volume limitation after two years
rather than three years.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register an aggregate of 3,187,500 shares issued to directors
and officers or reserved for issuance under the Incentive Plan and Director
Compensation Plan. The registration statements are expected to be filed and to
become effective within 180 days following the date of this Prospectus. Shares
of Common Stock issued under such plans will be available for sale in the public
market subject to Rule 144 volume limitations applicable to affiliates.
No predictions can be made as to the effect, if any, that public sales of
shares or the availability of shares for sale will have on the market price
prevailing from time to time. Nevertheless, sales of substantial amounts of the
Common Stock in the public market, or the perception that such sales could
occur, could have an adverse impact on the market price.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "U.S. Underwriting Agreement") among the Company, the Selling Stockholders
and each of the underwriters named below (the "U.S. Underwriters"), for whom
Salomon Brothers Inc, Morgan Stanley & Co. Incorporated and Smith Barney Inc.
are acting as representatives (the "U.S. Representatives"), the Company and the
Selling Stockholders have agreed to sell to each of the U.S. Underwriters and
each such U.S. Underwriter has severally agreed to purchase from the Company and
the Selling Stockholders the number of shares of Common Stock set forth opposite
its name in the table below:
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
---------------------------------------------------------------- -----------
<S> <C>
Salomon Brothers Inc............................................
Morgan Stanley & Co. Incorporated...............................
Smith Barney Inc................................................
----------
Total.................................................
==========
</TABLE>
In addition, the Company and the Selling Stockholders have entered into an
underwriting agreement (the "International Underwriting Agreement") with the
International Underwriters named therein, for whom Salomon Brothers
International Limited, Morgan Stanley & Co. International and Smith Barney Inc.
are acting as representatives (the "International Representatives"), providing
for the concurrent offer and sale of shares of Common Stock outside the U.S. and
Canada. The closing with respect to the sale of the shares of Common Stock
pursuant to the International Underwriting Agreement is a condition to the
closing with respect to the sale of the shares of Common Stock pursuant to the
U.S. Underwriting Agreement, and the closing with respect to the sale of shares
of Common Stock pursuant to the U.S. Underwriting Agreement is a condition to
the closing with respect to the sale of the shares of Common Stock pursuant to
the International Underwriting Agreement. The initial public offering price and
underwriting discounts per share for the U.S. Offering and the International
Offering will be identical.
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters to purchase the shares of Common Stock listed above are subject to
certain conditions set forth therein. The U.S. Underwriters are committed to
purchase all of the shares of Common Stock offered by this Prospectus (other
than those covered by the overallotment options described below), if any are
purchased. In the event of default by any U.S. Underwriter, the U.S.
Underwriting Agreement provides that, in certain circumstances, the purchase
commitments of the non-defaulting U.S. Underwriters may be increased or the U.S.
Underwriting Agreement may be terminated.
The U.S. Representatives have advised the Company and the Selling
Stockholders that the U.S. Underwriters propose initially to offer the shares of
Common Stock offered hereby to the public at the initial public offering price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a discount not in excess of $ per share of Common Stock. The
U.S. Underwriters may allow, and such dealers may reallow, a discount not in
excess of $ per share of Common Stock on sales to certain other dealers.
After the Offerings, the public offering price and such discounts may be
changed.
Each U.S. Underwriter has severally agreed that, as part of the
distribution of shares of Common Stock (i) it is not purchasing any shares of
Common Stock for the account of anyone other than a U.S. or Canadian Person (as
defined below) and (ii) it has not offered or sold, and will not offer or sell,
directly or indirectly, any shares of Common Stock or distribute this Prospectus
to any person outside of the U.S.
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or Canada or to anyone other than a U.S. or Canadian Person. Each International
Underwriter has agreed that, as part of the distribution of the shares of Common
Stock, (i) it is not purchasing any shares of Common Stock for the account of
any U.S. or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any shares of Common Stock or distribute
the International Prospectus to any person within the U.S. or Canada or to any
U.S. or Canadian Person. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the agreement between
U.S. and International Underwriters described below. As used herein, "U.S. or
Canadian Person" means any individual who is resident in the United States or
Canada, or any corporation, partnership, or other entity organized under or
governed by the laws of the U.S. or any political subdivision thereof (other
than a foreign branch of any U.S. or Canadian Person), any estate or trust the
income of which is subject to U.S. or Canadian federal income taxation,
regardless of the source of its income (other than a foreign branch of any U.S.
or Canadian Person), and includes any U.S. branch of a non-U.S. Person.
Each U.S. Underwriter that will offer or sell shares of Common Stock in
Canada as part of the distribution has severally agreed that such offers and
sales will be made only pursuant to an exemption from the prospectus
requirements in each jurisdiction in Canada in which such offers or sales are
made.
The U.S. Underwriters and the International Underwriters have entered into
an agreement that provides for the coordination of their activities. Pursuant to
such agreement, sales may be made between the U.S. Underwriters and the
International Underwriters of such number of shares of Common Stock as may be
mutually agreed upon. The per share price of any shares so sold shall be the
public offering price set forth on the cover page of this Prospectus, less an
amount not greater than the per share amount of the concession to dealers set
forth above. To the extent there are sales between the U.S. Underwriters and the
International Underwriters, the number of shares of Common Stock initially
available for sale by the U.S. Underwriters or by the International Underwriters
may be more or less than the amount appearing on the cover page of this
Prospectus.
One of the Selling Stockholders has granted the U.S. Underwriters and the
International Underwriters options to purchase an aggregate of up to an
additional 1,848,750 shares and 326,250 shares, respectively, of Common Stock at
the initial public offering price less the aggregate underwriting discount,
solely to cover overallotments. To the extent such options are exercised, each
of the U.S. Underwriters and the International Underwriters will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares of Common Stock as the percentage it was
obligated to purchase pursuant to the U.S. Underwriting Agreement or the
International Underwriting Agreement, as applicable.
At the request of the Company, the U.S. Underwriters have reserved for
sale, at the initial public offering price, 50,000 shares of Common Stock for
employees of the Company and certain other individuals who have expressed an
interest in purchasing such shares of Common Stock in the Offerings. The number
of Shares available for sale to the general public in the U.S. Offering will be
reduced to the extent such persons purchase such reserved Shares. Any reserved
Shares not so purchased will be offered by the U.S. Underwriters to the general
public on the same basis as the other Shares offered hereby.
The U.S. and International Underwriting Agreements provide that the Company
and the Selling Stockholders will indemnify the several U.S. Underwriters and
International Underwriters against certain liabilities under the Securities Act,
or contribute to payments the U.S. Underwriters and the International
Underwriters may be required to make in respect thereof.
The Company, Tremont, IMI, UTSC and certain senior executive officers of
the Company have agreed that, without the prior written consent of Salomon
Brothers Inc, they will not, directly or indirectly, offer to sell, contract to
sell, sell or otherwise dispose of, or announce the offering of, any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
shares of Common Stock (except the shares sold to the Underwriters pursuant to
the overallotment options) for a period of 180 days after the date of this
Prospectus. See "Shares Eligible for Future Sale." Salomon Brothers Inc
currently does
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not intend to release any securities subject to such lock-up agreements, but
may, in its sole discretion and at any time without notice, release all or any
portion of the securities subject to such lock-up agreements.
The U.S. Underwriters and the International Underwriters have informed the
Company that they do not intend to confirm sales of Common Stock for any
customer's account over which they exercise discretionary authority without the
prior written approval of such customer.
Prior to the Offerings, there has been no established public trading market
for the Common Stock. The initial public offering price of the Common Stock
offered hereby was determined through negotiations among the Company, the U.S.
Representatives and the International Representatives. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, were certain financial information of the Company,
the history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
operations, the prospects for, and timing of, future revenues of the Company,
the present state of the Company's development and the above factors in relation
to market values and various valuation measures of other companies engaged in
activities similar to the Company. The initial public offering price set forth
on the cover page of the Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial offering price. See "Risk Factors -- Absence
of Established Public Trading Market and Possible Volatility of Stock Price."
LEGAL MATTERS
Certain legal matters regarding the issuance of the Common Stock being
registered under laws other than federal or state securities laws will be passed
upon by Bartlit Beck Herman Palenchar & Scott, a partnership including
professional corporations, Denver, Colorado. Certain legal matters in connection
with the Common Stock offered hereby will be passed upon for the Underwriters by
Cravath, Swaine & Moore, New York, New York.
EXPERTS
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets of the Company and its subsidiaries as of
January 1, 1995 and December 31, 1995 and the consolidated statements of
operations, stockholders' equity and cash flows for each of three fiscal years
in the period ended December 31, 1995 and the pro forma condensed consolidated
statement of operations for the year ended December 31, 1995 included in this
Prospectus, have been included herein in reliance on the reports of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing. With respect to the unaudited consolidated
interim financial information as of March 31, 1996, and for the three-month
periods ended April 2, 1995 and March 31, 1996, included in this Prospectus, the
independent accountants have reported that they have applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate report on the unaudited consolidated interim financial
statements as of March 31, 1996 and for the three-month periods ended April 2,
1995 and March 31, 1996, included herein states that they did not audit and they
do not express an opinion on that unaudited consolidated interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to liability provisions of
Section 11 of the Securities Act of 1933 ("Act") for their report on the
unaudited consolidated interim financial information because that report is not
a "report" or a "part" of the Registration Statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Act.
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The combined financial statements of the IMI Titanium Business as of
December 31, 1994 and 1995, and for each of the years in the three year period
ended December 31, 1995 have been included herein in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Titanium Hearth Technologies as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
65
<PAGE> 69
TITANIUM METALS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
PRO FORMA FINANCIAL STATEMENTS:
Report of Independent Accountants........................................ PF-1
Pro Forma Condensed Consolidated Financial Statements.................... PF-2
Pro Forma Condensed Consolidated Statement of Operations for the fiscal
year 1995............................................................... PF-3
Notes to Pro Forma Condensed Consolidated Statement of Operations for the
fiscal year 1995........................................................ PF-4
Report of Independent Accountants........................................ PF-6
Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the three-month period ended March 31, 1996............................. PF-7
Notes to Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the three-month period ended March 31, 1996.............. PF-8
FINANCIAL STATEMENTS:
Titanium Metals Corporation and Subsidiaries:
Reports of Independent Accountants....................................... F-2/F-3
Consolidated Balance Sheets at March 31, 1996 (unaudited), January 1,
1995 and December 31, 1995.............................................. F-4
Consolidated Statements of Operations for the three month periods ended
April 2, 1995 and March 31, 1996 (unaudited), and fiscal years 1993,
1994 and 1995........................................................... F-5
Consolidated Statements of Stockholders' Equity for the three month
period ended March 31, 1996 (unaudited) and fiscal years 1993, 1994 and
1995.................................................................... F-6
Consolidated Statements of Cash Flows for the three month periods ended
April 2, 1995 and March 31, 1996 (unaudited), and fiscal years 1993,
1994 and 1995........................................................... F-7
Notes to Consolidated Financial Statements............................... F-8/F-26
IMI Titanium Business:
Independent Auditors' Report............................................. F-27
Combined Balance Sheets at December 31, 1994 and 1995.................... F-28
Combined Statements of Operations for the years ended December 31, 1993,
1994 and 1995........................................................... F-29
Combined Statements of Stockholders' Equity for the years ended December
31, 1993, 1994 and 1995................................................. F-30
Combined Statements of Cash Flows for the years ended December 31, 1993,
1994 and 1995........................................................... F-31
Notes to Combined Financial Statements................................... F-32/F-40
Titanium Hearth Technologies:
Report of Independent Accountants........................................ F-41
Balance Sheets at December 31, 1994 and 1995............................. F-42
Statements of Income for the years ended December 31, 1993, 1994 and
1995.................................................................... F-43
Statements of Changes in Partners' Capital for the years ended December
31,
1993, 1994 and 1995.................................................... F-44
Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995............................................................... F-45
Notes to Financial Statements............................................ F-46/F-50
FINANCIAL STATEMENT SCHEDULE:
Report of Independent Accountants on Financial Statement Schedule........ S-1
Schedule II -- Valuation and qualifying accounts......................... S-2
</TABLE>
F-1
<PAGE> 70
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
After consummation of the proposed Stock Split, as discussed in Note 9 to
the historical financial statements, we will be in a position to render the
following report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Titanium Metals Corporation:
We have examined the pro forma adjustments reflecting the transaction
described in the notes to Pro Forma Condensed Consolidated Financial Statements
and the application of those adjustments to the historical amounts in the
accompanying Pro Forma Condensed Consolidated Statement of Operations of
Titanium Metals Corporation and Subsidiaries ("TIMET") for the fiscal year 1995.
These historical financial statements are derived from the historical financial
statements of TIMET, which were audited by us, and the IMI Titanium Business,
which were audited by other accountants, appearing elsewhere herein. Such pro
forma adjustments are based on management's assumptions as described in the
notes to Pro Forma Condensed Consolidated Financial Statements. Our examination
was conducted in accordance with standards established by the American Institute
of Certified Public Accountants and, accordingly, included such procedures as we
considered necessary in the circumstances.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transaction described in the notes to the Pro Forma Condensed Consolidated
Financial Statements occurred at an earlier date. However, the Pro Forma
Condensed Consolidated Financial Statements are not necessarily indicative of
the results of operations that would have been attained had the above-mentioned
transaction actually occurred earlier.
In our opinion, management's assumptions provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transaction described in the notes to the Pro Forma Condensed Consolidated
Financial Statements, the related pro forma adjustments give appropriate effect
to those assumptions, and the pro forma column reflects the proper application
of those adjustments to the historical financial statement amounts in the Pro
Forma Condensed Consolidated Statement of Operations for the year then ended.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Denver, Colorado
March 26, 1996
PF-1
<PAGE> 71
TITANIUM METALS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following pro forma condensed consolidated financial statements reflect
the consolidated results of continuing operations of the Company for the periods
indicated giving effect to the IMI Titanium Acquisition under the assumptions
and estimates set forth in the notes thereto. The IMI Titanium Acquisition has
been accounted for by the purchase method of accounting and consolidated in the
Company's historical financial statements effective January 1, 1996, adjusted
for preacquisition earnings.
These pro forma financial statements should be read in conjunction with the
historical financial statements of the Company and the IMI Titanium Business,
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus. The pro forma financial
statements do not reflect any incremental sales or cost savings that the Company
may achieve from the combination. The pro forma financial statements do not
purport to be indicative of the results which actually would have been obtained
if the IMI Titanium Acquisition had been effected on the dates indicated or of
the results which may be obtained in the future.
Although information as to the fair values, for purchase accounting
purposes, of the IMI Titanium Business individual assets and liabilities is not
complete, a preliminary estimate of the allocation of the purchase price was
made on the basis of available information. The actual allocation of the
purchase price may be different from that reflected in the pro forma condensed
consolidated financial statements. Such differences would result from
adjustments in the purchase price and refinements in the estimates of fair
values of the net assets acquired. However, the Company does not expect such
adjustments and refinements in estimates to materially affect the pro forma
information as presented.
All financial information reflected in the pro forma financial statements
is presented in accordance with U.S. generally accepted accounting principles,
is reported in U.S. dollars, and reflects the 1996 Stock Split as described in
Note 9 to the Company's Consolidated Financial Statements.
PF-2
<PAGE> 72
TITANIUM METALS CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR FISCAL YEAR 1995
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
IMI TITANIUM ADJUSTMENTS PRO FORMA
TIMET BUSINESS (NOTE 2) CONSOLIDATED
------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues and other income:
Net sales................................ $184.7 $147.2 $ -- $331.9
Equity in earnings of joint ventures..... 4.8 -- -- 4.8
Other, net............................... .4 -- -- .4
------ ------ ----- ------
189.9 147.2 -- 337.1
------ ------ ----- ------
Costs and expenses:
Cost of sales............................ 170.7 167.6(1) 1.1 (a) 338.8
(.6)(b)
Selling, general, administrative and
development........................... 14.0 12.3 -- 26.3
Special charges (credit)................. (1.2) 5.0 -- 3.8
Interest................................. 10.4 8.9 (6.0)(c) 14.9
1.6 (d)
------ ------ ----- ------
193.9 193.8 (3.9) 383.8
------ ------ ----- ------
Income (loss) before income taxes..... (4.0) (46.6) 3.9 (46.7)
Income tax benefit (expense)............... (.2) 13.8 (1.6)(e) 12.0
------ ------ ----- ------
Net income (loss)..................... $ (4.2) $(32.8) $ 2.3 $(34.7)
====== ====== ===== ======
Net loss per common share.................. $ (.27) $(1.39)
====== ======
Weighted average common shares
outstanding.............................. 15.4 9.6 (f) 25.0
====== ===== ======
</TABLE>
- ---------------
(1) IMI Titanium Business cost of sales includes charges of $16.1 million for
customer contract losses and other charges incurred in 1995.
PF-3
<PAGE> 73
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR FISCAL YEAR 1995
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 1 -- BASIS OF PRESENTATION:
The Pro Forma Condensed Consolidated Statement of Operations has been
prepared assuming the following transactions occurred as of the beginning of
fiscal 1995: (i) the IMI Titanium Acquisition, (ii) IMI's December 1995 $80
million capital contribution of related party indebtedness previously owed to
IMI by the IMI Titanium Business, and (iii) the IMI Titanium Business entered
into long-term capital leases with IMI principally covering its Witton, England
production facilities, and purchased its previously leased Waunarlwydd, Wales
facility from IMI for $1.6 million.
The estimated cost of the IMI Titanium Acquisition is summarized below:
<TABLE>
<S> <C>
COSTS OF THE IMI TITANIUM ACQUISITION:
Issuance of 9.6 million shares of Common Stock of IMI..................... $ 70.0
Cash...................................................................... .1
Transaction and other direct costs........................................ 2.2
------
$ 72.3
======
PURCHASE ACCOUNTING ADJUSTMENTS:
Historical carrying amount of net assets acquired......................... $ 60.6
Purchase accounting adjustments:
Property and equipment, net............................................ 4.0
Goodwill and intangibles, including $4 million for patents............. 11.2
Pension liabilities.................................................... (1.0)
Severance and other liabilities........................................ (.5)
Deferred income taxes, net............................................. (2.0)
------
$ 72.3
======
</TABLE>
NOTE 2 -- PRO FORMA ADJUSTMENTS:
(a) Additional depreciation and amortization expense resulting from
purchase accounting basis differences:
<TABLE>
<S> <C>
Intangibles (patents) amortized over their average remaining lives
of
9 years......................................................... $ .4
Depreciation of property and equipment over 15 years.............. .3
Goodwill amortized over 15 years.................................. .4
----
$1.1
====
</TABLE>
(b) Reflects the net effect of (i) increased depreciation expense of $.3
million principally related to the Witton, England facility (leased
under a thirty-year capital lease with IMI entered into in connection
with the IMI Titanium Acquisition), (ii) increased depreciation expense
of $.1 million on the Waunarlwydd, Wales facility (purchased in 1995 in
contemplation of the IMI Titanium Acquisition and depreciated over 15
years), and (iii) reduced rent expense of $1.0 million in respect of
the aforementioned facilities.
(c) Eliminate interest expense associated with the $80 million capital
contribution of related party indebtedness at an average interest rate
of 7.5%.
PF-4
<PAGE> 74
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR FISCAL YEAR 1995
(IN MILLIONS, EXCEPT SHARE DATA)
(d) Interest expense of $2.0 million on $20 million of subordinated debt
issued to IMI at 10.4% and interest expense of $1.0 million related to
the capital lease obligations, offset by elimination of $1.4 million of
interest expense on $20 million of intercompany indebtedness.
(e) Tax effects at the U.K. statutory rate of 33% on other pro forma
adjustments, except for goodwill amortization reflected in (a) above
and U.S. related interest in (d) above which would increase the
Company's U.S. losses for which no associated tax benefit was
available.
(f) Reflects shares issued to IMI in connection with the IMI Titanium
Acquisition.
NOTE 3 -- NONRECURRING COSTS:
The Pro Forma Condensed Consolidated Statement of Operations does not
include non-recurring charges resulting from the IMI Titanium Acquisition and
related integration of the IMI Titanium Business. Certain key executive officers
of the Company received approximately 93,000 shares of the Company's Class B
common stock and cash payments with a combined value of approximately $3 million
in consideration for their services in connection with the IMI Titanium
Acquisition. The Class B common stock will convert into Common Stock in
connection with the Offerings. The Company will also incur integration costs
relating to the transfer of certain manufacturing process technology, relocation
of personnel, and the consolidation of certain facilities, including the closure
of the Company's original U.K. facilities. Anticipated integration costs are
summarized as follows:
<TABLE>
<S> <C>
Facilities consolidation...................................................... $ .3
Relocation of personnel....................................................... .6
Manufacturing process technology transfer..................................... .6
Other......................................................................... .5
-----
$ 2.0
=====
</TABLE>
Compensation expense related to the aforementioned consideration and
certain integration costs aggregating $4.2 million were recorded as a charge to
the Company's operating income in the first quarter of 1996. Integration costs
are charged to operations as incurred.
PF-5
<PAGE> 75
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
After consummation of the proposed Stock Split, as discussed in Note 9 to
the historical financial statements, we will be in a position to render the
following report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Titanium Metals Corporation:
We have reviewed the pro forma adjustments reflecting the transaction
described in the notes to Pro Forma Condensed Consolidated Financial Statements
and the application of those adjustments to the historical amounts in the
accompanying Pro Forma Condensed Consolidated Statement of Operations of
Titanium Metals Corporation and Subsidiaries ("TIMET") for the three months
ended March 31, 1996. These historical financial statements are derived from the
historical unaudited financial statements of TIMET, which were reviewed by us,
appearing elsewhere herein. Such pro forma adjustments are based on management's
assumptions as described in the notes to Pro Forma Condensed Consolidated
Financial Statements. Our review was conducted in accordance with standards
established by the American Institute of Certified Public Accountants and,
accordingly, included such procedures as we considered necessary in the
circumstances.
A review is substantially less in scope than an examination, the objective
of which is the expression of an opinion on management's assumptions, the pro
forma adjustments and the application of those adjustments to historical
financial information. Accordingly, we do not express such an opinion.
The objective of this pro forma financial information is to show what the
significant effects on the historical information might have been had the
transaction described in the notes to the Pro Forma Condensed Consolidated
Financial Statements occurred at an earlier date. However, the Pro Forma
Condensed Consolidated Financial Statements are not necessarily indicative of
the results of operations that would have been attained had the above-mentioned
transaction actually occurred earlier.
Based on our review, nothing came to our attention that caused us to
believe that management's assumptions do not provide a reasonable basis for
presenting the significant effects directly attributable to the above-mentioned
transaction described in the notes to the Pro Forma Condensed Consolidated
Statement of Operations, that the related pro forma adjustments do not give
appropriate effect to those assumptions, or that the pro forma column does not
reflect the proper application of those adjustments to the historical financial
statement amounts in the Pro Forma Condensed Consolidated Statement of
Operations for the three months ended March 31, 1996.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Denver, Colorado
May 6, 1996
PF-6
<PAGE> 76
TITANIUM METALS CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
TIMET (NOTE 2) CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Revenues and other income:
Net sales............................................ $107.6 $ -- $107.6
Equity in earnings of joint ventures................. 1.4 -- 1.4
Other, net........................................... (.1) -- (.1)
------ ----- ------
108.9 -- 108.9
------ ----- ------
Costs and expenses:
Cost of sales........................................ 92.5 -- 92.5
Selling, general and administrative.................. 5.5 -- 5.5
Special charges (credit)............................. 4.2 (4.2)(a) --
Interest............................................. 3.5 -- 3.5
------ ----- ------
105.7 (4.2) 101.5
------ ----- ------
Income before income taxes........................ 3.2 4.2 7.4
Income tax expense..................................... (.7) -- (b) (.7)
Preacquisition earnings................................ (.4) .4 (c) --
------ ----- ------
Net income........................................ $ 2.1 $ 4.6 $ 6.7
====== ===== ======
Net income per common share............................ $ .10 $ .26
====== ======
Weighted average common shares outstanding............. 20.5 4.8 (d) 25.3
====== ===== ======
</TABLE>
PF-7
<PAGE> 77
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 1996
(IN MILLIONS, EXCEPT SHARE DATA)
NOTE 1 -- BASIS OF PRESENTATION:
The Pro Forma Condensed Consolidated Statement of Operations has been
prepared assuming the IMI Titanium Acquisition occurred at the beginning of
fiscal 1996.
NOTE 2 -- PRO FORMA ADJUSTMENTS:
(a) Elimination of nonrecurring special charges. See Note 3 below.
(b) No tax effects are reflected on other pro forma adjustments since the
Company has U.S. net operating loss carryforwards available to offset
taxes otherwise applicable to U.S. income.
(c) Elimination of preacquisition earnings.
(d) Adjustment to reflect shares issued to IMI in connection with the IMI
Titanium Acquisition as of the beginning of fiscal 1996.
NOTE 3 -- NONRECURRING COSTS:
See Note 3 to the Pro Forma Condensed Consolidated Statement of Operations
for fiscal year 1995 regarding non-recurring charges resulting from the IMI
Titanium Acquisition and related integration of the IMI Titanium Business.
PF-8
<PAGE> 78
CONSOLIDATED FINANCIAL STATEMENTS
After consummation of the proposed stock split, as discussed in Note 9, we
will be in a position to render the following report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Titanium Metals Corporation:
We have audited the accompanying consolidated balance sheets of Titanium
Metals Corporation and Subsidiaries as of January 1, 1995 and December 31, 1995,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three fiscal years in the period ended December 31,
1995. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Titanium Metals
Corporation and Subsidiaries at January 1, 1995 and December 31, 1995, and the
consolidated results of their operations and cash flows for each of the three
fiscal years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, in 1994
the Company changed its method of accounting for postemployment benefits in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 112.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Denver, Colorado
March 26, 1996
F-2
<PAGE> 79
CONSOLIDATED FINANCIAL STATEMENTS
After consummation of the proposed stock split, as discussed in Note 9, we
will be in a position to render the following report.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Titanium Metals Corporation:
We have reviewed the accompanying consolidated balance sheet of Titanium
Metals Corporation and Subsidiaries ("Company") as of March 31, 1996, and the
related consolidated statements of operations, and cash flows for the three
month periods ended April 2, 1995 and March 31, 1996, and the related
consolidated statement of stockholders' equity for the three-month period ended
March 31, 1996. These financial statements are the responsibility of the
Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Denver, Colorado
May 6, 1996
F-3
<PAGE> 80
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, MARCH 31,
1995 1995 1996
---------- ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................................... $ -- $ 24 $ 469
Accounts and notes receivable, less allowance of $3,143, $3,620
and $4,200................................................... 26,383 27,932 85,887
Receivable from related parties................................ 991 3,070 2,299
Inventories.................................................... 53,508 69,134 117,095
Prepaid expenses............................................... 3,468 3,452 5,375
-------- -------- ---------
Total current assets.................................... 84,350 103,612 211,125
-------- -------- ---------
Other assets:
Investment in joint ventures................................... 14,824 13,853 15,451
Prepaid pension cost........................................... 1,345 1,253 1,253
Intangible pension asset....................................... 602 1,424 1,424
Goodwill....................................................... -- -- 7,175
Deferred income taxes.......................................... 688 -- --
Other.......................................................... 2,150 3,774 7,433
-------- -------- ---------
Total other assets...................................... 19,609 20,304 32,736
-------- -------- ---------
Property and equipment:
Land........................................................... 4,767 4,598 6,011
Buildings...................................................... 17,836 17,783 33,329
Equipment...................................................... 125,705 127,228 162,620
Construction in progress....................................... 3,345 3,120 8,145
-------- -------- ---------
151,653 152,729 210,105
Less accumulated depreciation.................................. 15,390 27,861 31,521
-------- -------- ---------
Net property and equipment................................... 136,263 124,868 178,584
-------- -------- ---------
$240,222 $248,784 $ 422,445
======== ======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable.................................................. $ 214 $ -- $ 31
Current maturities of long-term debt........................... 6,807 45,695 81,100
Payable to related parties..................................... 3,531 2,627 4,722
Accounts payable............................................... 19,599 27,136 55,647
Accrued liabilities............................................ 20,978 21,010 41,006
Deferred income taxes.......................................... 1,966 596 --
-------- -------- ---------
Total current liabilities............................... 53,095 97,064 182,506
-------- -------- ---------
Noncurrent liabilities:
Long-term debt................................................. 58,214 21,540 140
Capital lease obligation to related parties.................... -- -- 9,626
Payable to related parties..................................... 26,586 23,942 42,824
Accrued postretirement benefit cost............................ 29,471 28,152 28,073
Accrued pension cost........................................... 6,125 5,966 6,844
Deferred income taxes.......................................... -- 789 7,940
Other.......................................................... 1,983 3,203 3,502
-------- -------- ---------
Total noncurrent liabilities............................ 122,379 83,592 98,949
-------- -------- ---------
Class B redeemable common stock, $.01 par value, .1 million
shares authorized, .1 million shares issued and outstanding.... -- -- 1,500
-------- -------- ---------
Stockholders' equity:
Preferred stock, $1 par value; 1 million shares authorized,
none outstanding............................................. -- -- --
Common stock, $.01 par value; 99 million shares authorized,
15.1 million shares, 15.7 million shares and 25.2 million
shares issued and outstanding, respectively.................. 119 125 253
Accumulated deficit............................................ (68,436) (72,653) (70,537)
Additional paid-in capital..................................... 135,740 142,752 212,624
Adjustments:
Currency translation......................................... 160 283 (471)
Pension liabilities.......................................... (2,835) (2,379) (2,379)
-------- -------- ---------
Total stockholders' equity.............................. 64,748 68,128 139,490
-------- -------- ---------
$240,222 $248,784 $ 422,445
======== ======== =========
</TABLE>
Commitments and contingencies (Notes 3, 13 and 14)
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 81
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
FISCAL YEARS APRIL MARCH
------------------------------ 2, 31,
1993 1994 1995 1995 1996
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues and other income:
Net sales............................ $151,177 $145,984 $184,723 $41,724 $107,556
Equity in earnings of joint
ventures.......................... 3,540 2,263 4,824 784 1,402
Other, net........................... 61 (187) 469 93 (49)
-------- -------- -------- ------- --------
154,778 148,060 190,016 42,601 108,909
-------- -------- -------- ------- --------
Costs and expenses:
Cost of sales........................ 153,423 159,958 170,699 41,130 92,488
Selling, general, administrative, and
development....................... 11,440 12,462 14,065 2,942 5,531
Special charges (credit)............. 4,700 10,000 (1,200) -- 4,208
Interest............................. 5,729 7,562 10,414 2,491 3,498
-------- -------- -------- ------- --------
175,292 189,982 193,978 46,563 105,725
-------- -------- -------- ------- --------
Income (loss) before income taxes,
preacquisition earnings, and
cumulative effect of a change in
accounting principle................. (20,514) (41,922) (3,962) (3,962) 3,184
Income tax benefit (expense)........... 307 (155) (255) -- (657)
Preacquisition earnings................ -- -- -- -- (411)
-------- -------- -------- ------- --------
Income (loss) before cumulative
effect of a change in accounting
principle......................... (20,207) (42,077) (4,217) (3,962) 2,116
Cumulative effect of a change in
accounting principle................. -- (1,000) -- -- --
-------- -------- -------- ------- --------
Net income (loss).................... $(20,207) $(43,077) $ (4,217) $(3,962) $ 2,116
======== ======== ======== ======= ========
Per common share:
Income (loss) before cumulative
effect of a change in accounting
principle......................... $ (1.78) $ (2.80) $ (.27) $ (.26) $ .10
Cumulative effect of a change in
accounting principle.............. -- (.07) -- -- --
-------- -------- -------- ------- --------
$ (1.78) $ (2.87) $ (.27) $ (.26) $ .10
======== ======== ======== ======= ========
Weighted average common shares
outstanding (Note 2)................. 11,332 15,010 15,383 15,010 20,474
======== ======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 82
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
ADDITIONAL -------------------------
COMMON COMMON PAID-IN ACCUMULATED CURRENCY PENSION
SHARES STOCK CAPITAL DEFICIT TRANSLATION LIABILITIES TOTAL
------- ------ ---------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 3, 1993.............. 11,337 $113 $ 51,528 $ (5,152) $ 93 $ -- $ 46,582
Net loss................................ -- -- -- (20,207) -- -- (20,207)
Conversion of:
UTSC subordinated debentures.......... 3,729 37 74,963 -- -- -- 75,000
Tremont indebtedness.................. -- -- 8,799 -- -- -- 8,799
Adjustments, net........................ -- -- -- -- (111) (1,081) (1,192)
------- ---- --------- --------- ----- --------- --------
Balance at January 2, 1994.............. 15,066 150 135,290 (25,359) (18) (1,081) 108,982
Net loss................................ -- -- -- (43,077) -- -- (43,077)
Adjustments, net........................ -- -- -- -- 178 (1,754) (1,576)
Cash contribution....................... -- -- 419 -- -- -- 419
------- ---- --------- --------- ----- --------- --------
Balance at January 1, 1995.............. 15,066 150 135,709 (68,436) 160 (2,835) 64,748
Net loss................................ -- -- -- (4,217) -- -- (4,217)
Tremont:
Conversion of subordinated
indebtedness....................... 411 4 7,848 -- -- -- 7,852
Cash contribution..................... 59 1 1,147 -- -- -- 1,148
UTSC interest conversion................ 157 2 2,998 -- -- -- 3,000
Noncash distribution to stockholders.... -- -- (4,982) -- -- -- (4,982)
Adjustments, net........................ -- -- -- -- 123 456 579
------- ---- --------- --------- ----- --------- --------
Balance at December 31, 1995............ 15,693 157 142,720 (72,653) 283 (2,379) 68,128
Net income.............................. -- -- -- 2,116 -- -- 2,116
Common stock issued to IMI.............. 9,561 96 69,904 -- -- -- 70,000
Adjustments, net........................ -- -- -- -- (754) -- (754)
------- ---- --------- --------- ----- --------- --------
Balance at March 31, 1996 (unaudited)... 25,254 $253 $ 212,624 $ (70,537) $(471) $ (2,379) $139,490
======= ==== ========= ========= ===== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 83
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS --------------------
------------------------------ APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $(20,207) $(43,077) $ (4,217) $ (3,962) $ 2,116
Depreciation and amortization................................ 4,609 8,334 13,218 2,940 3,939
Earnings of joint ventures in excess of distributions........ (2,590) (1,195) (3,824) (784) (1,327)
Preacquisition earnings...................................... -- -- -- -- 411
Special charges (credit)..................................... 4,700 10,000 (1,200) -- 4,208
Postretirement benefits...................................... 852 626 (393) (270) (53)
Deferred income taxes........................................ 4,053 -- -- -- (62)
Other, net................................................... 606 1,823 307 (11) 86
Cumulative effect of a change in accounting principle........ -- 1,000 -- -- --
Change in assets and liabilities, net of acquisition:
Accounts and notes receivable................................ (261) 5,273 (870) (784) (25,622)
Inventories.................................................. 4,577 (738) (15,477) (1,572) (10,379)
Prepaid expenses............................................. 993 194 19 (456) (390)
Accounts payable............................................. 9,420 (1,969) 6,807 3,486 14,007
Accrued liabilities.......................................... (640) (621) (771) (238) 1,830
Income taxes................................................. 1,480 (9) 165 -- 637
Accounts with related parties................................ 4,529 116 (275) (1,430) (906)
Other, net................................................... 315 222 396 262 535
-------- -------- -------- -------- --------
Net cash provided (used) by operating activities........... 12,436 (20,021) (6,115) (2,819) (10,970)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures......................................... (16,330) (4,609) (2,981) (1,056) (2,415)
Purchase of IMI Titanium Businesses.......................... -- -- -- -- (2,250)
Other, net................................................... 24 40 421 418 194
-------- -------- -------- -------- --------
Net cash used by investing activities...................... (16,306) (4,569) (2,560) (638) (4,471)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Notes payable and long-term debt:
Borrowings................................................. 1,641 63,625 9,371 2,225 14,786
Reductions................................................. (6,967) (48,829) (7,371) (1,000) (750)
Capital contributions from related parties................... -- 419 1,148 -- --
Loans from related parties................................... 10,000 2,500 5,500 2,500 --
-------- -------- -------- -------- --------
Net cash provided by financing activities.................. 4,674 17,715 8,648 3,725 14,036
-------- -------- -------- -------- --------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities.............. 804 (6,875) (27) 268 (1,405)
Cash acquired, net......................................... -- -- -- -- 1,901
Currency translation....................................... (3) 146 51 59 (51)
-------- -------- -------- -------- --------
801 (6,729) 24 327 445
Balance at beginning of period............................... 5,928 6,729 -- -- 24
-------- -------- -------- -------- --------
Balance at end of period..................................... $ 6,729 $ -- $ 24 $ 327 $ 469
======== ======== ======== ======== ========
Supplemental disclosures:
Cash paid for
Interest, net of amount capitalized........................ $ 1,023 $ 6,497 $ 9,970 $ 1,673 $ 2,270
Income taxes (refund)...................................... (8,629) 120 112 -- --
Acquisition of IMI Titanium Business:
Cash and cash equivalents.................................. $ -- $ -- $ -- $ -- $ 1,165
Noncash assets............................................. -- -- -- -- 143,554
Liabilities................................................ -- -- -- -- (72,469)
Common stock issued to IMI................................. -- -- -- -- (70,000)
-------- -------- -------- -------- --------
Cash paid................................................ $ -- $ -- $ -- $ -- $ 2,250
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 84
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:
Titanium Metals Corporation ("TIMET") was a 75%-owned subsidiary of Tremont
Corporation at December 31, 1995. Union Titanium Sponge Corporation ("UTSC"), a
consortium of Japanese companies, held the remaining 25% equity interest in
TIMET at that date. On February 15, 1996, TIMET acquired the titanium businesses
of IMI plc and affiliates ("IMI") and Tremont's ownership in TIMET was reduced
to 46.3% at March 31, 1996 (See Note 3). Contran Corporation holds, directly or
through subsidiaries, approximately 44% of Tremont's outstanding common stock.
