<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 31, 1996
REGISTRATION NO. 333-2940
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 5
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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<S> <C> <C>
DELAWARE 3339 13-5630895
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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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<S> <C>
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
</TABLE>
------------------------
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. / /
------------------------
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.
================================================================================
<PAGE> 2
TITANIUM METALS CORPORATION
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 REGISTRATION
STATEMENT PROSPECTUS CAPTION
------------------------------------------------ ------------------
<S> <C> <C>
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
</TABLE>
<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 31, 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 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 Tremont Corporation
("Tremont"), which may be deemed to control the Company, and IMI plc, which
holds approximately 38% of the outstanding Common Stock and has two
representatives on the Company's Board of Directors. 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 $20.00 and
$23.00 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 100,000 shares of Common Stock
for sale at the initial public offering price to employees of the Company and to
certain other individuals having relationships with the Company or such
employees.
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "TIMT".
SEE "RISK FACTORS" BEGINNING ON PAGE 10 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)(2)
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) Tremont 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 of Common Stock, 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
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 Securities and Exchange Commission (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 of 1933, as amended (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 the largest 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 backlog)
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 $113
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 65%, 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 that 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 33 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
additional 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,
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 sell
shares of Common Stock in the Offerings, and, if the Underwriters' overallotment
options are exercised, all of the shares offered under the overallotment options
will be sold by Tremont. Tremont, IMI and UTSC are referred to herein as the
"Selling Stockholders." 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 10 for a discussion of certain factors
that should be considered by prospective purchasers of the Shares.
7
<PAGE> 11
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, which may
be deemed to control the Company, and
IMI, which holds approximately 38% of
the outstanding Common Stock and has
two representatives on the Company's
Board of Directors. See "Use of
Proceeds."
Nasdaq National Market Symbol......................... TIMT
</TABLE>
- ---------------
(1) Excludes approximately 437,500 shares issuable upon exercise of stock
options and shares 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 and the three-month period
ended March 31, 1996 give pro forma effect to the IMI Titanium Acquisition, as
if it had been consummated on January 2, 1995, the beginning of fiscal 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 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 date.
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>
FISCAL YEARS THREE MONTHS ENDED
----------------------------------------------------- --------------------
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) .18
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 92.3 133.4
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) (11.0)
Investing activities.................... (30.3) (71.3) (16.3) (4.6) (2.5) (.6) (4.4)
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 (1.4)
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(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 2.4
</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 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 that 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
10
<PAGE> 14
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 31, 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, certain of 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 on the Board of Directors.
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 with 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. 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 under the
Securities Act, and may be sold only pursuant
13
<PAGE> 17
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."
14
<PAGE> 18
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). Tremont may be deemed to control the Company and IMI holds
approximately 38% of the outstanding Common Stock and has two representatives on
the Company's Board of Directors. 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.
Borrowings under the Company's U.S. credit facility bear interest at a
weighted average interest rate of 10.5% (as of March 31, 1996). This facility
has recently been amended to, among other things, extend the maturity date to
December 31, 1997 (which will be further extended to December 31, 1998 upon the
closing of the Offerings assuming specified minimum proceeds are received (a
"Qualifying Offering")), increase the borrowing availability under the facility
to a maximum of $105 million, and provide for a reduction in the effective
interest rate of 1.5% (with a further reduction in the effective interest rate
of 1% upon the closing of a Qualifying Offering). Completion of the Offerings
within the range of initial offering prices set forth on the front cover of this
Prospectus would exceed the minimum necessary to constitute a "Qualifying
Offering." 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 since mid-1990.
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 $167.2 million ($211 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 and application 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, 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
new investors.............................................. $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 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 date.
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>
THREE MONTHS ENDED
FISCAL YEARS
---------------------------------------------------------- ---------------------
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) .18
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 92.3 133.4
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) (11.0)
Investing activities...................... (30.3) (71.3) (16.3) (4.6) (2.5) (.6) (4.4)
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 (1.4)
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 2.4
</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, 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 $113
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 ($1.5 million Common Stock and $1.5 million cash) 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 prescribed 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 $41.7 $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 6.8
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 for Common Stock). 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 in the fiscal
year 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 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"). The weighted average interest rate on
outstanding revolver and term loan borrowings was 9% at December 31, 1994, 11%
at December 31, 1995 and 10.5% at March 31, 1996. This facility has recently
been amended to, among other things, extend the maturity date to December 31,
1997 (which will be further extended to December 31, 1998 upon the closing of a
Qualifying Offering), increase the borrowing availability under the facility to
a maximum of $105 million, and provide for a reduction in the effective interest
rate of 1.5% (with a further reduction in the effective interest rate of 1% upon
the closing of a Qualifying Offering). Under the amended facility, interest
accrues at the prime rate plus 2% to 2.5% (reducing to the prime rate plus .75%
after the closing of a Qualifying Offering) or, at the Company's option, at
LIBOR plus 3.25% to 3.75% (reducing to LIBOR plus 2.25% after the closing of a
Qualifying Offering). 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
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<PAGE> 31
accrue interest at the banks' base rate plus 2%. No borrowings were outstanding
under this facility at March 31, 1996.
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 terms of the Company's U.S. credit facility currently permit the
Company to apply a maximum of $43 million of the net proceeds from the Offerings
to repay shareholder indebtedness to IMI and Tremont, the effect of which is to
permit the repayment of such shareholder indebtedness (which does not include
certain capital lease obligations to IMI) 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.
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<PAGE> 32
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 and $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 the largest 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
predominance 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
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<PAGE> 34
the 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 (38% of total backlog) 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 that 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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<PAGE> 35
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 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 that
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 sponge 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. The Company
expects that a majority of its 1996 sales will also be to this sector.
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The aerospace industry is dominated by three major manufacturers of
commercial aircraft and four major manufacturers of aircraft engines. Typically,
the Company's sales are not made directly to the major aircraft and engine
manufacturers but rather to companies who use the Company's titanium to produce
parts and other materials for such manufacturers. For example, from 1993 through
1995, less than 1% of the Company's sales were made directly to Boeing, the
largest aircraft manufacturer. However, if any of the 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.
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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.
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>
LOCATION 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,
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<PAGE> 39
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.
CEZUS. CEZUS is a leading European zirconium producer that also produces
and markets titanium ingot, billet and other mill products to aerospace and
industrial customers, primarily in France. TIMET and CEZUS have had a
manufacturing and distribution relationship since 1993.
The Company and CEZUS are now negotiating a new relationship that, 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 would contribute cash and
inventory of approximately $2 million and proprietary technology to the new
venture. TIMET Savoie would manufacture products at 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 as an integrated
producer one that produces at least both sponge and ingot. There are also a
number of non-integrated producers that produce mill products from purchased
sponge, scrap or ingot. The Company believes that the sponge production capacity
and
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<PAGE> 40
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. 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
it accounted for approximately 60% of U.S. sponge capacity in 1995. 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 accounted
for about one-third of such sales. The Company's principal competitors in the
casting business in the U.S. are Precision Cast Parts and Howmet. The Company
estimates that it accounts for in excess of 50% of mill product shipments among
Western European titanium producers. 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 that 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
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<PAGE> 41
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 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."
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<PAGE> 42
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 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.
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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 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. Except as
provided below, 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
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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
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.................... 39 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 on the Board of Directors. 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
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<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.
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<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 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
(which amounts do not include accrued value for vested options to acquire
Tremont common stock held by Mr. Adams, which was approximately $340,000 as
of December 31, 1995).
(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 an intercorporate services
agreement. See "Certain Relationships and Related Transactions -- Contractual
Relationships."
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<PAGE> 49
As of May 30, 1996 no options issued by the Company to acquire shares of
Common Stock existed. 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 "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 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
46
<PAGE> 50
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
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
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<PAGE> 51
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 Company is entitled to a
deduction measured by the fair market value of the shares plus any property
received by the grantee.
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<PAGE> 52
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 date of grant.
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 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.
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<PAGE> 53
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 Commission, of the Company's Common Stock
as of May 30, 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.
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 3.2% of Tremont's outstanding common
stock. Valhi Group, Inc. ("VGI") and National City Lines, Inc. ("National")
are the holders of approximately 35.3% and 4.7%, 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 55% 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"). In connection with the Offerings, Tremont
will relinquish its right to, and permit IMI to sell in the Offerings, 1,615
shares subject to 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," (ii) all directors and current executive officers of the Company
as a group and (iii) a former officer who served as chief executive officer of
the Company until January 5, 1995. 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 *
FORMER OFFICER:
Kirby C. Adams(3)................................ 85,988 1.1%
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.