Substantially all of Contran's outstanding voting stock is held by trusts
established for the benefit of the children and grandchildren of Harold C.
Simmons, of which Mr. Simmons is the sole trustee. Mr. Simmons may be deemed to
control each of Contran, Tremont, TIMET, and NL Industries, Inc., an indirect
subsidiary of Contran.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of consolidation
The accompanying consolidated financial statements include the accounts of
TIMET and its wholly-owned subsidiaries (collectively, the "Company"). All
material intercompany accounts and balances have been eliminated. Certain prior
year amounts have been reclassified to conform to the current year presentation.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Ultimate actual results may, in some instances, differ from
previously estimated amounts.
Fiscal year
The Company uses a fiscal year ending on the Sunday closest to December 31
of each year. The fiscal years ended December 31, 1995 ("1995"), January 1, 1995
("1994") and January 2, 1994 ("1993") each reflect the results of operations for
52 weeks. The Company's 1996 fiscal year ends on December 29, 1996.
Translation of foreign currencies
Assets and liabilities of subsidiaries whose functional currency is deemed
to be other than the U.S. dollar are translated at year end rates of exchange
and revenues and expenses are translated at average exchange rates prevailing
during the year. Resulting translation adjustments are accumulated in the
currency translation adjustments component of stockholders' equity, net of
related deferred income taxes. Currency transaction gains and losses, which
include U.S. dollar denominated debt held by subsidiaries whose functional
currency is deemed to be other than the U.S. dollar, are recognized in income
currently.
Cash and cash equivalents
Cash equivalents include highly liquid investments with original maturities
of three months or less.
F-8
<PAGE> 85
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories and cost of sales
Inventories are stated at the lower of cost or market. Timet UK and Timet
Castings use the first-in, first-out ("FIFO") method to determine the cost of
inventories. The last-in, first-out ("LIFO") method is used to determine the
cost of substantially all other inventories (approximately 63% at March 31,
1996).
Net sales
Sales are recognized when products are shipped and processing services
rendered.
Investment in joint ventures
Investments in 20% to 50%-owned joint ventures are accounted for by the
equity method.
Intangible assets and amortization
Goodwill, representing the excess of cost over the fair value of individual
net assets acquired in a business combination accounted for by the purchase
method, is amortized by the straight line method over fifteen years. Other
intangible assets, except for intangible pension assets, are included in other
noncurrent assets and are amortized by the straight-line method over the periods
expected to be benefited of approximately nine years.
Property, equipment and depreciation
Property and equipment are stated at cost. Interest costs related to major,
long-term capital projects are capitalized as a component of construction costs.
Capital expenditures in 1993 of $13.6 million include $3.1 million of
capitalized interest ($2.6 million noncash) and exclude $5.3 million of
previously accrued expenditures. Maintenance, repairs and minor renewals are
expenses. Major improvements are capitalized.
TIMET's vacuum distillation process ("VDP") titanium sponge facility
commenced start-up in 1993 and has a rated annual production capacity of 22
million pounds. Depreciation related to the VDP plant is computed on a
units-of-production method based on the pounds of sponge produced. Depreciation
related to other assets is computed principally on the straight-line method over
the estimated useful lives of 15 to 40 years for buildings and 5 to 18 years for
machinery and equipment.
Research and development
Research and development expense approximated $2 million in each of the
past three years.
Employee benefit plans
Accounting and funding policies for retirement plans and postretirement
benefits other than pensions ("OPEB") are described in Note 11.
Fair value of financial instruments
The estimated fair value of the Company's financial instruments is believed
to approximate their carrying amounts. See Note 8.
Advertising costs
Advertising costs, which are not significant, are expensed as incurred.
Stock split and income (loss) per common share
Common shares outstanding for all periods presented have been adjusted to
reflect the 65-for-1 Stock Split to be effective with the Company's sale of
common stock to the public. Income (loss) per
F-9
<PAGE> 86
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
common share is based upon the weighted average number of common shares
outstanding after giving effect, in all periods presented, to the Stock Split.
See Note 9.
Income taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities, including
investments in subsidiaries and unconsolidated affiliates not included in the
consolidated tax group.
TIMET was a member of Tremont's consolidated United States ("U.S.") federal
income tax group (the "Tremont Tax Group") until December 1993 when UTSC
converted $75 million of debentures into 25% of TIMET's outstanding voting
common stock ("UTSC conversion"). While a member of the Tremont Tax Group,
TIMET's federal income tax sharing agreement with Tremont provided that the
Company compute its consolidated provision for U.S. income taxes on a separate
company basis utilizing the tax elections made by Tremont, and that any
resulting U.S. current tax liability or refund be paid to or received from
Tremont.
Unaudited interim financial information
The consolidated balance sheet at March 31, 1996, the consolidated
statement of operations and cash flows for the three-month interim periods ended
April 2, 1995 and March 31, 1996, and the consolidated statement of
stockholders' equity for the three month interim period ended March 31, 1996
have been prepared by the Company without audit. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments, necessary to
fairly present the interim financial information have been made. The results of
operations for interim periods are not necessarily indicative of the operating
results of a full year or of future years.
NOTE 3 -- BUSINESS COMBINATIONS AND JOINT VENTURES:
Business combination
On February 15, 1996, the Company completed an agreement to acquire IMI's
titanium metals businesses (the "IMI Titanium Acquisition"). IMI previously
conducted its titanium business principally through its wholly owned United
Kingdom subsidiary, IMI Titanium Ltd. (now known as TIMET UK), and its United
States subsidiary, IMI Titanium, Inc. (now known as TIMET Castings). TIMET UK is
Western Europe's leading producer of titanium ingot and mill products for
aerospace and industrial applications. TIMET Castings manufactures titanium
castings for aerospace applications and golf club heads. IMI conveyed all of its
titanium related businesses to the Company in exchange for 9.6 million newly
issued shares of the Company's Class A common stock valued at $70 million, and
the Company issued $20 million of the Company's subordinated debt to IMI in
exchange for a like amount of debt previously owed to IMI by its U.K.
subsidiary. After the transaction, the Company was owned 46.3% by Tremont, 37.9%
by IMI, 15.4% by UTSC and .4% by management. In connection with the IMI Titanium
Acquisition, Tremont was granted a three year option to purchase up to an
additional 8% of the Company's then-outstanding common stock from IMI for $16
million. Tremont assigned to UTSC the right to acquire from IMI up to 2% of the
Company's then-outstanding common stock under the option.
The Company has accounted for the IMI Titanium Acquisition by the purchase
method of accounting. The purchase price of approximately $72.3 million,
including transaction costs, has been allocated to the individual assets and
liabilities of the IMI Titanium Business based on preliminary information. The
actual allocation of the purchase price may be different from the preliminary
allocation due to adjustments in the purchase price and refinements in estimates
of the fair values of the net assets acquired. Goodwill approximated $7.2
million and is being amortized on a straight-line basis over 15 years. The
Company
F-10
<PAGE> 87
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
has included the results of operations of the IMI Titanium Business in its
consolidated results of operations effective at the beginning of fiscal 1996
with preacquisition earnings of approximately $.4 million of the IMI Titanium
Business reflected as a separate deduction in determining net income for the
three months ended March 31, 1996. Preacquisition sales of the IMI Titanium
Business included in the Company's consolidated sales for the three months ended
March 31, 1996 were approximately $11.7 million.
The following pro forma financial information has been prepared assuming
the IMI Titanium Acquisition occurred at the beginning of the respective periods
and excludes special charges included in the historical financial statements for
the three month period ended March 31, 1996. The pro forma financial information
is not necessarily indicative of the operating results that might have occurred
if the transaction had been completed at such earlier dates or the operating
results which may occur in the future.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
----------------------
FISCAL YEAR APRIL 2, MARCH 31,
1995 1995 1996
----------- --------- ---------
<S> <C> <C> <C>
(UNAUDITED)
(IN MILLIONS)
Revenues............................................. $ 337.1 $ 71.8 $ 108.9
Net income (loss).................................... (34.7) (10.1) 6.7
Net income (loss) per common share................... (1.39) (.41) .26
</TABLE>
Joint ventures
TIMET has a 50% interest in a partnership between TIMET and Axel Johnson
Metals, Inc. conducted under the name Titanium Hearth Technologies ("THT"). THT
owns and operates cold hearth melting furnaces located in Pennsylvania and
Nevada. TIMET has committed to have THT perform a substantial percentage of
TIMET's requirements for melting certain titanium products. TIMET's purchases
from THT approximated $8 million in 1993, $8 million in 1994 and $10 million in
1995.
Prior to October 1995, TIMET owned (i) a 32% equity interest in Basic
Investments, Inc. ("BII"), which, among other things, provides utility services
in the industrial park where one of TIMET's plants is located, and (ii) a 12%
interest in Victory Valley Land Company L.P. ("VVLC"), which is actively engaged
in efforts to develop certain real estate. BII, through a wholly-owned
subsidiary, owns an additional 50% interest in VVLC. In October 1995, TIMET made
a pro rata distribution to its shareholders consisting of all of its interest in
BII and VVLC, and certain real estate in Nevada. The Company distributed the
assets at their net carrying amount which approximated $5 million.
TIMET also has a 26% interest in TISTO, a German distributor of titanium
products. The Company has agreed in principle to acquire the remaining 74%
interest for approximately $2 million and a guarantee of approximately $2
million in existing shareholder loans. Any such transaction would be subject to,
among other things, negotiation of definitive agreements and lender consent. The
Company intends to consolidate TISTO upon completion of any such transaction.
F-11
<PAGE> 88
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Summarized combined financial information of the Company's unconsolidated
joint ventures is shown below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
FISCAL YEARS --------------------
--------------------------- APRIL 2 MARCH 31,
1993 1994 1995 1995 1996
------- ------- ------- -------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Income statement:
Revenues............................ $51,513 $43,043 $58,365 $ 18,070 $23,319
Operating costs and expenses........ 35,681 38,598 44,331 15,527 19,719
Interest and other expenses......... 3,416 582 1,061 381 429
------- ------- ------- -------- -------
Net income.......................... $12,416 $ 3,863 $12,973 $ 2,162 $ 3,171
======= ======= ======= ======== =======
Equity in earnings of joint
ventures......................... $ 3,540 $ 2,263 $ 4,824 $ 784 $ 1,402
======= ======= ======= ======== =======
Distributions paid to TIMET from joint
ventures............................ $ 950 $ 1,068 $ 1,000 $ -- $ --
======= ======= ======= ======== =======
Balance sheet:
Current assets...................... $23,098 $23,980
Noncurrent assets................... 44,050 21,190
Current liabilities................. 11,520 4,484
Noncurrent liabilities.............. 21,409 16,099
------- -------
Equity.............................. $34,219 $24,587
======= =======
</TABLE>
CEZUS
In March 1995, TIMET and Compagnie Europeenne du Zirconium-CEZUS, S.A.
("CEZUS") entered into an agreement which revised the distribution and
manufacturing arrangement that had existed between the companies since 1993.
Among other things, the revised agreement eliminated TIMET's sharing in the
profits or losses associated with CEZUS' titanium business. Based upon the
structure of the revised agreement, TIMET recognized commission income from
sales of CEZUS products in 1995 (approximately $.4 million) whereas TIMET had
previously consolidated the sales and costs associated with its arrangements
with CEZUS. Sales of CEZUS products included in TIMET's consolidated sales were
about $4 million in 1993 and $20 million in 1994. TIMET and CEZUS are
negotiating a new relationship which contemplates the formation of a new
jointly-owned French company to manufacture and sell titanium products. The
proposed company is expected to be 70%-owned by TIMET and 30%-owned by CEZUS.
Under the proposed transaction, TIMET and CEZUS would initially contribute to
the new company, among other things, certain inventory, technology, and
equipment and certain CEZUS employees would become employees of the new company.
The Company will contribute cash and inventory of approximately $2 million and
proprietary technology. The jointly-owned company would manufacture products
inside CEZUS' production facility in Ugine, France under a separate
manufacturing agreement with CEZUS. Any transaction is subject to, among other
things, the negotiation of definitive documents, the approval of each party's
Board of Directors, regulatory approvals, and approvals under debt agreements.
The Company intends to consolidate the new jointly-owned French company upon
completion of such transaction.
F-12
<PAGE> 89
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- BUSINESS AND GEOGRAPHIC SEGMENTS:
The Company's operations are conducted in one business segment, titanium
metals operations. The Company is an integrated producer and distributor of
titanium sponge, ingot, and mill products for aerospace, industrial, and other
applications. The Company's production facilities in each of the past three
fiscal years were located principally in the U.S. and in the U.S. and United
Kingdom at March 31, 1996. The Company's products are sold throughout the world.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS --------------------
------------------------------ APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operations
Sales......................... $151,177 $145,984 $184,723 $ 41,724 $ 107,556
======== ======== ======== ======== =========
Operating income (loss)....... $(16,707) $(34,676) $ 5,378 $ (1,561) $ 6,823
General corporate income
(expense), net.............. 1,922 316 1,074 90 (141)
Interest expense.............. (5,729) (7,562) (10,414) (2,491) (3,498)
-------- -------- -------- -------- ---------
Income (loss) before income
taxes, preacquisition
earnings and cumulative
effect of a change in
accounting principle..... $(20,514) $(41,922) $ (3,962) $ (3,962) $ 3,184
======== ======== ======== ======== =========
Operating income (loss)
United States............... $(16,360) $(34,278) $ 4,408 $ (1,495) $ 4,465
Europe...................... (347) (398) 970 (66) 2,358
-------- -------- -------- -------- ---------
$(16,707) $(34,676) $ 5,378 $ (1,561) $ 6,823
======== ======== ======== ======== =========
Geographic segments
Net sales -- point of
origin:
United States............ $141,392 $123,485 $174,802 $ 38,977 $ 72,212
Europe................... 12,320 30,542 13,862 3,327 37,242
Eliminations............. (2,535) (8,043) (3,941) (580) (1,898)
-------- -------- -------- -------- ---------
$151,177 $145,984 $184,723 $ 41,724 $ 107,556
======== ======== ======== ======== =========
Net sales -- point of
destination:
United States............ $107,313 $ 89,519 $135,421 $ 30,584 $ 64,481
Europe................... 36,403 34,475 33,520 8,172 33,342
Other.................... 7,461 21,990 15,782 2,968 9,733
-------- -------- -------- -------- ---------
$151,177 $145,984 $184,723 $ 41,724 $ 107,556
======== ======== ======== ======== =========
Identifiable assets
United States............... $252,008 $231,048 $235,844 $229,479 $ 299,671
Europe...................... 10,488 9,174 12,940 14,625 122,774
-------- -------- -------- -------- ---------
$262,496 $240,222 $248,784 $244,104 $ 422,445
======== ======== ======== ======== =========
</TABLE>
Export sales from U.S. based operations approximated $27.8 million, $34.6
million, and $39.5 million in 1993, 1994, and 1995, respectively, and $12.0
million and $9.4 million for the three months ended April 2, 1995 and March 31,
1996, respectively.
Operating income (loss) includes restructuring charges of $4.7 million in
1993, $10 million in 1994 and a restructuring credit of $1.2 million in 1995.
Operating income for the three months ended March 31, 1996 includes $4.2 million
of special charges related to the IMI Titanium Acquisition. See Note 5.
F-13
<PAGE> 90
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
General corporate income (expense), net includes the Company's equity in
earnings of BII and VVLC of $2.1 million in 1993, $.7 million in 1994, and $1.1
million in 1995, and other corporate income and expenses.
See Note 3 regarding the consolidation of sales related to the Company's
agreements with CEZUS prior to 1995.
NOTE 5 -- RESTRUCTURING AND OTHER SPECIAL CHARGES:
Restructuring charges
The Company's restructuring charges in 1993 and 1994 were related to cost
reduction and containment efforts taken in response to depressed industry
conditions existing in those years. In the fourth quarter of 1995, the Company
determined that its restructuring costs would ultimately be less than previously
estimated and reversed $1.2 million of previously accrued restructuring charges.
The following summarizes the Company's restructuring activities:
<TABLE>
<CAPTION>
CHARGE (CREDIT) TO
OPERATING INCOME 1995
---------------------------- AMOUNTS ACCRUAL
1993 1994 1995 TOTAL UTILIZED BALANCE
---- ----- ----- ----- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Cash charges (credits):
Workforce related..................... $4.2 $ 3.7 $ (.7) $ 7.2 $ (6.6) $ .6
Excess space and other................ -- 1.3 (.5) .8 (.6) .2
---- ----- ----- ----- ------ -----
4.2 5.0 (1.2) 8.0 (7.2) .8
---- ----- ----- ----- ------ -----
Noncash charges:
Idled assets.......................... .5 4.5 -- 5.0 (5.0) --
Other................................. -- .5 -- .5 (.5) --
---- ----- ----- ----- ------ -----
.5 5.0 -- 5.5 (5.5) --
---- ----- ----- ----- ------ -----
Total......................... $4.7 $10.0 $(1.2) $13.5 $(12.7) $ .8
==== ===== ===== ===== ====== =====
</TABLE>
The Company's restructuring charges were principally related to the
temporary closing of TIMET's Kroll-leach sponge production facility, the closing
of certain sales and service center locations, and costs to reduce TIMET's
workforce. Workforce related items in 1994 included revisions to prior
estimates, a $3.5 million pension curtailment charge, and a $.8 million OPEB
curtailment charge. Both the pension and OPEB charges are reflected in the
related pension and OPEB accruals and are considered utilized when incurred.
Other restructuring related liabilities are considered utilized when facilities
and equipment are idled, as payments to terminated employees are made, and other
criteria are met. During 1994 and 1995, cash costs of $1.2 million and $1.7
million, respectively, were charged to the restructuring accrual.
TIMET has continued to monitor its restructuring activities and related
accruals in light of changing business conditions. Strikes at the Company's
principal production facilities in 1993 and 1994, improved industry conditions
in 1995, and other events required TIMET to both defer and revise certain of the
restructuring actions it previously contemplated. As part of its restructuring
charges, TIMET had expected to reduce its workforce by approximately 350 people.
Since 1993, TIMET's workforce has been reduced by approximately 300 people in
connection with its restructuring activities. However, recently improved market
demand for titanium metal products and other changes in business conditions has
resulted in the Company adding employees in selected areas and the Company
expects to restart production of titanium sponge at its Kroll-leach facility in
1996.
F-14
<PAGE> 91
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IMI Titanium Business
During the three months ended March 31, 1996, TIMET recorded $4.2 million
of special charges resulting from the IMI Titanium Acquisition and related
integration of the IMI Titanium Business. Certain key executive officers of
TIMET received approximately 93,000 shares of TIMET Class B common stock and
cash payments with a combined value of approximately $3 million in consideration
for their services in connection with the IMI Titanium Acquisition. TIMET also
incurred $1.2 million of integration costs relating to the relocation of
personnel and the consolidation of certain facilities. Additional integration
costs will be charged to TIMET's operations during 1996 as incurred. See Note 9.
NOTE 6 -- INVENTORIES:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, MARCH 31,
1995 1995 1996
---------- ------------ -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Raw materials................................. $ 5,669 $ 7,778 $ 13,826
In process and finished products.............. 44,900 57,538 97,388
Supplies...................................... 2,939 3,818 5,881
-------- -------- ---------
$ 53,508 $ 69,134 $ 117,095
======== ======== =========
</TABLE>
The average cost of LIFO inventories exceeded the net carrying amount of
such inventories by approximately $12 million at January 1, 1995, $19 million at
December 31, 1995 and $20 million at March 31, 1996. TIMET established a $5
million reserve for excess and slow-moving inventory in 1994.
NOTE 7 -- ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, MARCH 31,
1995 1995 1996
---------- ------------ -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Postretirement benefit cost....................... $ 1,316 $ 2,240 $ 2,266
Pension cost...................................... 637 1,378 1,519
Other employee benefits........................... 9,043 9,210 15,171
Restructuring cost................................ 3,731 777 235
Environmental cost................................ -- 1,143 1,643
Customer contract losses.......................... -- -- 3,653
Taxes, other than income.......................... 1,269 1,655 4,317
Other............................................. 4,982 4,607 12,202
-------- -------- -------
$ 20,978 $ 21,010 $41,006
======== ======== =======
</TABLE>
NOTE 8 -- LONG-TERM DEBT:
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, MARCH 31,
1995 1995 1996
---------- ------------ -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
U.S. credit agreement:
Revolver........................................ $ 48,184 $ 42,555 $57,310
Term............................................ 14,750 24,400 23,650
Other............................................. 2,087 280 280
-------- -------- -------
65,021 67,235 81,240
Less current maturities........................... 6,807 45,695 81,100
-------- -------- -------
$ 58,214 $ 21,540 $ 140
======== ======== =======
</TABLE>
F-15
<PAGE> 92
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TIMET's $90 million U.S. credit facility provided for term loans
aggregating $24 million at March 31, 1996 with the balance of the facility
available as a revolving credit/letter of credit facility. Borrowings under the
revolving portion are limited to a formula-determined amount (the "borrowing
base") of accounts receivable and inventories. Interest accrues at the prime
rate plus 2% to 2.5%. The weighted average interest rate on outstanding revolver
and term loan borrowings was 9% at January 1, 1995, 11% at December 31, 1995 and
March 31, 1996. The credit facility, including both the revolver and term loans,
expires early in fiscal 1997. TIMET has reached an understanding with its lead
lender for a one-year extension of the maturity date, a 1.5% reduction in
effective interest rates, and an increase in borrowing availability up to a
maximum of $105 million, subject to definitive documents and acceptance of such
terms by the remaining lenders. TIMET's bank debt reprices with changes in
market interest rates and, accordingly, the carrying amount of such debt is
believed to approximate market value. Borrowings are collateralized by
substantially all of TIMET's assets. The credit agreement prohibits dividends on
the Company's common stock in excess of 20% of net income in any fiscal year,
limits TIMET's additional indebtedness and transactions with affiliates,
requires the maintenance of certain financial amounts and contains other
covenants customary in transactions of this type. At December 31, 1995 and March
31, 1996, TIMET had about $18 million and $7 million, respectively, of
borrowings available under its U.S. credit agreement.
In connection with amendments of the Company's credit facility during 1995,
Tremont advanced TIMET $8 million as additional subordinated TIMET debt ($2.5
million advanced in 1994 and $5.5 million advanced in 1995), guaranteed $5
million of the term loans, collateralized such guarantee with approximately
600,000 shares of NL Industries, Inc. common stock held by Tremont, and agreed
to pledge additional NL shares as necessary to meet certain market value
thresholds. Contran Corporation entered into an agreement with TIMET's lenders
whereby Contran is obligated to purchase the pledged shares from TIMET's lenders
under certain conditions.
See Notes 9 and 13 regarding related party transactions.
NOTE 9 -- STOCKHOLDERS' EQUITY:
Common stock
In March 1996, the Company's Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission to permit the
Company to sell shares of its common stock to the public (the "Offerings"). The
Company's Board of Directors also authorized, effective with the Offerings, a
65-for-1 split of the Company's common stock (the "Stock Split"), an increase in
the Company's authorized common shares to 99 million shares, an increase of the
Company's authorized preferred stock to 1 million shares, and the reservation of
up to 3.2 million shares to be issued under the newly adopted 1996 Long Term
Performance Incentive Plan (the "TIMET Incentive Plan").
The TIMET Incentive Plan provides for the discretionary grant of restricted
common stock, stock options, stock appreciation rights and other incentive
compensation to officers and other key employees of the Company. Effective with
the Offerings, the Company expects to grant options under the TIMET Incentive
Plan to acquire approximately 437,500 shares at a price equal to the market
price at the date of grant. The options vest over five years and expire ten
years from date of grant. Additionally, the Board of Directors authorized,
effective with the Offerings, a plan for its nonemployee directors that provides
for eligible directors to annually be granted options to purchase 625 shares of
the Company's common stock at a price equal to the market price on the date of
grant and to receive a number of shares of the Company's common stock equal to
$8,000 divided by the public offering price (rounded up to the nearest 100). The
aggregate number of shares reserved for issuance under the nonemployee director
plan is 62,500.
F-16
<PAGE> 93
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In March 1996, the Company issued approximately 93,000 shares of nonvoting
Class B common stock and made cash payments to certain key executive officers as
consideration for their services in connection with the IMI Titanium
Acquisition. The Class B shares will convert into common shares effective with
the Offerings and no Class B shares will thereafter be outstanding or
authorized. In the absence of the Offerings, the Class B shares are, in certain
circumstances, redeemable at the option of the holder, and are callable by the
Company, at fair value. The Company recorded $3 million of related compensation
expense in the three months ended March 31, 1996 which is included in special
charges. See Note 5.
The Company expects the net proceeds from the Offerings will be
approximately $123.2 million. The Company expects to use $42.5 million of the
net proceeds to repay existing indebtedness to stockholders ($22.5 million to
Tremont and $20 million to IMI) and the balance to repay indebtedness under the
Company's U.S. credit facility. The Company's U.S. credit facility presently
limits the repayment of shareholder indebtedness to not more than $30.7 million
from the net proceeds of the Offerings, however, the Company is presently
negotiating with its lenders and expects to obtain an amendment of such facility
to permit the repayment of $42.5 million of shareholder debt. Supplemental
earnings per share, assuming the Offering would have been completed at the
beginning of fiscal years 1995 and the three-month period ended March 31, 1996
would have been $.42 and $.18, respectively.
Preferred stock
Effective with the Offerings, the Company is authorized to issue 1 million
shares of preferred stock. The rights of preferred stock as to, among other
things, dividends, liquidation, redemption, conversions, and voting rights are
determined by the Board of Directors.
Other
See Note 13 regarding related party transactions.
F-17
<PAGE> 94
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- INCOME TAXES:
Summarized below are (i) the components of income (loss) before income
taxes, preacquisition earnings and cumulative effect of a change in accounting
principle ("pretax income (loss)"), (ii) the difference between the income tax
benefit (expense) attributable to pretax income (loss) and the amounts that
would be expected using the U.S. federal statutory income tax rate of 35%, and
(iii) the components of the income tax benefit (expense) attributable to pretax
income (loss).
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS --------------------
----------------------------- APRIL 2, MARCH 31,
1993 1994 1995 1995 1996
-------- -------- ------- -------- ---------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Expected income tax benefit (expense)...... $ 7,180 $ 14,673 $ 1,387 $ 1,387 $(1,114)
Incremental tax and rate differences on
equity in income of companies not
included in the consolidated tax group... 318 164 1 -- 107
Adjustment of deferred tax
valuation allowance...................... (6,931) (14,900) (1,502) (1,397) 332
Rate change adjustment of deferred taxes... 81 -- -- -- --
U.S. state income taxes, net............... (125) (97) -- -- (25)
Other, net................................. (216) 5 (141) 10 43
--------- --------- -------- -------- -------
$ 307 $ (155) $ (255) $ -- $ (657)
========= ========= ======== ======== =======
Income tax benefit (expense):
Currently (payable) refundable:
U.S................................... $ 4,373 $ (149) $ -- $ -- $ (50)
Non-U.S............................... (13) (6) (255) -- (669)
--------- --------- -------- -------- -------
4,360 (155) (255) -- (719)
Deferred income taxes, principally
U.S................................... (4,053) -- -- -- 62
--------- --------- -------- -------- -------
$ 307 $ (155) $ (255) $ -- $ (657)
========= ========= ======== ======== =======
Pretax income (loss):
U.S...................................... $(19,812) $(41,284) $(4,589) $ (3,851) $ 1,674
Non-U.S.................................. (702) (638) 627 (111) 1,510
--------- --------- -------- -------- -------
$(20,514) $(41,922) $(3,962) $ (3,962) $ 3,184
========= ========= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
JANUARY 1, 1995 DECEMBER 31, 1995
-------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Temporary differences relating to net assets:
Inventories............................................ $ -- $ (5.5) $ -- $ (5.0)
Property and equipment................................. -- (2.4) -- (3.8)
Accrued OPEB cost...................................... 11.6 -- 11.7 --
Accrued liabilities and other deductible differences... 9.2 -- 8.3 --
Other taxable differences.............................. -- (3.2) -- (2.5)
Investments in subsidiaries and affiliates not included
in the consolidated tax group....................... -- (1.7) -- (3.2)
Tax loss and credit carryforwards........................ 14.3 -- 15.8 --
Valuation allowance...................................... (23.6) -- (22.7) --
------ ------- ------ -------
Gross deferred tax assets (liabilities).................. 11.5 (12.8) 13.1 (14.5)
Netting.................................................. (10.8) 10.8 (13.1) 13.1
------ ------- ------ -------
Total deferred taxes..................................... .7 (2.0) -- (1.4)
Less current deferred taxes.............................. -- (2.0) -- (.6)
------ ------- ------ -------
Net noncurrent deferred taxes............................ $ .7 $ -- $ -- $ (.8)
====== ======= ====== =======
</TABLE>
F-18
<PAGE> 95
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The valuation allowance increased in the aggregate (including amounts
allocated to items other than continuing operations) by $7.8 million in 1993 and
$14.7 million in 1994 and decreased by $.9 million in 1995. The Company may
release a portion of its deferred tax asset valuation allowance in 1996,
resulting in a tax benefit, if it concludes that the "more likely than not"
realization criteria of SFAS No. 109 are met.
At December 31, 1995, the Company had U. S. federal income tax operating
loss carryforwards ("NOL") of approximately $40 million expiring between 2007
and 2009. The utilization of the Company's NOLs is subject to an annual
limitation. The Company has an alternative minimum tax credit ("AMT")
carryforward of approximately $2 million which can be utilized to offset regular
income taxes payable in future years. The AMT has an indefinite carryforward
period.
NOTE 11 -- EMPLOYEE BENEFIT PLANS:
Variable compensation plans
Substantially all of the Company's employees, including a significant
portion of its domestic hourly employees, participate in compensation programs
which provide for variable compensation based upon the financial performance of
the Company and, in certain circumstances, the individual performance of the
employee. Certain domestic hourly employees were guaranteed a minimum $1,500
award per year through July 1994. The cost of these plans was $1.1 million in
1993, $.8 million in 1994 and $.3 million in 1995.
Defined contribution plans
All of the Company's domestic salaried and hourly employees are eligible to
participate in a contributory savings plan with partial matching employer
contributions based on the Company's profitability. Substantially all of the
Company's domestic salaried employees, as well as certain hourly employees, also
participate in a defined contribution pension plan with contributions based upon
the profitability of the Company. Since the Company has reported losses in each
of the past three years, the cost of these pension and savings plans has been
insignificant.
Defined benefit pension plans
The Company maintains noncontributory defined benefit pension plans
covering most of its domestic hourly employees and a portion of its domestic
salaried workforce. Defined pension benefits are generally based on years of
service and compensation, and the related expense is based upon independent
actuarial valuations. The Company's funding policy is to contribute annually
amounts satisfying the funding requirements of the Employee Retirement Income
Security Act of 1974, as amended. The defined benefit pension plan for salaried
employees was frozen in 1994 so that no further benefit increases accrue. The
defined benefit pension plan for hourly employees at the Company's Henderson,
Nevada facility was closed to new participants during 1994. The defined benefit
pension plan for hourly employees at the Company's Toronto, Ohio facility was
closed to new participants in 1995.
The funded status of the Company's defined benefit pension plans and the
components of net periodic defined benefit pension cost are set forth below. The
rates used in determining the 1995 actuarial present value of benefit
obligations at December 31, 1995 were: (i) discount rate -- 7.5% (8.5% in 1994),
and (ii) rate of increase in future compensation levels -- 3% in 1994 and 1995.
The expected long-term rate of return on assets used was 9% in each of 1994 and
1995. The benefit obligations are sensitive to changes in these estimated rates
and actual results may differ from the
F-19
<PAGE> 96
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
obligations noted below. At December 31, 1995, the assets of the plans are
primarily comprised of U.S. government obligations, corporate stocks and bonds.
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS
--------------------------- ---------------------------
JANUARY 1, DECEMBER 31, JANUARY 1, DECEMBER 31,
1995 1995 1995 1995
---------- ------------ ---------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligations............. $ 14,600 $ 16,183 $ 30,381 $ 34,705
Nonvested benefits..................... 835 955 1,358 1,510
-------- -------- -------- --------
Accumulated benefit obligations........ 15,435 17,138 31,739 36,215
Effect of projected salary increases... 85 65 132 110
-------- -------- -------- --------
Projected benefit obligations.......... 15,520 17,203 31,871 36,325
Plan assets at fair value................ 15,641 18,146 24,989 28,884
-------- -------- -------- --------
Plan assets over (under) projected
benefit obligations.................... 121 943 (6,882) (7,441)
Unrecognized net loss from experience
different from actuarial assumptions... 2,337 1,186 4,656 3,837
Unrecognized prior service cost.......... 276 235 602 1,424
Unrecognized net assets being amortized
over 14 years.......................... (1,389) (1,111) (1,685) (1,349)
Adjustment to recognize minimum
liability.............................. -- -- (3,453) (3,815)
-------- -------- -------- --------
Total prepaid (accrued) pension cost..... 1,345 1,253 (6,762) (7,344)
Current portion.......................... -- -- (637) (1,378)
-------- -------- -------- --------
Noncurrent prepaid (accrued) pension
cost................................ $ 1,345 $ 1,253 $ (6,125) $ (5,966)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS
-------------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned................................ $ 750 $ 846 $ 630
Interest cost on projected benefit obligations.............. 3,406 3,457 3,959
Actual return on plan assets................................ (4,677) 1,163 (9,560)
Net amortization and deferrals.............................. 839 (5,254) 5,910
------- ------- -------
$ 318 $ 212 $ 939
======= ======= =======
</TABLE>
Postretirement benefits other than pensions
The Company provides certain postretirement health care and life insurance
benefits to eligible retired employees. The Company funds such benefits as they
are incurred, net of any contributions by the retirees. Under plans currently in
effect, substantially all of TIMET's currently active employees would become
eligible for these benefits if they reach normal retirement age while working
for TIMET. These plans have been revised to discontinue employer-paid health
care coverage for future retirees once they become Medicare-eligible.
The components of the periodic OPEB cost and accumulated OPEB obligations
are set forth below. The rates used in determining the actuarial present value
of the accumulated OPEB obligations at December 31, 1995 were: (i) discount
rate -- 7.5% (8.5% in 1994), (ii) rate of increase in future
F-20
<PAGE> 97
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
compensation levels -- 3% in 1994 and 1995, and (iii) rate of increase in future
health care costs -- 13% in 1996, gradually declining to 6% in 2016 and
thereafter. If the health care cost trend rate was increased by one percentage
point for each year, OPEB expense would have increased approximately $.2 million
in 1995, and the actuarial present value of accumulated OPEB obligations at
December 31, 1995 would have increased approximately $2 million. The accrued
OPEB cost is sensitive to changes in these estimated rates and actual results
may differ from the obligations noted below.
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31,
1995 1995
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Actuarial present value of accumulated OPEB obligations:
Retiree benefits................................................. $ 13,058 $ 18,805
Other fully eligible active plan participants.................... 5,696 1,227
Other active plan participants................................... 4,234 5,456
-------- --------
22,988 25,488
Unrecognized net gain from experience different from actuarial
assumptions...................................................... 3,015 730
Unrecognized prior service credits................................. 4,784 4,174
-------- --------
Total accrued OPEB cost............................................ 30,787 30,392
Less current portion............................................... 1,316 2,240
-------- --------
Noncurrent accrued OPEB cost..................................... $ 29,471 $ 28,152
======== ========
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEARS
----------------------------
1993 1994 1995
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost benefits earned................................... $ 428 $ 395 $ 242
Interest cost on accumulated OPEB obligations.................. 1,725 1,791 2,060
Net amortization and deferrals................................. (340) (244) (475)
------ ------ ------
$1,813 $1,942 $1,827
====== ====== ======
</TABLE>
NOTE 12 -- CHANGES IN ACCOUNTING PRINCIPLES:
Postemployment benefits (SFAS No. 112)
The Company adopted SFAS No. 112 ("Employers' Accounting for Postemployment
Benefits") in 1994 and recorded a $1 million charge for this change in
accounting principle.
Accounting for stock-based compensation (SFAS No. 123)
The Company expects to elect the disclosure alternative proscribed by SFAS
No. 123, "Accounting for Stock-Based Compensation," and account for the
Company's stock-based employee compensation in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees" and its various interpretations. Under APB No. 25, no compensation
cost is generally recognized for fixed stock options for which the exercise
price is not less than the market price of the Company's Common Stock on the
grant date. Under the disclosure alternative of SFAS No. 123, the Company will
disclose, starting with its 1996 fiscal year, its respective pro forma net
income and earnings per share as if the fair value based accounting method of
SFAS No. 123 had been used to account for stock-based compensation cost for all
awards granted by the Company after January 1, 1995.
F-21
<PAGE> 98
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- RELATED PARTY TRANSACTIONS:
The Company may be deemed to be controlled by Harold C. Simmons.
Corporations that may be deemed to be controlled by or affiliated with Mr.
Simmons sometimes engage in (i) intercorporate transactions with related
companies such as guarantees, management and expense sharing arrangements,
shared fee arrangements, joint ventures, partnerships, loans, options, advances
of funds on open account, and sales, leases and exchanges of assets, including
securities issued by both related and unrelated parties and (ii) common
investment and acquisition strategies, business combinations, reorganizations,
recapitalizations, securities repurchases, and purchases and sales (and other
acquisitions and dispositions) of subsidiaries, divisions or other business
units, which transactions have involved both related and unrelated parties and
have included transactions which resulted in the acquisition by one related
party of a publicly-held minority equity interest in another related party.
While no transactions of the type described above are planned or proposed with
respect to the Company (except as otherwise disclosed herein), the Company
continuously considers, reviews and evaluates, and understands that Contran,
Tremont and related entities consider, review and evaluate such transactions.
Depending upon the business, tax and other objectives then relevant, it is
possible that the Company might be a party to one or more such transactions in
the future.
It is the policy of the Company to engage in transactions with related
parties on terms which are, in the opinion of the Company, no less favorable to
the Company than could be obtained from unrelated parties.
Effective January 1, 1996 the Company entered into an intercorporate
services agreement with Tremont pursuant to which the Company will provide
certain management, financial and other services to Tremont for approximately
$.4 million in 1996. The term of the agreement is one year, subject to renewal.
Prior to entering into the intercorporate services agreement, charges to (from)
Tremont approximated $.3 million in 1993, nil in 1994 and $(.9) million in 1995
pursuant to similar arrangements for compensation and intercorporate services.
Receivables from related parties principally relate to sales to UTSC and
TISTO. Payables to related parties, excluding long term capital lease
obligations (see Note 14), are summarized in the following table.
<TABLE>
<CAPTION>
JANUARY 1, DECEMBER 31, MARCH 31,
1995 1995 1996
---------- ------------ -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C>
Current liabilities:
Tremont Corporation......................... $ 86 $ -- $ 461
IMI -- loans and interest................... -- -- 1,824
UTSC -- interest............................ 1,530 -- --
Other....................................... 1,915 2,627 2,437
-------- -------- -------
$ 3,531 $ 2,627 $ 4,722
======== ======== =======
Noncurrent liabilities:
Tremont Corporation:
Loans and interest....................... $ 22,933 $ 22,460 $22,577
Other.................................... 283 1,482 1,497
IMI -- loans................................ -- -- 18,750
UTSC -- interest............................ 3,370 -- --
-------- -------- -------
$ 26,586 $ 23,942 $42,824
======== ======== =======
</TABLE>
Interest expense on related party indebtedness was $1.2 million (net of $.8
million capitalized) in 1993, $2.4 million in 1994, and $2.1 million in 1995.
F-22
<PAGE> 99
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TIMET completed a recapitalization in 1995 under which, among other things,
(i) Tremont made a $1 million cash capital contribution to TIMET and exchanged
$8 million of TIMET subordinated debt into TIMET common equity, (ii) TIMET made
a $1 million cash prepayment of accrued interest to UTSC, and (iii) UTSC
exchanged $3 million of interest owed by TIMET to UTSC into TIMET common equity.
In connection with the recapitalization, TIMET issued .5 million shares of
common stock pro rata to its existing shareholders.
UTSC made a $.4 million capital contribution to TIMET during 1994.
In December 1993, UTSC exercised its option to convert its $75 million of
subordinated debentures into 25% of TIMET's outstanding voting common stock
("UTSC Conversion"). The debentures provided the majority of the financing for
construction of TIMET's VDP titanium sponge plant and accrued interest at a
weighted average rate of 8.4% through May 1993 when such interest ceased
accruing. In connection with UTSC's conversion of its debentures in 1993,
Tremont made an aggregate $9 million capital contribution of notes and accrued
interest to TIMET.
In connection with the construction and financing of TIMET's VDP plant,
UTSC licensed certain technology to TIMET in exchange for the right, effective
after UTSC Conversion, to acquire up to 20% of TIMET's annual production
capacity of VDP sponge at agreed-upon prices through early 1997 and higher
formula-determined prices thereafter through 2008. TIMET's selling prices to
UTSC are approximately 15% below the cost at which TIMET is currently purchasing
titanium sponge under agreements with third parties. The discount from fair
market value represents TIMET's consideration to UTSC for the licensed
technology. Sales to UTSC in 1993, 1994 and 1995 approximated $1 million, $2
million, and $9 million, respectively.
Loans from Tremont are due January 1, 2000, although the Company's U.S.
credit facility and other agreements prohibit repayments of principal on such
loans except for repayments from a percentage of the proceeds of a public
offering of the Company's equity securities. In connection with the IMI Titanium
Acquisition, the Company issued $20 million of TIMET subordinated debt payable
to IMI in exchange for a like amount of debt previously owed to IMI by the IMI
Titanium Businesses. The subordinated debt to IMI requires quarterly principal
payments of $1.25 million beginning in 1997 through 1999, except that principal
payments in 1997 are subject to the achievement of certain financial tests under
the Company's U.S. credit facility. The subordinated debt to both IMI and
Tremont accrues interest at 10.4% and is payable quarterly. See Note 9.
NOTE 14 -- COMMITMENTS AND CONTINGENCIES:
Operating leases
The Company leases certain manufacturing and office facilities and various
equipment. Most of the leases contain purchase and/or various term renewal
options at fair market and fair rental values, respectively. In most cases
management expects that, in the normal course of business, leases will be
renewed or replaced by other leases. Net rent expense was approximately $1.4
million in 1993, $1.3 million in 1994 and $1.4 million in 1995.
F-23
<PAGE> 100
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At December 31, 1995, future minimum payments under noncancellable
operating leases having an initial or remaining term in excess of one year were
as follows:
<TABLE>
<CAPTION>
YEARS
---------------------------------------------------------------------- AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996.................................................................. $1,330
1997.................................................................. 844
1998.................................................................. 246
1999.................................................................. 11
2000 and thereafter................................................... 3
------
2,434
Less sublease income.................................................. (260)
------
$2,174
======
</TABLE>
Capital leases
In connection with the IMI Titanium Acquisition, the Company entered into
long-term leases with IMI principally covering its production facilities within
England and requiring annual lease payments of approximately $1 million over a
period of up to thirty years with aggregate interest payments approximating $20
million. Included in buildings at March 31, 1996, is $9.8 million of assets
under capital leases, discounted at 10%, and related accumulated depreciation of
$.1 million.
Legal proceedings and contingencies
Cadmus/Sutherin. In May 1995, TIMET received notice of two separate
actions naming TIMET as a defendant, each brought by a former employee alleging
that TIMET intentionally exposed such employee to dangerous levels of certain
chemicals and/or metals during his employment at TIMET's plant in Toronto, Ohio
(Sutherin v. Titanium Metals Corporation, No. 95 CV 00168, Court of Common
Pleas, Jefferson County, Ohio; Cadmus v. Titanium Metals Corporation, No. 94 CV
00469, Court of Common Pleas, Jefferson County, Ohio). The complaints seek
compensatory and punitive damages totaling approximately $2.5 million each. Both
of these cases were subsequently removed to U.S. District Court for the Southern
District of Ohio (Sutherin, No. C2-95-551; Cadmus, No. C2-95-586) and are
currently in discovery.
Based upon its preliminary investigation, TIMET believes that plaintiff's
claims in Sutherin are without merit and intends to vigorously defend this
action. Plaintiff's claims in Cadmus are similar to previous claims made by
plaintiff and rejected by the Ohio Industrial Commission (which decision is
currently on appeal in state court in Ohio). TIMET intends to vigorously defend
this action as well. At December 31, 1995 and March 31, 1996, TIMET had not
accrued any amounts related to either of these matters.
Ray Cook Golf. In April 1996, TIMET Castings received a letter from a golf
club manufacturer, Ray Cook Golf Company ("Ray Cook"), claiming breach of
contract and trademark infringement. Ray Cook asserts damages in the approximate
amount of $.6 million for lost profits and delivery delays relating to the
production of golf club heads by TIMET Castings. The Company is currently
investigating these claims. At March 31, 1996, the Company had not accrued any
amounts related to this matter.
Tungsten contamination. In 1993, TIMET discovered an anomaly in certain
alloyed titanium material manufactured by TIMET for shipment to a jet engine
manufacturer, resulting from tungsten carbide contaminated chromium sold to
TIMET by a third-party vendor and used as an alloying addition to this titanium
material. At December 31, 1995 and March 31, 1996, TIMET had accrued a $1
million liability related to this matter, net of estimated recoveries, which are
not material, from the chromium supplier and/or TIMET's insurance carrier. The
recorded net liability is based on management's judgement of the likely outcome
based on facts and circumstances known at the time. Such amounts are subject to
future
F-24
<PAGE> 101
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
revisions based on changes in known facts and circumstances, settlement
negotiations, and other events.
In addition, in 1995 TIMET learned that a jet engine disk that had been in
service since 1989 was discovered during routine inspection to have a high
density inclusion that was not identified during manufacture and testing by
TIMET or the subsequent forger of the material. The inclusion was completely
intact and showed no signs of cracking or fatigue that would suggest that it
posed a safety problem. Subsequent metallurgical inspection identified the
inclusion as pure tungsten, which TIMET believes would have resulted from
contaminated chromium used in the manufacture of the titanium alloy. TIMET
currently believes that the engine manufacturer will require that engines
containing disks manufactured from titanium having a link to the potentially
contaminated lot of chromium be subjected to a higher level of inspection or to
more frequent inspection to assure that there is no safety issue involved. While
TIMET does not currently anticipate that it will incur any material liability in
connection with this matter, no assurances can be given in this regard. At
December 31, 1995 and March 31, 1996, TIMET had not accrued any amount with
respect to this matter.
Environmental matters.
BMI Companies. TIMET and certain other companies, including Kerr-McGee
Chemical Corporation, Chemstar Lime Company and Pioneer Chlor Alkali, Inc.
(successor to Stauffer Chemical Company) operate facilities in a complex (the
"BMI Complex") owned by Basic Management Inc. ("BMI"), adjacent to TIMET's
Henderson, Nevada plant. In 1993, TIMET and each of such companies, along with
certain other companies who previously operated facilities in the BMI Complex
(collectively the "BMI Companies") completed a Phase I environmental assessment
of the BMI Complex and each of the individual company sites pursuant to a
consent agreement with the Nevada Division of Environmental Protection ("NDEP").
In February 1996, the Company and each of the other BMI Companies (other than
Chemstar Lime Company) entered into a consent agreement with NDEP to conduct a
Phase II program of sampling and analysis of the portions of the BMI Complex
owned by BMI in response to the Phase I reports. In addition, within the next
several months, the Company expects to finalize a consent agreement with the
NDEP regarding a Phase II assessment of the Company's property within the BMI
Complex. At December 31, 1995 and March 31, 1996, TIMET had accrued $1 million
with respect to this matter. Until the sampling and analysis that will be
involved in this Phase II assessment is completed, it is not possible to provide
a reasonable estimate of the additional remediation costs, if any, or TIMET's
likely share of any such costs.
In November 1995, TIMET and other BMI Companies were contacted by a company
proposing to develop a parcel of land adjacent to the BMI Complex, alleging that
the parcel had been contaminated by the BMI Companies through their operations
and threatening legal action to recover its development costs to date of
approximately $2.8 million. Further discussions and investigations are being
pursued by the parties to resolve this matter. At December 31, 1995 and March
31, 1996, TIMET had not accrued any amounts with respect to this matter.
Caldwell Trucking Superfund site. TIMET recently received notice that it
has been named as a defendant, along with approximately 100 additional
companies, in an action in the United States District Court for the District of
New Jersey in connection with the remediation of a Superfund site located in
Fairfield, New Jersey (Caldwell Trucking PRP Group v. ADT Automotive, Inc., et
al., No. 95-1690 (WGB)). The complaint alleges that TIMET arranged to have
septic and/or industrial waste containing hazardous substances disposed of at
the site from TIMET's former facility in Caldwell, New Jersey. The Company has
been offered the opportunity to participate in "de minimus" settlement
discussions. TIMET has just begun its investigation into this matter and, based
upon the facts available at
F-25
<PAGE> 102
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
this time, does not believe it will incur any material liability in connection
with this matter. At December 31, 1995 and March 31, 1996, TIMET had not accrued
any amount with respect to this matter.
Pomona facility. The Company is conducting an additional study and
assessment work as required by the California Regional Water Quality Control
Board -- Los Angeles Region related to soil and possible groundwater
contamination at TIMET Castings' Pomona, California facility. The site is near
an area that has been designated as a U.S. Environmental Protection Agency
"Superfund" site. At March 31, 1996, the Company had accrued $.6 million related
to this matter.
The Company determines the amount of its accruals for environmental matters
on a quarterly basis by analyzing and estimating the range of possible costs in
light of the available information. It is not possible to estimate the range of
costs for certain sites. The imposition of more stringent standards or
requirements under environmental laws or regulations, the results of future
testing and analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can be
given that actual costs will not exceed accrued amounts or that costs will not
be incurred with respect to sites as to which no problem is currently known or
where no estimate can presently be made. Further, there can be no assurance that
additional environmental matters will not arise in the future.
Other
The Company is involved in various other environmental, contractual,
product liability and other claims and disputes incidental to its business.
The Company currently believes the disposition of all claims and disputes,
individually or in the aggregate, should not have a material adverse effect on
the Company's financial condition, results of operations or liquidity.
Concentration of credit and other risks
Substantially all of the Company's operating income and most of its sales
are currently derived from U.S. and U.K.-based operations. The majority of the
Company's sales are to customers in the aerospace industry (including airframe
and engine construction). Such concentration of customers may impact the
Company's overall exposure to credit and other risks, either positively or
negatively, in that customers may be similarly affected by economic or other
conditions. The Company's ten largest customers accounted for slightly less than
35% of net sales in each of the past three years and about 35% of accounts
receivable at December 31, 1994 and 1995. Receivables are generally not
collateralized.
At December 31, 1995, TIMET employed about 1,020 employees (compared to 860
at January 1, 1995) with approximately 1,000 in the U.S. and 20 at sites outside
the U.S. Substantially all of the Company's hourly employees are members of
labor unions affiliated with the United Steelworkers of America. The contract
covering about 310 of these hourly employees in Henderson, Nevada expires in
October 1996. The contracts covering approximately 330 of TIMET's hourly workers
at its Toronto, Ohio plant expire in July 1999. TIMET experienced strikes at
each of these plants during 1993 and 1994. While TIMET currently considers its
employee relations to be satisfactory, it is possible that there could be
further work stoppages that could adversely affect sales and earnings to varying
degrees.
F-26
<PAGE> 103
INDEPENDENT AUDITORS' REPORT
To Tremont Corporation:
We have audited the accompanying combined balance sheets of the IMI
Titanium Business (the "Company") as of December 31, 1994 and 1995, and the
related combined statements of operations, stockholders' equity and cash flows
for each of the years in the three year period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the IMI
Titanium Business at December 31, 1994 and 1995, and the combined results of
their operations and cash flows for each of the years in the three year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Denver, Colorado
February 28, 1996
F-27
<PAGE> 104
IMI TITANIUM BUSINESS
COMBINED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 2,013 $ 1,901
Accounts and notes receivable, less allowance of $175 and $451..... 29,223 33,581
Receivables from related parties................................... 7,792 319
Inventories........................................................ 70,282 38,162
Prepaid expenses................................................... 1,852 1,539
-------- --------
Total current assets....................................... 111,162 75,502
-------- --------
Property and equipment:
Land............................................................... 572 598
Buildings.......................................................... 4,089 7,476
Equipment.......................................................... 91,607 87,075
Construction in progress........................................... 3,937 3,276
-------- --------
100,205 98,425
Less accumulated depreciation...................................... 56,164 56,295
-------- --------
Net property and equipment...................................... 44,041 42,130
-------- --------
$155,203 $117,632
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable...................................................... $ 15 $ --
Payable to related parties......................................... 2,175 1,773
Accounts payable................................................... 21,860 14,873
Accrued liabilities................................................ 5,583 15,155
-------- --------
Total current liabilities.................................. 29,633 31,801
-------- --------
Noncurrent liabilities:
Payable to related parties......................................... 105,965 21,150
Deferred income taxes.............................................. 5,818 4,002
-------- --------
Total noncurrent liabilities............................... 111,783 25,152
-------- --------
Stockholders' equity:
Common stock....................................................... 62,088 122,602
Accumulated deficit................................................ (62,482) (95,317)
Additional paid-in capital......................................... 13,021 32,851
Currency translation adjustment.................................... 1,160 543
-------- --------
Total stockholders' equity................................. 13,787 60,679
-------- --------
$155,203 $117,632
======== ========
</TABLE>
Commitments and contingencies (Notes 10 and 11)
See accompanying notes to combined financial statements.
F-28
<PAGE> 105
IMI TITANIUM BUSINESS
COMBINED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Net sales............................................... $ 92,846 $110,380 $147,242
-------- -------- --------
Costs and expenses:
Cost of sales......................................... 92,327 116,207 151,522
Provisions for customer contract losses and other
charges............................................ -- -- 16,089
Selling, general and administrative................... 10,165 9,947 12,296
Restructuring charge.................................. -- -- 5,009
Interest expense -- related parties................... 4,936 6,140 8,968
-------- -------- --------
107,428 132,294 193,884
-------- -------- --------
Loss before income taxes........................... (14,582) (21,914) (46,642)
Income tax benefit...................................... 3,375 6,942 13,807
-------- -------- --------
Net loss........................................... $(11,207) $(14,972) $(32,835)
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-29
<PAGE> 106
IMI TITANIUM BUSINESS
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CURRENCY
COMMON PAID-IN ACCUMULATED TRANSLATION
STOCK CAPITAL DEFICIT ADJUSTMENT TOTAL
-------- ---------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1992............ $ 62,088 $ 13,021 $ (36,303) $ (21) $ 38,785
Net loss....................... -- -- (11,207) -- (11,207)
Adjustments.................... -- -- -- (11) (11)
-------- -------- --------- ------ --------
Balance at
December 31, 1993............ 62,088 13,021 (47,510) (32) 27,567
Net loss....................... -- -- (14,972) -- (14,972)
Adjustments.................... -- -- -- 1,192 1,192
-------- -------- --------- ------ --------
Balance at
December 31, 1994............ 62,088 13,021 (62,482) 1,160 13,787
Net loss....................... -- -- (32,835) -- (32,835)
Conversion of related party
indebtedness................. 60,514 19,830 -- -- 80,344
Adjustments.................... -- -- -- (617) (617)
-------- -------- --------- ------ --------
Balance at
December 31, 1995............ $122,602 $ 32,851 $ (95,317) $ 543 $ 60,679
======== ======== ========= ====== ========
</TABLE>
See accompanying notes to combined financial statements.
F-30
<PAGE> 107
IMI TITANIUM BUSINESS
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.............................................. $(11,207) $(14,972) $(32,835)
Depreciation and amortization......................... 4,239 4,914 5,741
Restructuring charge.................................. -- -- 5,009
Deferred income taxes................................. 925 348 (1,982)
Other, net............................................ 62 47 394
Change in assets and liabilities:
Accounts and notes receivable......................... 678 (10,010) (4,358)
Inventories........................................... (10,573) (6,044) 32,120
Prepaid expenses...................................... (580) 562 729
Accounts payable and accrued liabilities.............. 6,689 6,927 (2,424)
Accounts with related parties......................... 10,070 (6,589) 7,071
Other, net............................................ (33) (19) (270)
-------- -------- --------
Net cash provided (used) by operating activities... 270 (24,836) 9,195
-------- -------- --------
Cash flows from investing activities:
Capital expenditures.................................. (6,888) (5,940) (4,224)
Proceeds from sale of investments..................... 2,715 -- --
Other, net............................................ -- -- (146)
-------- -------- --------
Net cash used by investing activities.............. (4,173) (5,940) (4,370)
-------- -------- --------
Cash flows from financing activities:
Loans from related parties:
Borrowings......................................... 2,805 30,738 1,589
Reductions......................................... -- -- (6,060)
Other, net............................................ (3) 5 (15)
-------- -------- --------
Net cash provided (used) by financing activities... 2,802 30,743 (4,486)
-------- -------- --------
Cash and cash equivalents:
Net increase (decrease) from:
Operating, investing and financing activities...... (1,101) (33) 339
Currency translation............................... (11) (203) (451)
-------- -------- --------
(1,112) (236) (112)
Balance at beginning of year.......................... 3,361 2,249 2,013
-------- -------- --------
Balance at end of year................................ $ 2,249 $ 2,013 $ 1,901
======== ======== ========
</TABLE>
See accompanying notes to combined financial statements.
F-31
<PAGE> 108
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BASIS OF PRESENTATION:
The IMI Titanium Business (the "Company") includes IMI Titanium Limited,
IMI Titanium (Export) Limited, IMI Titanium GmbH, IMI Titanium SARL and IMI
Titanium Inc. Prior to December 31, 1995, all of the aforementioned companies,
except IMI Titanium, Inc. became subsidiaries of IMI Titanium Limited. The
Company became wholly-owned by Titanium Metals Corporation ("TIMET") on February
15, 1996 when TIMET acquired all the Company's outstanding common stock from IMI
plc and affiliates ("IMI") in exchange for IMI receiving a 38% equity interest
in TIMET, and TIMET issued $20 million of subordinated debt to IMI in exchange
for a like amount of indebtedness previously owed to IMI by the Company (the
"Acquisition").
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of combined financial statements
The accompanying combined financial statements, which were for periods
prior to the Acquisition, include the accounts of the Company on its
pre-Acquisition historical basis of accounting in accordance with generally
accepted accounting principles in the United States ("U.S."). All material
intercompany accounts and balances have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amount of revenues and expenses during the
reporting period. Ultimate actual results may, in some instances, differ from
previously estimated amounts.
Translation of foreign currencies
The Company's reporting currency is the U.S. dollar. The Company's
functional currency is the British pound sterling for all entities except IMI
Titanium Inc. whose functional currency is the U.S. dollar. Assets and
liabilities of entities whose functional currency is deemed to be other than the
U.S. dollar are translated at year end rates of exchange and revenues and
expenses are translated at average exchange rates prevailing during the year.
Resulting translation adjustments are accumulated in the currency translation
adjustments component of stockholders' equity. Foreign currency transaction
gains and losses are recognized in income currently. Financial instruments used
to manage the effects of currency fluctuations are described in Note 11.
Cash and cash equivalents
Cash equivalents include highly liquid investments with original maturities
of three months or less.
Inventories and cost of sales
Inventories are stated at the lower of cost or market. The first-in,
first-out ("FIFO") and average cost methods are used to determine the cost of
substantially all inventories.
Net sales
Sales are generally recorded when products are shipped to customers.
F-32
<PAGE> 109
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Property, equipment and depreciation
Property and equipment are stated at cost. Maintenance, repairs and minor
renewals are expensed; major improvements are capitalized. Depreciation is
computed principally on the straight-line method over the estimated useful lives
of 40 years for buildings and 3 to 20 years for machinery and equipment.
Research and development
Research and development costs are expensed as incurred and approximated
$.8 million in each of 1993 and 1994, and $1 million in 1995.
Employee benefit plans
Accounting and funding policies for retirement plans are described in Note
9.
Advertising costs
Advertising costs, which are insignificant, are generally expensed as
incurred.
Income taxes
Deferred income tax assets and liabilities are recognized for the expected
future tax consequences of temporary differences between the income tax and
financial reporting carrying amounts of assets and liabilities.
Certain entities of the Company were members of IMI's U.S. or United
Kingdom ("U.K.") tax groups prior to the Acquisition. During such periods,
income taxes were computed on a separate company basis with any current tax
liability or refund paid to or received from IMI, in accordance with
intercompany tax sharing arrangements established by IMI.
F-33
<PAGE> 110
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- BUSINESS AND GEOGRAPHIC SEGMENTS:
The Company's operations are conducted in one business segment, titanium
metals operations. The Company is a producer and distributor of titanium ingot
and mill products for aerospace, industrial and other applications. The
Company's production facilities are located in the U.S. and U.K. although its
products are sold throughout the world.
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Operations
Sales........................................... $ 92,846 $110,380 $147,242
======== ======== ========
Operating loss.................................. $ (9,646) $(15,774) $(37,674)
Interest expense................................ 4,936 6,140 8,968
-------- -------- --------
Loss before income taxes...................... $(14,582) $(21,914) $(46,642)
======== ======== ========
Geographic segments
Net sales -- point of origin:
United Kingdom................................ $ 75,124 $ 89,522 $121,349
United States................................. 17,962 22,538 29,020
Eliminations.................................. (240) (1,680) (3,127)
-------- -------- --------
$ 92,846 $110,380 $147,242
======== ======== ========
Net sales -- point of destination:
United Kingdom................................ $ 43,496 $ 47,504 $ 56,086
Other Europe.................................. 22,036 26,614 31,028
United States................................. 21,186 26,140 40,083
Asia.......................................... 3,289 6,066 16,279
Other......................................... 2,839 4,056 3,766
-------- -------- --------
$ 92,846 $110,380 $147,242
======== ======== ========
Operating loss:
United Kingdom................................ $ (6,709) $(12,455) $(37,559)
United States................................. (2,937) (3,319) (115)
-------- -------- --------
$ (9,646) $(15,774) $(37,674)
======== ======== ========
Identifiable assets:
United Kingdom................................ $110,131 $134,120 $ 94,511
United States................................. 20,899 22,202 24,183
Other Europe.................................. 241 313 388
Eliminations.................................. (126) (1,432) (1,450)
-------- -------- --------
$131,145 $155,203 $117,632
======== ======== ========
</TABLE>
F-34
<PAGE> 111
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- RESTRUCTURING AND OTHER CHARGES:
Restructuring Charges
During 1995 the Company completed a comprehensive review of its business
and adopted a plan to restructure its activities (the "Plan"). As a result, the
Company recorded a $5 million pre-tax restructuring charge during 1995 related
to certain cost reduction and containment aspects of the Plan. The following
summarizes the Company's restructuring activities:
<TABLE>
<CAPTION>
CHARGE TO 1995
OPERATING AMOUNTS ACCRUAL
INCOME UTILIZED BALANCE
--------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Cash charge:
Workforce related.................................. $ 3.3 $(2.3) $ 1.0
Excess space....................................... 1.1 -- 1.1
----- ----- -----
4.4 (2.3) 2.1
Noncash charge -- Idled assets....................... .6 (.6) --
----- ----- -----
Total................................................ $ 5.0 $(2.9) $ 2.1
===== ===== =====
</TABLE>
The Company's restructuring charge was principally related to expected
reductions of its workforce from approximately 1,300 employees to 1,100
employees, the write-down of equipment associated with exited product lines and
the consolidation of certain production facilities. During 1995, the Company's
workforce was reduced by approximately 180 people in connection with its
restructuring activities. However, recent improvement in market demand for
titanium metal products has resulted in the Company adding employees in selected
areas. During 1995, cash costs of $2.3 million were charged against the
restructuring accrual. Restructuring related liabilities are considered utilized
when facilities and equipment are idled, as payments to terminated employees are
made, and other criteria are met. The Company continues to monitor its
restructuring activities and related accruals in light of changing business
conditions.
Other Charges
As part of the Plan, the Company also assessed its inventories and expected
profitability of long term customer sales agreements. As a result, the Company
provided an $8 million charge for excess and slow moving inventories and
recorded an additional $8 million charge for losses on certain customer sales
agreements where the Company's future production costs were expected to exceed
its committed selling prices.
NOTE 5 -- INVENTORIES:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................................. $ 9,209 $ 4,839
Work in process................................................ 36,892 18,774
Finished goods................................................. 24,181 14,549
------- -------
$70,282 $38,162
======= =======
</TABLE>
F-35
<PAGE> 112
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- ACCRUED LIABILITIES:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Employee benefits.............................................. $ 2,433 $ 2,420
Taxes, other than income....................................... 1,584 3,365
Restructuring costs............................................ -- 2,156
Customer contract losses....................................... -- 4,179
Environmental costs............................................ -- 550
Other.......................................................... 1,566 2,485
------- -------
$ 5,583 $15,155
======= =======
</TABLE>
NOTE 7 -- STOCKHOLDERS' EQUITY:
Common stock reflects the Company's pre-Acquisition ownership and is
comprised of the following at December 31, 1995.