(3) Kirby C. Adams resigned as an executive officer of the Company on January 5,
1995. The shares of Tremont common stock shown as beneficially owned by Mr.
Adams include 35,400 shares that Mr. Adams has the right to acquire by the
exercise of options within 60 days of March 25, 1996. See also "Executive
Compensation."
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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
and Executive Vice President of Valhi. 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
55
<PAGE> 59
companies. The 1940 Act defines an investment company to include an issuer that
(i) is engaged or 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. The Company does
not expect that the resolution of Tremont's status under the 1940 Act will have
an adverse effect upon the Company.
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 intercorporate
services agreement, loans and other 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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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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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."
By agreements with the relevant stockholders, upon the closing of the
Offerings, certain other rights of the respective stockholders contained in the
Shareholders' Agreement and the Investors' Agreement not described above will be
extinguished.
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
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Shareholders' Agreement, copies of which have been filed as exhibits to the
Company's Registration Statement of which this Prospectus is a part.
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
The authorized capital stock of the Company consists of 99,000,000 shares
of Common Stock, $.01 par value per share, of which 31,454,255 shares will be
issued and outstanding upon completion of the Offerings, and 1,000,000 shares of
preferred stock, $.01 par value per share (the "Preferred Stock"), none of which
will be outstanding upon completion of the Offerings. In connection with the
Offerings, the Company converted 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 Common Stock has been approved for listing 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. Certain
of the other executive officers of the Company have entered into similar
agreements covering 32,500 shares during a period of 90 days after the date of
the Underwriting Agreement. 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
volume 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. 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
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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, 100,000 shares of Common Stock for
employees of the Company and certain other individuals having relationships with
the Company or such employees and 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 the
Underwriting Agreement. Certain of the other executive officers of the Company
have entered into similar agreements covering 32,500 shares during a period of
90 days after the date of the Underwriting Agreement. 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 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.
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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, and the unaudited pro forma
condensed consolidated statement of operations for the three-month period ended
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,
and the unaudited pro forma condensed consolidated statement of operations for
the three-month period ended 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 or the interim period pro forma adjustments.
Accordingly, the degree of reliance on their reports 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 for their reports on the unaudited consolidated interim financial
information because those reports are not "reports" or a "part" of the
Registration Statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities 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.
64
<PAGE> 68
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
</TABLE>
F-1
<PAGE> 69
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
Coopers & Lybrand L.L.P.
Denver, Colorado
March 26, 1996
PF-1
<PAGE> 70
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> 71
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> 72
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 to 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> 73
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
($1.5 million common stock and $1.5 million cash) 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> 74
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
Coopers & Lybrand L.L.P.
Denver, Colorado
May 6, 1996
PF-6
<PAGE> 75
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
Interest............................................. 3.5 -- 3.5
------ ----- ------
105.7 -- 105.7
------ ----- ------
Income before income taxes........................ 3.2 -- 3.2
Income tax expense..................................... (.7) -- (.7)
Preacquisition earnings................................ (.4) .4(a) --
------ ----- ------
Net income........................................ $ 2.1 $ .4 $ 2.5
====== ===== ======
Net income per common share............................ $ .10 $ .10
====== ======
Weighted average common shares outstanding............. 20.5 4.8(b) 25.3
====== ===== ======
</TABLE>
PF-7
<PAGE> 76
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 1995.
NOTE 2 -- PRO FORMA ADJUSTMENTS:
(a) Elimination of preacquisition earnings.
(b) Adjustment to reflect shares issued to IMI in connection with the IMI
Titanium Acquisition as of the beginning of fiscal 1995.
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> 77
CONSOLIDATED FINANCIAL STATEMENTS
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.
Coopers & Lybrand L.L.P.
Denver, Colorado
March 26, 1996
F-2
<PAGE> 78
CONSOLIDATED FINANCIAL STATEMENTS
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.
Coopers & Lybrand L.L.P.
Denver, Colorado
May 6, 1996
F-3
<PAGE> 79
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 25.3 million
shares issued and outstanding, respectively.................. 150 157 253
Accumulated deficit............................................ (68,436) (72,653) (70,537)
Additional paid-in capital..................................... 135,709 142,720 212,624
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> 80
TITANIUM METALS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS ------------------
------------------------------ APRIL 2, MARCH 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> 81
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> 82
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> 83
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> 84
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; however, the
amount of depreciation expense recognized in the future periods is not expected
to vary materially from the straight-line method. 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. Income (loss) per 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.
F-9
<PAGE> 85
TITANIUM METALS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> 86
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. 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) 2.5
Net income (loss) per common share................... (1.39) (.41) .10
</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> 87
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 $69,107 $ 18,070 $23,319
Operating costs and expenses........ 35,681 38,598 54,764 15,527 19,719
Interest and other expenses......... 3,416 582 1,153 381 429
------- ------- ------- ------- -------
Net income.......................... $12,416 $ 3,863 $13,190 $ 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> 88
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> 89
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> 90
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 ($1.5 million
common stock and $1.5 million cash) 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> 91
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
10.5% at 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, in connection 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 3.1 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> 92
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 convert into common shares in connection 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 ($1.5 million common
stock and $1.5 million cash) of related compensation expense in the three months
ended March 31, 1996 which is included in special charges. See Note 5.
The Company expects its 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 Offerings 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> 93
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) (114)
Utilization of net operating loss
carryforward............................. -- -- -- -- 446
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> 94
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> 95
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> 96
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> 97
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> 98
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> 99
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> 100
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> 101
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> 102
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> 103
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> 104
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> 105
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> 106
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> 107
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> 108
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> 109
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> 110
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> 111
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> 112
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> 113
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> 114
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> 115
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> 116
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.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Philadelphia, PA
January 26, 1996
F-41
<PAGE> 117
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> 118
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> 119
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> 120
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> 121
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> 122
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> 123
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> 124
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> 125
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> 126
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...................... 15
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> 127
***************************************************************************
* *
* 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 31, 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 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 Tremont Corporation ("Tremont"),
which may be deemed to control the Company, and IMI plc, which holds
approximately 38% of the outstanding Common Stock and has two representatives on
the Company's Board of Directors. 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 $20.00 and
$23.00 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 100,000 shares of Common Stock
for sale at the initial public offering price to employees of the Company and to
certain other individuals having relationships with the Company or such
employees.
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "TIMT".
SEE "RISK FACTORS" BEGINNING ON PAGE 10 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)(2)
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) Tremont 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 of Common Stock, 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> 128
[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> 129
[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 currently expects that the Common Stock will be quoted on the Nasdaq
National Market, 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> 130
[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> 131
[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> 132
[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 warranted to,
and agreed with, the Company and the Selling Stockholders that (i) it has not
offered or sold and, prior to the expiry of six months from the closing of the
International Offering, will not offer or sell any shares of Common Stock in the
United Kingdom other than to persons whose ordinary activities involve them in
acquiring, holding, managing or disposing of investments (whether as principal
or agent) for the purposes of their businesses or otherwise in circumstances
which have not resulted in and will not result in an offer to the public within
the meaning of the Public Offers of Securities Regulations 1995; (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 a person who is of a kind described in Article 11(3) of the
Financial Services Act 1986 (Investment Advertisements) (Exemptions) Order 1995
or is a person to whom such 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, 100,000 shares of Common Stock for
employees of the Company and certain other individuals having relationships with
the Company or such employees 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> 133
[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 the Underwriting Agreement. Certain of the other executive
officers of the Company have entered into similar agreements covering 32,500
shares during a period of 90 days after the date of the Underwriting Agreement.
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> 134
[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, and the unaudited pro forma
condensed consolidated statement of operations for the three-month period ended
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,
and the unaudited pro forma condensed consolidated statement of operations for
the three-month period ended 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 or the interim period pro forma adjustments.
Accordingly, the degree of reliance on their reports 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 for their reports on the unaudited consolidated interim financial
information because those reports are not "reports" or a "part" of the
Registration Statement prepared or certified by the accountants within the
meaning of Sections 7 and 11 of the Securities 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> 135
[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....................... 15
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> 136
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
National Association of Securities Dealers, Inc. Filing Fee.......... 30,500
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
=============
</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> 137
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.**
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,
incorporated by reference to Exhibit 9.1 to Tremont Corporation's Quarterly Report
on Form 10-Q (No. 1-10126) for the quarter ended March 31, 1996.
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> 138
<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.**
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.**
</TABLE>
II-3
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
10.23 Amendment No. 4 to the Sponge Purchase Agreement dated May 30, 1990 between the
Registrant and Union Titanium Sponge Corporation, incorporated by reference to
Exhibit 10.1 to Tremont Corporation's Quarterly Report on Form 10-Q (No. 1-10126)
for the quarter ended March 31, 1996.