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
IMI Titanium Ltd., L1 par value; 78.3 million shares authorized,
issued and outstanding.............................................. $119,713
IMI Titanium Inc., $1.00 par value; 5.0 million Class A and .1 million
Class B shares authorized; 2.8 million Class A and .1 million Class
B shares issued and outstanding..................................... 2,889
--------
$122,602
========
</TABLE>
NOTE 8 -- INCOME TAXES:
Summarized below are the components of the income tax benefit (expense)
attributable to pretax loss. The Company's income tax benefit in each year was
principally related to its U.K. operations, except for 1993 when $1.5 million of
the tax benefit was related to the U.S. The income tax benefit for 1993 differed
from the amount that would be expected using the U.K. statutory rate of 33%
primarily because of a $1.5 million group limitation reduction in the benefit
realized. The income tax benefit in 1994 and 1995 approximated the U.K.
statutory rate of 33%.
F-36
<PAGE> 113
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1994 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit (expense):
Current....................................... $ 4,300 $ 7,290 $ 11,825
Deferred...................................... (925) (348) 1,982
-------- -------- --------
$ 3,375 $ 6,942 $ 13,807
======== ======== ========
Pretax loss:
United Kingdom................................ $(11,051) $(17,600) $(45,142)
United States................................. (3,531) (4,314) (1,500)
-------- -------- --------
$(14,582) $(21,914) $(46,642)
======== ======== ========
</TABLE>
The components of deferred taxes are summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
1994 1995
---------------------- ----------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Temporary differences relating to net assets:
Property and equipment..................... $ -- $(6.9) $ -- $(6.7)
Accrued liabilities and other deductible
differences............................. .2 -- 2.1 --
Tax loss and credit carryforwards............ 1.8 -- 1.8 --
Valuation allowance.......................... (.9 ) -- (1.2) --
----- ----- ----- -----
Gross deferred tax assets (liabilities)...... 1.1 (6.9) 2.7 (6.7)
Netting...................................... (1.1 ) 1.1 (2.7) 2.7
----- ----- ----- -----
Net noncurrent deferred tax liability........ $ -- $(5.8) $ -- $(4.0)
===== ===== ===== =====
</TABLE>
The valuation allowance increased in the aggregate by $.6 million in 1993,
nil in 1994 and $.3 million in 1995. At December 31, 1995, the Company had a
U.S. federal tax operating loss carryforward of approximately $5 million
expiring between 2001 and 2005.
NOTE 9 -- EMPLOYEE BENEFIT PLANS:
Variable compensation plans
Substantially all of the Company's U.K. employees participate in programs
which provide for variable compensation based on productivity. The cost of these
plans approximated $1.9 million in 1993 and $.6 million in each of 1994 and
1995.
Substantially all of the Company's U.K. employees also participated in an
IMI profit sharing plan. The Company's expense related to the plan approximated
$.4 million in each of the past three years.
The Company's U.K. management employees participate in programs which
provide for variable compensation based on profitability. The cost of these
programs was insignificant during each of the past three years.
F-37
<PAGE> 114
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Defined contribution plans
Substantially all the Company's U.S. employees were eligible to participate
in a defined contribution plan sponsored by IMI prior to the Acquisition. The
Company's contributions to the plan were insignificant in each of the past three
years.
Defined benefit pension plan
Substantially all of the Company's U.K. employees participated in IMI's
defined benefit pension plan prior to the Acquisition. The Company annually
contributed its actuarially determined share to IMI's pension plan which
approximated $3 million in each of the past three years. The Company has
accounted for its participation in the plan by recording as an expense its
annual contribution to the plan. In connection with the Acquisition, the Company
agreed to establish a separate pension plan for its U.K. employees pursuant to
which IMI will transfer plan assets with estimated fair values approximating the
projected benefit obligation ("PBO") at the Acquisition date. The Company's
unaudited preliminary estimate of the PBO at such date was $50 million and the
Company expects that its annual net periodic pension expense subsequent to the
Acquisition will not be materially different than its annual contribution to
IMI's plan in 1995.
NOTE 10 -- RELATED PARTY TRANSACTIONS:
IMI charged the Company $5.7 million, $5.4 million and $5.1 million in
1993, 1994 and 1995, respectively, for rent, insurance and management services.
Such charges were in addition to employee benefit amounts described above and
were principally pass-through in nature. In the Company's opinion, such charges
are not materially different from those that would have occurred on a stand
alone basis. Interest expense charged from IMI increased the Company's related
party indebtedness to IMI and is considered paid when incurred. Interest expense
charged from IMI approximated $4.9 million, $6.1 million and $9.0 million in
1993, 1994 and 1995, respectively. Cash paid to IMI for income taxes
approximated $.5 million in 1993 and cash received from IMI for income taxes
approximated $1.4 million in 1994 and $19.1 million in 1995.
During 1995, certain land and buildings related to the Company's
Waunarlwydd, Wales production facilities, which had been leased, were purchased
from IMI at their net carrying amount of approximately $1.6 million. The Company
also sold certain equipment to IMI during 1995 at its net carrying amount of
approximately $1 million. In 1993, the Company sold certain investments to IMI
for their net carrying amount of $2.7 million.
At December 31, 1995, directors of the Company held options to purchase
95,095 shares of IMI plc stock and directly held 12,323 shares of IMI plc stock.
Receivables from related parties principally relate to income taxes.
Payables to related parties classified as current liabilities principally
include pass-through charges from IMI as described above. Payables to related
parties classified as noncurrent liabilities include loans from IMI ($106.0
million at December 31, 1994 and $21.2 million at December 31, 1995). In
contemplation of the Acquisition, IMI made a capital contribution to the Company
of loans aggregating $80.3 million during 1995. The loans accrued interest at
IMI's bank lending rate plus .5% -- 1% and the weighted average interest rate on
such loans was 6.5% and 7.7% at December 31, 1994 and December 31, 1995,
respectively. The Company believes the fair value of such loans at December 31,
1995 was not materially different from the carrying amount.
F-38
<PAGE> 115
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The Company had U.K. overdraft borrowing facilities which were part of its
composite arrangements with IMI. Accordingly, the Company, in concert with IMI,
entered into arrangements whereby each has offered a limited guarantee in
respect of the others overdraft borrowings from time to time. The Company's
maximum liability is limited to the aggregate of its current U.K. cash balance
which was nil as of December 31, 1995.
See Notes 1, 9 and 11 regarding other related party transactions.
NOTE 11 -- COMMITMENTS AND CONTINGENCIES:
Leases
The Company leases, from related and unrelated parties, certain
manufacturing and office facilities and various equipment. Most of the leases
contain purchase and/or various term renewal options at fair market and fair
rental values, respectively. In most cases management expects that, in the
normal course of business, leases will be renewed or replaced by other leases.
Net rent expense approximated $1.9 million, $1.8 million and $1.6 million in
1993, 1994, and 1995, respectively.
At December 31, 1995, future minimum payments under operating leases having
an initial or remaining term in excess of one year were as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996........................................................ $1,215
1997........................................................ 1,075
1998........................................................ 1,046
1999........................................................ 1,046
2000........................................................ 1,046
------
$5,428
======
</TABLE>
In connection with the Acquisition, the Company entered into long-term
leases with IMI principally covering its production facilities in Witton,
England and requiring annual lease payments of approximately $1 million over a
period of up to thirty years. These leases replaced previous operating leases on
these facilities with similar annual lease payments that had remaining terms
through the year 2000.
Commitments
In the ordinary course of business, the Company's U.K. based entity (IMI
Titanium Ltd.) enters into foreign currency exchange agreements through IMI
principally to attempt to manage its exposure to the effects of currency
fluctuations related to changes in the value of monetary assets and liabilities,
and raw material purchase and product sales commitments denominated in
currencies other than the British pound sterling, its functional currency. The
Company's principal foreign exchange agreements are for the forward sale of U.S.
dollars and forward purchase of Japanese yen. At December 31, 1995, the Company
had approximately $40 million of foreign exchange agreements outstanding which
mature in 1996. Gains and losses on hedges of monetary assets and liabilities
are recognized in income as offsets of gains and losses on the underlying
transactions. Gains and losses which hedge firm commitments are deferred until
the underlying transactions are recognized. The Company's U.K. entity is exposed
to credit related losses if the counterparty fails to perform their obligations.
The fair value on outstanding foreign exchange agreements approximated $.7
million as of December 31, 1995.
F-39
<PAGE> 116
IMI TITANIUM BUSINESS
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Environmental matters
The Company is conducting additional study and assessment work as required
by the California Regional Water Quality Control Board -- Los Angeles Region
(the "Board") related to soil and possible groundwater contamination at its
Pomona, California facility. The site is located near an area that has been
designated as a U.S. Environmental Protection Agency "superfund" site. At
December 31, 1995, the Company had accrued $.6 million related to this matter.
The Company determines the amount of its accruals for environmental matters
by analyzing and estimating the range of possible costs in light of the
available information. The imposition of more stringent standards or
requirements under environmental laws or regulations, the results of future
testing and analysis undertaken by the Company at its operating facilities, or a
determination that the Company is potentially responsible for the release of
hazardous substances at other sites, could result in expenditures in excess of
amounts currently estimated to be required for such matters. No assurance can be
given that actual costs will not exceed accrued amounts or that costs will not
be incurred with respect to sites as to which no problem is currently known.
Further, there can be no assurance that additional environmental matters will
not arise in the future.
The Company currently believes the disposition of all claims and disputes,
individually or in the aggregate, should not have a material adverse affect on
the Company's financial condition, results of operations or liquidity.
Concentration of credit risk and other
Substantially all of the Company's operating income or loss and most of its
sales are currently derived from its U.K.-based operations. The majority of the
Company's sales are to customers in the aerospace industry (including airframe
and engine construction). Such concentration of customers may impact the
Company's overall exposure to credit and other risks, either positively or
negatively, in that customers may be similarly affected by economic or other
conditions. The Company's ten largest customers accounted for slightly less than
40% of net sales in each of the past three years and about 40% and 35% of
accounts receivable at December 31, 1994 and 1995, respectively. Receivable are
generally not collateralized.
At December 31, 1995, the Company employed about 1,230 employees (compared
to 1,260 at December 31, 1994) with approximately 790 in Europe and 440 in the
U.S. Substantially all of the Company's European salaried and hourly employees
are members of one of three European labor unions with all associated labor
contracts expiring on December 31, 1996. While the Company currently considers
its employee relations to be satisfactory, it is possible that there could be
future work stoppages that could adversely affect sales and earnings to varying
degrees.
F-40
<PAGE> 117
REPORT OF INDEPENDENT ACCOUNTANTS
To the Management Committee
and Partners of Titanium Hearth Technologies
In our opinion, the accompanying balance sheets and the related statements
of income, of changes in partners' capital and of cash flows present fairly, in
all material respects, the financial position of Titanium Hearth Technologies
(the "Partnership") at December 31, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Philadelphia, PA
January 26, 1996
F-41
<PAGE> 118
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
ASSETS
Cash................................................................... $ 83 $ 84
Accounts receivable.................................................... 4,056 5,301
Accounts receivable, partner........................................... 1,915 2,627
Inventories............................................................ 5,770 9,457
Prepaid expenses....................................................... 31 523
------- -------
Total current assets......................................... 11,855 17,992
Machinery and equipment, net........................................... 18,465 20,259
Other assets........................................................... 20 4
------- -------
Total assets................................................. $30,340 $38,255
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses.................................. $ 1,135 $ 2,482
Accounts payable, partner.............................................. 920 2,208
Distributions payable.................................................. 3,312 1,696
------- -------
Total current liabilities.................................... 5,367 6,386
Long-term debt......................................................... 6,300 9,000
------- -------
Total liabilities............................................ 11,667 15,386
------- -------
Commitments and contingencies
Contributed capital.................................................... 19,000 19,000
Accumulated earnings (deficit)......................................... (327) 3,869
------- -------
Net partners' capital........................................ 18,673 22,869
------- -------
Total liabilities and partners' capital...................... $30,340 $38,255
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-42
<PAGE> 119
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Product sales............................................... $13,421 $10,333 $27,551
Service revenues............................................ 5,250 7,994 9,516
Sales to related parties.................................... 8,155 7,939 10,024
------- ------- -------
Net sales................................................... 26,826 26,266 47,091
Cost of sales............................................... 19,375 17,900 33,200
------- ------- -------
Gross profit................................................ 7,451 8,366 13,891
Selling, general and administrative expenses................ 4,159 4,508 5,373
------- ------- -------
Income from operations...................................... 3,292 3,858 8,518
Interest expense............................................ (260) (400) (630)
Interest income............................................. 8 6 4
------- ------- -------
Net income.................................................. $ 3,040 $ 3,464 $ 7,892
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-43
<PAGE> 120
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
CONTRIBUTED EARNINGS
CAPITAL (DEFICIT) TOTAL
----------- ----------- -------
<S> <C> <C> <C>
Balance at December 31, 1992.............................. $19,000 $ 806 $19,806
Net income................................................ -- 3,040 3,040
Distributions paid and payable............................ -- (2,244) (2,244)
------- ------- -------
Balance at December 31, 1993.............................. 19,000 1,602 20,602
Net income................................................ -- 3,464 3,464
Distributions paid and payable............................ -- (5,393) (5,393)
------- ------- -------
Balance at December 31, 1994.............................. 19,000 (327) 18,673
Net income................................................ -- 7,892 7,892
Distributions paid and payable............................ -- (3,696) (3,696)
------- ------- -------
Balance at December 31, 1995.............................. $19,000 $ 3,869 $22,869
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-44
<PAGE> 121
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 3,040 $ 3,464 $ 7,892
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 829 909 1,148
Changes in operating assets and liabilities:
Accounts receivable.................................. (1,368) 200 (1,245)
Accounts receivable, partner......................... (905) 154 (712)
Inventories.......................................... (1,395) (580) (3,687)
Prepaid expenses..................................... (8) (16) (492)
Other assets......................................... 13 20 16
Accounts payable and accrued expenses................ 382 17 1,347
Accounts payable, partner............................ 2,431 (1,819) 1,288
------- ------- -------
Net cash provided by operating activities......... 3,019 2,349 5,555
------- ------- -------
Cash flows from investing activities:
Purchases of machinery and equipment...................... (361) (899) (2,942)
------- ------- -------
Cash flows from financing activities:
Net borrowings under line of credit....................... (700) 1,000 2,700
Distributions paid........................................ (1,944) (2,381) (5,312)
------- ------- -------
Net cash used in financing activities............. (2,644) (1,381) (2,612)
------- ------- -------
Net change in cash.......................................... 14 69 1
Cash at beginning of year................................... -- 14 83
------- ------- -------
Cash at end of year......................................... $ 14 $ 83 $ 84
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest.................... $ 250 $ 375 $ 590
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 122
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
1. ORGANIZATION AND OPERATION
Organization and Description of the Business. Titanium Hearth Technologies
(the "Partnership") was formed pursuant to a Joint Venture Agreement (the
"Agreement") between Axel Johnson Metals, Inc. ("AJM") and Titanium Metals
Corporation ("TIMET") on August 31, 1992. (See Notes 8 and 9.)
The Partnership was formed pursuant to the Pennsylvania Uniform Partnership
Act.
The Partnership produces titanium slabs, ingots and alloy electrodes at
plants in Morgantown, Pennsylvania and Verdi, Nevada. The primary application
for titanium has historically been the aerospace industry where it is used in
both air frames and engines. Other major markets for titanium include power
generation, chemical processing, pulp and paper, desalinization, medical
implants and recreational equipment. The primary customers for the Partnership's
products are titanium mill product producers in the United States and abroad.
These producers manufacture semi-finished products such as plates, sheets,
strip, bar, billets and tubing. Secondary customers for the Partnership's
products include a number of smaller fabrication shops and service centers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Reclassifications. The Partnership has reclassified certain balances for
comparative purposes.
Revenue Recognition. Sales are recognized at time of shipment of titanium
and titanium alloy products. Sales are also recognized at time of shipment for
service revenues derived from the melting of customer supplied materials.
Cash and Cash Equivalents. For the purposes of the statement of cash flows,
the Partnership considers all highly liquid short term investments with an
original maturity of three months or less to be cash equivalents.
Inventories. Inventories are stated at the lower of cost or market, with
cost determined on the first-in, first-out (FIFO) method. Elements of cost in
inventories include raw materials, direct labor and manufacturing overhead.
Machinery and Equipment. The initial contribution of machinery and
equipment by the partners was recorded at fair market value as determined by an
independent appraisal. (See Note 8.) Subsequent additions to machinery and
equipment are carried at cost. Maintenance, repairs and minor renewals are
charged to expense as incurred. When assets are sold or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts, and
any resulting gain or loss is included in the results of operations.
Depreciation of machinery and equipment is computed on the straight-line method
over the estimated useful lives of the assets which range from 5 to 25 years.
Concentrations of Credit Risk. Accounts receivable credit risk is dispersed
across approximately 25 United States customers and several European and
Japanese customers. Over 68%, 76% and 83% of current accounts receivable credit
risk is concentrated between three customers.
F-46
<PAGE> 123
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
3. NET SALES
Significant Customers. Included in net sales for the years ended December
31, 1993, 1994 and 1995 are sales to 3, 2 and 3 customers (A, B and C, A and B
and A, B and D, respectively), which amounted to approximately 25%, 29% and 17%,
28% and 30%, and 24%, 21%, and 13% of annual sales, respectively.
Export Sales. Net sales based on point of destination by geographic area
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
United States................................. $ 24,347 $ 21,935 $ 34,668
International................................. 2,479 4,331 12,423
-------- -------- --------
$ 26,826 $ 26,266 $ 47,091
======== ======== ========
</TABLE>
4. INVENTORIES
Inventories comprise:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1994 1995
------ ------
<S> <C> <C>
Finished goods........................................... $1,602 $2,482
Work-in-process.......................................... 2,805 5,383
Raw materials............................................ 1,363 1,592
------ ------
$5,770 $9,457
====== ======
</TABLE>
5. MACHINERY AND EQUIPMENT
A summary of machinery and equipment and related accumulated depreciation
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1994 1995
------- -------
<S> <C> <C>
Machinery and equipment................................. $20,463 $23,405
Less: Accumulated depreciation........................ (1,998) (3,146)
------- -------
$18,465 $20,259
======= =======
</TABLE>
Depreciation expense was $829, $909 and $1,148 for the years ended December
31, 1993, 1994 and 1995, respectively.
6. DEBT
The Partnership has a credit agreement with a bank which provides for
borrowings up to $12,000. The outstanding balance at December 31, 1994 and 1995
was $6,300 and $9,000, respectively. The term of the credit agreement expires on
December 29, 1997, as revised. Borrowings under the agreement bear interest, at
the Partnership's option, at the higher of LIBOR plus 1.25% or the Federal funds
rate plus .50% or the prime rate (7.13% at December 31, 1995 and a weighted
average of 7.23% for the year ended December 31, 1995). During January 1996, the
interest rate was revised to the higher of LIBOR plus .85% or the Federal funds
rate plus .50% or the prime rate. Additionally, the Partnership
F-47
<PAGE> 124
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
shall pay a quarterly fee of .125% per annum on the unborrowed portion of the
commitment and shall pay a facility fee on a quarterly basis of .25% per annum
on the aggregate commitment.
The credit line is nonrecourse to either partner but is secured by
substantially all Partnership assets, including accounts receivable, inventory
and certain machinery and equipment.
The credit line agreement contains certain restrictions that require the
Partnership, among other things, to maintain (a) a quick ratio, as defined, of
not less than 2 to 1, (b) a tangible net worth, excluding distributions payable,
of at least $24,180 and (c) a minimum ratio of inventory and accounts receivable
to the loan of 1 to 1 and places limitations on (a) the incurrence of additional
indebtedness, (b) the payment of annual distributions to partners, (c) the
transfer of assets, and (d) the incurrence of capital expenditures. In addition,
for years beginning on January 1, 1994, the Partnership is required to maintain
income from operations before interest expense for each year of at least $3,000.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments that are subject to fair value disclosure
requirements are carried in the financial statements at amounts that approximate
fair value. Based on the terms of the line of credit as discussed in Note 6, the
carrying value of the borrowing under the line of credit approximates its fair
value.
8. PARTNERS' CONTRIBUTIONS AND PREFERRED DISTRIBUTIONS
Immediately prior to the formation of the Partnership, AJM sold to TIMET,
for cash and a note, an undivided 50% interest in certain machinery and
equipment with a fair value of approximately $19 million. This machinery and
equipment was contributed to the Partnership at formation.
In accordance with the Agreement, AJM is entitled to a preferred
distribution in an amount equal to the excess gross profit of the Partnership
from other than TIMET sales over a base amount. The total preferred distribution
payable to AJM is limited to the present value of $4,000 as of the date of the
Agreement using the prime rate as the discount rate and has been fully accrued
as of December 31, 1995.
9. RELATED PARTY TRANSACTIONS
Under the Agreement, certain services are provided either to the
Partnership by the partners or to the partners by the Partnership at negotiated
amounts. Activity under these service agreements for the years ended December
31, 1993, 1994 and 1995 was as follows:
Conversion Services Agreement. Pursuant to the formation of the
Partnership, TIMET and the Partnership entered into an agreement whereby the
Partnership is to provide cold hearth melting services to TIMET through August
31, 1997 with automatic 1 year renewals unless either party gives one year's
prior written notice to terminate. The pricing for such services are specified
in the agreement, subject to a defined maximum price, and are a function of the
Adjusted Annual Aggregate Melt Volume, as defined, and the relative strength of
the titanium market, as determined in accordance with the agreement. TIMET also
committed to purchase certain minimum volume requirements throughout the term of
the agreement. Titanium conversion services by the Partnership for TIMET
totalled $7,428, $7,800 and $10,024 for the years ended December 31, 1993, 1994
and 1995, respectively.
Administrative Services Agreement. Pursuant to the formation of the
Partnership, AJM entered into an agreement to provide to the Partnership
administrative, technical and managerial services, as defined, through August
31, 1997, with automatic 1 year renewals unless either party gives notice of
termination
F-48
<PAGE> 125
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
in accordance with the provisions of the agreement. The fee for such services is
based on 90% of a Base Rate, as defined (subject to escalation at a rate of 5%
per annum commencing January 1, 1993), plus all out of pocket expenses incurred
by AJM attributable to performing such services. The fees are subject to
reduction, as defined, in the event the Base Rate exceeds 90% of actual costs
incurred by AJM. AJM charged the Partnership $3,605, $3,873 and $4,144 for
services and out of pocket expenses under this agreement for the years ended
December 31, 1993, 1994 and 1995, respectively.
Raw Materials Supply and Processing Agreement. Pursuant to the formation of
the Partnership, the Partnership, AJM and TIMET entered into an agreement
effective through August 31, 1997 whereby AJM agreed to (a) sell to the
Partnership, subject to availability in the market, at the fair market value,
scrap that the Partnership orders from AJM and (b) subject to available
capacity, to provide scrap processing services to the Partnership with respect
to scrap owned by the Partnership and TIMET, at rates set forth in the
agreement. Such rates are dependent on the relative strength of the titanium
market, as defined in the agreement. This agreement is subject to automatic 1
year renewals unless AJM gives the Partnership and TIMET one year's prior notice
of termination. Amounts charged to the Partnership by AJM under this agreement
totalled $6,496, $2,067 and $2,824 for the years ended December 31, 1993, 1994
and 1995, respectively.
Reciprocal Conversion Services Agreement. Pursuant to the formation of the
Partnership, the Partnership and AJM entered into an agreement whereby, to the
extent of available capacity, each party would perform cold hearth melting
services through August 31, 1997 with automatic 1 year renewals unless either
party terminates with one year's prior notice. As amended, this agreement
provides that fees for services rendered under the agreement will be charged at
an amount equal to the lesser of either (a) three times the providing party's
Direct Cost, as defined, or (b) in the event AJM is the providing party, AJM's
Direct Cost to provide such services plus one-half of the Partnership's average
gross profit per pound for all of the Partnership's products for the month in
which such services are provided multiplied by the number of pounds produced
with such services, subject to certain adjustments and conditions per the
agreement. The Partnership was charged $2,693, $3,069 and $3,835 by AJM under
this agreement for the years ended December 31, 1993, 1994 and 1995,
respectively.
Other. Accounts receivable, partner includes $1,915 and $2,627 due from
TIMET at December 31, 1994 and 1995, respectively, related to services performed
under the above agreements and product sales to TIMET. Accounts payable, partner
includes $920 and $2,208 due to AJM at December 31, 1994 and 1995, respectively,
related to services rendered under the above agreements and inventory purchases
from AJM.
The Partnership has also paid to TIMET $100 per year under a technical
services agreement which expires on December 31, 1996.
In connection with the formation of the Partnership, AJM contributed a
joint ownership interest in certain patents which are used by the Partnership.
See Note 12 regarding facilities leased by the Partnership from AJM.
10. INCOME TAXES
As a Partnership, Titanium Hearth Technologies is not liable for the
payment of taxes on income. Net income is allocated to the respective partners
on an annual basis, and it is the partners' responsibility to pay income taxes,
if any, thereon according to their respective tax positions.
F-49
<PAGE> 126
TITANIUM HEARTH TECHNOLOGIES
(A JOINT VENTURE)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
11. EMPLOYEE BENEFITS
Post Retirement Benefits. Employees of the Partnership, meeting the service
requirements, are members of the Axel Johnson Inc. (parent company of AJM)
postretirement benefit program which provides health care benefits and life
insurance benefits to employees. This is treated by the Partnership as a
multiemployer plan under Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions." The
postretirement benefit cost to the Partnership was approximately $1, $2 and $2
for the years ended December 31, 1993, 1994 and 1995, respectively.
Pension Plan. Employees of the Partnership, meeting the service
requirements, are members of the Axel Johnson Inc. defined benefit pension plan.
This is treated by the Partnership as a multiemployer plan under Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions." The
pension cost to the Partnership was $11, $16 and $21 for the years ended
December 31, 1993, 1994 and 1995, respectively.
401(k) Thrift Plan. Employees of the Partnership, meeting the service
requirements, are members of the Axel Johnson Inc. defined contribution 401(k)
thrift plan. The Partnership, on a nondiscretionary basis, will match
participating employees' contributions based on 60% of the first 6% contributed
to the plan by employees. The Partnership's matching contribution was $16, $23
and $41 for the years ended December 31, 1993, 1994 and 1995, respectively.
12. COMMITMENTS AND CONTINGENCIES
Operating Leases. Since its formation, the Partnership has leased building
space used in its Morgantown production facilities from AJM. This lease, which
has been recorded as an operating lease, provides for rental payments of $50 per
year and will remain in effect until August 31, 2021. The terms of this lease
are considered to be favorable to the Partnership as a result of the related
party nature of the participants to this lease. The Partnership also leases
facilities for its Verdi, Nevada operations under an agreement which provides
for rental payments of approximately $65 per year through April, 1998.
Contingencies. The Partnership is not involved in any claims and disputes
which the Partnership's management believes will have a material adverse effect
on the Company's financial condition, results of operations or liquidity.
F-50
<PAGE> 127
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information............... 3
Prospectus Summary................... 4
Risk Factors......................... 10
Use of Proceeds...................... 14
Dilution............................. 16
Dividend Policy...................... 16
Capitalization....................... 17
Selected Financial Data.............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 20
Business............................. 30
The Company.......................... 41
Management........................... 42
Principal and Selling Stockholders... 52
Certain Relationships and Related
Transactions....................... 55
Description of Capital Stock......... 60
Shares Eligible for Future Sale...... 61
Underwriting......................... 62
Legal Matters........................ 64
Experts -- Independent Public
Accountants........................ 64
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
14,500,000 SHARES
TITANIUM METALS
CORPORATION
COMMON STOCK
($.01 PAR VALUE)
LOGO
SALOMON BROTHERS INC
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
PROSPECTUS
DATED , 1996
<PAGE> 128
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus shall not *
* constitute an offer to sell or the solicitation of an offer to buy *
* nor shall there be any sale of these securities in any State in which *
* such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
MAY 9, 1996
<TABLE>
<S> <C>
PROSPECTUS LOGO
14,500,000 SHARES
TITANIUM METALS CORPORATION
</TABLE>
Common Stock
($.01 par value)
Of the 14,500,000 shares of common stock, $.01 par value per share (the "Common
Stock"), of Titanium Metals Corporation (the "Company"), being offered hereby
(the "Shares"), 6,200,000 Shares are being issued and sold by the Company and
8,300,000 Shares are being offered and sold by certain stockholders of the
Company named herein (the "Selling Stockholders"). The net proceeds to the
Company from the Offerings (as defined herein) will be used to prepay certain
indebtedness, including approximately $42.5 million of indebtedness to certain
of the Selling Stockholders. See "Use of Proceeds." The Company will not receive
any of the proceeds from the sale of Common Stock by the Selling Stockholders.
See "Principal and Selling Stockholders."
Of the 14,500,000 Shares being offered hereby, 2,175,000 Shares are being
offered outside the United States and Canada (the "International Offering") and
12,325,000 Shares are being offered in a concurrent offering in the United
States and Canada (the "U.S. Offering" and, together with the International
Offering, the "Offerings"), subject to transfers between the International
Underwriters and the U.S. Underwriters. The Price to Public and Underwriting
Discount per share will be identical for the International Offering and the U.S.
Offering. See "Underwriting." The closing of the International Offering and U.S.
Offering are conditioned upon each other.
Prior to the Offerings, there has been no public market for the Common Stock. It
is anticipated that the initial public offering price will be between $20 and
$23 per share. See "Underwriting" for a discussion of various factors considered
in determining the initial public offering price. At the request of the Company,
the U.S. Underwriters have reserved approximately 50,000 Shares for sale at the
initial public offering price to persons who are directors, officers of
employees of, or are otherwise associated with, the Company.
The Company intends to apply for quotation of the Common Stock on the Nasdaq
National Market under the symbol "TIMT".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES BEING OFFERED
HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT COMPANY(1) STOCKHOLDERS(1)
Per Share........................... $ $ $ $
Total(2)............................ $ $ $ $
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Before deducting offering expenses payable by the Company and the Selling
Stockholders, estimated to be approximately $1.3 million for the Company and
$10,000 for the Selling Stockholders. The Company will bear all expenses of
the Offerings other than the Underwriting Discount and a portion of the
incremental registration fees attributable to the Shares being offered by
the Selling Stockholders, which will be borne by the Selling Stockholders.
(2) One of the Selling Stockholders has granted to the International
Underwriters and the U.S. Underwriters 30-day options to purchase up to
326,250 and 1,848,750 additional Shares, respectively, at the Price to
Public, less the Underwriting Discount, solely to cover overallotments, if
any. If the International Underwriters and the U.S. Underwriters exercise
their options in full, the total Price to Public, Underwriting Discount and
Proceeds to Selling Stockholders will be $ , $ and $ ,
respectively. See "Underwriting."
The Shares are offered subject to receipt and acceptance by the Underwriters, to
prior sale and to the Underwriters' right to reject any order in whole or in
part and to withdraw, cancel or modify the offer without notice. It is expected
that delivery of the Shares will be made at the office of Salomon Brothers Inc,
Seven World Trade Center, New York, New York, or through the facilities of The
Depository Trust Company, on or about , 1996.
SALOMON BROTHERS INTERNATIONAL LIMITED
MORGAN STANLEY & CO.
INTERNATIONAL
SMITH BARNEY INC.
The date of this Prospectus is , 1996.
<PAGE> 129
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
CERTAIN U.S. TAX CONSIDERATIONS FOR NON-U.S. HOLDERS
GENERAL
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
Non-U.S. Holder. For this purpose, the term "Non-U.S. Holder" is defined as any
person who is, for United States federal income tax purposes, a foreign
corporation, a non-resident alien individual, a foreign partnership or a foreign
estate or trust. This discussion does not address all aspects of U.S. federal
income and estate taxes and does not deal with foreign, state and local
consequences that may be relevant to such Non-U.S. Holders in light of their
personal circumstances. Furthermore, this discussion is based on provisions of
the Internal Revenue Code of 1986, as amended, existing and proposed regulations
promulgated thereunder and administrative and judicial interpretations thereof,
as of the date hereof, all of which are subject to change. EACH PROSPECTIVE
PURCHASER OF COMMON STOCK IS ADVISED TO CONSULT A TAX ADVISOR WITH RESPECT TO
CURRENT AND POSSIBLE FUTURE TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF COMMON STOCK AS WELL AS ANY TAX CONSEQUENCES THAT MAY ARISE UNDER THE LAWS OF
ANY U.S. STATE, MUNICIPALITY OR OTHER TAXING JURISDICTION.
An individual may, subject to certain exceptions, be deemed to be a
resident alien (as opposed to a non-resident alien) by virtue of being present
in the U.S. on at least 31 days in the calendar year and for an aggregate of at
least 183 days during a three-year period ending in the current calendar year
(counting for such purposes all of the days present in the current year,
one-third of the days present in the immediately preceding year, and one-sixth
of the days present in the second preceding year). Resident aliens are subject
to U.S. federal tax as if they were U.S. citizens.
DIVIDENDS
The Company does not currently intend to pay dividends on shares of Common
Stock. See "Dividend Policy." In the event that dividends are paid on shares of
Common Stock, dividends paid to a Non-U.S. Holder of Common Stock will be
subject to withholding of U.S. federal income tax at a 30% rate or such lower
rate as may be specified by an applicable income tax treaty, unless the
dividends are effectively connected with the conduct of a trade or business of
the Non-U.S. Holder within the U.S. Dividends that are effectively connected
with the conduct of a trade or business within the U.S. are subject to U.S.
federal income tax on a net income basis at applicable graduated individual or
corporate rates. Any such effectively connected dividends received by a foreign
corporation may, under certain circumstances, be subject to an additional
"branch profits tax" at a 30% rate or such lower rate as may be specified by an
applicable income tax treaty.
Under current U.S. Treasury regulations, dividends paid to an address
outside the U.S. are presumed to be paid to a resident of such country for
purposes of the withholding discussed above, and, under the current
interpretation of U.S. Treasury regulations, for purposes of determining the
applicability of a tax treaty rate. Under proposed U.S. Treasury regulations not
currently in effect, however, a Non-U.S. Holder of Common Stock who wishes to
claim the benefit of an applicable treaty rate would be required to satisfy
applicable certification and other requirements. Certain certification and
disclosure requirements must be complied with in order to be exempt from
withholding under the effectively connected income exemption.
A Non-U.S. Holder of Common Stock eligible for a reduced rate of U.S.
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts withheld by filing an appropriate claim for refund with the
Internal Revenue Service (the "IRS").
62
<PAGE> 130
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
GAIN ON DISPOSITION OF COMMON STOCK
In general, a Non-U.S. Holder will not be subject to the U.S. federal
withholding tax in respect of amounts realized on a disposition of Common Stock,
as long as the Common Stock is and continues to be regularly traded on an
established securities market. In addition, except as described below, regular
U.S. federal income tax will not apply to gain realized on the disposition of
Common Stock, provided that:
(i) the gain is not effectively connected with the conduct of a trade
or business of the Non-U.S. Holder in the U.S. (or, if any of certain tax
treaties applies, is not attributable to a U.S. permanent establishment of
the Non-U.S. Holder within the meaning of the applicable treaty),
(ii) in the case of a Non-U.S. Holder who is an individual, if such
individual holds the Common Stock as a capital asset, either he (a) is not
present in the U.S. for 183 or more days in the taxable year of the
disposition (as calculated under certain provisions of the Internal Revenue
Code of 1986, as amended) or (b) if so present in the U.S., such
individual's "tax home" for U.S. federal income tax purposes is not in the
U.S. and the gain is not attributable to an office or other fixed place of
business maintained in the U.S. by such individual, and
(iii) if the Company is or has been a "United States Real Property
Holding Corporation" at any time during the shorter of the holder's holding
period or the five-year period ending on the date of disposition, (a) the
Common Stock is or was during the calendar year of disposition regularly
traded on a domestic established securities market, and (b) the Non-U.S.
Holder has not held, directly or indirectly, at any time during the shorter
of the holder's holding period and the five-year period ending on the date
of disposition, more than 5% of the Common Stock.
The Company intends to apply for listing the Common Stock on the New York Stock
Exchange, which the Company believes will satisfy the requirement that the
Common Stock be regularly traded on a domestic established securities market
after the Offerings. A Non-U.S. Holder who acquires more than 5% of the Common
Stock should consult with his/her tax advisor regarding the possible status of
the Company as a United States Real Property Holding Corporation.
FEDERAL ESTATE TAX
Common Stock held by an individual Non-U.S. Holder at the time of death
will be included in such holder's gross estate for U.S. federal estate tax
purposes, unless an applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
Under Treasury regulations, the Company must report annually to the IRS and
to each Non-U.S. Holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected with a trade or business in the U.S. of the Non-U.S.
Holder or withholding was reduced or eliminated by an applicable income tax
treaty. Copies of the information returns reporting such dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder resides under the provisions of an applicable income
tax treaty.
Backup withholding (which generally is a withholding tax imposed at the
rate of 31% on certain payments to persons that fail to furnish certain
information under the U.S. information reporting requirements) will generally
not apply to dividends paid to Non-U.S. Holders outside the U.S. that are either
subject to the 30% withholding discussed above or that are not so subject
because a tax treaty applies that reduces or eliminates such 30% withholding. In
that regard, under temporary U.S. Treasury regulations, backup withholding will
not apply to dividends paid on Common Stock to a Non-U.S. Holder at an address
outside the U.S. unless the payer has knowledge that the payee is a U.S. person.
Backup withholding and information reporting generally will apply to dividends
paid to addresses inside the U.S.
63
<PAGE> 131
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
on shares of Common Stock to beneficial owners that are not "exempt recipients"
and that fail to provide in the manner required certain identifying information.
In general, backup withholding and information reporting will not apply to
a payment of the proceeds of a sale of Common Stock by or through a foreign
office of a broker. If, however, such broker is, for U.S. federal income tax
purposes, a U.S. person, a controlled foreign corporation, or a foreign person
that derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S., such payments will not be subject to
backup withholding but will be subject to information reporting, unless (i) such
broker has documentary evidence in its records that the beneficial owner is a
Non-U.S. Holder and certain other conditions are met, or (ii) the beneficial
owner otherwise establishes an exemption. Temporary Treasury regulations provide
that the Treasury is considering whether backup withholding will apply with
respect to such payments that are not currently subject to backup withholding
under the current regulations. Under proposed Treasury regulations not currently
in effect, backup withholding will not apply to such payments absent actual
knowledge that the payee is a U.S. person.
Payment by a U.S. office of a broker of the proceeds of a sale of Common
Stock is subject to both backup withholding and information reporting unless the
beneficial owner certifies under penalties of perjury that it is a Non-U.S.
Holder, or otherwise establishes an exemption. Any amounts withheld under the
backup withholding rules will be allowed as a refund or a credit against such
holder's U.S. federal income tax liability provided the required information is
furnished to the IRS.
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "International Underwriting Agreement") by and among the Company, the
Selling Stockholders and each of the underwriters named below (the
"International Underwriters"), the Company and the Selling Stockholders have
agreed to sell to each of the International Underwriters, and each of the
International Underwriters, for whom Salomon Brothers International Limited,
Morgan Stanley & Co. International and Smith Barney Inc. are acting as
representatives (the "International Representatives"), has severally agreed to
purchase from the Company and the Selling Stockholders the number of shares of
Common Stock set forth opposite its name in the table below:
<TABLE>
<CAPTION>
NUMBER
INTERNATIONAL UNDERWRITERS OF SHARES
---------------------------------------------------------------- -----------
<S> <C>
Salomon Brothers International Limited..........................
Morgan Stanley & Co. International..............................
Smith Barney Inc................................................
----------
Total.................................................
==========
</TABLE>
In addition, the Company and the Selling Stockholders have entered into an
underwriting agreement (the "U.S. Underwriting Agreement") with the U.S.
Underwriters named therein, for whom Salomon Brothers Inc, Morgan Stanley & Co.
Incorporated and Smith Barney Inc. are acting as representatives (the "U.S.
Representatives"), providing for the concurrent offer and sale of shares of
Common Stock in the U.S. and Canada. The closing with respect to the sale of the
shares of Common Stock pursuant to the International Underwriting Agreement is a
condition to the closing with respect to the sale of the shares of Common Stock
pursuant to the U.S. Underwriting Agreement, and the closing with respect to the
sale of
64
<PAGE> 132
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
shares of Common Stock pursuant to the U.S. Underwriting Agreement is a
condition to the closing with respect to the sale of the shares of Common Stock
pursuant to the International Underwriting Agreement. The initial public
offering price and underwriting discounts per share for the International
Offering and the U.S. Offering will be identical.
The International Underwriting Agreement provides that the obligations of
the International Underwriters to purchase the shares of Common Stock listed
above are subject to certain conditions set forth therein. The International
Underwriters are committed to purchase all of the shares of Common Stock offered
by this Prospectus (other than those covered by the overallotment options
described below), if any such shares are purchased. In the event of default by
any International Underwriter, the International Underwriting Agreement provides
that, in certain circumstances, the purchase commitments of the non-defaulting
International Underwriters may be increased or the International Underwriting
Agreement may be terminated.
The International Representatives have advised the Company and the Selling
Stockholders that the International Underwriters propose initially to offer the
shares of Common Stock offered hereby to the public at the initial public
offering price set forth on the cover page of this Prospectus, and to certain
dealers at such price less a discount not in excess of $ per share of
Common Stock. The International Underwriters may allow, and such dealers may
reallow, a discount not in excess of $ per share of Common Stock on sales to
certain other dealers. After the Offerings, the public offering price and such
discounts may be changed.
Each International Underwriter has severally agreed that, as part of the
distribution of shares of Common Stock, (i) it is not purchasing any shares of
Common Stock for the account of any U.S. or Canadian Person and (ii) it has not
offered or sold, and will not offer or sell, directly or indirectly, any shares
of Common Stock or distribute this Prospectus to any person within the U.S. or
Canada or to any U.S. or Canadian Person. Each U.S. Underwriter has agreed that,
as part of the distribution of the shares of Common Stock, (i) it is not
purchasing any shares of Common Stock for the account of any one other than a
U.S. or Canadian Person and (ii) it has not offered or sold, and will not offer
or sell, directly or indirectly, any shares of Common Stock or distribute the
U.S. Prospectus to any person outside of the U.S. or Canada or to anyone other
than a U.S. or Canadian Person. The foregoing limitations do not apply to
stabilization transactions or to certain other transactions specified in the
agreement between U.S. and International Underwriters described below. As used
herein, "U.S. or Canadian Person" means any individual who is resident in the
U.S. or Canada, or any corporation, partnership, or other entity organized under
or governed by the laws of the U.S. or any political subdivision thereof (other
than a foreign branch of any U.S. or Canadian Person), any estate or trust the
income of which is subject to U.S. or Canadian federal income taxation,
regardless of the source of its income (other than a foreign branch of any U.S.
or Canadian Person), and includes any United States branch of a non-U.S. Person.
The International Underwriters and the U.S. Underwriters have entered into
an agreement that provides for the coordination of their activities. Pursuant to
such agreement, sales may be made between the International Underwriters and the
U.S. Underwriters of such number of shares of Common Stock as may be mutually
agreed upon. The per share price of any shares so sold shall be the public
offering price set forth on the cover page of this Prospectus, less an amount
not greater than the per share amount of the discount to dealers set forth
above. To the extent there are sales between the International Underwriters and
the U.S. Underwriters, the number of shares of Common Stock initially available
for sale by the International Underwriters or by the U.S. Underwriters may be
more or less than the amount appearing on the cover page of this Prospectus.
One of the Selling Stockholders has granted the International Underwriters
and the U.S. Underwriters options to purchase an aggregate of up to an
additional 326,250 shares and 1,848,750 shares, respectively, of Common Stock at
the initial public offering price less the aggregate underwriting discount,
solely to cover overallotments. To the extent such options are exercised, each
of the
65
<PAGE> 133
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
International Underwriters and the U.S. Underwriters will become obligated,
subject to certain conditions, to purchase approximately the same percentage of
such additional shares of Common Stock as the percentage it was obligated to
purchase pursuant to the International Underwriting Agreement or the U.S.
Underwriting Agreement, as applicable.
Each International Underwriter has severally represented and agreed that
(i) it has not offered or sold and will not offer or sell any shares of Common
Stock in the United Kingdom by means of any document other than to persons whose
ordinary business it is to buy and sell shares or debentures (whether as
principal or agent) or in circumstances which do not constitute an offer to the
public within the meaning of the Companies Act 1985; (ii) it has complied and
will comply with all applicable provisions of the Financial Services Act 1986
with respect to anything done by it in relation to the shares of Common Stock
in, from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issue of the shares of Common Stock to any
person who is of a kind described in Article 9(3) of the Financial Services Act
1986 (Investment Advertisements) (Exemptions) Order 1988 or is a person to whom
the document may otherwise lawfully be issued or passed on.
The shares of Common Stock may not be offered or sold directly or
indirectly in Hong Kong by means of this document or any other offering material
or document other than to persons whose ordinary business it is to buy or sell
shares or debentures, whether as principal or as agent. Unless permitted to do
so by the securities laws of Hong Kong, no person may issue or cause to be
issued in Hong Kong this document or any amendment or supplement thereto or any
other information, advertisement or document relating to the shares of Common
Stock other than with respect to shares of Common Stock intended to be disposed
of to persons outside Hong Kong or to persons whose business involves the
acquisition, disposal or holding of securities, whether as principal or as
agent.
The shares of Common Stock have not been registered under the Securities
and Exchange Law of Japan and are not being offered and may not be offered or
sold directly or indirectly in Japan or to residents of Japan, except pursuant
to applicable Japanese laws and regulations.
No action has been taken or will be taken in any jurisdiction by the
Company or the International Underwriters that would permit a public offering of
the shares offered pursuant to the Offerings in any jurisdiction where action
for that purpose is required, other than the U.S. Persons into whose possession
this Prospectus comes are required by the Company and the International
Underwriters to inform themselves about and to observe any restrictions as to
the offering of the Shares offered pursuant to the Offerings and the
distribution of this Prospectus.
Purchasers of the shares of Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the cover
page hereof.
At the request of the Company, the U.S. Underwriters have reserved for
sale, at the initial public offering price, 50,000 shares of Common Stock for
employees of the Company and certain other individuals who have expressed an
interest in purchasing such shares of Common Stock in the Offerings. The number
of Shares available for sale to the general public in the U.S. Offering will be
reduced to the extent such persons purchase such reserved Shares. Any reserved
Shares not so purchased will be offered by the U.S. Underwriters to the general
public on the same basis as the other Shares offered hereby.
The International and U.S. Underwriting Agreements provide that the Company
and the Selling Stockholders will indemnify the several International
Underwriters and U.S. Underwriters against certain liabilities under the
Securities Act, or contribute to payments the International Underwriters and the
U.S. Underwriters may be required to make in respect thereof.
66
<PAGE> 134
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
The Company, Tremont, IMI, UTSC and certain senior executive officers of
the Company have agreed that, without the prior written consent of Salomon
Brothers International Limited, they will not, directly or indirectly, offer to
sell, contract to sell, sell or otherwise dispose of, or announce the offering
of, any shares of Common Stock or securities convertible into or exchangeable or
exercisable for shares of Common Stock (except the shares sold to the
Underwriters pursuant to the overallotment options) for a period of 180 days
after the date of this Prospectus. See "Shares Eligible for Future Sale."
Salomon Brothers Inc currently does not intend to release any securities subject
to such lock-up agreements, but may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to such
lock-up agreements.
The International Underwriters and the U.S. Underwriters have informed the
Company that they do not intend to confirm sales of Common Stock for any
customer's account over which they exercise discretionary authority without the
prior written approval of such customer.
Prior to the Offerings, there has been no established public trading market
for the Common Stock. The initial public offering price of the Common Stock
offered hereby was determined through negotiations among the Company, the
International Representatives and the U.S. Representatives. Among the factors
considered in determining the initial public offering price, in addition to
prevailing market conditions, were certain financial information of the Company,
the history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
operations, the prospects for, and timing of, future revenues of the Company,
the present state of the Company's development and the above factors in relation
to market values and various valuation measures of other companies engaged in
activities similar to the Company. The initial public offering price set forth
on the cover page of the Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to the
Offerings at or above the initial offering price. See "Risk Factors -- Absence
of Established Public Trading Market and Possible Volatility of Stock Price."
LEGAL MATTERS
Certain legal matters regarding the issuance of the Common Stock being
registered under laws other than federal or state securities laws will be passed
upon by Bartlit Beck Herman Palenchar & Scott, a partnership including
professional corporations, Denver, Colorado. Certain legal matters in connection
with the Common Stock offered hereby will be passed upon for the Underwriters by
Cravath, Swaine & Moore, New York, New York.
67
<PAGE> 135
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
EXPERTS
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated balance sheets of the Company and its subsidiaries as of
January 1, 1995 and December 31, 1995 and the consolidated statements of
operations, stockholders' equity and cash flows for each of three fiscal years
in the period ended December 31, 1995 and the pro forma condensed consolidated
statement of operations for the year ended December 31, 1995, included in this
Prospectus, have been included herein in reliance on the reports of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in accounting and auditing. With respect to the unaudited consolidated
interim financial information as of March 31, 1996, and for the three-month
periods ended April 2, 1995 and March 31, 1996, included in this Prospectus, the
independent accountants have reported that they have applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate report on the unaudited consolidated interim financial
statements as of March 31, 1996 and for the three-month periods ended April 2,
1995 and March 31, 1996, included herein states that they did not audit and they
do not express an opinion on that unaudited consolidated interim financial
information. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. The accountants are not subject to liability provisions of
Section 11 of the Securities Act of 1933 ("Act") for their report on the
unaudited consolidated interim financial information because that report is not
a "report" or a "part" of the Registration Statement prepared or certified by
the accountants within the meaning of Sections 7 and 11 of the Act.
The combined financial statements of the IMI Titanium Business as of
December 31, 1994 and 1995, and for each of the years in the three year period
ended December 31, 1995 have been included herein in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The financial statements of Titanium Hearth Technologies as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 included in this Prospectus have been so included in reliance on the report
of Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in accounting and auditing.
68
<PAGE> 136
[ALTERNATE PAGE -- INTERNATIONAL PROSPECTUS]
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATES AS OF WHICH INFORMATION IS GIVEN IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................ 3
Prospectus Summary.................... 4
Risk Factors.......................... 10
Use of Proceeds....................... 14
Dilution.............................. 16
Dividend Policy....................... 16
Capitalization........................ 17
Selected Financial Data............... 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 30
The Company........................... 41
Management............................ 42
Principal and Selling Stockholders.... 52
Certain Relationships and Related
Transactions........................ 55
Description of Capital Stock.......... 60
Shares Eligible for Future Sale....... 61
Certain U.S. Tax Considerations for
Non-U.S. Holders.................... 62
Underwriting.......................... 64
Legal Matters......................... 67
Experts -- Independent Public
Accountants......................... 68
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE SHARES OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
14,500,000 SHARES
TITANIUM METALS
CORPORATION
COMMON STOCK
($.01 PAR VALUE)
LOGO
SALOMON BROTHERS
INTERNATIONAL LIMITED
MORGAN STANLEY & CO.
INTERNATIONAL
SMITH BARNEY INC.
PROSPECTUS
DATED , 1996
<PAGE> 137
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses of the Registrant in connection with the issuance and distribution
of the securities being registered, other than underwriting discounts, are
estimated to be as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee.................. $ 120,353.44
National Association of Securities Dealers, Inc. Filing Fee.......... 30,500.00
Nasdaq National Market Entry Fee..................................... 50,000
Blue Sky Fees and Expenses........................................... 15,000
Printing and Engraving............................................... 300,000
Legal Fees and Expenses.............................................. 550,000
Accounting Fees and Expenses......................................... 200,000
Fees of Transfer Agent and Registrar................................. 8,000
Miscellaneous Expenses............................................... 50,000
-------------
Total...................................................... $1,323,853.44
=============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 102(b)(7) of the General Corporation Law of the State of Delaware
permits a Delaware corporation to limit the personal liability of its directors
in accordance with the provisions set forth therein. The Amended and Restated
Certificate of Incorporation of the Registrant provides that the personal
liability of its directors shall be limited to the fullest extent permitted by
applicable law.
Section 145 of the General Corporation Law of the State of Delaware
contains provisions permitting corporations organized thereunder to indemnify
directors, officers, employees or agents against expenses, judgments and fines
reasonably incurred and against certain other liabilities in connection with any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of the fact that such
person was or is a director, officer, employee or agent of the corporation. The
Amended and Restated Certificate of Incorporation and the By-Laws of the
Registrant provide for indemnification of its directors and officers to the
fullest extent permitted by applicable law.
The form of Underwriting Agreement attached hereto as Exhibit 1.1, which
provides for, among other things, the Registrant's sale to the Underwriters of
the securities being registered herein, will obligate the Underwriters to
indemnify the Registrant and Registrant's officers and directors against certain
liabilities under the Securities Act of 1933. In addition, the Registrant
maintains an officers and directors liability insurance policy.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On March 29, 1996 and effective as of February 15, 1996, the Company
completed the issuance of Management Shares to certain executive officers as
compensation for services. J. Landis Martin, Andrew R. Dixey, Joseph S.
Compofelice, Paul J. Bania, Thomas A. Buck, John P. Monahan, Robert E. Musgraves
and Mark A. Wallace were issued 490, 245, 195, 100, 100, 100, 100 and 100 shares
of Common Stock, respectively (31,850, 15,925, 12,675, 6,500, 6,500, 6,500,
6,500 and 6,500 shares, respectively, giving effect to the Stock Split). The
Registrant believes such transactions, to the extent they constituted sales of
securities, were exempt from the registration requirements of the Securities Act
of 1933 pursuant to Rule 701 thereunder and Section 4(2) thereof.
On February 15, 1996, in connection with the IMI Titanium Acquisition, the
Company issued 36,774 shares of Common Stock (2,390,310 shares giving effect to
the Stock Split) to IMI Americas Inc. and 110,323 shares (7,170,995 shares
giving effect to the Stock Split) to IMI Kynoch Ltd., in each case in
consideration of the transfer of such entities' titanium business to the Company
as part of the IMI Titanium Acquisition. The Registrant believes such
transactions were exempt from the registration requirements of the Securities
Act of 1933 pursuant to Section 4(2) thereof.
II-1
<PAGE> 138
In June 1995, the Company completed a recapitalization under which, among
other things, (i) Tremont exchanged $8 million of intercompany subordinated debt
for 7,885 shares of Common Stock (512,525 shares giving effect to the Stock
Split) and (ii) UTSC exchanged $3 million of deferred interest owed by the
Company to UTSC for 2,627 shares of Common Stock (170,755 shares giving effect
to the Stock Split). The Registrant believes such transactions were exempt from
the registration requirements of the Securities Act of 1933 pursuant to Sections
3(a)(9) and 4(2) thereof.
On December 31, 1993, UTSC exercised its option to convert its $75 million
of subordinated debentures issued by the Company. In connection with such
exercise the Company issued UTSC a total 57,373 shares of Common Stock
(3,729,245 shares giving effect to the Stock Split). The Registrant believes
such transactions were exempt from the registration requirements of the
Securities Act of 1933 pursuant to Sections 3(a)(9) and 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
The following exhibits are filed pursuant to Item 601 of Regulation S-K.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement between the Registrant and the U.S. Underwriters.***
1.2 Form of International Underwriting Agreement between the Registrant and the
International Underwriters.***
3.1 Amended and Restated Certificate of Incorporation of the Registrant (to be
effective upon closing of the Offerings).*
3.2 Bylaws of the Registrant (to be effective upon closing of the Offerings).*
4.1 Specimen Certificate of Common Stock.*
5.1 Opinion of Bartlit Beck Herman Palenchar & Scott regarding legality of the
securities being registered.*
9.1 Shareholders' Agreement, dated February 15, 1996, among the Registrant, Tremont
Corporation, IMI plc, IMI Kynoch Ltd., and IMI Americas, Inc., incorporated by
reference to Exhibit 2.2 to Tremont Corporation's Current Report on Form 8-K (No.
1-10126) filed with the Commission on March 1, 1996.
9.2 Amendment to the Shareholders' Agreement dated March 29, 1996 among the Registrant,
Tremont Corporation, IMI plc, IMI Kynoch Ltd., and IMI Americas Inc., incorporated
by reference to Exhibit 10.30 to Tremont Corporation's Annual Report on Form 10-K
(No. 1-10126) for the year ended December 31, 1995.
9.3 Investors' Agreement between Union Titanium Sponge Corporation, Toho Titanium Co.,
Ltd., Nippon Mining Co., Ltd., Mitsui & Co., Ltd., Mitsui & Co. (U.S.A.), Inc.,
Tremont Corporation and the Registrant, dated May 30, 1990, incorporated by
reference to Exhibit 10.33 of Baroid Corporation's registration statement on Form
10 (No. 1-10624) filed with the Commission on August 31, 1990.
9.4 Amendment No. 3 to Investors' Agreement between Union Titanium Sponge Corporation,
Toho Titanium Co., Ltd., Nippon Mining Co., Ltd., Mitsui & Co., Ltd., Mitsui & Co.,
(U.S.A.), Inc., Tremont Corporation and the Registrant, dated May 30, 1990.***
10.1 Acquisition Agreement, dated February 15, 1996, by and between the Registrant, IMI
Kynoch Ltd., and IMI Americas Inc., incorporated by reference to Exhibit 2.1 to
Tremont Corporation's Current Report on Form 8-K (No. 1-10126) filed with the
Commission on March 1, 1996.
10.2 Amended and Restated Subordinated Promissory Note, dated as of January 1, 1996
between the Registrant and Tremont Corporation.**
10.3 $20,000,000 Subordinated Promissory Note issued by the Registrant to IMI Kynoch
Ltd. dated January 1, 1996, incorporated by reference to Exhibit 10.21 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended December
31, 1995.
10.4 Amended and Restated Subordination Agreement between Tremont Corporation and
Congress Financial Corporation dated February 15, 1996, incorporated by reference
to Exhibit 10.24 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126)
for the year ended December 31, 1995.
</TABLE>
II-2
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.5 Subordination Agreement between Tremont Corporation and the Registrant dated
February 15, 1996, incorporated by reference to Exhibit 10.25 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended December
31, 1995.
10.6 Subordination Agreement between IMI Kynoch Ltd. and the Registrant dated February
15, 1996, incorporated by reference to Exhibit 10.26 to Tremont Corporation's
Annual Report on Form 10-K (No. 1-10126) for the year ended December 31, 1995.
10.7 Subordination Agreement between Tremont Corporation and IMI Kynoch Ltd. dated
February 15, 1996, incorporated by reference to Exhibit 10.27 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended December
31, 1995.
10.8 Subordination Agreement between IMI Kynoch Ltd. and Congress Financial Corporation
dated February 15, 1996, incorporated by reference to Exhibit 10.28 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended December
31, 1995.
10.9 $80,000,000 Amended and Restated Loan Agreement between the Registrant and Congress
Financial Corporation (Central) dated March 24, 1995, incorporated by reference to
Exhibit 10.4 of Tremont Corporation's Amended Annual Report on Form 10-K/A (No. 1-
10126) for the year ended December 31, 1994.
10.10 Amendment to Amended and Restated Loan and Security Agreement between Congress
Financial Corporation and the Registrant dated September 29, 1995, incorporated by
reference to Exhibit 10.16 to Tremont Corporation's Annual Report on Form 10-K (No.
1-10126) for the year ended December 31, 1995.
10.11 Amendment to Amended and Restated Loan and Security Agreement between Congress
Financial Corporation and the Registrant dated February 15, 1996, incorporated by
reference to Exhibit 10.17 to Tremont Corporation's Annual Report on Form 10-K (No.
1-10126) for the year ended December 31, 1995.
10.12 Sponge Purchase Agreement dated May 30, 1990 between the Registrant and Union
Titanium Sponge Corporation and Amendments No. 1 and 2, incorporated by reference
to Exhibit 10.25 of Tremont Corporation's Annual Report on Form 10-K (No. 1-10126)
for the year ended December 31, 1991.
10.13 Amendment No. 3 to the Sponge Purchase Agreement dated May 30, 1990 between the
Registrant and Union Titanium Sponge Corporation, incorporated by reference to
Exhibit 10.33 of Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for
the year ended December 31, 1993.
10.14 General Partnership Agreement of Titanium Hearth Technologies between Axel Johnson
Metals, Inc. and TIMET Hearth Melting Corporation dated August 31, 1992,
incorporated by reference to Exhibit 10.34 of Tremont Corporation's Annual Report
on Form 10-K (No. 1-10126) for the year ended December 31, 1992.
10.15 Lease Agreement dated January 1, 1996 between Holford Estates Ltd. and IMI Titanium
Ltd. related to the building known as Titanium Number 2 Plant at Witton, England,
incorporated by reference to Exhibit 10.23 to Tremont Corporation's Annual Report
on Form 10-K (No. 1-10126) for the year ended December 31, 1995.
10.16 Purchase and Transfer Agreement dated April 27, 1990 between the Registrant and
Timpex AG, West KB -- Westdeutsche Kapitalbeteiligungsgesellschaft mbH, and Michael
Huttenrauch.**
10.17 Intercorporate Services Agreement between the Registrant and Tremont Corporation,
dated March 28, 1996, incorporated by reference to Exhibit 10.29 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended December
31, 1995.
10.18 Tax Sharing Agreement between Tremont Corporation and the Registrant dated March
13, 1990, incorporated by reference to Exhibit 10.23 to Tremont Corporation's
Annual Report on Form 10-K (No. 1-10126) for the year ended December 31, 1991.
10.19+ 1996 Long Term Performance Incentive Plan of the Registrant (to be effective upon
closing of the Offerings).*
10.20+ 1996 Non-Employee Director Compensation Plan (to be effective upon closing of the
Offerings).*
10.21+ Employment Agreement between Andrew R. Dixey and the Registrant, dated February 13,
1996.**
</TABLE>
II-3
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.22+ Form of Agreement relating to a grant of Management Shares between the Registrant
and certain executive officers, effective as of February 15, 1996.*
10.23 Amendment No. 4 to the Sponge Purchase Agreement dated May 30, 1990 between the
Registrant and Union Titanium Sponge Corporation.***
10.24 Agreement, dated June 28, 1995 among the Registrant, Tremont Corporation and Union
Titanium Sponge Corporation.*
10.25 L10 million short term credit facility of TIMET UK, Ltd with Lloyd's Bank.***
11.1 Computation of Loss Per Share.*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Bartlit Beck Herman Palenchar & Scott -- included in Exhibit 5.1.*
23.2 Consent of Coopers & Lybrand L.L.P.*
23.3 Consent of KPMG Peat Marwick LLP.*
23.4 Consent of Price Waterhouse LLP.*
23.5 Awareness Letter of Coopers & Lybrand L.L.P.*
24.1a Limited Power of Attorney for Thomas P. Stafford.*
24.1b Limited Power of Attorney for Edward C. Hutcheson, Jr.*
27 Financial Data Schedule.*
</TABLE>
- ---------------
+ Management contract, compensatory plan or arrangement
* Filed herewith
** Previously filed
*** To be filed by amendment
(b) Financial Statement Schedules.
The following financial statement schedules for each of the three years in
the period ended December 31, 1995 are filed with this Registration Statement.
Report of Independent Accountants in Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
1. The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriter to permit prompt delivery to each purchaser.
2. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.
(b) For purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-4
<PAGE> 141
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Denver,
State of Colorado, as of May 8, 1996.
TITANIUM METALS CORPORATION
By: /s/ ROBERT E. MUSGRAVES
----------------------------------
Its: Vice President -- Administration
and General Counsel
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and as of the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ---------------------------- ---------------
<S> <C> <C>
* Chairman of the Board and May 8, 1996
- ----------------------------------------------- Chief Executive Officer
J. Landis Martin
* President, Chief Operating May 8, 1996
- ----------------------------------------------- Officer and Director
Andrew R. Dixey
* Director May 8, 1996
- -----------------------------------------------
Gary J. Allen
* Director May 8, 1996
- -----------------------------------------------
Edward C. Hutcheson, Jr.
* Director May 8, 1996
- -----------------------------------------------
R. B. Pointon
* Director May 8, 1996
- -----------------------------------------------
Thomas P. Stafford
* Director May 8, 1996
- -----------------------------------------------
Yukiji Tadokoro
* Vice President and Chief May 8, 1996
- ----------------------------------------------- Financial Officer (Principal
Joseph S. Compofelice Financial Officer)
/s/ MARK A. WALLACE Vice President -- Finance May 8, 1996
- ----------------------------------------------- and Treasurer
Mark A. Wallace (Principal Accounting
Officer)
*By: /s/ ROBERT E. MUSGRAVES
- -----------------------------------------------
Robert E. Musgraves, Attorney-in-Fact
</TABLE>
II-5
<PAGE> 142
After consummation of the proposed stock split, as discussed in Note 9 to
the financial statements, we will be in a position to render the following audit
report.
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Stockholders and Board of Directors of Titanium Metals Corporation:
In connection with our audits of the consolidated financial statements of
Titanium Metal Corporation and Subsidiaries as of January 1, 1995 and December
31, 1995 and for each of the three fiscal years in the period ended December 31,
1995, which financial statements are included in this Prospectus, we have also
audited the financial statement schedule listed on page F-1.
As discussed in Note 12 to the consolidated financial statements, in 1994
the Company changed its method of accounting for postemployment benefits in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 112.
In our opinion, the financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Denver, Colorado
March 26, 1996
S-1
<PAGE> 143
TITANIUM METALS CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT (CREDITED) TO BALANCE
BEGINNING COST AND AT END
OF YEAR EXPENSES DEDUCTIONS OF YEAR
---------- ------------- ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts............... $ 3,143 $ 2,453 $ 1,976(a) $ 3,620
======== ========= ======== ========
Valuation allowance for deferred income
taxes...................................... $ 23,600 $ (923) $ -- $ 22,677
======== ========= ======== ========
Reserve for excess and slow moving
inventories................................ $ 5,000 $ 1,000 $ -- $ 6,000
======== ========= ======== ========
Year ended December 31, 1994:
Allowance for doubtful accounts............... $ 2,143 $ 4,007 $ 3,007(a) $ 3,143
======== ========= ======== ========
Valuation allowance for deferred income
taxes...................................... $ 8,910 $ 14,690 $ -- $ 23,600
======== ========= ======== ========
Reserve for excess and slow moving
inventories................................ $ -- $ 5,000 $ -- $ 5,000
======== ========= ======== ========
Year ended December 31, 1993:
Allowance for doubtful accounts............... $ 1,543 $ 3,723 $ 3,123(a) $ 2,143
======== ========= ======== ========
Valuation allowance for deferred income
taxes...................................... $ 1,101 $ 7,809 $ -- $ 8,910
======== ========= ======== ========
Reserve for excess and slow moving
inventories................................ $ -- $ -- $ -- $ --
======== ========= ======== ========
</TABLE>
- ---------------
(a) Amounts written off less recoveries.
S-2
<PAGE> 144
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------------ ----
<C> <S> <C>
1.1 Form of Underwriting Agreement between the Registrant and the U.S.
Underwriters.***
1.2 Form of International Underwriting Agreement between the Registrant and
the International Underwriters.***
3.1 Amended and Restated Certificate of Incorporation of the Registrant (to be
effective upon closing of the Offerings).*
3.2 Bylaws of the Registrant (to be effective upon closing of the Offerings).*
4.1 Specimen Certificate of Common Stock.*
5.1 Opinion of Bartlit Beck Herman Palenchar & Scott regarding legality of the
securities being registered.*
9.1 Shareholders' Agreement, dated February 15, 1996, among the Registrant,
Tremont Corporation, IMI plc, IMI Kynoch Ltd., and IMI Americas, Inc.,
incorporated by reference to Exhibit 2.2 to Tremont Corporation's Current
Report on Form 8-K (No. 1-10126) filed with the Commission on March 1,
1996.