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,
incorporated by reference to Exhibit 10.2 to Tremont Corporation's Quarterly Report
on Form 10-Q (No. 1-10126) for the quarter ended March 31, 1996.
10.26 Amendment to Amended and Restated Loan and Security Agreement between Congress
Financial Corporation (Central) and the Registrant dated May 31, 1996.*
10.27 Amended and Restated Term Promissory Note in the principal amount of $10,150,000
issued by the Registrant to Congress Financial Corporation (Central) dated May 31,
1996.*
10.28 Amended and Restated Term-B Promissory Note in the principal amount of $13,000,000
issued by the Registrant to Congress Financial Corporation (Central) dated May 31,
1996.*
10.29 First Amendment to Subordination Agreement by and between IMI Kynoch, Ltd. and
Congress Financial Corporation (Central) dated May 31, 1996.*
10.30 First Amendment to Amended and Restated Subordination Agreement by and between
Tremont Corporation and Congress Financial Corporation (Central) dated May 31,
1996.*
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.*
24.1 Limited Powers of Attorney.**
27.1 Financial Data Schedule.**
</TABLE>
- ---------------
+ Management contract, compensatory plan or arrangement
* Filed herewith
** Previously filed
(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.
II-4
<PAGE> 140
(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-5
<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 31, 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 31, 1996
- ----------------------------------------------- Chief Executive Officer
J. Landis Martin
* President, Chief Operating May 31, 1996
- ----------------------------------------------- Officer and Director
Andrew R. Dixey
* Director May 31, 1996
- -----------------------------------------------
Gary J. Allen
* Director May 31, 1996
- -----------------------------------------------
Edward C. Hutcheson, Jr.
* Director May 31, 1996
- -----------------------------------------------
R. B. Pointon
* Director May 31, 1996
- -----------------------------------------------
Thomas P. Stafford
* Director May 31, 1996
- -----------------------------------------------
Yukiji Tadokoro
* Vice President and Chief May 31, 1996
- ----------------------------------------------- Financial Officer (Principal
Joseph S. Compofelice Financial Officer)
* Vice President -- Finance May 31, 1996
- ----------------------------------------------- and Treasurer
Mark A. Wallace (Principal Accounting
Officer)
*By: /s/ ROBERT E. MUSGRAVES
-------------------------------------------
Robert E. Musgraves, Attorney-in-Fact
</TABLE>
II-6
<PAGE> 142
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, incorporated by reference to Exhibit 9.1
to Tremont Corporation's Quarterly Report on Form 10-Q (No. 1-10126) for
the quarter ended March 31, 1996.
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
- ------------ ----
<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.**
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.
</TABLE>
<PAGE> 146
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------------ ----
<C> <S> <C>
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, incorporated
by reference to Exhibit 10.1 to Tremont Corporation's Quarterly Report on
Form 10-Q (No. 1-10126) for the quarter ended March 31, 1996.
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,
incorporated by reference to Exhibit 10.2 to Tremont Corporation's
Quarterly Report on Form 10-Q (No. 1-10126) for the quarter ended March
31, 1996.
10.26 Amendment to Amended and Restated Loan and Security Agreement between
Congress Financial Corporation (Central) and the Registrant dated May 31,
1996.*
10.27 Amended and Restated Term Promissory Note in the principal amount of
$10,150,000 issued by the Registrant to Congress Financial Corporation
(Central) dated May 31, 1996.*
10.28 Amended and Restated Term-B Promissory Note in the principal amount of
$13,000,000 issued by the Registrant to Congress Financial Corporation
(Central) dated May 31, 1996.*
10.29 First Amendment to Subordination Agreement by and between IMI Kynoch, Ltd.
and Congress Financial Corporation (Central) dated May 31, 1996.*
10.30 First Amendment to Amended and Restated Subordination Agreement by and
between Tremont Corporation and Congress Financial Corporation (Central)
dated May 31, 1996.*
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.*
24.1 Limited Powers of Attorney.**
27.1 Financial Data Schedule.**
</TABLE>
- ---------------
+ Management contract, compensatory plan or arrangement
* Filed herewith
** Previously filed
<PAGE> 1
EXHIBIT 10.26
AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
This AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
("Amendment") dated as of May 31, 1996 by and between Congress Financial
Corporation (Central) ("Lender") and Titanium Metals Corporation ("Borrower").
R E C I T A L S:
WHEREAS, Lender and Borrower are parties to that certain
Amended and Restated Loan and Security Agreement dated as of March 24, 1995 (as
amended as of September 29, 1995 and February 15, 1996, the "Loan Agreement";
capitalized terms used and not defined herein shall have the meanings assigned
to them in the Loan Agreement as amended hereby);
WHEREAS, Borrower has requested that Lender consent to an
amendment to the Loan Agreement as more fully described herein; and
WHEREAS, Lender has granted its consent to such amendment upon
the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
Section 1. Amendment. Immediately upon the satisfaction of each of the
conditions precedent set forth in Section 2 of this Amendment, the Loan
Agreement is hereby amended as follows:
(a) Section 1. The first paragraph of Section 1
of the Loan Agreement is hereby amended by adding the
following sentence to the end of such paragraph:
"All references to the Castings Loan Agreement and
the Castings Guarantee in this Agreement shall be
ineffective until such time as the Castings Loan
Agreement has become effective pursuant to the terms
thereof."
(b) Section 1.9. Section 1.9 of the Loan
Agreement is hereby amended and restated in its entirety to
read as follows:
1.9 "BUSINESS DAY" shall mean (a) with
respect to any borrowing, payment or rate selection
relating to Eurodollar Rate Loans, a day other than
Saturday or Sunday on which banks are open for
business in the States of New York and Illinois and
the Commonwealth of Pennsylvania and on which
dealings in United States dollars are carried on in
the London interbank market or other
<PAGE> 2
applicable Eurodollar Rate market, and (b) for all
other purposes, a day other than Saturday or Sunday
on which banks are open for business in the States of
New York and Illinois and the Commonwealth of
Pennsylvania.
(c) Section 1.12. Section 1.12 of the Loan
Agreement is hereby amended by deleting the words "Exhibit F"
which appear therein and replacing them with the words
"Exhibit E".
(d) Section 1.15. Section 1.15 of the Loan
Agreement is hereby amended by deleting the word "later" which
appears therein and replacing it with the word "earlier".
(e) Section 1.16. Section 1.16 of the Loan
Agreement is hereby amended by deleting the word "later" which
appears therein and replacing it with the word "earlier".
(f) Section 1.27. Exhibit A to the Loan
Agreement is hereby deleted in its entirety and replaced with
Exhibit A attached hereto.
(g) Section 1.30. Section 1.30 of the Loan
Agreement is hereby amended and restated in its entirety to
read as follows:
1.30 "INTEREST RATE" shall mean: (a) as to
Loans which are Prime Rate Loans and all other
non-contingent Obligations not expressly covered in
the following clause (b), a rate equal to the
Applicable Margin (either prior to or after the
occurrence of the IPO Event, as applicable) plus the
Prime Rate and (b) as to Loans which are Eurodollar
Rate Loans, a rate equal to the Applicable Margin
(either prior to or after the occurrence of the IPO
Event, as applicable) plus the Adjusted Eurodollar
Rate for the applicable Interest Period selected by
Borrower in accordance with the terms hereof.
(h) Section 1.34. Section 1.34 of the Loan
Agreement is hereby amended by replacing the dollar amount
which appears therein with the dollar amount "$105,000,000".
(i) Section 1.39. Section 1.39 of the Loan
Agreement is hereby amended by adding the phrase "(including,
without limitation, as guarantor under the Castings
Guarantee)" after the word "guarantor" which appears therein.
2
<PAGE> 3
(j) Section 1.44. Section 1.44 of the Loan
Agreement is hereby amended by deleting the words
"Philadelphia National Bank, incorporated as" which appear
therein.
(k) Section 1.45. Section 1.45 of the Loan
Agreement is hereby amended and restated in its entirety to
read as follows:
1.45 "PRIME RATE LOANS" shall mean any Loans
or portion thereof on which interest is payable based
on the Prime Rate in accordance with the terms
hereof.
(l) Section 1.48. Section 1.48 of the Loan
Agreement is hereby amended by deleting the words
"Philadelphia National Bank, incorporated as" which appear
therein.
(m) Section 1.53. Exhibits B-1 and B-2 to the
Loan Agreement are hereby deleted in their entirety and
replaced with Exhibits B-1 and B-2 attached hereto,
respectively. Section 1.53(b) of the Loan Agreement is hereby
amended by deleting the words "Term B Promissory Note" which
appear therein and replacing them with the words "Amended and
Restated Term-B Promissory Note".