9.2 Amendment to the Shareholders' Agreement dated March 29, 1996 among TIMET,
Tremont Corporation, IMI plc, IMI Kynoch Ltd., incorporated by reference
to Exhibit 10.30 to Tremont Corporation's Annual Report on Form 10-K (No.
1-10126) for the year ended December 31, 1995.
9.3 Investors' Agreement between Union Titanium Sponge Corporation, Toho
Titanium Co., Ltd., Nippon Mining Co., Ltd., Mitsui & Co., Ltd., Mitsui &
Co. (U.S.A.), Inc., Tremont Corporation and the Registrant, dated May 30,
1990, incorporated by reference to Exhibit 10.33 of Baroid Corporation's
registration statement on Form 10 (No. 1-10624) filed with the Commission
on August 31, 1990.
9.4 Amendment No. 3 to Investors' Agreement between Union Titanium Sponge
Corporation, Toho Titanium Co., Ltd., Nippon Mining Co., Ltd., Mitsui &
Co., Ltd., Mitsui & Co. (U.S.A.), Inc., Tremont Corporation and the
Registrant, dated May 30, 1990.***
10.1 Acquisition Agreement, dated February 15, 1996, by and between the
Registrant, IMI Kynoch Ltd., and IMI Americas Inc., incorporated by
reference to Exhibit 2.1 to Tremont Corporation's Current Report on Form
8-K (No. 1-10126) filed with the Commission on March 1, 1996.
10.2 Amended and Restated Subordinated Promissory Note, dated as of January 1,
1996 between the Registrant and Tremont Corporation.**
10.3 $20,000,000 Subordinated Promissory Note issued by the Registrant to IMI
Kynoch Ltd. dated January 1, 1996, incorporated by reference to Exhibit
10.21 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126)
for the year ended December 31, 1995.
10.4 Amended and Restated Subordination Agreement between Tremont Corporation
and Congress Financial Corporation dated February 15, 1996, incorporated
by reference to Tremont Corporation's Annual Report on Form 10-K (No.
1-10126) for the year ended December 31, 1995.
10.5 Subordination Agreement between Tremont Corporation and the Registrant
dated February 15, 1996, incorporated by reference to Exhibit 10.25 to
Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the
year ended December 31, 1995.
</TABLE>
<PAGE> 145
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
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<C> <S> <C>
10.6 Subordination Agreement between IMI Kynoch Ltd. and the Registrant dated
February 15, 1996, incorporated by reference to Exhibit 10.26 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.7 Subordination Agreement between Tremont Corporation and IMI Kynoch Ltd.
dated February 15, 1996, incorporated by reference to Exhibit 10.27 to
Tremont Corporation's Annual Report on Form 10-K (No. 1-10126) for the
year ended December 31, 1995.
10.8 Subordination Agreement between IMI Kynoch Ltd. and Congress Financial
Corporation dated February 15, 1996, incorporated by reference to Exhibit
10.28 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126)
for the year ended December 31, 1995.
10.9 $80,000,000 Amended and Restated Loan Agreement between the Registrant and
Congress Financial Corporation (Central) dated March 24, 1995,
incorporated by reference to Exhibit 10.4 of Tremont Corporation's Amended
Annual Report on Form 10-K/A (No. 1-10126) for the year ended December 31,
1994.
10.10 Amendment to Amended and Restated Loan and Security Agreement between
Congress Financial Corporation and the Registrant dated September 29,
1995, incorporated by reference to Exhibit 10.16 to Tremont Corporation's
Annual Report on Form 10-K (No. 1-10126) for the year ended December 31,
1995.
10.11 Amendment to Amended and Restated Loan and Security Agreement between
Congress Financial Corporation and the Registrant dated February 15, 1996,
incorporated by reference to Exhibit 10.17 to Tremont Corporation's Annual
Report on Form 10-K (No. 1-10126) for the year ended December 31, 1995.
10.12 Sponge Purchase Agreement dated May 30, 1990 between the Registrant and
Union Titanium Sponge Corporation and Amendments No. 1 and 2, incorporated
by reference to Exhibit 10.25 of Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1991.
10.13 Amendment No. 3 to the Sponge Purchase Agreement dated May 30, 1990
between the Registrant and Union Titanium Sponge Corporation, incorporated
by reference to Exhibit 10.33 of Tremont Corporation's Annual Report on
Form 10-K (No. 1-10126) for the year ended December 31, 1993.
10.14 General Partnership Agreement of Titanium Hearth Technologies between Axel
Johnson Metals, Inc. and TIMET Hearth Melting Corporation dated August 31,
1992, incorporated by reference to Exhibit 10.34 of Tremont Corporation's
Annual Report on Form 10-K (No. 1-10126) for the year ended December 31,
1992.
10.15 Lease Agreement dated January 1, 1996 between Holford Estates Ltd. and IMI
Titanium Ltd. related to the building known as Titanium Number 2 Plant at
Witton, England, incorporated by reference to Exhibit 10.23 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1995.
10.16 Purchase and Transfer Agreement dated April 27, 1990 between the
Registrant and Timpex AG, West KB -- Westdeutsche
Kapitalbeteiligungsgesellschaft mbH, and Michael Huttenrauch.**
</TABLE>
<PAGE> 146
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------------ ----
<C> <S> <C>
10.17 Intercorporate Services Agreement between the Registrant and Tremont
Corporation, dated March 28, 1996, incorporated by reference to Exhibit
10.29 to Tremont Corporation's Annual Report on Form 10-K (No. 1-10126)
for the year ended December 31, 1995.
10.18 Tax Sharing Agreement between Tremont Corporation and the Registrant dated
March 13, 1990, incorporated by reference to Exhibit 10.23 to Tremont
Corporation's Annual Report on Form 10-K (No. 1-10126) for the year ended
December 31, 1991.
10.19+ 1996 Long Term Performance Incentive Plan of the Registrant (to be
effective upon closing of the Offerings).*
10.20+ 1996 Non-Employee Director Compensation Plan (to be effective upon closing
of the Offerings).*
10.21+ Employment Agreement between Andrew R. Dixey and the Registrant, dated
February 13, 1996.**
10.22+ Form of Agreement relating to a grant of Management Shares between the
Registrant and certain executive officers, effective as of February 15,
1996.*
10.23 Amendment No. 4 to the Sponge Purchase Agreement dated May 30, 1990
between the Registrant and Union Titanium Sponge Corporation.***
10.24 Agreement, dated June 28, 1995 among the Registrant, Tremont Corporation
and Union Titanium Sponge Corporation.*
10.25 L10 Million Short Term Credit facility of TIMET UK, Ltd with Lloyd's
Bank.***
11.1 Computation of Loss Per Share.*
21.1 Subsidiaries of the Registrant.**
23.1 Consent of Bartlit Beck Herman Palenchar & Scott -- included in Exhibit
5.1.*
23.2 Consent of Coopers & Lybrand L.L.P.*
23.3 Consent of KPMG Peat Marwick LLP.*
23.4 Consent of Price Waterhouse LLP.*
23.5 Awareness Letter of Coopers & Lybrand L.L.P.*
24.1a Limited Power of Attorney for Thomas P. Stafford.*
24.1b Limited Power of Attorney for Edward C. Hutcheson, Jr.*
27 Financial Data Schedule.*
</TABLE>
- ---------------
+ Management contract, compensatory plan or arrangement
* Filed herewith
** Previously filed
*** To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
TITANIUM METALS CORPORATION
------------------
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
ARTICLE ONE
NAME
The name of the Corporation is "Titanium Metals Corporation"
(hereinafter, the "Corporation").
ARTICLE TWO
LOCATION OF REGISTERED OFFICE AND AGENT
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE THREE
CORPORATE PURPOSE
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE FOUR
AUTHORIZED CAPITAL STOCK
4.1 CAPITAL STOCK. The total number of shares which the
Corporation shall have authority to issue is 100,000,000 shares, consisting of
(a) 1,000,000 shares of Preferred Stock, with a par value of $0.01 per share
("Preferred Stock"); and (b) 99,000,000 shares of Common Stock, with a par
value of $0.01 per share ("Common Stock").
4.2 PREFERRED STOCK. The board of directors of the Corporation is
authorized, subject to the limitations prescribed by law and the provisions of
this Amended and Restated Certificate of Incorporation, to provide for the
issuance of shares of the Preferred Stock or to provide for the issuance of
shares of the Preferred Stock in one or more series, to establish from time to
time the number of shares to be included in each such series and to fix the
designations, voting powers,
<PAGE> 2
preference rights and qualification, limitations or restrictions of the shares
of the Preferred Stock of each such series.
4.3 STOCK SPLIT AND CONVERSION. On the effective date of this
Amended and Restated Certificate of Incorporation each share of Class A Common
Stock and Class B Common Stock of the Corporation issued and outstanding will
be automatically reclassified, combined, and converted into sixty-five (65)
shares of Common Stock.
ARTICLE FIVE
DURATION
The Corporation is to have perpetual existence.
ARTICLE SIX
BY-LAWS
In furtherance and not in limitation of the powers conferred by
statute, the board of directors of the Corporation is expressly authorized to
make, alter or repeal the bylaws of the Corporation.
ARTICLE SEVEN
STOCKHOLDER MATTERS
Meetings of stockholders of the Corporation may be held within or
without the State of Delaware, as the bylaws of the Corporation may provide.
The books of the Corporation may be kept outside the State of Delaware at such
place or places as may be designated from time to time by the board of
directors or in the bylaws of the Corporation. Election of directors need not
be by written ballot unless the bylaws of the Corporation so provide.
ARTICLE EIGHT
LIMITATION OF LIABILITY
To the fullest extent permitted by the General Corporation Law of the
State of Delaware, as the same presently exists or may hereafter be amended, a
director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for a breach of fiduciary duty as a director.
Any repeal or modification of this Article Eight shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such repeal or modification.
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<PAGE> 3
ARTICLE NINE
CERTAIN BUSINESS COMBINATIONS
The Corporation expressly elects not to be governed by Section 203 of
the General Corporation Law of the State of Delaware.
ARTICLE TEN
AMENDMENT
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation in the manner now or hereafter prescribed herein and by the laws
of the State of Delaware, and all rights conferred upon stockholders herein are
granted subject to this reservation.
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<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
TITANIUM METALS CORPORATION
A Delaware Corporation
As Amended and Restated May ___, 1996
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street, Wilmington, County of New Castle. The name of the
corporation's registered agent at such address shall be The Corporation Trust
Company. The registered office and/or registered agent of the corporation may
be changed from time to time by action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at
such other places, both within and without the State of Delaware, as the board
of directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place and Time of Meetings. An annual meeting of the
stockholders for the purpose of electing directors and conducting such other
proper business as may come before the meeting. The date, time and place of
the annual meeting shall be determined by the chairman of the board or the
chief executive officer of the corporation; provided, that if neither the
chairman of the board nor the chief executive officer acts, the board of
directors shall determine the date, time and place of such meeting.
Section 2. Special Meetings. Special meetings of stockholders may be
called for any purpose and may be held at such time and place, within or
without the State of Delaware, as shall be stated in a notice of meeting or in
a duly executed waiver of notice thereof. Such meetings may be called at any
time by the board of directors, the chairman of the board or the chief
executive officer and shall be called by the chief executive officer upon the
written request of holders of shares entitled to cast not less than 20 percent
of the votes at the meeting, such written request shall state the purpose or
purposes of the meeting and shall be delivered to the chief executive officer.
On such written request, the chief executive officer shall fix a date and time
for such meeting within thirty (30) days of the date requested for such meeting
in such written request.
<PAGE> 2
Section 3. Place of Meetings. The board of directors may designate
any place, either within or without the State of Delaware, as the place of
meeting for any annual meeting or for any special meeting called by the board
of directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted
to take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting
not less than 10 nor more than 60 days before the date of the meeting. All
such notices shall be delivered, either personally or by mail, by or at the
direction of the board of directors, the chairman of the board, the chief
executive officer or the secretary, and if mailed, such notice shall be deemed
to be delivered when deposited in the United States mail, postage prepaid,
addressed to the stockholder at his, her or its address as the same appears on
the records of the corporation. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
for the express purpose of objecting at the beginning of the meeting to the
transaction of any business because the meeting is not lawfully called or
convened.
Section 5. Stockholders List. The officer having charge of the stock
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. At any meeting of stockholders, the holders of a
majority of the shares of capital stock entitled to vote at such meeting,
present in person or represented by proxy, shall constitute a quorum, except as
otherwise provided by statute or by the certificate of incorporation. If a
quorum is not present, the holders of a majority of the shares present in
person or represented by proxy at the meeting, and entitled to vote at the
meeting, may adjourn the meeting to another time and/or place. When a
specified item of business requires a vote by a class or series (if the
corporation shall then have outstanding shares of more than one class or
series) voting as a class, the holders of a majority of the shares of such
class or series shall constitute a
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<PAGE> 3
quorum (as to such class or series) for the transaction of such item of
business.
Section 7. Adjourned Meetings. When a meeting is adjourned to
another time and place, notice need not be given of the adjourned meeting if
the time and place thereof are announced at the meeting at which the
adjournment is taken. At the adjourned meeting the corporation may transact
any business which might have been transacted at the original meeting. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
Section 8. Vote Required. When a quorum is present, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting shall be the act of such class.
Section 9. Voting Rights. Except as otherwise provided by the
General Corporation Law of the State of Delaware or by the certificate of
incorporation of the corporation or any amendments thereto and subject to
Section 3 of Article VI hereof, every stockholder shall at every meeting of the
stockholders be entitled to one vote in person or by proxy for each share of
common stock held by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting
of stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him or her
by proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
Section 11. Action by Written Consent. Unless otherwise provided in
the certificate of incorporation, any action required to be taken at any annual
or special meeting of stockholders of the corporation, or any action which may
be taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to its registered office in
the state of Delaware, or the corporation's principal
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<PAGE> 4
place of business, or an officer or agent of the corporation having custody of
the book or books in which proceedings of meetings of the stockholders are
recorded. Delivery made to the corporation's registered office shall be by
hand or by certified or registered mail, return receipt requested. All
consents properly delivered in accordance with this section shall be deemed to
be recorded when so delivered. No written consent shall be effective to take
the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered to the corporation as required by this
section, written consents signed by the holders of a sufficient number of
shares to take such corporate action are so recorded. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Any action taken pursuant to such written consent or consents of the
stockholders shall have the same force and effect as if taken by the
stockholders at a meeting thereof.
Section 12. Confidential Voting. All proxies, ballots and vote
tabulations that identify the particular vote of a stockholder shall be kept
confidential, except that disclosure may be made (i) to allow the inspectors to
certify the results of the vote; (ii) as necessary to meet applicable legal
requirements, including the pursuit or defense of judicial actions; or (iii)
when expressly requested by such stockholder.
Proxy cards shall be returned in envelopes addressed to the
inspectors, which shall receive, inspect and tabulate the proxies. Comments
written on proxies, consents or ballots shall be transcribed and provided to
the secretary of the corporation with the name and address of the stockholder.
The vote of the stockholder shall not be disclosed at the time any such comment
is provided to the secretary except where such bote is included in the comment
or disclosure is necessary, in the opinion of the inspector, for an
understanding of the comment.
Nothing in this by-law shall prohibit the inspector from making
available to the corporation, during the period prior to any annual or special
meeting, information as to which stockholders have not voted and periodic
status reports on the aggregate vote.
ARTICLE III
DIRECTORS
Section 1. General Powers. The business and affairs of the
corporation shall be managed by or under the direction of the board of
directors.
Section 2. Number, Election and Term of Office. The number of
directors which shall constitute the board of directors shall be seven (7).
The directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote
in the election of directors. The
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<PAGE> 5
directors shall be elected in this manner at the annual meeting of the
stockholders, except as provided in Section 4 of this Article III. Each
director elected shall hold office until a successor is duly elected and
qualified or until his or her earlier death, resignation or removal as
hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board
of directors may be removed at any time, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole.
Section 4. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director; provided, that (a) in the event the holders of a
majority of the shares then entitled to vote to remove a director (as provided
in Section 3 of Article III of these by-laws), as a part of such removal such
majority shall also be entitled to elect a replacement therefor, and (b) if any
such vacancy has not been filled by the remaining directors within seven days
of the date such vacancy was created, the holders of a majority of the shares
then entitled to vote may fill such vacancy. Each director so chosen shall
hold office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as herein provided. Whenever holders of
any class or classes of stock or series thereof are entitled to elect one or
more directors by the provisions of the certificate of incorporation, vacancies
and newly created directorships of such class or classes or series may be
filled by a majority of the directors elected by such class or classes or
series thereof then in office, or by a sole remaining director so elected.
Section 5. Annual Meetings. The annual meeting of each newly elected
board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of
stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than
the annual meeting, of the board of directors may be held without notice at
such time and at such place as shall from time to time be determined by
resolution of the board. Special meetings of the board of directors may be
called by or at the request of the chairman of the board or the chief executive
officer on at least 24 hours notice to each director, either personally, by
telephone, by mail, by facsimile or by telegraph; in like manner and on like
notice the chief executive officer must call a special meeting on the written
request of at least two (2) of the directors.
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<PAGE> 6
Section 7. Quorum, Required Vote and Adjournment. A majority of the
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the board of directors. If a quorum
shall not be present at any meeting of the board of directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution
passed by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation or
other persons, which to the extent provided in such resolution or these by-laws
shall have and may exercise the powers of the board of directors in the
management and affairs of the corporation except as otherwise limited by law.
The board of directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the board
of directors. Each committee shall keep regular minutes of its meetings and
report the same to the board of directors when required.
Section 9. Committee Rules. Each committee of the board of directors
may fix its own rules of procedure and shall hold its meetings as provided by
such rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent
or disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of
directors or any committee thereof may participate in and act at any meeting of
such board or committee through the use of a conference telephone or other
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in the meeting pursuant to this
section shall constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member
of the board of directors or any committee thereof who is present at a meeting
shall be conclusively presumed to have waived notice of such meeting except
when such member attends for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting is not
lawfully called or convened. Such member shall be conclusively presumed to
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<PAGE> 7
have assented to any action taken unless his or her dissent shall be entered in
the minutes of the meeting or unless his or her written dissent to such action
shall be filed with the person acting as the secretary of the meeting before
the adjournment thereof or shall be forwarded by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to any member who voted in favor of such
action.
Section 12. Action by Written Consent. Unless otherwise restricted
by the certificate of incorporation, any action required or permitted to be
taken at any meeting of the board of directors, or of any committee thereof,
may be taken without a meeting if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
Section 1. Number. The officers of the corporation shall be elected
by the board of directors and shall consist of a chairman of the board, a chief
executive officer, a president, one or more vice presidents, a secretary, a
treasurer, and such other officers and assistant officers as may be deemed
necessary or desirable by the board of directors. Any number of offices may be
held by the same person except that neither the chairman of the board nor the
president shall also hold the office of secretary. In its discretion, the
board of directors may choose not to fill any office for any period as it may
deem advisable.
Section 2. Election and Term of Office. The officers of the
corporation shall be elected annually by the board of directors at its first
meeting held after each annual meeting of stockholders or as soon thereafter as
conveniently may be. Vacancies may be filled or new offices created and filled
at any meeting of the board of directors. Each officer shall hold office until
a successor is duly elected and qualified or until his or her earlier death,
resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
directors may be removed by the board of directors or the chairman of the board
whenever in its or his judgment the best interests of the corporation would be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
death, resignation, removal, disqualification or otherwise, may be filled by
the board of directors for the unexpired portion of the term by the board of
directors then in office.
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<PAGE> 8
Section 5. Compensation. Compensation of all officers shall be fixed
by the board of directors, and no officer shall be prevented from receiving
such compensation by virtue of his or her also being a director of the
corporation.
Section 6. Chairman of the Board. The chairman of the board shall
preside at all meetings of the board of directors and stockholders, may
exercise all of the powers of the chief executive officer or president and
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or provided in these by-laws. Whenever the chief
executive officer or president is unable to serve, by reason of sickness,
absence or otherwise, the chairman of the board shall perform all the duties
and responsibilities thereof.
Section 7. The Chief Executive Officer. The chief executive officer
shall be the chief executive officer of the corporation and, subject to the
powers of the board of directors and the chairman of the board, shall have
general charge of the business, affairs and property of the corporation, and
control over its officers, agents and employees and shall see that all orders
and resolutions of the board of directors are carried into effect. The chief
executive officer shall have such other powers and perform such other duties as
may be prescribed by the chairman of the board or the board of directors or as
may be provided in these by-laws.
Section 8. The President. The president shall have such powers and
perform such duties as may be prescribed by the chairman of the board, the
board of directors, or these bylaws.
Section 9. Vice Presidents. The vice president, or if there shall be
more than one, the vice presidents in the order determined by the board of
directors, shall, in the absence or disability of the president, act with all
of the powers and be subject to all the restrictions of the president. The
vice presidents shall also perform such other duties and have such other powers
as the board of directors, the chairman of the board, the chief executive
officer or these by-laws may, from time to time, prescribe.
Section 10. The Secretary and Assistant Secretaries. The secretary
shall attend all meetings of the board of directors, all meetings of the
committees thereof and all meetings of the stockholders and record all the
proceedings of the meetings in a book or books to be kept for that purpose.
Under the chief executive officer's supervision, the secretary shall give, or
cause to be given, all notices required to be given by these by-laws or by law;
shall have such powers and perform such duties as the board of directors, the
chairman of the board, the chief executive officer or these by-laws may, from
time to time, prescribe; and shall have custody of the corporate seal of the
corporation. The secretary, or an assistant secretary, shall have authority to
affix the corporate seal to any instrument requiring it and when so affixed, it
may be attested by his or her signature or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of
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<PAGE> 9
the corporation and to attest the affixing by his or her signature. The
assistant secretary, or if there be more than one, the assistant secretaries in
the order determined by the board of directors, shall, in the absence or
disability of the secretary, perform the duties and exercise the powers of the
secretary and shall perform such other duties and have such other powers as the
board of directors, the chairman of the board, the chief executive officer, or
secretary may, from time to time, prescribe.
Section 11. The Treasurer and Assistant Treasurer. The treasurer
shall have the custody of the corporate funds and securities; shall keep full
and accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name
and to the credit of the corporation as may be ordered by the board of
directors; shall cause the funds of the corporation to be disbursed when such
disbursements have been duly authorized, taking proper vouchers for such
disbursements; and shall render to the chief executive officer and the board of
directors, at its regular meeting or when the board of directors so requires,
an account of the corporation; shall have such powers and perform such duties
as the board of directors, the chairman of the board, the chief executive
officer or these by-laws may, from time to time, prescribe. If required by the
board of directors, the treasurer shall give the corporation a bond (which
shall be rendered every six years) in such sums and with such surety or
sureties as shall be satisfactory to the board of directors for the faithful
performance of the duties of the office of treasurer and for the restoration to
the corporation, in case of death, resignation, retirement, or removal from
office, of all books, papers, vouchers, money, and other property of whatever
kind in the possession or under the control of the treasurer belonging to the
corporation. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall
in the absence or disability of the treasurer, perform the duties and exercise
the powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the chairman of
the board, the chief executive officer or treasurer may, from time to time,
prescribe.
Section 12. Other Officers, Assistant Officers and Agents. Officers,
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such
duties as may from time to time be prescribed by resolution of the board of
directors.
Section 13. Absence or Disability of Officers. In the case of the
absence or disability of any officer of the corporation and of any person
hereby authorized to act in such officer's place during such officer's absence
or disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
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<PAGE> 10
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
Section 1. Nature of Indemnity. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, fiduciary, or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
shall be indemnified and held harmless by the corporation unless prohibited
from doing so by the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (but, in the case of any such
amendment, only to the extent that such amendment permits the corporation to
provide broader indemnification rights than said law permitted the corporation
to provide prior to such amendment) against all expense, liability and loss
(including attorneys' fees actually and reasonably incurred by such person in
connection with such proceeding) and such indemnification shall inure to the
benefit of his or her heirs, executors and administrators; provided, however,
that, except as provided in Section 2 hereof, the corporation shall indemnify
any such person seeking indemnification in connection with a proceeding
initiated by such person only if such proceeding was authorized by the board of
directors of the corporation.
Section 2. Procedure for Indemnification of Directors and Officers.
Any indemnification of a director or officer of the corporation under Section 1
of this Article V or advance of expenses under Section 5 of this Article V
shall be made promptly, and in any event within 30 days, upon the written
request of the director or officer. If a determination by the corporation that
the director or officer is entitled to indemnification pursuant to this Article
V is required, and the corporation fails to respond within sixty days to a
written request for indemnity, the corporation shall be deemed to have approved
the request. If the corporation denies a written request for indemnification
or advancing of expenses, in whole or in part, or if payment in full pursuant
to such request is not made within 30 days, the director or officer may
petition any court of competent jurisdiction to determine his or her right to
indemnification or advances pursuant to this Article V. Such person's costs
and expenses incurred in connection with successfully establishing his or her
right to indemnification, in whole or in part, in any such action shall also be
indemnified by the corporation. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to the corporation) that the claimant
has not met the standards of conduct which make it permissible under the
General Corporation Law of the State of Delaware for the corporation to
indemnify the claimant for the amount claimed, but the burden of
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<PAGE> 11
such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of
such action that indemnification of the claimant is permissible in the
circumstances because he or she has met the applicable standard of conduct set
forth in the General Corporation Law of the State of Delaware, nor an actual
determination by the corporation (including its board of directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
Section 3. Article Not Exclusive. The rights to indemnification and
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article V shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain
insurance on its own behalf and on behalf of any person who is or was a
director, officer, employee, fiduciary, or agent of the corporation or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against any liability asserted against him or her and incurred by
him or her in any such capacity, whether or not the corporation would have the
power to indemnify such person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in
Section 1 of this Article V in defending a proceeding shall be paid by the
corporation in advance of such proceeding's final disposition upon receipt of
an undertaking by or on behalf of the director or officer to repay such amount
if it shall ultimately be determined that he or she is not entitled to be
indemnified by the corporation. Such expenses incurred by other employees and
agents shall be so paid upon such terms and conditions, if any, as the board of
directors deems appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the
corporation as employees or agents of another corporation, partnership, joint
venture, trust or other enterprise, may be indemnified to the extent authorized
at any time or from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall
be deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and
the relevant provisions of the General Corporation Law of the State of Delaware
or other appli-
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<PAGE> 12
cable law are in effect, and any repeal or modification of this Article V or
any such law shall not affect any rights or obligations then existing with
respect to any state of facts or proceeding then existing. The adoption of
this Article V shall not abridge or limit any rights of any person otherwise
entitled to indemnification from the corporation pursuant to any prior by-law
provision, resolution of the directors, contract or otherwise.
Section 8. Merger or Consolidation. For purposes of this Article V,
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was
a director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article
V with respect to the resulting or surviving corporation as he or she would
have with respect to such constituent corporation if its separate existence had
continued.
ARTICLE VI
CERTIFICATES OF STOCK
Section 1. Form. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, chief executive officer, president or a vice
president and the secretary or an assistant secretary of the corporation,
certifying the number of shares owned by such holder in the corporation. If
such a certificate is countersigned (1) by a transfer agent or an assistant
transfer agent other than the corporation or its employee or (2) by a
registrar, other than the corporation or its employee, the signature of any
such chairman of the board, chief executive officer, president, vice president,
secretary, or assistant secretary may be facsimiles. In case any officer or
officers who have signed, or whose facsimile signature or signatures have been
used on, any such certificate or certificates shall cease to be such officer or
officers of the corporation whether because of death, resignation or otherwise
before such certificate or certificates have been delivered by the corporation,
such certificate or certificates may nevertheless be issued and delivered as
though the person or persons who signed such certificate or certificates or
whose facsimile signature or signatures have been used thereon had not ceased
to be such officer or officers of the corporation. All certificates for shares
shall be consecutively numbered or otherwise identified. The name of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the books of the corporation.
Shares of stock of the corporation shall only be
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transferred on the books of the corporation by the holder of record thereof or
by such holder's attorney duly authorized in writing, upon surrender to the
corporation of the certificate or certificates for such shares endorsed by the
appropriate person or persons, with such evidence of the authenticity of such
endorsement, transfer, authorization, and other matters as the corporation may
reasonably require, and accompanied by all necessary stock transfer stamps. In
that event, it shall be the duty of the corporation to issue a new certificate
to the person entitled thereto, cancel the old certificate or certificates, and
record the transaction on its books. The board of directors may appoint a bank
or trust company organized under the laws of the United States or any state
thereof to act as its transfer agent or registrar, or both in connection with
the transfer of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen, or destroyed.
When authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a
bond sufficient to indemnify the corporation against any claim that may be made
against the corporation on account of the loss, theft or destruction of any
such certificate or the issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order
that the corporation may determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board
of directors, the record date for determining stockholders entitled to notice
of or to vote at a meeting of stockholders shall be the close of business on
the next day preceding the day on which notice is given, or if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In
order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the board of directors may
fix a record date, which
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<PAGE> 14
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which date shall not be
more than ten days after the date upon which the resolution fixing the record
date is adopted by the board of directors. If no record date has been fixed by
the board of directors, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting, when no prior
action by the board of directors is required by statute, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business, or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested. If no record date has been fixed by the board
of directors and prior action by the board of directors is required by statute,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
day on which the board of directors adopts the resolution taking such prior
action.
Section 5. Fixing a Record Date for Other Purposes. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment or any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purposes of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the board of directors adopts the resolution relating thereto.
Section 6. Registered Stockholders. Prior to the surrender to the
corporation of the certificate or certificates for a share or shares of stock
with a request to record the transfer of such share or shares, the corporation
may treat the registered owner as the person entitled to receive dividends, to
vote, to receive notifications, and otherwise to exercise all the rights and
powers of an owner. The corporation shall not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part of
any other person, whether or not it shall have express or other notice thereof.
Section 7. Subscriptions for Stock. Unless otherwise provided for in
the subscription agreement, subscriptions for shares shall be paid in full at
such time, or in such installments and at such times, as shall be determined by
the board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the
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<PAGE> 15
payment of any installment or call when such payment is due, the corporation
may proceed to collect the amount due in the same manner as any debt due the
corporation.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other
orders for the payment of money by or to the corporation and all notes and
other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation, and in
such manner, as shall be determined by resolution of the board of directors or
a duly authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any
officer or officers, or any agent or agents, of the corporation to enter into
any contract or to execute and deliver any instrument in the name of and on
behalf of the corporation, and such authority may be general or confined to
specific instances.
Section 4. Loans. The corporation may lend money to, or guarantee
any obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares
of stock of the corporation. Nothing in this section contained shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the
corporation at common law or under any statute.
Section 5. Fiscal Year. The fiscal year of the corporation shall be
fixed by resolution of the board of directors.
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<PAGE> 16
Section 6. Corporate Seal. The board of directors shall provide a
corporate seal which shall be in the form of a circle and shall have inscribed
thereon the name of the corporation and the words "Corporate Seal, Delaware".
The seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities
in any other corporation held by the corporation shall be voted by the chairman
of the board or the chief executive officer, unless the board of directors
specifically confers authority to vote with respect thereto, which authority
may be general or confined to specific instances, upon some other person or
officer. Any person authorized to vote securities shall have the power to
appoint proxies, with general power of substitution.
Section 8. Inspection of Books and Records. Any stockholder of
record, in person or by attorney or other agent, shall, upon written demand
under oath stating the purpose thereof, have the right during the usual hours
for business to inspect for any proper purpose the corporation's stock ledger,
a list of its stockholders, and its other books and records, and to make copies
or extracts therefrom. A proper purpose shall mean any purpose reasonably
related to such person's interest as a stockholder. In every instance where an
attorney or other agent shall be the person who seeks the right to inspection,
the demand under oath shall be accompanied by a power of attorney or such other
writing which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in the State of Delaware or at its principal place of
business.
Section 9. Section Headings. Section headings in these by-laws are
for convenience of reference only and shall not be given any substantive effect
in limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision
of these by-laws is or becomes inconsistent with any provision of the
certificate of incorporation, the General Corporation Law of the State of
Delaware or any other applicable law, the provision of these by-laws shall not
be given any effect to the extent of such inconsistency but shall otherwise be
given full force and effect.
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ARTICLE VIII
AMENDMENTS
These by-laws may be amended, altered, or repealed and new by-laws
adopted at any meeting of the board of directors by a majority vote. The fact
that the power to adopt, amend, alter, or repeal the by-laws has been conferred
upon the board of directors shall not divest the stockholders of the same
powers.
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<PAGE> 1
EXHIBIT 4.1
Front Side of Certificate
Incorporated under the laws of the
State of Delaware
Number Shares
- ------ ------
TITANIUM METALS CORPORATION
COMMON STOCK, PAR VALUE $.01
THIS CERTIFIES that __________________________________ is the registered holder
of _________________________________________________ fully paid and
non-assessable shares of the Common Stock, par value $.01 per share, of
TITANIUM METALS CORPORATION transferable only on the books of the Corporation
by the holder hereof in person or by duly authorized Attorney upon surrender of
this Certificate properly endorsed. This certificate is not valid unless
countersigned by the Transfer Agent and registered with the Registrar.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers this _____ day of ________________,
A.D. 19__.
________________________________ ______________________________
Secretary Chairman of the Board
Countersigned and Registered:________________________
First Chicago Trust Company of New York,
Transfer Agent and Registrar
Authorized Signature
<PAGE> 2
Back Side of Certificate
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT
MIN ACT-............Custodian............
TEN ENT - as tenants by the entireties (Cust.) (Minor)
under Uniform Gift to Minors
JT TEN - as joint tenants with right Act............................
right of survivorship and not (State)
as tenants in common
</TABLE>
Additional abbreviations may also be used though not in the above list.
COPIES OF THE PROVISIONS OF THE CERTIFICATE OF INCORPORATION, AS
AMENDED AND RESTATED, SETTING FORTH THE DESIGNATIONS, PREFERENCES, AND
RELATIVE, PARTICIPATING OPTIONAL OR OTHER SPECIAL RIGHTS, QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS THEREOF, OF EACH CLASS OF STOCK OF THE CORPORATION
MAY BE OBTAINED WITHOUT CHARGE FROM THE TRANSFER AGENT OR TITANIUM METALS
CORPORATION.
For Value Received, ___________________ hereby sell, assign and transfer unto
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address, including postal zip code,
of assignee)
Please insert social security or other identifying number of assignee:_________
______________________________________
__________________________________________________________Shares represented by
the within Certificate, and do hereby irrevocably constitute and appoint
_____________________________ Attorney to transfer the said Shares on the books
of the within named Corporation with full power of substitution in the premises.