(n) New Sections 1.59, 1.60, 1.61, 1.62, 1.63,
1.64, 1.65, 1.66, 1.67, 1.68 and 1.69. The following new
Sections 1.59, 1.60, 1.61, 1.62, 1.63, 1.64, 1.65, 1.66, 1.67,
1.68 and 1.69 shall be added to Section 1 of the Loan
Agreement immediately following Section 1.58 which appears
therein:
1.59 "ADJUSTED EURODOLLAR RATE" shall mean,
with respect to each Interest Period for any
Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next 1/100 of 1%)
determined by dividing (a) the Eurodollar Rate for
such Interest Period by (b) a percentage equal to:
(i) one (1) minus (ii) the Reserve Percentage. For
purposes hereof, "RESERVE PERCENTAGE" shall mean the
reserve percentage, expressed as a decimal,
prescribed by any United States or foreign banking
authority for determining the reserve requirement
which is or would be applicable to deposits of United
States dollars in a non-United States or an
international banking office of Reference Bank used
to fund a Eurodollar Rate Loan or any Eurodollar Rate
Loan made with the proceeds of such deposit, whether
or not the Reference Bank actually holds or has made
any such deposits or loans. The Adjusted Eurodollar
Rate
3
<PAGE> 4
shall be adjusted on and as of the effective day of
any change in the Reserve Percentage.
1.60 "APPLICABLE MARGIN" shall mean, with
respect to Loans that are either Prime Rate Loans or
Eurodollar Rate Loans for periods either prior to the
occurrence of the IPO Event or after the occurrence
of the IPO Event (provided, however, that the amount
shown for Eurodollar Rate Loans for periods after the
occurrence of the IPO Event shall not become
effective until the beginning of a new Interest
Period after the occurrence of the IPO Event), the
amount per annum reflected in the following table:
<TABLE>
<CAPTION>
Prime Rate Loans Eurodollar Rate Loans
Prior to After Prior to After
occurrence occurrence occurrence occurrence
of IPO of IPO of IPO of IPO
Event Event Event Event
<S> <C> <C> <C> <C>
Term Loans 2.5% 0.75% 3.75% 2.25%
Revolving Loans
2.0% 0.75% 3.25% 2.25%
</TABLE>
Notwithstanding the foregoing, each Applicable
Margin, as shown in the above table, shall be
increased by 2%, in each case at Lender's option,
without notice, (a) for the period on and after the
date of termination or non-renewal hereof, or the
date of the occurrence of any Event of Default for so
long as such Event of Default is continuing as
determined by Lender and until such time as such
Event of Default has been waived or all Obligations
are indefeasibly paid in full (notwithstanding entry
of any judgment against Borrower) and (b) on the
Revolving Loans at any time outstanding in excess of
the amounts available to Borrower under Section 2 (if
such excess(es) arise or are made without Lender's
consent); provided, however, that Lender reserves the
right to condition any consent to such excess(es)
and/or waiver of an Event of Default resulting
therefrom, inter alia, on receiving the higher
Applicable Margins (plus either the Prime Rate or the
appropriate Adjusted Eurodollar Rate, as applicable)
set forth in this sentence.
1.61 "BREAKAGE FEES" shall mean with respect
to any Eurodollar Rate Loan which is at any time paid
prior to the last day of its Interest Period,
regardless of the reason for such prepayment, the
4
<PAGE> 5
positive difference, if any, between the total amount
of interest that would have been due for the balance
of the scheduled Interest Period on such Eurodollar
Rate Loan if it had not been so prepaid and the
amount of interest that would be earned if the amount
of the prepaid Eurodollar Rate Loan were invested for
the remaining balance of such Interest Period at the
CD Rate in effect on the first day of the month in
which such prepayment occurs. As used herein, "CD
RATE" shall mean the rate quoted in the "Money Rates"
section of The Wall Street Journal for the average of
the top rates paid by New York banks on primary new
issues of negotiable certificates of deposit in
amounts of $1 million and more having a 1-month
maturity, as published on the first Business Day of
the month in which any prepayment of a Eurodollar
Rate Loan occurs.
1.62 "CASTINGS" shall mean IMI Titanium,
Inc., an Oregon corporation, and its successors and
assigns.
1.63 "CASTINGS GUARANTEE" shall mean that
certain Guarantee Agreement to be executed by
Borrower in favor of Lender pursuant to which
Borrower shall guarantee all obligations of Castings
under the Castings Loan Agreement.
1.64 "CASTINGS LOAN AGREEMENT" shall mean
that certain Loan and Security Agreement to be
entered into by and between Lender and Castings
pursuant to which Lender shall make certain term and
revolving loans available to Castings, subject to the
terms thereof.
1.65 "EURODOLLAR RATE" shall mean, with
respect to any Interest Period for a Eurodollar Rate
Loan requested by Borrower by not less than three (3)
Business Days' prior notice to Lender, the interest
rate per annum equal to the arithmetic mean of the
rates of interest per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) at which Reference
Bank is offered deposits of United States dollars in
the London interbank market (or other Eurodollar Rate
market selected by Borrower and approved by Lender,
which approval shall not be unreasonably withheld) at
or about 9:00 a.m. (New York time) two (2) Business
Days prior to the commencement of such Interest
Period in amounts substantially equal to the
principal amount of the Eurodollar Rate Loans
requested by and available to Borrower in accordance
with this Agreement, with a maturity of comparable
duration
5
<PAGE> 6
to the Interest Period selected by Borrower. Upon
receipt of Borrower's request for a Eurodollar Rate
Loan, Lender will, if requested, provide Borrower
with an indication of the prevailing Eurodollar Rate
on the Business Day of such request; provided,
however, that the actual Eurodollar Rate which is
applicable to the requested Interest Period shall be
determined as provided above and may be higher or
lower than such indicative rate.
1.66 "EURODOLLAR RATE LOANS" shall mean any
Loans or portion thereof on which interest is payable
based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.67 "INTEREST PERIOD" shall mean for any
Eurodollar Rate Loan, a period of approximately one
(1), two (2) or three (3) months duration as Borrower
may elect, the exact duration to be determined in
accordance with the customary practice in the
applicable Eurodollar Rate market; provided that
Borrower may not elect an Interest Period which will
end after the last day of the then-current term of
this Agreement.
1.68 "IPO EVENT" shall occur if (i) the
Borrower consummates an initial public offering of
its capital stock, (ii) immediately following such
initial public offering, the Adjusted Net Worth of
Borrower and its subsidiaries is at least $80,000,000
greater than the Adjusted Net Worth of Borrower and
its subsidiaries immediately prior to such initial
public offering and (iii) the net cash proceeds
received from such initial public offering less the
amount of Subordinated Indebtedness that Borrower
pays and/or is required to pay from such proceeds is
at least $40,000,000.
1.69 "SUBORDINATED INDEBTEDNESS" shall
mean the indebtedness of Borrower owing to (A)
Tremont, that is subordinated to the Obligations
pursuant to the Tremont Subordination Agreement and
(B) IMI Kynoch Ltd., a company organized under the
laws of England and Wales ("Kynoch"), that is
subordinated to the Obligations pursuant to that
certain Subordination Agreement, dated as of February
15, 1996, by and between Kynoch and Lender.
(o) Section 2.1. Section 2.1 of the Loan
Agreement is hereby amended as follows:
(1) Section 2.1(a)(iii)(B) of the Loan
Agreement is hereby amended by replacing the dollar
6
<PAGE> 7
amount which appears therein with the dollar amount
"$53,500,000"; and
(2) The first sentence of Section 2.1(c)
of the Loan Agreement is hereby amended by (A) adding the
phrase "plus (iii) the aggregate amount of Loans and Letter of
Credit Accommodations (each as defined in the Castings Loan
Agreement) outstanding at such time under the Castings Loan
Agreement" after the words "Term Loan-B at such time" and (B)
replacing the dollar amount which appears therein with the
dollar amount "$15,000,000".
(p) Section 2.2(c)(i)(A). Section 2.2(c)(i)(A)
of the Loan Agreement is hereby amended by replacing the
phrase "thirty-five percent (35%)" with the phrase "forty-five
percent (45%)".
(q) Section 2.2(d). Section 2.2(d) of the Loan
Agreement is hereby amended by replacing the dollar amount
which appears therein with the dollar amount "$15,000,000".
(r) Section 2.3(b). The second sentence of
Section 2.3(b) of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:
"The principal balance of Term Loan-B shall be
payable as follows: (i) $1,000,000 shall be due on
each of June 30, 1995 and December 31, 1995, (ii)
installments in the amount of the lesser of
$1,000,000 and the outstanding balance of Term Loan-B
shall be due on December 31, 1996 and on each June 30
and December 31 thereafter until the entire
outstanding balance of Term Loan-B has been paid in
full and (iii) a final installment in the amount of
the entire unpaid balance of Term Loan-B shall be due
on or before December 31, 1997 (or, in the event that
the IPO Event occurs on or prior to December 31,
1997, then such installment shall be due on December
31, 1998)."
(s) Section 3.1. Section 3.1 of the Loan
Agreement is hereby amended and restated in its entirety to
read as follows:
3.1 Interest.
(a) Borrower shall pay to Lender
interest on the daily average outstanding principal
amount of the Loans and, to the extent permitted by
applicable law, the other non-contingent Obligations
from and after the date when actually paid by Lender,
at the Interest
7
<PAGE> 8
Rate. All interest accruing hereunder on and after
the date of any Event of Default or termination or
non-renewal hereof shall be payable on demand.
Lender shall make a good faith effort to pay
third-party fees and expenses when due and not to
charge Borrower's loan account for reimbursement of
such Obligations until actually paid by Lender.
(b) Borrower may from time to time
request that Prime Rate Loans be converted to
Eurodollar Rate Loans, that Eurodollar Rate Loans be
converted to Prime Rate Loans and/or that any
existing Eurodollar Rate Loans continue for an
additional Interest Period. Such request from
Borrower shall specify the amount of the Prime Rate
Loans which will be converted to Eurodollar Rate
Loans (subject to the limits set forth below) and the
Interest Period to be applicable to such Eurodollar
Rate Loans on not less than three (3) Business Days
prior notice to Lender. Subject to the terms and
conditions contained herein, three (3) Business Days
after receipt by Lender of such a request from
Borrower, such Prime Rate Loans shall be converted to
Eurodollar Rate Loans or such Eurodollar Rate Loans
shall continue, as the case may be, provided that (i)
no Event of Default, or event which, merely with
notice or passage of time or both, would constitute
an Event of Default, exists or has occurred and is
continuing, (ii) no party hereto shall have sent any
notice of termination or non-renewal of this
Agreement, (iii) Borrower shall have complied with
all reasonable and customary procedures as are
established by Lender and specified by Lender to
Borrower from time to time for requests by Borrower
for Eurodollar Rate Loans, (iv) no more than four (4)
Interest Periods may be in effect at any one time,
(v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $5,000,000 or an
integral multiple of $1,000,000 in excess thereof,
(vi) the maximum amount of the Eurodollar Rate Loans
at any time requested by Borrower shall not exceed
the amount equal to eighty percent (80%) of the daily
average of the principal amount of the Loans which it
is anticipated will be outstanding during the
applicable Interest Period, in each case as
reasonably determined by Borrower pursuant to a good
faith written computation (but with no obligation of
Lender to make such Revolving Loans except as
otherwise provided in this Agreement), and (vii)
Lender shall have determined that the Interest Period
or Adjusted Eurodollar Rate is
8
<PAGE> 9
available to Lender through the Reference Bank and
can be readily determined as of the Business Day
following the date of the request for such Eurodollar
Rate Loan by Borrower. Any request by Borrower to
convert Prime Rate Loans to Eurodollar Rate Loans or
to continue any existing Eurodollar Rate Loans shall
be irrevocable. Notwithstanding anything to the
contrary contained herein, Lender and Reference Bank
shall not be required to purchase United States
Dollar deposits in the London interbank market or
other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof
shall be deemed to apply as if Lender and Reference
Bank had purchased such deposits to fund the
Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall
automatically convert to Prime Rate Loans upon the
last day of the applicable Interest Period, unless
Lender has received a request to continue such
Eurodollar Rate Loan at least three (3) Business Days
prior to such last day in accordance with the terms
hereof. Any Eurodollar Rate Loans shall, at Lender's
option, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) an Event of
Default shall exist, (ii) this Agreement shall
terminate or not be renewed, or (iii) the aggregate
principal amount of the Prime Rate Loans which have
previously been converted to Eurodollar Rate Loans or
existing Eurodollar Rate Loans continued, as the case
may be, at the beginning of an Interest Period shall
at any time during such Interest Period exceed the
sum of the then outstanding principal amount of the
Loans then available to Borrower under Section 2
hereof. Borrower shall pay to Lender, upon demand by
Lender (or Lender may, at its option, charge any loan
account of Borrower) any Breakage Fees and, without
duplication thereof, any other reasonable and
customary amounts required to compensate Lender, the
Reference Bank or any Participant for any loss
(including loss of anticipated profits), cost or
expense reasonably incurred by such person, as a
result of the conversion of Eurodollar Rate Loans to
Prime Rate Loans pursuant to any of the foregoing;
provided, however, that no such Breakage Fee or other
costs shall be payable if such conversion of
Eurodollar Rate Loans to Prime Rate Loans prior to
the end of the applicable Interest Period results
from Lender's establishment of Availability Reserves,
changes in criteria for Eligible Accounts or
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<PAGE> 10
Eligible Inventory, or reduction of the lending
formula set forth in Section 2.1(a).
(d) Interest shall be payable by
Borrower to Lender monthly in arrears not later than
the first Business Day of each calendar month and
shall be calculated on the daily average principal
balance of the non-contingent Obligations outstanding
on the basis of a three hundred sixty (360) day year
and actual days elapsed (including the date of
borrowing but excluding the date of payment if made
in accordance with Section 6.3(b)). The interest
rate on non-contingent Obligations (other than
Eurodollar Rate Loans) shall increase or decrease by
an amount equal to each increase or decrease in the
Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced
based on the Prime Rate in effect on the last day of
the month in which any such change occurs. In no
event shall charges constituting interest payable by
Borrower to Lender exceed the maximum amount or the
rate permitted under any applicable law or
regulation, and if any such part or provision of this
Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed
amended to conform thereto.
(t) Section 3.6. The following Section 3.6 is
hereby added to the Loan Agreement immediately following
Section 3.5 which appears therein:
3.6 Changes in Laws; Increased Costs of
Loans; Breakage Fees.
(a) Notwithstanding anything to the
contrary contained herein, all Eurodollar Rate Loans
shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that any change in
applicable law or regulation (or the interpretation
or administration thereof by a banking authority or
regulator) shall make it unlawful for Lender,
Reference Bank or any Participant to make or maintain
Eurodollar Rate Loans or to comply with the terms
hereof in connection with the Eurodollar Rate Loans.
In the event that any change in applicable law or
regulation (or the interpretation or administration
thereof by a banking authority or regulator) shall
(i) result in the increase in the costs to Lender,
Reference Bank or any Participant of making or
maintaining any Eurodollar Rate Loans or (ii) reduce
the amounts received or receivable
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<PAGE> 11
by Lender in respect thereof, by an amount deemed by
Lender to be material, Borrower shall pay to Lender,
upon demand by Lender (or Lender may, at its option,
charge any loan account of Borrower) any amounts
required to compensate Lender, the Reference Bank or
any Participant with Lender for any loss (including
loss of anticipated profits), cost or expense
reasonably incurred by such person as a result of the
foregoing, including, without limitation, any such
loss, cost or expense reasonably incurred by reason
of the liquidation or reemployment of deposits or
other funds acquired by such person to make or
maintain the Eurodollar Rate Loans or any portion
thereof. A certificate of Lender setting forth the
basis for the determination of such amount necessary
to compensate Lender as aforesaid shall be delivered
to Borrower and shall be conclusive, absent manifest
error. In the event that Lender shall determine that
the applicable Eurodollar Rate does not adequately
reflect the cost to Lender of making or maintaining
the Eurodollar Rate Loans, then, unless Borrower
compensates Lender for Lender's increased cost of
funds, Lender may suspend generally the prospective
availability of the Eurodollar Rate option for new
Interest Periods and/or Loans until such condition no
longer exists.
(b) If any payments or prepayments
in respect of the Eurodollar Rate Loans are received
by Lender other than on the last day of the
applicable Interest Period (whether pursuant to
acceleration, upon maturity or otherwise), including
any payments pursuant to the application of
collections under Section 6.3 or any other payments
made with the proceeds of Collateral, Borrower shall
pay to Lender upon demand by Lender (or Lender may,
at its option, charge any loan account of Borrower)
Breakage Fees and, without duplication thereof, any
other reasonable and customary amounts required to
compensate Lender, the Reference Bank or any
Participant with Lender for any additional loss
(including loss of anticipated profits), cost or
expense reasonably incurred by such person as a
result of such prepayment or payment, including,
without limitation, any loss, cost or expense
reasonably incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by
such person to make or maintain such Eurodollar Rate
Loans or any portion thereof. A certificate of
Lender setting forth the basis for the determination
of such amount necessary to
11
<PAGE> 12
compensate Lender as aforesaid shall be delivered to
Borrower and shall be conclusive, absent manifest
error.