Dated ____________________, 19_____.
______________________________
______________________________
NOTICE: The signature of this assignment must correspond with the name as
written upon the face of the certificate, in every particular, without
alteration or enlargement, or any change whatever.
THE SIGNATURE MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION SUCH AS A
SECURITIES BROKER/DEALER, COMMERCIAL BANK, TRUST COMPANY, SAVINGS ASSOCIATION
OR A CREDIT UNION PARTICIPATING IN A MEDALLION PROGRAM APPROVED BY THE
SECURITIES TRANSFER ASSOCIATION, INC. SIGNATURE GUARANTEED:
<PAGE> 1
EXHIBIT 5.1
Bartlit Beck Herman Palenchar & Scott
511 Sixteenth Street, Suite 700
Denver, Colorado 80202
May 3, 1996
Titanium Metals Corporation
1999 Broadway, Suite 4300
Denver, Colorado 80202 (303) 592-3100
Re: Common Stock of Titanium Metals Corporation
Ladies and Gentlemen:
We have examined Registration Statement on Form S-1 No.
333-2940 together with all amendments thereto (the "Registration Statement"),
filed by Titanium Metals Corporation (the "Company") with the Securities and
Exchange Commission (the "Commission") in connection with the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of
10,000,000 shares (11,500,000 shares if the underwriters' over-allotment option
is exercised in full) shares of the Company's common stock, $.01 par value per
share (the "Shares"). We are familiar with the proceedings taken by the
Company in connection with the authorization, issuance and sale of the Shares.
Based upon the foregoing, we are of the opinion that: when, as
and if (i) the Registration Statement shall have become effective pursuant to
the provisions of the Securities Act, (ii) the Company shall have received
payment in full for the Shares, and (iii) the Shares shall have been issued in
the form and containing the terms described in the Registration Statement, the
resolutions of the Company's Board of Directors (and any authorized committee
thereof) authorizing the foregoing and any legally required consents,
approvals, authorizations and other orders of the Commission and any other
regulatory authorities to be obtained, the Shares will, when sold, be legally
issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in the Registration Statement.
Very truly yours,
<PAGE> 1
EXHIBIT 10.19
1996 LONG TERM PERFORMANCE INCENTIVE PLAN
OF TITANIUM METALS CORPORATION
SECTION 1. INTRODUCTION
1.1 PURPOSE
The purpose of the 1996 Long Term Performance Incentive Plan of
Titanium Metals Corporation (the "Plan") is to advance and promote the
interest of Titanium Metals Corporation (the "Company") and its employees and
stockholders by encouraging the acquisition of its Common Stock by key
employees and individuals who perform significant services for the benefit of
the Company. Accordingly, the Plan is intended as a means of attracting and
retaining outstanding employees and also to promote a close commonality of
interest between employees and stockholders.
1.2 DEFINITIONS
The following terms shall have the meanings set forth below:
(a) Appreciation Date. The date designated by a Grantee of
Stock Appreciation Rights as defined herein for measurement of the
appreciation in the value of rights awarded to him or her which date
shall be the date notice of such designation is received by the
Administrator of the Plan.
(b) Code. The Internal Revenue Code of 1986, as amended.
(c) Committee. The Board of Directors of the Company or a
committee consisting of at least two members designated by the Board
of Directors of the Company.
(d) Common Stock. The Common Stock of Titanium Metals
Corporation, $.01 par value.
(e) Disability. Complete and permanent disability as defined
in Section 22(e)(3) of the Code.
(f) Employee. Any of the officers or other employees of the
Company or any Subsidiary including officers who are members of the
Board of Directors.
(g) Fair Market Value. The mean of the highest and lowest
sales prices of Common Stock as reported on the consolidated tape of a
national securities exchange on any relevant date for valuation, or,
if there be no such sale, the mean of the highest and lowest sales
prices of such Common Stock as so reported on the nearest preceding
date upon which such sales took place. In the event the shares of
Common Stock are no longer listed on a national securities exchange,
the Fair Market Value of such shares shall be determined by the
Committee in its sole discretion.
<PAGE> 2
(h) Grantee. Any individual (including an Employee) who in
the opinion of the Board of Directors performs significant services in
the benefit of the Company and who is granted awards under the plan.
(i) Incentive Stock Option. A stock option granted by the
Committee to an Grantee under the Plan which is designated by the
Committee as an Incentive Stock Option and intended to qualify as an
Incentive Stock Option under Section 422A of the Code.
(j) Nonqualified Stock Option. A stock option granted by the
Committee to a Grantee under the Plan, which is not designated by the
Committee as an Incentive Stock Option.
(k) Option. An Incentive Stock Option or Nonqualified Stock
Option granted by the Committee to a Grantee under the Plan.
(l) Option Expiration Date. The date on which an Option
becomes unexercisable by reason of the lapse of time or otherwise.
(m) Plan Administrator. The Controller or Assistant
Controller of the Company or his or her designee.
(n) Restricted Stock. Shares of Common Stock issued or
transferred to a Grantee subject to the restrictions set forth in
Section 4.2.
(o) Restricted Stock Award. An authorization by the
Committee to issue or transfer Restricted Stock to a Grantee.
(p) Restriction Period. The period of time determined by the
Committee during which Restricted Stock is subject to the restrictions
under the Plan.
(q) Retirement. The termination of employment constituting
retirement (other than disability retirement) under the terms of any
formal retirement plan of the Company or any of its Subsidiaries.
(r) Stock Appreciation Right ("SAR"). A right to earn
additional compensation for the performance of future services, based
on the stock market performance of the Common Stock.
(s) SAR Expiration Date. The date on which a Stock
Appreciation Right becomes unexercisable by reason of the lapse of
time or otherwise in accordance with the Plan.
(t) Subsidiary. Any corporation (whether now or hereafter
existing) of which constitutes a "subsidiary" of the Company, as
defined in Section 425(f) of the Code.
- 2 -
<PAGE> 3
1.3 OPERATION OF PLAN
(a) The Committee hall have authority, acting in its sole discretion,
to grant to such Employees, or any other individual who in the opinion of the
Board of Directors performs significant services for the benefit of the
Company, as it may designate, Options, SARs, Restricted Stock Awards or any
combination of such grants, on the terms and conditions hereinafter set forth.
In the event an Option is granted, the Committee shall also have authority to
determine whether such option is a Nonqualified Stock Option or Incentive Stock
Option and whether a SAR shall be granted in connection with any such Option.
(b) No member of the Committee shall be eligible nor shall any member
at any time within one year prior to election as a member of the Committee have
been eligible for the grant of an Option, a SAR or Restricted Stock Award under
the Plan or for selection as a person to whom Common Stock may be allocated or
to whom Stock Options or SARs may be granted pursuant to any other employee
benefit plan of the Company or any Subsidiary entitling the participants
therein to acquire Common Stock, Options or SARs of the Company or any
Subsidiary.
1.4 MAXIMUM NUMBER OF SHARES
Notwithstanding anything contained herein to the contrary, the maximum
number of shares of Common Stock available for issuance or transfer to all
Grantees pursuant to the Plan shall be 2,500,000 shares; provided, however,
that such aggregate number of shares shall be subject to adjustment in
accordance with Section 5.5. Shares of Common Stock issued under the Plan
shall be, when issued, fully paid and nonassessable. The Common Stock
available for issuance on transfer under the Plan shall be made available from
shares now or hereafter held in the treasury of the Company or from authorized
but unissued shares. If any outstanding Stock Option under the Plan expires or
is terminated for any reason then the Common Stock allocable to the unexercised
portion of such Stock Option shall not be charged against the limitation of
this Section 1.4 and may again become the subject of a Stock Option granted
under the Plan.
1.5 INDIVIDUAL GRANT LIMITATION
The aggregate number of underlying shares of Common Stock issuable
pursuant to grants of Options, SARs and/or for Restricted Stock Awards to a
particular individual pursuant to the Plan shall not exceed 500,000 shares of
Common Stock during any fiscal year of the Company.
SECTION 2. STOCK OPTIONS
2.1 GRANT OF OPTIONS
(a) The Committee may grant Options to Grantees for the purchase of
shares of Common Stock.
(b) The purchase price per share of Common Stock under each Option
shall be not less than 100 percent of the Fair Market Value per share of such
stock on the date the Option is granted, as
- 3 -
<PAGE> 4
determined by the Committee, except as otherwise provided in this Plan. An
option may be exercised only when the Fair Market Value of the shares subject
to the option exceeds the exercise price of the option.
(c) Stock Options granted under the Plan may be exercised in any
order, regardless of the date of grant or the existence of any outstanding
Option, except as otherwise provided in this Plan.
2.2 INCENTIVE STOCK OPTIONS
(a) Except as otherwise determined by the Committee, each Incentive
Stock Option shall become exercisable by the Grantee in accordance with the
following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage of
Shares Covered by
Completed Years Incentive Stock Option
From Date of Grant Which May Be Exercised
------------------ ----------------------
<S> <C>
Less than 3 years . . . . . . . . . . . . . . . . . Zero percent
3 but less than 4 years . . . . . . . . . . . . . . Up to fifty percent
Four or more years . . . . . . . . . . . . . . . . . Up to one hundred percent
</TABLE>
(b) At or prior to the time an Incentive Stock Option is granted, the
Committee shall fix the term of such option which shall be not more than ten
years from the date of grant. In the event the Committee takes no action to
fix the term, such option shall expire seven years from the date of grant.
(c) Anything in the Plan notwithstanding, the aggregate Fair Market
Value (determined as of the time the Incentive Stock Option is granted) of the
shares of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by any Grantee during any single calendar year
under the Plan and any other Incentive Stock Option plans of the Company and
its Subsidiaries or any "parent" corporation, as defined in Section 425(e) of
the Code, of the Company (a "Parent Corporation") shall not exceed $100,000.
(d) Anything in the Plan notwithstanding, an Incentive Stock Option
shall not be granted to any Grantee who, at the time such Incentive Stock
Option is granted, owns (including constructive ownership as described in
Section 425(d) of the Code) shares of stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company, a
Subsidiary or a Parent Corporation; provided, however, that this restriction
shall not apply if, at the time such Incentive Stock Option is granted, (i) the
per share exercise price of such Option is at least 110% of the Fair Market
Value of the shares of Common Stock subject to such Option, and (ii) such
Option is by its terms not exercisable after the expiration of five years from
the date of grant of such Option.
(e) The Grantee shall give prompt notice to the Company of any
disposition of Common Stock acquired upon exercise of an Incentive Stock Option
(and such information regarding such disposition as the Company may reasonably
request) if such disposition occurs within either two years after the date of
grant or one year of the receipt of such common stock by the Grantee.
- 4 -
<PAGE> 5
2.3 NONQUALIFIED STOCK OPTIONS
(a) Each Nonqualified Stock Option, unless otherwise established by
the Committee, shall become exercisable by the Grantee in accordance with the
following schedule:
<TABLE>
<CAPTION>
Cumulative Percentage of
Shares Covered by
Completed Years Nonqualified Stock Option
From Date of Grant Which May Be Exercised
------------------ ----------------------
<S> <C>
Less than 2 years . . . . . . . . . . . . . . . . . Zero percent
2 but less than 3 years . . . . . . . . . . . . . . Up to forty percent
3 but less than 4 years . . . . . . . . . . . . . . Up to sixty percent
4 but less than 5 years . . . . . . . . . . . . . . Up to eighty percent
Five or more years . . . . . . . . . . . . . . . . . Up to one hundred percent
</TABLE>
(b) The Committee shall fix the term of each Nonqualified Stock
Option which shall be not more than ten years from the date of grant. In the
event no term is fixed, such term shall be ten years from the date of grant.
The Committee may, from time to time, extend the Option Expiration Date of any
Nonqualified Stock Option upon such terms and conditions as the Committee shall
determine; provided, however, that no such extension or extensions shall extend
the Nonqualified Stock Option for an aggregate period in excess of three years
from the date of the original Option Expiration Date of such Nonqualified Stock
Option and no such Nonqualified Stock Option shall be extended within six
months after the date on which the Nonqualified Stock Option was originally
granted or within six months prior to the Option Expiration Date of such
Nonqualified Stock Option as the same may have been extended.
(c) The Committee may grant to one or more holders of Nonqualified
Stock Options, in exchange for their voluntary surrender and the cancellation
of such Options and their corresponding SARs, if any, new Options having
different Option prices than the Option prices provided in the Options so
surrendered and canceled and containing such other terms and conditions as the
Committee may deem appropriate.
2.4 SARS ATTACHED TO OPTIONS
(a) The Committee may award a SAR with respect to any shares covered
by any Option granted under the Plan. Except as otherwise provided in this
Section, the terms and procedures set forth in Section 3.1 shall be applicable
to SARs with respect to shares covered by a related Option.
(b) Each SAR shall be subject to the same terms and conditions as the
related Option with respect to date of expiration, difference between Fair
Market Value on the Appreciation Date and the date of the award, limitations on
transferability, and eligibility to exercise. When a SAR is awarded with
respect to shares covered by a related Incentive Stock Option, such SAR may be
exercised only when the Market Price of the shares subject to the Option
exceeds the exercise price of such Option.
- 5 -
<PAGE> 6
(c) Any extension of the Option Expiration Date of a Nonqualified
Stock Option shall also extend the related SAR, and any acceleration of the
exercise date of an Option shall likewise accelerate the exercise date of the
related SAR.
(d) Upon the exercise of a SAR, the related Option shall cease to be
exercisable as to the shares with respect to which such right was exercised,
and the related Option shall be considered to have been exercised to that
extent. Upon the exercise or Option Expiration Date of a related Option, the
SAR granted with respect thereto shall terminate.
2.5 PAYMENT FOR COMMON STOCK
(a) Payment for shares of Common Stock purchased upon the exercise of
an Option shall be made in cash, in shares of Common Stock valued at the then
Fair Market Value thereof, or by a combination of cash and shares of the
Company Common Stock.
(b) The Company may extend and maintain, or arrange for the extension
and maintenance of, financing to any Grantee (including a Grantee who is a
director of the Company) to purchase shares pursuant to exercise of an Option
on such terms as may be approved by the Committee in its sole discretion. In
considering the terms for extension or maintenance of credit by the Company,
the Committee shall, among other factors, consider the cost to the Company of
any financing extended by the Company.
(c) The proceeds received by the Company from the sale of shares of
Common Stock pursuant to the Plan will be used for general corporate purposes.
SECTION 3. STOCK APPRECIATION RIGHTS AWARDS
(a) The Committee shall have authority to award SARs to Grantees and
to determine the number of SARs to be awarded to each Grantee.
(b) The Committee shall have sole discretion to determine whether
payment of SARs shall be made wholly in cash, wholly in shares of Common Stock
or by a combination of cash and shares of Common Stock. In the event no action
is taken by the Committee to determine the method of payment, the amount due
shall be paid half in cash and half in shares of Common Stock. In the event
shares of Common Stock are issued, the Committee shall fix the amount of
consideration represented by the past services performed by the grantee with
respect to such shares.
(c) The amount of additional compensation which may be received
pursuant to the award of one SAR is the excess of the Fair Market Value of one
share of Common Stock at the Appreciation Date over that on the date the SAR
was awarded.
(d) A Grantee may designate an Appreciation Date in accordance with
the following schedule, unless otherwise changed by the Committee, by filing an
irrevocable written notice with the Plan Administrator of the Company
specifying the number of SARs to which the Appreciation Date relates, and the
date on which such SARs were awarded:
- 6 -
<PAGE> 7
<TABLE>
<CAPTION>
Cumulative Percentage of
SARs Awarded for Which
Completed Years Appreciation Date
From Date of Grant May be Designated
------------------ ------------------------
<S> <C>
Less than 2 years . . . . . . . . . . . . . . . . . Zero percent
2 but less than 3 years . . . . . . . . . . . . . . Up to forty percent
3 but less than 4 years . . . . . . . . . . . . . . Up to sixty percent
4 but less than 5 years . . . . . . . . . . . . . . Up to eighty percent
Five or more years . . . . . . . . . . . . . . . . . Up to one hundred percent
</TABLE>
The Appreciation Date shall be the date the notice is received by the Plan
Administrator.
(e) In the event that a payment is made to a Grantee pursuant to a
SAR in whole or in part in the form of shares of Common Stock, the shares shall
be valued at their Fair Market Value on the Appreciation Date.
(f) Except as otherwise provided in the case of SARs granted in
connection with Options, the SAR Expiration Date shall be a date designated by
the Committee which is not later than ten years after the date on which the SAR
was awarded.
(g) On the SAR Expiration Date, the SAR shall terminate, the amount
of additional compensation represented thereby shall become zero, and all
rights relating to the SAR shall expire.
SECTION 4. RESTRICTED STOCK
4.1 RESTRICTED STOCK AWARDS
(a) The Committee shall have the authority (i) to grant Restricted
Stock Awards, (ii) to issue or transfer Restricted Stock to Grantees, and (iii)
to establish terms, conditions and restrictions in connection with the issuance
or transfer of Restricted Stock, including the Restriction Period, which may
differ with respect to each Grantee.
(b) The Grantee of Restricted Stock shall execute and deliver to the
Plan Administrator of the Company an Incentive Plan Agreement under Section
5.1(a), an escrow agreement satisfactory to the Committee and the appropriate
blank stock powers with respect to the Restricted Stock covered by such
agreements. The Committee shall then cause stock certificates registered in
the name of the Grantee to be issued and deposited together with the stock
powers with an escrow agent to be designated by the Committee. The Committee
shall cause the escrow agent to issue to the Grantee a receipt evidencing any
stock certificate held by it registered in the name of the Grantee.
4.2 RESTRICTIONS
(a) Restricted Stock awarded to a Grantee shall be subject to the
following restrictions until the expiration of the Restriction Period: (i) a
Grantee shall be issued, but shall not be entitled to delivery of the stock
certificate; (ii) the shares of Common Stock of the Company shall, except as
otherwise determined by the Committee, be subject to the restrictions on
transferability set forth in
- 7 -
<PAGE> 8
Section 5.2; (iii) the shares of Common Stock of the Company shall be forfeited
and the stock certificates shall be returned to the Company and all rights of
the Grantee to such shares and as a shareholder shall terminate without further
obligation on the part of the Company on the earlier of (i) the date the
employment of Grantee terminates, or (ii) the date Grantee is given written
notice of his or her discharge from such employment, except in the case of
Disability or death; and (iv) any other restrictions which the Committee may
determine in advance are necessary or appropriate, including termination of
Restricted Stock Awards to Grantees other than employees.
(b) The Committee shall have the authority to remove any or all of
the restrictions on the Restricted Stock whenever it may determine that, by
reason of changes in applicable laws or other changes in circumstances arising
after the date of the Restricted Stock Award, such action is appropriate.
4.3 RESTRICTION PERIOD
The Restriction Period of Restricted Stock shall commence on the date
of grant and unless otherwise established by the Committee in the Agreement
setting forth the terms of the award of Restricted Stock or advanced pursuant
to Section 6.2(c), shall expire from time to time as that part of the
Restricted Stock Award determined in accordance with the following schedule:
<TABLE>
<CAPTION>
Percentage of Each
Restricted Stock Award
Completed Years for Which Restriction
From Date of Grant Period Expires
------------------ ------------------------
<S> <C>
Less than 1 year . . . . . . . . . . . . . . . . . . Zero percent
1 but less than 2 years . . . . . . . . . . . . . . Up to thirty percent
2 but less than 3 years . . . . . . . . . . . . . . Up to sixty percent
Three or more years . . . . . . . . . . . . . . . . Up to one hundred percent
</TABLE>
4.4 DELIVERY OF SHARES OF COMMON STOCK
Subject to Section 6.4, at the expiration of the Restriction Period, a
stock certificate evidencing the Restricted Stock with respect to which the
Restriction Period has expired (to the nearest full share) shall be delivered
without charge to the Grantee, or his personal representative, free of all
restrictions under the Plan.
SECTION 5. PROVISIONS RELATING TO PLAN PARTICIPATION
5.1 PLAN CONDITIONS
(a) Each Grantee to whom an Option, SAR Award or Restricted Stock
Award is granted under the Plan shall be required to enter into an Incentive
Plan Agreement with the Company in a form provided by the Committee, including
provisions that the Grantee (i) shall not disclose any trade or secret data or
any other confidential information of the Company acquired during employment by
the Company or a Subsidiary, or after the termination of employment or
Retirement, (ii) shall abide by all the terms and conditions of the Plan and
such other terms and conditions as may be imposed
- 8 -
<PAGE> 9
by the Committee, and (iii) shall not interfere with the employment of any
other Company employee. Options, SARs and Restricted Stock Awards may contain
such terms and conditions, not inconsistent with the Plan, as shall be
determined from time to time by the Committee.
(b) The Plan shall not create any employment rights in any Grantee
and the Company shall have no liability for terminating the employment of a
Grantee before the Grantee becomes entitled to designate an Appreciation Date
with respect to any SAR, before the exercise date of any Option, or during the
Restriction Period of any Restricted Stock.
5.2 TRANSFERABILITY
(a) Options, SARs and Restricted Stock Awards are not transferable
other than by will or by the laws of descent and distribution; provided,
however, that the Committee may grant Options, SARs and Restricted Stock Awards
that are transferable, without payment of consideration, to immediate family
members of the Grantee or to trusts or partnerships for such family members,
and may amend outstanding Options, SARs and Restricted Stock Awards to provide
for such transferability. No transfer by will or by the laws of descent and
distribution shall be effective to bind the Company unless the Committee shall
have been furnished with a copy of the deceased Grantee's will or such other
evidence as the Committee may deem necessary to establish the validity of the
transfer.
(b) Except as otherwise determined by the Committee, only the Grantee
(or his or her guardian if the Grantee becomes Disabled), or in the event of
his death, his legal representative or beneficiary, may exercise Options,
designate Appreciation Dates and receive cash payments and deliveries of shares
or otherwise exercise rights under the Plan.
5.3 RIGHTS AS A STOCKHOLDER
(a) A Grantee of an Option, a SAR Award or Restricted Stock or a
transferee of such Grantee shall have no rights as a stockholder with respect
to any shares of Common Stock until the issuance of a stock certificate for
such shares. Except as otherwise provided by Section 5.5, no adjustment shall
be made for dividends (ordinary or extraordinary, whether in cash, securities,
or other property) or distributions or other rights for which the record date
is prior to the date such stock certificate is issued.
(b) A Grantee of Restricted Stock or a transferee of such Grantee
shall, upon the date certificates for the Restricted Stock are issued, have all
of the rights of a shareholder including the right to vote such shares and to
receive dividends, subject however to the restrictions established by the
Committee pursuant to Section 4.2.
- 9 -
<PAGE> 10
5.4 LISTING AND REGISTRATION OF SHARES OF COMMON STOCK
The Company, in its discretion, may postpone the issuance and/or
delivery of shares of Common Stock upon any exercise of an Option or pursuant
to a SAR or Restricted Stock Award until completion of such stock exchange
listing, or registration, or other qualification of such shares under any state
and/or federal law, rule or regulation as the Company may consider appropriate,
and may require any Grantee to make such representations and furnish such
information as it may consider appropriate in connection with the issuance or
delivery of the shares in compliance with applicable laws, rules and
regulations.
5.5 CHANGE IN STOCK AND ADJUSTMENTS
(a) In the event the outstanding shares of the Common Stock, as
constituted from time to time, shall be changed as a result of a change in
capitalization of the Company or a stock split or stock dividend or a
combination, merger, or reorganization of the Company into or with any other
corporation or any other transaction with similar effects, there then shall be
substituted for each share of Common Stock theretofore subject, or which may
become subject, to issuance or transfer under the Plan, the number and kind of
shares of Common Stock or other securities or other property into which each
outstanding share of Common Stock shall be changed or for which each such share
shall be exchanged and the Committee may make other equitable adjustments which
it deems to be warranted.
(b) In the event of any change in applicable laws or any change in
circumstances which results in or would result in any dilution of the rights
granted under the Plan, or which otherwise warrants equitable adjustment
because it interferes with the intended operation of the Plan, then, if the
Committee shall, in its sole discretion, determine that such change equitably
requires an adjustment in the number or kind of shares of stock or other
securities or other property theretofore subject, or which may become subject,
to issuance or transfer under the Plan or in the terms and conditions of
outstanding Options, SARs or Restricted Stock Awards, such adjustment shall be
made in accordance with such determination. Any adjustment of an Incentive
Stock Option under this paragraph shall be made only to the extent not
constituting a "modification" within the meaning of Section 425(h)(3) of the
Code. The Committee shall give notice to each Grantee, and upon notice such
adjustment shall be effective and binding for all purposes of the Plan.
(c) In the event (i) the number of shares of Common Stock to be
delivered upon the exercise in full of any Option granted under the Plan is
reduced for any reason, (ii) any Option granted under the Plan can no longer
under any circumstances be exercised, or (iii) shares awarded as Restricted
Stock are forfeited, the number of shares no longer subject to such Option or
forfeited shall thereupon be released and shall thereafter be available for new
Option or SAR grants, or new Restricted Stock Awards under the Plan; provided,
however, that a surrender of all or part of an Option pursuant to Section 2.4
shall not be considered a lapse or termination for purposes of this provision.
5.6 TERMINATION OF EMPLOYMENT AND DEATH
- 10 -
<PAGE> 11
(a) If an Employee's employment is terminated for any reason
whatsoever, any Option or SAR granted pursuant to the Plan outstanding at the
time and all rights thereunder shall wholly and completely terminate 90 days
after the earlier of (i) the date the employment of Grantee terminates, or (ii)
the date Grantee is given written notice of his or her discharge from such
employment, except as provided in (b), (c) or (d) below; provided, however,
that no Option or SAR shall continue to vest in accordance with the provisions
of Sections 2.2, 2.3 and 3 beyond the date Grantee's employment with the
Company terminates or, in the case of written notice of discharge, the date of
such notice. The determination of termination of any Option or SAR grant to a
Grantee other than an Employee prior to the grant designated expiration date is
at the sole discretion of the Committee.
(b) Upon the normal Retirement of an Employee:
(i) any unvested portion of any outstanding Restricted Stock,
Option or SAR grant shall be canceled and no further vesting will
occur; and,
(ii) any portion of an Option or SAR grant which vested on or
before the normal Retirement date shall expire on the earlier of: (A)
the Option Expiration Date or the SAR Expiration Date as the case may
be, or (B) the expiration of three years from the normal Retirement
date, or (C) one year from the date of death of a retiree in the
event of death after normal Retirement.
(c) Upon termination of employment as a result of death or
Disability:
(i) all outstanding grants of Restricted Stock, Options or
SARs shall vest notwithstanding the original vesting schedule; and,
(ii) any vested Option or SAR (including those vested
pursuant to Section 5.6(c)(i)) shall expire upon the earlier of (A)
the Option Expiration Date or SAR Expiration Date (as applicable) or
(B) the first anniversary of such termination.
(d) Notwithstanding the termination of employment of a Grantee, the
Committee, by action taken within 90 days of the date of such termination, may
extend the duration of any Option or SAR for such period as the Committee may
determine to be appropriate, provided that such period shall not exceed the
date of termination provided for in the original grant (which period is subject
to one or more further extensions as the Committee may determine to be
appropriate).
(e) Anything to the contrary herein notwithstanding, in no event shall
an Incentive Stock Option terminate later than ten years after the date of
grant.
- 11 -
<PAGE> 12
SECTION 6. ADMINISTRATION
6.1 EFFECTIVE DATE AND GRANT PERIOD
The Plan shall become effective on the consummation of the initial
public offering under the Securities Act of 1933, as amended, of the Company
("Effective Date"), provided, however, that the Plan shall lapse if the
Effective Date has not occurred on or prior to December 31, 1996, and any
Options, SARs or Restricted Stock granted under the Plan prior to the Effective
Date shall be conditioned upon the occurrence of the Effective Date. No
Nonqualified Stock Options, SARs or Restricted Stock Awards may be granted
under the Plan after ten years from the Effective Date.
6.2 COMMITTEE AUTHORITY
(a) In addition to other authority granted to the Committee in the
Plan, the Committee shall prescribe such forms and make such rules as it deems
necessary for the proper administration of the Plan, shall correct any defect,
supply any omission and reconcile any inconsistency in the Plan or in any
Option, SAR or Restricted Stock Award in the manner and to the extent the
Committee deems desirable to carry the Plan, Option, SAR or Restricted Stock
Award into effect.
(b) The Committee may interpret or construe the Plan and any Option,
SAR or Restricted Stock Award granted, and any interpretation or construction
made by it in good faith shall be conclusive on the Company, its Subsidiaries,
their successors and assigns, the Company's stockholders, the participants in
the Plan and their transferees, and other employees of the Company and its
Subsidiaries.
(c) The Committee shall have the authority to advance (i) the
Grantee's right to designate an Appreciation Date for any SAR, (ii) the date on
which an Option shall become exercisable by the Grantee, and (iii) the date on
which the Restriction Period of any Restricted Stock shall expire; provided,
however, that no Option shall be exercised and no Appreciation Date shall be
designated by an officer or director of the Company until the expiration of six
months from the date of grant.
6.3 FUNDING
Except as provided under Section 4.1(b), no provision of the Plan
shall require or permit the Company, for the purpose of satisfying any
obligations under the Plan, to purchase assets or place any assets in a trust
or other entity to which contributions are made or otherwise to segregate any
assets, nor shall the Company maintain separate bank accounts, books, records
or other evidence of the existence of a segregated or separately maintained or
administered fund for such purposes. Grantees shall have no rights under the
Plan other than as unsecured general creditors of the Company except that
insofar as they may have become entitled to payment of additional compensation
by performance of services, they shall have the same rights as other employees
under general law.
- 12 -
<PAGE> 13
6.4 WITHHOLDING TAXES
(a) Whenever shares are to be issued or delivered pursuant to the
Plan, the Company shall have the right, in its sole discretion, to either (i)
require the Grantee to remit to the Company or (ii) withhold from any salary,
wages or other compensation payable by the Company to the Grantee, an amount
sufficient to satisfy federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares.
Whenever payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy federal, state and local withholding tax
requirements and authorized deductions.
(b) With respect to shares received by a Grantee pursuant to the
exercise of an Incentive Stock Option, if such Grantee disposes of any such
shares within two years from the date of grant of such option or within one
year after the transfer of such shares to the Grantee, the Company shall have
the right to withhold from any salary, wages or other compensation payable by
the Company to the Grantee an amount sufficient to satisfy federal, state and
local withholding tax requirements attributable to such disposition.
6.5 AMENDMENT AND TERMINATION
(a) The Plan may be amended or terminated by the Board of Directors
of the Company by the affirmative vote of a majority of the directors in
office. The Plan, however, shall not be amended, without approval of the
shareholders, to increase the number of shares which may be issued or
transferred to Grantees or transferees, to modify the eligibility requirements
of the Plan pertaining to Incentive Stock Options, to extend the right of the
Committee to grant Options, SARs and Restricted Stock Awards beyond ten years
from the Effective Date, to reduce any Option price except to the extent
authorized in this Plan, or to alter any other feature of Incentive Stock
Options as to which federal law requires shareholder approval as a condition
for incentive stock option treatment.
(b) No amendment or termination of the Plan shall impair any rights
which have accrued under the Plan. However, any shares of the Company
theretofore reserved for Options not granted prior to such termination and any
shares that have been awarded as Restricted Stock that are forfeited shall be
released.
(c) The Plan shall be construed in accordance with the laws of the
State of Colorado, except to the extent inconsistent with federal securities
law and applicable provisions of the Code and the regulations issued
thereunder.
- 13 -
<PAGE> 1
EXHIBIT 10.20
TITANIUM METALS CORPORATION
1996 NON-EMPLOYEE DIRECTOR COMPENSATION PLAN
1. Purpose. The purpose of the 1996 Non-Employee Director
Compensation Plan is to promote the interests of the Company by providing an
inducement to obtain and retain the services of qualified persons who are
neither employees nor officers of the Company to serve as members of the
Company's Board of Directors.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "Company" shall mean Titanium Metals Corporation, a
Delaware corporation.
(d) "Director" shall mean any person serving as a member
of the Board.
(e) "Disability" shall mean the condition of a Grantee
who is unable to engage in any substantial gainful
activities by reason of any medically determinable
physical or mental impairment which can be expected
to result in death or which has lasted or can be
expected to last for a continuous period of not less
than twelve (12) months.
(f) "Eligible Directors" shall mean those Directors
eligible to participate in the Plan pursuant to
Section 4.
(g) "Fair Market Value" shall mean the last reported sale
price of Stock on the Nasdaq National Market
during the Company's fiscal year, provided, however
that with respect to the initial grant of Options
pursuant to Section 7(a) below, fair market value
shall be the initial offering price of a share of
Stock in the Offering (as defined below).
(h) "Grantee" shall mean an Eligible Director who has
been granted an Option.
(i) "Ineligible Directors" shall mean those Directors who
are not Eligible Directors.
(j) "Meeting Fees" shall mean all fees paid for
attendance at each regular or special meeting of the
Board attended by an Eligible Director. Such fees
initially shall be $1000 per day (subject to change
by the Board) for each day on which an Eligible
Director attends one or more meetings of the Board or
a committee of the Board.
<PAGE> 2
(k) "Offering" shall mean the initial public offering of
Stock by the Company, registered on Form S-1 under
the federal securities laws.
(l) "Option" shall mean an option to purchase shares of
Stock, granted pursuant to the Plan and subject to
the terms and conditions described in the Plan.
Options shall not be incentive stock options within
the meaning of Code Section 422A.
(m) "Optionee" shall mean a person who holds an Option.
(n) "Parent" shall mean a corporation defined in Code
Section 424(e).
(o) "Plan" shall mean the Company's 1996 Non-Employee
Director Compensation Plan, as it may be amended from
time to time pursuant to Section 9.
(p) "Retainer" shall mean a retainer paid annually to
Eligible Directors which shall initially equal $8000
in cash plus a number of shares of Stock equal to
$8000 divided by the initial public offering price of
the Stock (to the extent such number would not be a
multiple of 100, then such number of shares shall be
rounded up to the next higher multiple of 100),
subject in each case to change by the Ineligible
Directors.
(q) "Stock" shall mean the Company's $.01 par value
common stock.