(u) Section 9.6(e). Exhibit F attached to this
Amendment shall be considered attached to the Loan Agreement.
Section 9.6(e) of the Loan Agreement is hereby amended and
restated in its entirety to read as follows:
"(e) Not later than January 1 of each year
hereafter during the term of this Agreement, Borrower
shall deliver to Lender an updated letter addressed
to Borrower's auditors substantially in the form of
Exhibit F hereto."
(v) Section 9.7(b)(iv)(B). Section 9.7(b)(iv)(B)
of the Loan Agreement is hereby amended by adding the phrase
"(when aggregated with the aggregate fair market value of any
such sales under Section 9.7(b)(iv)(B) of the Castings Loan
Agreement, after the Castings Loan Agreement becomes
effective)" immediately after the phrase "aggregate fair
market value in excess" which appears therein.
(w) Section 9.8(e). Section 9.8(e) of the Loan
Agreement is hereby amended by adding the phrase "(when
aggregated with the amount of any such security interests or
mortgages under Section 9.8(e) of the Castings Loan Agreement,
after the Castings Loan Agreement becomes effective)"
immediately after the phrase "real estate not to exceed" which
appears therein.
(x) Section 9.9. Section 9.9 of the Loan
Agreement is hereby amended by deleting the word "and" that
immediately follows Section 9.9(d) and adding the following
new section 9.9(f) immediately after Section 9.9(e) and before
the words "; provided that":
"and (f) after the Castings Loan Agreement has become
effective, indebtedness owing to Castings in an
amount not to exceed $4,000,000 in the aggregate at
any one time outstanding (as long as such
indebtedness is evidenced by a promissory note or
notes that have been pledged to Congress Financial
Corporation (Central) pursuant to documentation
satisfactory to Lender);"
(y) Section 9.10. Section 9.10 of the Loan
Agreement is hereby amended as follows:
(1) Section 9.10(i) is hereby amended
and restated in its entirety to read as follows:
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<PAGE> 13
"(i) acquisition of additional shares of Tisto Titan
und Sonderlegierungen, GmbH ("Tisto") and the
guarantee of up to $1,300,000 of debt of Tisto to one
or more of Tisto's existing shareholders; and".
(2) Section 9.10(l) is hereby amended by
deleting the word "and" which appears after the semi-colon
(";") therein.
(3) Section 9.10(m) is hereby deleted in its
entirety and replaced with the following Sections 9.10(m) and
(n):
"(m) after the Castings Loan Agreement has become
effective, loans and advances to Castings in an
amount not to exceed $5,000,000 in the aggregate at
any one time outstanding (as long as such loans and
advances are evidenced by a promissory note or notes
that have been pledged to Congress Financial
Corporation (Central) pursuant to documentation
satisfactory to Lender); and (n) additional
investments after March 24, 1995 that do not exceed
$3,000,000 in the aggregate (including, without
limitation, guarantees of debt in excess of
$1,300,000 of Tisto to one or more of Tisto's
existing shareholders)."
(z) Section 12.1. Section 12.1 of the Loan
Agreement is hereby amended as follows:
(1) The first sentence of Section 12.1(a) of
the Loan Agreement is hereby amended and restated in its
entirety to read as follows:
"This Agreement and the other Financing Agreements
shall become effective as of the date set forth on
the first page hereof and shall continue in full
force and effect for a term ending on December 31,
1997 (the "RENEWAL DATE"), and from year to year
thereafter, unless sooner terminated pursuant to the
terms hereof; provided, however, that in the event
that the IPO Event occurs on or prior to December 31,
1997, this Agreement and the other Financing
Agreements shall continue in full force and effect
for a term ending on December 31, 1998 (in which
event, such date shall be the "RENEWAL DATE"); and
provided, further, that upon request of Borrower,
Lender may, at its option, extend the Renewal Date
for a 2-year period by giving Borrower notice at
least sixty (60) days prior to the Renewal Date."
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<PAGE> 14
(2) The first sentence of Section 12.1(c) of
the Loan Agreement is hereby amended as follows:
(a) The dollar amount that appears in
the parenthetical therein shall be replaced with the
dollar amount "$105,000,000".
(b) The following proviso is hereby
inserted after the parenthetical and before the
period (".") therein:
"; provided, however, that the early
termination fee at all times after December
31, 1996 shall be equal to 0.5% of the
amended and restated Maximum Credit (i.e.,
$105,000,000)".
Section 2. Conditions to Effectiveness of Amendment. The effectiveness of
this Amendment is subject to the satisfaction of the following conditions
precedent:
2.1 Documents.
(a) Amendment. Lender shall have received a duly
executed counterpart of this Amendment from Borrower.
(b) Mortgage Amendments. Lender shall have
received a duly executed counterpart of each of those certain
amendments to each of the Mortgages, each dated the date
hereof and in form and substance satisfactory to Lender.
(c) French Law Documents. Lender shall have
received duly executed counterparts of each of Avenant a un
Acte de Nantissement de Paris Sociales dated as of the date
hereof among Lender, Borrower and TMCA International, Inc. and
Avenant a un Acte de Nantissement de Creances dated as of the
date hereof between Lender and Borrower.
(d) Participation Agreement Amendments. Each
Person which has acquired a participation interest in any or
all of Lender's rights under the Loan Agreement shall have
executed and delivered to Lender an amendment, in form and
substance satisfactory to Lender, to the applicable
participation agreement.
(e) Subordination Agreement Amendments.
(1) Lender shall have received duly executed
counterparts of that certain amendment to the Tremont
Subordination Agreement (i) confirming the priority of the
increase in the amount of the Maximum Credit
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<PAGE> 15
contemplated hereby and (ii) permitting the payment of up to
$43,000,000 (in the aggregate, including the payment
referenced in Section 2.1(e)(2)(ii) hereof) of the
Subordinated Debt (as defined in the Tremont Subordination
Agreement) after the occurrence of the IPO Event, dated as of
the date hereof and in form and substance satisfactory to
Lender.
(2) Lender shall have received duly executed
counterparts of that certain amendment to that certain
Subordination Agreement, dated as of February 15, 1996 (the
"IMI Subordination Agreement"), by and between IMI Kynoch
Ltd., a company organized under the laws of England and Wales,
and Lender, (i) confirming the priority of the increase in the
amount of the Maximum Credit contemplated hereby and (ii)
permitting the payment of up to $43,000,000 (in the aggregate,
including the payment referenced in Section 2.1(e)(1)(ii)
hereof) of the Subordinated Debt (as defined in the IMI
Subordination Agreement) after the occurrence of the IPO
Event.
2.2 Certified Resolutions, etc. Lender shall have received a
certificate, in form and substance satisfactory to Lender, of the secretary or
assistant secretary of the Borrower dated the date hereof, certifying (i) the
resolutions of its Board of Directors approving and authorizing the execution,
delivery and performance by it of this Amendment and the continued
effectiveness thereof, (ii) that there have been no changes in its certificate
of incorporation or by-laws since March 15, 1995, or if there have been changes
in its certificate of incorporation or by-laws since March 15, 1995, certifying
its certificate of incorporation and/or by-laws, as the case may be, as in
effect on the Effective Date and (iii) specimen signatures of its officers
authorized to sign this Amendment.
2.3 Consents, Licenses, Approval, etc. All consents,
licenses and approvals, if any, required in connection with the execution,
delivery and performance by the Borrower of this Amendment or the Loan
Agreement, as amended by this Amendment, or the validity or enforceability
thereof, or in connection with any of the transactions effected pursuant to the
Amendment or the Loan Agreement, as amended by the Amendment, shall be in full
force and effect.
2.4 No Injunction. No law or regulation shall have been
adopted, no order, judgment or decree of any governmental authority shall have
been issued, and no litigation shall be pending or threatened, which in the
reasonable judgment of Lender would enjoin, prohibit or restrain, or impose or
result in the imposition of any material adverse condition upon, the execution,
delivery or performance by the Borrower of the Amendment or the Loan Agreement,
as amended by the Amendment.
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<PAGE> 16
2.5 Opinion. Lender shall have received a favorable legal
opinion, dated the date hereof, of counsel to the Borrower in form and
substance satisfactory to Lender.
2.6 Amendment Fee. Lender shall have received payment of an
amendment fee of $525,000, which fee shall be fully earned and payable as of
the date hereof.