(r) "Subsidiary" shall mean a corporation as defined in
Code Section 425(f).
3. Administration. The Plan shall be administered by the
Ineligible Directors. The amount and nature of the awards to be granted under
the Plan, including grants of Options, shall be automatic as described in
Section 7. The Ineligible Directors, subject to the provisions of the Plan,
have the power to construe the Plan, to determine all questions thereunder and
to adopt and amend such rules and regulations for the administration of the
Plan as they may deem desirable. Any interpretation, determination, or other
action made or taken by the Ineligible Directors shall be final, binding, and
conclusive. A majority of the total number of Ineligible Directors shall
constitute a quorum for purposes of any action by the Ineligible Directors, and
the vote of a majority of the Ineligible Directors present at a meeting of the
Ineligible Directors at which a quorum is present shall be the act of the
Ineligible Directors. Any action reduced to writing and signed by all of the
Ineligible Directors shall be as fully effective as if it had been taken by a
vote at a meeting of the Ineligible Directors duly called and held. None of
the Ineligible Directors shall be personally liable for any action,
determination or interpretation made in good faith with respect to the Plan or
the Options.
4. Eligibility. All Directors of the Company shall be eligible
to participate in the Plan unless they are (1) employees of the Company, (2)
employees of any Subsidiary or Parent of the
- 2 -
<PAGE> 3
Company, (3) members of the committee administering any other stock option,
stock appreciation, stock bonus or other stock plan of the Company or any of
its Subsidiaries, (4) former (within one year) members of any committee
administering any other such plan, or (5) designated future (within one year)
members of any committee administering any other such plan. However, committee
membership, former committee membership, or designated future committee
membership as described in clauses (3), (4) and (5) above shall not cause a
Director to be ineligible to participate in the Plan if the Plan meets the
requirements of Rule 16b-3 and participation in the Plan by such Director will
not cause such Director to cease to be a "disinterested person" with respect to
any other stock option, stock appreciation, stock bonus or other stock plan of
the Company or any of its Subsidiaries, so as to disqualify such Director as an
administrator of such other plan under Rule 16b-3 under the Securities Exchange
Act of 1934, as amended.
5. Shares Subject to the Plan
(a) Class. The shares which are to be made the subject
of awards granted under the Plan shall be the Company's authorized but
unissued Stock. In connection with the issuance of Stock under the
Plan, the Company may repurchase Stock in the open market or
otherwise.
(b) Aggregate Amount. The total number of shares of
Stock authorized under the Plan shall not exceed 62,500 (subject to
adjustment under Section 10(c)). If any outstanding Option under the
Plan expires or is terminated for any reason, then the Stock allocable
to the unexercised portion of such Option shall not be charged against
the limitation of this Section 5(b) and may again become the subject
of an Option granted under the Plan.
6. Retainer\Meeting Compensation.
(a) Retainer. The Retainer shall be paid and
certificates for Stock shall be delivered to Eligible Directors on or
as soon as practicable after (i) the closing of the Offering, and,
thereafter, (ii) the first business day of the Company's fiscal year,
commencing with the Company's 1997 fiscal year. Such certificates
shall be registered in the name of the Eligible Director, and all
Stock so issued shall be fully paid and nonassessable. The Company
will pay any issuance or transfer taxes with respect to the issuance
of Stock.
(b) Meeting Fees. Meeting Fees shall be paid in cash on
or as soon as practicable after any regular or special meeting
attended by an Eligible Director.
7. Terms, Conditions and Form of Options. Each Option granted
under the Plan shall be evidenced by a written agreement in such form as the
Ineligible Directors shall from time to time approve, which agreements shall
comply with and be subject to the following terms and conditions:
- 3 -
<PAGE> 4
(a) Option Grant Dates.
(i) Initially, Options shall be granted to all
Eligible Directors automatically on the date of the pricing of
the Offering, subject to the closing of the Offering.
(ii) Each year thereafter, Options shall be granted
to all Eligible Directors automatically on the last day of
each fiscal year of the Company.
(b) Option Formula. Each Eligible Director will be
entitled to receive an Option to purchase 625 shares of Stock on the
grant date of the Option, without further action by the Board.
(c) Period of Options. Options become exercisable on the
first anniversary of grant date of the Option; provided, however, that
any Option granted pursuant to the Plan shall become exercisable in
full prior to such date upon (1) the death of the Grantee, (2)
Disability of the Grantee, or (3) the Grantee's ceasing to serve on
the Board in accordance with Section 7(h). Options shall terminate on
the fifth anniversary of the grant date of the Option (subject to
prior termination as hereinafter provided).
(d) Option Price. The exercise price of each Option
shall be the Fair Market Value of a share of Stock on the date the
Option is granted.
(e) Exercise of Options. Options may be exercised (in
full or in part) only by written notice of exercise delivered to the
Company at its principal executive office accompanied by payment, in
cash, of the aggregate exercise price for all shares of Stock being
acquired upon exercise of the Option.
(f) Transferability. No Option granted under the Plan
shall be transferable other than by will or by the laws of descent and
distribution; provided, however, that the Ineligible Directors may
determine to grant Options that are transferable, without payment of
consideration, to immediate family members of the Grantee or to trusts
or partnerships for such family members, and may amend outstanding
Options to provide for such transferability. No interest of any
Optionee in any Option shall be subject to attachment, execution,
garnishment, sequestration, the laws of bankruptcy or any other legal
or equitable process. Except as otherwise determined by the
Ineligible Directors, during the lifetime of the Grantee, Options
shall be exercisable only by the Grantee or the Grantee's guardian or
legal representative.
(g) Death or Disability of Grantee. If a Grantee shall
die or terminate performance of services for the Company because of
Disability, any Option granted to such Grantee may be exercised, to
the extent that the Option was exercisable at the date of death or
termination of performance of services, at any time, or from time to
time, within one year after the date of death or termination of
performance of services because of Disability, but in no event later
- 4 -
<PAGE> 5
than the expiration date specified pursuant to Section 7(c). In the
case of death, an Option may be exercised by the person or persons to
whom the Optionee's rights under the Option pass by will or applicable
law, or if no such person has such rights, by the Optionee's executors
or administrators; provided that such person(s) consent in writing to
abide by and be subject to the terms of the Plan and the Option and
such writing is delivered to the Company.
(h) Termination of Services as Director. If a Grantee's
performance of services for the Company and its Subsidiaries shall
terminate for any reason other than death or Disability, any Option
granted to such Grantee may be exercised, to the extent such Option
was exercisable at the date of termination of performance of services,
at any time, or from time to time, within three months after the date
of termination of performance of services, but in no event later than
the expiration date specified pursuant to Section 7(c); provided,
however, in the case of termination of performance of services for
cause, the Option shall cease to be exercisable on the date of such
termination. For this purpose, "cause" shall mean misappropriation of
the assets of the Company or any Subsidiary resulting in material loss
to such entity. For the purposes of the Plan and any Option
agreement, the Grantee's service shall be deemed to have terminated on
the earlier of (1) the date when the Grantee's service in fact
terminated or (2) the date when the Grantee gave or received written
notice that his service is to terminate.
(i) No Rights as Shareholder. No Optionee shall have any
rights as a shareholder with respect to any Stock subject to an Option
prior to the date of issuance to such Optionee of a certificate or
certificates for such shares.
8. Compliance With Other Laws and Regulations. The
Plan, the grant and exercise of Options under the Plan, and the obligation of
the Company to transfer shares under such Options shall be subject to all
applicable federal and state laws, rules and regulations, including those
related to disclosure of financial and other information to Optionees, and to
any approvals by any government or regulatory agency as may be required. The
Company shall not be required to issue or deliver any certificates for shares
of Stock prior to (a) the listing of such shares on any stock exchange on which
the Stock may then be listed, where such listing is required under the rules or
regulations of such exchange, and (b) the compliance with applicable federal
and state securities laws and regulations relating to the issuance and delivery
of such certificates; provided, however, that the Company shall make all
reasonable efforts to so list such shares and to comply with such laws and
regulations.
9. Amendment and Discontinuance. The Board may from
time to time amend, suspend or discontinue the Plan; provided, however, that,
subject to the provisions of Section 10(c), no action of the Board without
approval of the shareholders of the Company may (a) materially increase the
number of shares which may be issued under the Plan or the number of shares for
which an Option may be granted to any participant under the Plan; (b) change
the provisions of the Plan regarding the termination of the Option or the time
when Options may be exercised; (c) change the
- 5 -
<PAGE> 6
period during which any Options may be granted or remain outstanding on the
date on which the Plan shall terminate; (d) change the designation of the class
of persons eligible to receive Options or (e) otherwise materially change the
benefits accruing to participants under the Plan. The requirements of Sections
3, 4, 7(a), 7(b) and 7(d) shall not be amended more than once every six months,
other than to conform with changes in the Code or the rules thereunder or the
Employee Retirement Income Security Act of 1974, as amended. Notwithstanding
the foregoing, if the Securities and Exchange Commission amends Rule 16b-3,
amendments to the Plan shall be permissible without stockholder approval to the
fullest extent permitted under such amended Rule.
10. General Provisions.
(a) Assignability. The rights and benefits under the
Plan shall not be assignable or transferable by an Eligible Director
other than by will or by the laws of descent and distribution, and,
except as otherwise determined by the Ineligible Directors, during the
lifetime of the Grantee, Options granted under the Plan shall be
exercisable only by the Grantee.
(b) Termination of Plan. No Options may be granted under
the Plan after the date which is ten years after the effective date of
the Plan (or if such date is not a business day, on the next
succeeding business day). The Plan shall automatically terminate on
the earlier of (1) the date all Options granted under the Plan have
been exercised or have terminated or expired, or (2) on September 1,
1996 if the Offering has not closed by such date.
(c) Adjustments in Event of Change in Stock. In the
event of any change in the Stock by reason of any stock dividend,
recapitalization, reorganization, merger, consolidation, split-up,
combination, or exchange of shares, or of any similar change affecting
the Stock, the number and class of shares subject to outstanding
Options, the exercise price per share, and any other terms of the Plan
or the Options which in the Ineligible Directors' sole discretion
require adjustment shall be appropriately adjusted consistent with
such change in such manner as the Ineligible Directors may deem
appropriate.
(d) No Right to Continue as a Director. Neither the
Plan, nor the granting of an Option nor any other action taken
pursuant to the Plan, shall constitute or be evidence of any agreement
or understanding, express or implied, that the Company will retain a
Director for any period of time, or at any particular rate of
compensation.
(e) ERISA. The Plan is not an employee benefit plan
which is subject to the provisions of the Employee Retirement Income
Security Act of 1974, and the provisions of Section 401(a) of the Code
are not applicable to the Plan.
(f) Non-Statutory Options. All Options granted under the
Plan shall be non-statutory options not entitled to special tax
treatment under Section 422A of the Code.
- 6 -
<PAGE> 7
(g) Effective Date of the Plan. The Plan shall take
effect ten days after the date of adoption by the stockholders of the
Company, provided, however, that the Plan shall terminate and be of no
further force and effect (and any Options previously granted pursuant
to the Plan shall terminate and become void) if the closing of the
Offering does not occur on or prior to September 1, 1996.
(h) Governing Law. The Plan and all determinations made
and actions taken pursuant hereto shall be governed by the laws of the
State of Colorado and construed accordingly.
(i) Variation of Pronouns. All pronouns and any
variations thereof contained herein shall be deemed to refer to
masculine, feminine, neuter, singular or plural, as the identity of
the person or persons may require.
- 7 -
<PAGE> 1
EXHIBIT 10.22
AGREEMENT
This AGREEMENT, dated effective February 15, 1996, is entered
into by and between Titanium Metals Corporation, a Delaware corporation (the
"Company"), and ________________ ("Executive").
TERMS AND CONDITIONS
In consideration of the respective covenants and agreements of
the parties contained in this Agreement, the parties agree as follows:
1. PAYMENT OF CASH AND GRANT OF CLASS B COMMON STOCK.
(a) The Company hereby agrees to pay Executive the sum of
$__________ in cash (subject to applicable withholding) and grants and issues
to Executive pursuant to the terms and conditions of this Agreement _______
shares of Class B Common Stock.
(b) The Class B Common Stock has such rights,
preferences, privileges and restrictions set forth in the Restated Certificate
of Incorporation (the "Restated Certificate") of the Company filed with the
Secretary of State of the State of Delaware, a copy of which is attached hereto
as Exhibit A. All such shares of Class B Common Stock granted and issued to
Executive pursuant to the terms and conditions of this Agreement are hereafter
referred to as "Executive Stock." The Executive Stock is being issued to
Executive effective February 15, 1996, in consideration for services rendered
by Executive to the Company in connection with the IMI Titanium Acquisition.
(c) Subject to the provisions of this Agreement, the
Executive shall, during the term of this Agreement, have the sole and exclusive
right and power to exercise all rights and privileges of a holder of Class B
Common Stock (including, but not limited to, the right to receive any dividends
declared thereon); provided, however, that Executive shall not sell, transfer,
assign, pledge or otherwise dispose of any interest in any Executive Stock (a
"Transfer"), without the consent of the Company other than (i) pursuant to
applicable laws of descent and distribution, or (ii) as provided by Section 2
or 4 below. If the Executive Stock is transferred by Executive pursuant to
applicable laws of descent and distribution, the Executive Stock shall continue
to be subject to the provisions of this agreement and any such transferee shall
agree in writing to be bound by the provisions of this Agreement.
2. RESTRICTIONS ON TRANSFER. Executive may Transfer Executive
Stock only (a) pursuant to Section 4 or (b) to the public pursuant to a
registered public offering or pursuant to Rule 144 adopted by the Securities
and Exchange Commission (either, a "Public Sale").
<PAGE> 2
3. LEGEND; ADDITIONAL RESTRICTIONS ON TRANSFER.
(a) Legend. The Executive Stock shall be represented
by one or more certificates containing the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED
EFFECTIVE FEBRUARY 15, 1996, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES
OR BLUE SKY LAWS, AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE LAWS OR AN EXEMPTION FROM REGISTRATION THEREUNDER. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
ADDITIONAL RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY
AND ________________, DATED EFFECTIVE FEBRUARY 15, 1996, A COPY OF
WHICH MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S PRINCIPAL
PLACE OF BUSINESS WITHOUT CHARGE.
(b) Opinion of Counsel. No holder of Executive Stock may
sell, transfer or dispose of any Executive Stock (except pursuant to an
effective registration statement under the Securities Act of 1933) without
first delivering to the Company an opinion of counsel reasonably acceptable in
form and substance to the Company that registration under the Securities Act of
1933 is not required in connection with such transfer.
(c) Investment Intent. Executive represents and warrants
that the Executive Stock granted to Executive pursuant to this Agreement is
being acquired by Executive solely for his own account, for investment purposes
only, with no present intention of distributing, selling or otherwise disposing
of it except in accordance with this Agreement.
4. CALL AND PUT OPTIONS.
(a) Call Option.
(i) Unless the provisions of this Section 4(a)
have terminated, if Executive ceases to be employed by the Company (the date of
such event, the "Termination Date"), the Company shall have the option,
exercisable upon written notice (the "Call Notice") given no later than 30 days
following the Termination Date, to repurchase from Executive all (but not less
than all) of the Executive Stock at a price equal to the fair market value of
such Executive Stock as of the date of the Call Notice. The Company's option
pursuant to this Section 4(a) shall be referred to as the "Call."
(ii) If the Company wishes to exercise the Call,
it shall deliver the Call Notice to Executive, providing a statement of the
Company's estimate of the fair market value of the Executive Stock and the
place and the time of the closing of such sale and purchase (which shall not be
more than 30 days after the later of the date of the Call Notice or a final
determination
<PAGE> 3
of fair market value in accordance with Section 4(d)). At the time and the
place of closing specified in the notice, Executive shall deliver to the
Company all certificates representing the Executive Stock. The Company will be
entitled to receive customary representations and warranties from Executive
regarding the sale of the Executive Stock.
(b) Put Option.
(i) Unless the provisions of this Section 4(b)
have terminated, if Executive ceases to be employed by the Company, Executive
shall have the option, exercisable upon written notice (the "Put Notice")
given no later than 30 days after the Termination Date, to require the Company
to repurchase from Executive all (but not less than all) of the Executive Stock
at a price equal to the fair market value of such Executive Stock as of the
date of the Put Notice. Executive's option pursuant to this Section 4(b) shall
be referred to as the "Put."
(ii) If Executive wishes to exercise the Put, he
or she shall deliver the Put Notice to the Company, providing a statement of
Executive's estimate of the fair market value of the Executive Stock and the
place and the time of the closing of such sale and purchase (which shall not be
more than 30 days after the later of the date of the Put Notice or a final
determination of fair market value in accordance with Section 4(d)). At the
time and the place of closing specified in the notice, Executive shall deliver
to the Company all certificates representing the Executive Stock. The Company
will be entitled to receive customary representations and warranties from
Executive regarding the sale of the Executive Stock. To the extent the Company
may not legally purchase such Executive Stock in satisfaction of the Put, the
Company may (i) assign the Put to any person or entity selected by the Company,
including without limitation one or more of the Company's stockholders or
affiliates, or (ii) defer the consummation of the Put until the Company has
funds legally available to effect the purchase.
(c) Payment. The Company may pay for the shares
purchased pursuant to the Call or Put by (i) cash or (ii) at the Company's
option, cancellation of any indebtedness or other amounts owed by the Executive
to Company or (iii) a combination of the foregoing.
(d) Determination of Fair Market Value. If the
Parties are unable to agree on fair market value, then the Board of Directors
will have thirty (30) days, commencing the date of the Call Notice or the Put
Notice, as the case may be, to determine (with the advice of a qualified
appraiser) and notify Executive of the fair market value of the Executive
Stock, which determination shall be final and binding on the Parties.
(e) Termination of Call and Put. The Call and the
Put will continue with respect to the Executive Stock until such time as
Executive would be lawfully entitled to sell the Executive Stock in a Public
Sale pursuant to the provisions of Section 2(b) above.
(f) Changes in Shares. If, from time to time, there
is any stock dividend, stock split or other similar change in the character or
amount of any of the outstanding securities of the Company, then in such event
any and all new, substituted or additional securities issued with respect to
the Executive Stock shall be immediately subject to the terms of this Agreement
<PAGE> 4
with the same force and effect as the Executive Stock originally issued
pursuant to this Agreement.
5. COMPLETE AGREEMENT. This Agreement and those documents
expressly referred to in this Agreement embody the complete agreement between
the parties in respect to the grant of the Executive Stock, and supersede and
preempt any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof
in any way. The provisions herein shall be regarded as divisible, and if any
of such provisions or any part thereof are declared invalid or unenforceable,
the validity and enforceability of the remainder of such provisions or parts
thereof and the applicability thereof shall not be affected thereby. Executive
hereby acknowledges and agrees that no contract or obligation of the Company to
continue to employ Executive as a consultant or otherwise for any period of
time or on any particular terms shall be implied as a consequence of this
Agreement or the grant of the Executive Stock.
6. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
7. SUCCESSORS AND ASSIGNS. This Agreement is intended to bind
and inure to the benefit of and be enforceable by Executive, the Company and
their respective successors and assigns; provided that in no event shall
Executive's obligations under this Agreement be delegated or transferred by
Executive, nor shall Executive's rights be subject to encumbrance or to the
claims of Executive's creditors. The parties agree that the Company may assign
its rights and obligations under this Agreement to any of its affiliates and to
any other holder of equity securities of the Company. This Agreement is for
the sole benefit of the parties hereto and shall not create any rights in third
parties.
8. REMEDIES. The Company will be entitled to enforce its
rights under this Agreement specifically, to recover damages by reason of any
breach of any provision of this Agreement and to exercise all other rights to
which it may be entitled. Executive agrees and acknowledges that money damages
may not be an adequate remedy for breach of the provisions of this Agreement
and that the Company may in its sole discretion apply to any court of law or
equity of competent jurisdiction for specific performance and/or injunctive
relief in order to enforce or prevent any violations of the provisions of this
Agreement.
9. CHOICE OF LAW. All questions concerning the construction,
validity and interpretation of this Agreement will be governed by the internal
law, and not the law of conflicts, of the State of Colorado.
10. MODIFICATIONS AND WAIVERS. No provision of this
Agreement may be modified, altered or amended except by an instrument in
writing executed by the parties hereto. No waiver by any party hereto of any
breach by any other party hereto of any term or provision of this Agreement to
be performed by such other party shall be deemed a waiver of similar or
dissimilar terms or provisions at the time or at any prior or subsequent time.
<PAGE> 5
11. HEADINGS. The headings contained herein are solely for
the purpose of reference, are not part of this Agreement and shall not in any
way affect the meaning or interpretation of this Agreement.
12. NOTICES. Except as otherwise expressly set forth in
this Agreement, all notices, requests and other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be given (and, except as otherwise provided in this
Agreement, shall be deemed to have been duly given if so given) in person, by
cable, telegram, facsimile transmission, mailed by first class registered or
certified mail, postage, prepaid or sent by overnight courier to the parties at
the following addresses (or such other address as shall be furnished in writing
by like notice, provided, however, that notice of change of address shall be
effective only upon receipt):
Notices to Executive
____________________
____________________
____________________
Notices to Company
Titanium Metals Corporation
1999 Broadway, Suite 4300
Denver, Colorado 80202
Attn.: General Counsel
13. EXPENSES. Each party will pay its own expenses in
connection with this Agreement and the performance of the transactions and
obligations contemplated by this Agreement.
14. RELEASE. In consideration of the cash and stock to be
paid and granted by the Company to Executive in accordance with the terms of
this Agreement, Executive hereby releases and waives any claim Executive might
have had under the Company's 1988 Long-Performance Incentive Plan, which is
being terminated.
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed effective as of the day and year first above
written.
Executive:
_______________________________________
TITANIUM METALS CORPORATION
By:____________________________________
Title:_________________________________
<PAGE> 1
EXHIBIT 10.24
AGREEMENT
THIS AGREEMENT is made and entered into effective the 28th day of
June, 1995, among Titanium Metals Corporation ("TIMET"), Tremont Corporation
("Tremont"), and Union Titanium Sponge Corporation ("UTSC").
RECITALS
A. Tremont is the holder of 172,115 shares of Class A Common
Stock, $.01 par value per share, of TIMET ("TIMET Common Stock"), or
approximately 75% of the shares of TIMET Common Stock currently outstanding.
B. UTSC is the holder of 57,373 shares of TIMET Common Stock, or
approximately 25% of the shares of TIMET Common Stock currently outstanding.
C. TIMET, Tremont, and UTSC are parties to that certain letter
agreement dated June 30, 1994 (the "Letter Agreement") pursuant to which, among
other things, UTSC agreed to allow TIMET to repay approximately $6.3 million of
unpaid interest (the "Deferred Interest") owing to UTSC in installments through
1997.
D. As of the date hereof, TIMET owes $4,898,051.19 in unpaid
Deferred Interest, together with unpaid interest thereon, which amounts are
secured by a first priority lien (the "UTSC Lien") on the equipment associated
with TIMET's vacuum distillation sponge plant in Henderson, Nevada (the "VDP
Equipment").
E. As of the date hereof, Tremont holds $22.0 million in
principal amount of subordinated promissory notes issued by TIMET ("TIMET
Subordinated Notes"), as specifically described on Exhibit A hereto, plus
unpaid interest thereon.
F. Tremont and UTSC have agreed to provide additional capital to
TIMET through the exchange of TIMET Subordinated Notes, cash, and Deferred
Interest for additional shares of TIMET Common Stock as set forth below.
G. TIMET and Congress Financial Corporation (Central)
("Congress") are parties to that certain Amended and Restated Loan and Security
Agreement dated March 24, 1995 (the "TIMET Credit Agreement"), pursuant to
which Congress has agreed to provide to TIMET revolving loans, term loans, and
letters of credit aggregating up to $80 million, which borrowings are secured
by, among other things, a second priority lien (the "Congress Lien") on the VDP
Equipment.
H. Section 10.1(m) of the TIMET Credit Agreement provides, in
effect, that it will be an "Event of Default" (as defined therein) under the
TIMET Credit Agreement if the Congress Lien on the VDP Equipment has not become
first in priority on or before
<PAGE> 2
June 30, 1995. In addition, Section 2.3(b) of the TIMET Credit Agreement
provides, in effect, that $5 million of the borrowings otherwise available
thereunder will become available to TIMET only once the Congress Lien on the
VDP Equipment has become first in priority.
NOW, THEREFORE, in consideration of the mutual covenants and
undertakings set forth below, the parties hereto agree as follows:
TERMS & CONDITIONS
1. Capitalization Transaction. At the Closing (as defined
in Section 2 below), the parties hereto will carry out the following
transactions for the purpose of providing TIMET with additional equity capital
and allowing for the Congress Lien on the VDP Equipment to become first in
priority:
(a) Tremont will convey to TIMET an aggregate of $9,000,000,
consisting of $1,132,513.51 in cash and TIMET Subordinated
Notes and unpaid interest thereon in the aggregate amount of
$7,867,486.49 (or TIMET Subordinated Notes in principal amount
in excess of such amount, with such excess to be evidenced by
a new TIMET Subordinated Note on identical terms in the
principal amount of such excess to be delivered to Tremont) in
exchange for 7,885 shares of TIMET Common Stock to be issued
to Tremont;
(b) TIMET will pay to UTSC by wire transfer to an account
designated by UTSC Deferred Interest and unpaid interest
thereon in the aggregate amount of $2,132,513.51 (plus
$1,395.60 for each day that the Closing Date is after June 16,
1995), leaving an unpaid balance of Deferred Interest and
interest thereon of $3 million;
(c) TIMET and Tremont will deliver to UTSC: (i) a legal opinion
dated the Closing Date (as defined in Section 2) from counsel
to TIMET and Tremont substantially in the form attached hereto
as Exhibit B; and (ii) an Officer's Certificate dated the
Closing Date executed by an authorized officer of TIMET
substantially in the form attached hereto as Exhibit C;
-2-
<PAGE> 3
(d) UTSC will deliver to TIMET and Tremont an Officer's
Certificate dated the Closing Date executed by an authorized
officer of UTSC substantially in the form attached hereto as
Exhibit D;
(e) UTSC will deliver to TIMET, in exchange for 2,627 shares of
TIMET Common Stock, the following, each to be in form and
substance satisfactory to TIMET and Tremont:
(i) a satisfaction and release of TIMET and
Tremont substantially in the form attached
hereto has Exhibit E; and
(ii) executed UCC-3 termination statements for
each recording office in which the UTSC Lien
has been filed or recorded terminating and
releasing in full the UTSC Lien; and
(f) TIMET will deliver to Tremont and UTSC duly executed
certificates representing the shares of TIMET Common Stock to
be conveyed to Tremont and UTSC in accordance with the
provisions of clauses (a) and (e), respectively, which shares
will be duly authorized, validly issued, fully paid and
nonassessable.
2. Closing Date. The closing of the capitalization
transactions set forth in Section 1 above (the "Closing") shall occur on June
28, 1995 (the "Closing Date"), or at such other date as the parties hereto may
agree. Each of the transactions set forth in Section 1 above shall be deemed
to have occurred simultaneously on the Closing Date, regardless of the actual
order or time of occurrence.
3. Waiver. UTSC hereby waives the requirement contained in the
last sentence of Section 2 of the Letter Agreement providing for 30 days'
written notice from TIMET prior to TIMET's making any prepayment of the
Deferred Interest.
4. Further Cooperation. In addition to the termination
statements referred to in Section 1(c)(ii) above, UTSC agrees to execute and
deliver to TIMET such other and further documents as TIMET may from time to
time reasonably request to properly evidence the release and termination of the
UTSC Lien.
5. Arbitration. Any controversy or claim arising out of or
relating to this Agreement shall be settled in the manner provided for
settlement of disputes in Section 29 of that certain Investors' Agreement,
dated May 30, 1990, as amended, among
UTSC, Toho Titanium Co., Ltd., Nippon Mining & Metals Co., Ltd., Nippon Steel
Corporation, Mitsui & Co., Ltd., Mitsui & Co. (U.S.A.), Inc., Tremont, and
TIMET.
-3-
<PAGE> 4
6. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to New York conflict of laws rules.
IN WITNESS WHEREOF, this Agreement is executed on behalf of the
parties hereto as of the effective date first hereinabove set forth.
TITANIUM METALS CORPORATION
By:___________________________________
Title:_________________________________
TREMONT CORPORATION
By:___________________________________
Title:_________________________________
UNION TITANIUM SPONGE CORPORATION
By:___________________________________
Title:_________________________________
-4-
<PAGE> 1
EXHIBIT 11.1
TITANIUM METALS CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE LOSS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRIMARY LOSS PER SHARE(3)
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR FISCAL YEAR
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Loss before cumulative effect of a change in accounting
principle............................................. $ (20,207) $ (42,077) $(4,217)
Cumulative effect of a change in accounting principle... -- (1,000) --
--------- --------- -------
Net loss...................................... $ (20,207) $ (43,077) $(4,217)
========= ========= =======
Weighted average shares outstanding(1).................. 11,239 14,917 15,290
Common stock issued within one year of Offerings(2)..... 93 93 93
--------- --------- -------
Total weighted average shares outstanding..... 11,332 15,010 15,383
========= ========= =======
Per common share:
Loss before cumulative effect of a change in
accounting principle............................... $ (1.78) $ (2.80) $ (.27)
Cumulative effect of a change in accounting
principle.......................................... -- (.07) --
--------- --------- -------
Net loss...................................... $ (1.78) $ (2.87) $ (.27)
========= ========= =======
</TABLE>
- ---------------
(1) Based upon the weighted average number of common shares outstanding after
giving effect to the 65-for-1 Stock Split.
(2) Certain key executive officers of the Company will receive an aggregate
93,000 shares of Common Stock effective February 15, 1996, as partial
consideration for their services in connection with the IMI Titanium
Acquisition.
(3) Primary loss per share and fully diluted loss per share are the same.
(4) Gives pro forma effect to the IMI Titanium Acquisition.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1
(File No. 333-2940) of our reports dated March 26, 1996, on our audits of the
consolidated financial statements and consolidated financial statement schedule
of Titanium Metals Corporation and of our report dated March 26, 1996, on our
examination of the pro forma condensed consolidated financial statement, which
reports include legends as described therein. We also consent to the reference
to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 8, 1996
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the Prospectus.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Denver, Colorado
May 8, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 26, 1996 relating
to the financial statements of Titanium Hearth Technologies, which appears in
such Prospectus. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Philadelphia, PA
May 6, 1996
<PAGE> 1
EXHIBIT 23.5
AWARENESS LETTER
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Titanium Metals Corporation
Registration on Form S-1 (File No. 333-2940)
Gentlemen:
We are aware that our report, which includes a legend as described therein,
dated May 6, 1996, on our review of the unaudited consolidated interim financial
information of Titanium Metals Corporation as of March 31, 1996 and for the
three-month periods ended April 2, 1995 and March 31, 1996, is included in this
Registration Statement. Pursuant to Rule 436(c) under the Securities Act of
1933, this report should not be considered a part of the Registration Statement
prepared or certified by us within the meaning of Sections 7 and 11 of that Act.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
May 8, 1996
<PAGE> 1
EXHIBIT 24.1a
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Thomas P. Stafford, whose signature
appears below, constitutes and appoints J. Landis Martin, Joseph S.
Compofelice, Robert E. Musgraves, and Mark A. Wallace, and each of them, his
true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place, and stead, as
a director and in any and all other capacities with Titanium Metals Corporation
(the "Company"), to execute for and on behalf of the undersigned the
Registration Statement on Form S-1 (the "Registration Statement") relating to
the shares of Common Stock of the Company, and any and all amendments thereto,
and any subsequent registration statement filed by the Company pursuant to Rule
462(b) of the Securities Act of 1933, as amended, which relates to this
Registration Statement, and to deliver and file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and with each exchange on which any class of securities of
the Company is or is to be registered, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
/s/ Thomas P. Stafford
-------------------------------
Thomas P. Stafford
May 7, 1996
Date
<PAGE> 1
EXHIBIT 24.1b
LIMITED POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that Edward C. Hutcheson, Jr., whose signature
appears below, constitutes and appoints J. Landis Martin, Joseph S.
Compofelice, Robert E. Musgraves, and Mark A. Wallace, and each of them, his
true and lawful attorneys-in-fact and agents, each with full power of
substitution and resubstitution, for him and in his name, place, and stead, as
a director and in any and all other capacities with Titanium Metals Corporation
(the "Company"), to execute for and on behalf of the undersigned the
Registration Statement on Form S-1 (the "Registration Statement") relating to
the shares of Common Stock of the Company, and any and all amendments thereto,
and any subsequent registration statement filed by the Company pursuant to Rule
462(b) of the Securities Act of 1933, as amended, which relates to this
Registration Statement, and to deliver and file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, and with each exchange on which any class of securities of
the Company is or is to be registered, granting unto said attorney-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue thereof.
/s/ Edward C. Hutcheson, Jr.
----------------------------------------
Edward C. Hutcheson, Jr.
May 7, 1996
Date
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-29-1996
<PERIOD-START> JAN-02-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 MAR-31-1996
<CASH> 24 469
<SECURITIES> 0 0
<RECEIVABLES> 34,622 92,386
<ALLOWANCES> 3,620 4,200
<INVENTORY> 69,134 117,095
<CURRENT-ASSETS> 103,612 211,125
<PP&E> 152,729 210,105
<DEPRECIATION> 27,861 31,521
<TOTAL-ASSETS> 248,784 422,445
<CURRENT-LIABILITIES> 97,064 182,506
<BONDS> 21,540 140
<COMMON> 125 253
0 0
0 0
<OTHER-SE> 68,003 139,237
<TOTAL-LIABILITY-AND-EQUITY> 248,784 422,445
<SALES> 184,723 107,556
<TOTAL-REVENUES> 190,016 108,909
<CGS> 170,699 92,488
<TOTAL-COSTS> 170,699 92,488
<OTHER-EXPENSES> (1,200) 4,208
<LOSS-PROVISION> 477 0
<INTEREST-EXPENSE> 10,414 3,498
<INCOME-PRETAX> (3,962) 3,184
<INCOME-TAX> 255 657
<INCOME-CONTINUING> (4,217) 2,116
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,217) 2,116
<EPS-PRIMARY> (.27) .10
<EPS-DILUTED> (.27) .10
</TABLE>