2.7 Title Insurance. Lender shall have received, in form and
substance reasonably satisfactory to Lender, endorsements to the title
insurance policies issued in connection with the Mortgages insuring the
continued priority and sufficiency of the Mortgages from and after the date
hereof and the effectiveness of this Amendment.
Section 3. Representations and Warranties. In order to induce Lender to enter
into this Amendment, Borrower represents and warrants to Lender, upon the
effectiveness of this Amendment, which representations and warranties shall
survive the execution and delivery of this Amendment, that:
3.1 No Default; etc. No Event of Default and no event or
condition which, merely with notice or the passage of time or both, would
constitute an Event of Default, has occurred and is continuing after giving
effect to this Amendment or would result from the execution or delivery of this
Amendment or the consummation of the transactions contemplated hereby.
3.2 Corporate Power and Authority: Authorization. Borrower
has the corporate power and authority to execute and deliver this Amendment and
to carry out the terms and provisions of the Loan Agreement, as amended by this
Amendment, and the execution and delivery by Borrower of the Loan Agreement, as
amended by this Amendment, and the performance by Borrower of its obligations
hereunder and thereunder have been duly authorized by all requisite corporate
action by Borrower.
3.3 Execution and Delivery. Borrower has duly executed and
delivered each of this Amendment.
3.4 Enforceability. This Amendment and the Loan Agreement,
as amended by this Amendment, constitutes the legal, valid and binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' right generally, and by general principles of equity.
3.5 Representations and Warranties. All of the
representations and warranties contained in the Loan Agreement and in the
Financing Agreements (other than those which speak expressly only as of a
different date) are true and correct as of the date hereof after giving effect
to this Amendment, the
16
<PAGE> 17
transactions contemplated hereby and the Information Certificate attached
hereto as Exhibit A.
Section 4. Miscellaneous.
4.1 Effect; Ratification. The amendment set forth herein is
effective solely for the purposes set forth herein and shall be limited
precisely as written, and shall not be deemed to (i) be a consent to any
amendment, waiver or modification of any other term or condition of the Loan
Agreement or of any other Financing Agreement or (ii) prejudice any right or
rights that Lender may now have or may have in the future under or in
connection with the Loan Agreement or any other Financing Agreement. Each
reference in the Loan Agreement to "this Agreement", "herein", "hereof" and
words of like import and each reference in the other Financing Agreements to
the "Loan Agreement" shall mean the Loan Agreement as amended hereby. This
Amendment shall be construed in connection with and as part of the Loan
Agreement and all terms, conditions, representations, warranties, covenants and
agreements set forth in the Loan Agreement and each other Financing Agreement,
except as herein amended or waived, are hereby ratified and confirmed and shall
remain in full force and effect.
4.2 Counterparts. This Amendment may be executed in any
number of counterparts, each such counterpart constituting an original but all
together one and the same instrument.
4.3 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
ILLINOIS.
4.4 Cezus Transaction. The Lender hereby approves the
performance of Borrower's obligations as substantially set forth in that
certain draft Formation Agreement by and among Compagnie Europeenne du
Zirconium-Cezus, on the one hand, and Borrower and TIMET Savoie, S.A., on the
other hand, a copy of which has been provided to Lender.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By /s/ WILLIAM BLOOM
---------------------------------------
Title: Senior V.P.
TITANIUM METALS CORPORATION
By /s/ ROBERT E. MUSGRAVES
---------------------------------------
Title: V.P. - Administration
S-1
<PAGE> 1
EXHIBIT 10.27
AMENDED AND RESTATED TERM PROMISSORY NOTE
$10,150,000 Chicago, Illinois
May 31, 1996
FOR VALUE RECEIVED, TITANIUM METALS CORPORATION, a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
order of CONGRESS FINANCIAL CORPORATION (CENTRAL), an Illinois corporation (the
"Payee"), at the offices of Payee at 100 South Wacker Drive, Suite 1940,
Chicago, Illinois 60606, or at such other place as the Payee or any holder
hereof may from time to time designate, the principal sum of TEN MILLION ONE
HUNDRED FIFTY THOUSAND DOLLARS ($10,150,000) in lawful money of the United
States of America and in immediately available funds, in (i) consecutive
monthly installments on the first day of each month commencing June 1, 1996
which installments shall each be in the amount equal to the lesser of (A) TWO
HUNDRED FIFTY THOUSAND DOLLARS ($250,000) and (B) the unpaid balance of this
Note and (ii) a final installment on December 31, 1997 (or, in the event that
the IPO Event occurs on or prior to December 31, 1997, then such installment
shall be on December 31, 1998) which final installment shall be in the amount
of the entire unpaid balance of this Note.
Unless otherwise defined herein, all capitalized terms used herein
shall have the meaning assigned thereto in that certain Amended and Restated
Loan and Security Agreement, dated as of March 24, 1995, between Borrower and
Payee (as amended as of September 29, 1995, February 15, 1996, and as of the
date hereof, and as the same may hereafter be amended, restated, supplemented
or otherwise modified, the "Loan Agreement").
Borrower hereby further promises to pay interest to the order of Payee
on the unpaid principal balance hereof at the Interest Rate. Such interest
shall be paid in like money at said office or place from the date hereof,
commencing June 1, 1996 and on the first day of each month thereafter until the
indebtedness evidenced by this Note is paid in full. Interest payable upon and
after an Event of Default or termination or non-renewal of the Loan Agreement
shall be payable upon demand.
The Interest Rate applicable to Prime Rate Loans payable hereunder
shall increase or decrease by an amount equal to each increase or decrease,
respectively, in the Prime Rate, effective on the first day of the month after
any change in the Prime Rate, based on the Prime Rate in effect on the last day
of the month in which any such change occurs. Interest shall be calculated on
the daily average unpaid principal and on the basis of a three hundred sixty
(360) day year and actual days elapsed. In no event shall the interest charged
hereunder exceed the maximum permitted under the laws of the State of Illinois
or other applicable law.
This Note amends and restates, without interruption or novation, the
Amended and Restated Term Promissory Note dated March 24, 1995 executed by
Borrower in favor of Lender, which such note amended and restated, without
interruption or novation, the term promissory note dated April 18, 1994
executed by Borrower in favor of Lender pursuant to the Original Agreement.
This Note is issued pursuant to the terms and provisions of the Loan Agreement
to evidence the Existing Term Loan by Payee to Borrower. This Note is secured
by the Collateral described in the Loan Agreement and all notes, guarantees,
security agreements and other agreements, documents and instruments now or at
any time hereafter executed and/or delivered by Borrower or any other party in
connection therewith (all of the foregoing, together with the Loan Agreement,
as the same now exist or may hereafter be amended, modified, supplemented,
renewed, extended, restated or replaced, being collectively referred to herein
as the "Financing Agreements"), and is entitled to all of the benefits and
rights thereof and
<PAGE> 2
of the other Financing Agreements. At the time any payment is due hereunder,
at its option, Payee may charge the amount thereof to any account of Borrower
maintained by Payee.
If any payment of principal or interest is not made when due
hereunder, or if any other Event of Default shall occur for any reason, or if
the Loan Agreement shall be terminated or not renewed for any reason
whatsoever, then and in any such event, in addition to all rights and remedies
of Payee under the Financing Agreements, applicable law or otherwise, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively and concurrently, Payee may, at its option, declare
any or all of Borrower's obligations, liabilities and indebtedness owing to
Payee under the Loan Agreement and the other Financing Agreements (the
"Obligations"), including, without limitation, all amounts owing under this
Note, to be due and payable, whereupon the then unpaid balance hereof, together
with all interest accrued thereon, shall forthwith become due and payable,
together with interest accruing thereafter at the then applicable Interest Rate
until the indebtedness evidenced by this Note is paid in full, plus the
reasonable costs and expenses of collection hereof, including, but not limited
to, reasonable attorneys' fees and legal expenses.
Borrower (i) waives diligence, demand, presentment, protest and notice
of any kind except as otherwise expressly provided in the Loan Agreement, (ii)
agrees that it will not be necessary for Payee to first institute suit in order
to enforce payment of this Note and (iii) consents to any one or more
extensions or postponements of time of payment, release, surrender or
substitution of collateral security, or forbearance or other indulgence,
without notice or consent. The pleading of any statute of limitations as a
defense to any demand against Borrower is expressly hereby waived by Borrower.
Upon any Event of Default or termination or non-renewal of the Loan Agreement,
Payee shall have the right, but not the obligation to setoff against this Note
all money owed by Payee to Borrower.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Borrower and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
The validity, interpretation and enforcement of this Note and the
other Financing Agreements and any dispute arising in connection herewith or
therewith shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law).
Borrower irrevocably consents and submits to the non-exclusive
jurisdiction of the courts of the State of Illinois and the United States
District Court for the Northern District of Illinois and waives any objection
based on venue or forum non conveniens with respect to any action instituted
therein arising under this Note or any of the other Financing Agreements or in
any way in connection with or related or incidental to the dealings of Borrower
and Payee in respect of this Note or any of the other Financing Agreements or
the transactions related hereto or thereto, in each case whether now existing
or hereafter arising, and whether in contract, tort, equity or otherwise, and
agrees that any dispute arising out of the relationship between Borrower and
Payee or the conduct of such persons in connection with this Note or otherwise
shall be heard only in the courts described above (except that Payee shall have
the right to bring any action or proceeding against Borrower or its property in
the courts of any other jurisdiction which Payee deems necessary or appropriate
in order to realize on the Collateral or to otherwise enforce its rights
against Borrower or its property).
Borrower hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to it, and service so made shall be deemed
to be completed five (5) Business Days after the same shall have been
2
<PAGE> 3
so deposited in the U.S. mails, or, at Payee's option, by service upon Borrower
in any other manner provided under the rules of any such courts. Within thirty
(30) days after such service, Borrower shall appear in answer to such process,
failing which Borrower shall be deemed in default and judgment may be entered
by Payee against Borrower for the amount of the claim and other relief
requested.
BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (1) ARISING UNDER THIS NOTE OR (2) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS BETWEEN BORROWER AND
PAYEE IN RESPECT OF THIS NOTE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
BORROWER AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY.
The execution and delivery of this Note has been authorized by the
Board of Directors and by any necessary vote or consent of the stockholders of
Borrower. Borrower hereby authorizes Payee to complete this Note in any
particulars according to the terms of the loan evidenced hereby.
This Note shall be binding upon the successors and assigns of Borrower
and inure to the benefit of Payee and its successors, endorsees and assigns.
Whenever used herein, the term "Borrower" shall be deemed to include its
successors and permitted assigns and the term "Payee" shall be deemed to
include its successors, endorsees and permitted assigns. If any term or
provision of this Note shall be held invalid, illegal or unenforceable, the
validity of all other terms and provisions hereof shall in no way be affected
thereby.
ATTEST:
/s/ JOHN R. BURT TITANIUM METALS CORPORATION
- ----------------------------
Assistant Secretary
By: /s/ ROBERT E. MUSGRAVES
--------------------------
Corporate Seal Title: V.P. - Administration
-----------------------
3
<PAGE> 1
EXHIBIT 10.28
AMENDED AND RESTATED TERM-B PROMISSORY NOTE
$13,000,000 Chicago, Illinois
May 31, 1996
FOR VALUE RECEIVED, TITANIUM METALS CORPORATION, a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
order of CONGRESS FINANCIAL CORPORATION (CENTRAL), an Illinois corporation (the
"Payee"), at the offices of Payee at 100 South Wacker Drive, Suite 1940,
Chicago, Illinois 60606, or at such other place as the Payee or any holder
hereof may from time to time designate, the principal sum of THIRTEEN MILLION
DOLLARS ($13,000,000) in lawful money of the United States of America and in
immediately available funds, in (i) consecutive semi-annual installments on
June 30 and December 31 of each year commencing December 31, 1996 which
installments shall each be in the amount equal to the lesser of (A) ONE MILLION
DOLLARS ($1,000,000) and (B) the unpaid balance of this Note, and (ii) a final
installment on December 31, 1997 (or, in the event that the IPO Event occurs on
or prior to December 31, 1997, then such installment shall be on December 31,
1998) which final installment shall be in the amount of the entire unpaid
balance of this Note.
Unless otherwise defined herein, all capitalized terms used herein
shall have the meaning assigned thereto in that certain Amended and Restated
Loan and Security Agreement, dated as of March 24, 1995, between Borrower and
Payee (as amended as of September 29, 1995, February 15, 1996, and as of the
date hereof, and as the same may hereafter be amended, restated, supplemented
or otherwise modified, the "Loan Agreement").
Borrower hereby further promises to pay interest to the order of Payee
on the unpaid principal balance hereof at the Interest Rate. Such interest
shall be paid in like money at said office or place from the date hereof,
commencing June 1, 1996 and on the first day of each month thereafter until the
indebtedness evidenced by this Note is paid in full. Interest payable upon and
after an Event of Default or termination or non-renewal of the Loan Agreement
shall be payable upon demand.
The Interest Rate applicable to Prime Rate Loans payable hereunder
shall increase or decrease by an amount equal to each increase or decrease,
respectively, in the Prime Rate, effective on the first day of the month after
any change in the Prime Rate, based on the Prime Rate in effect on the last day
of the month in which any such change occurs. Interest shall be calculated on
the daily average unpaid principal and on the basis of a three hundred sixty
(360) day year and actual days elapsed. In no event shall the interest charged
hereunder exceed the maximum permitted under the laws of the State of Illinois
or other applicable law.
This Note amends and restates, without interruption or novation, the
Term-B Promissory Note dated March 24, 1995 executed by Borrower in favor of
Lender pursuant to the Loan Agreement. This Note is issued pursuant to the
terms and provisions of the Loan Agreement to evidence the Term Loan-B by Payee
to Borrower. This Note is secured by the Collateral described in the Loan
Agreement and all notes, guarantees, security agreements and other agreements,
documents and instruments now or at any time hereafter executed and/or
delivered by Borrower or any other party in connection therewith (all of the
foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, renewed, extended, restated or
replaced, being collectively referred to herein as the "Financing Agreements"),
and is entitled to all of the benefits and rights thereof and of the other
Financing Agreements. At the time any payment is due hereunder, at its option,
Payee may charge the amount thereof to any account of Borrower maintained by
Payee.
<PAGE> 2
If any payment of principal or interest is not made when due
hereunder, or if any other Event of Default shall occur for any reason, or if
the Loan Agreement shall be terminated or not renewed for any reason
whatsoever, then and in any such event, in addition to all rights and remedies
of Payee under the Financing Agreements, applicable law or otherwise, all such
rights and remedies being cumulative, not exclusive and enforceable
alternatively, successively and concurrently, Payee may, at its option, declare
any or all of Borrower's obligations, liabilities and indebtedness owing to
Payee under the Loan Agreement and the other Financing Agreements (the
"Obligations"), including, without limitation, all amounts owing under this
Note, to be due and payable, whereupon the then unpaid balance hereof, together
with all interest accrued thereon, shall forthwith become due and payable,
together with interest accruing thereafter at the then applicable Interest Rate
until the indebtedness evidenced by this Note is paid in full, plus the
reasonable costs and expenses of collection hereof, including, but not limited
to, reasonable attorneys' fees and legal expenses.
Borrower (i) waives diligence, demand, presentment, protest and notice
of any kind except as otherwise expressly provided in the Loan Agreement, (ii)
agrees that it will not be necessary for Payee to first institute suit in order
to enforce payment of this Note and (iii) consents to any one or more
extensions or postponements of time of payment, release, surrender or
substitution of collateral security, or forbearance or other indulgence,
without notice or consent. The pleading of any statute of limitations as a
defense to any demand against Borrower is expressly hereby waived by Borrower.
Upon any Event of Default or termination or non-renewal of the Loan Agreement,
Payee shall have the right, but not the obligation to setoff against this Note
all money owed by Payee to Borrower.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Borrower and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
The validity, interpretation and enforcement of this Note and the
other Financing Agreements and any dispute arising in connection herewith or
therewith shall be governed by the internal laws of the State of Illinois
(without giving effect to principles of conflicts of law).
Borrower irrevocably consents and submits to the non-exclusive
jurisdiction of the courts of the State of Illinois and the United States
District Court for the Northern District of Illinois and waives any objection
based on venue or forum non conveniens with respect to any action instituted
therein arising under this Note or any of the other Financing Agreements or in
any way in connection with or related or incidental to the dealings of Borrower
and Payee in respect of this Note or any of the other Financing Agreements or
the transactions related hereto or thereto, in each case whether now existing
or hereafter arising, and whether in contract, tort, equity or otherwise, and
agrees that any dispute arising out of the relationship between Borrower and
Payee or the conduct of such persons in connection with this Note or otherwise
shall be heard only in the courts described above (except that Payee shall have
the right to bring any action or proceeding against Borrower or its property in
the courts of any other jurisdiction which Payee deems necessary or appropriate
in order to realize on the Collateral or to otherwise enforce its rights
against Borrower or its property).
Borrower hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to it, and service so made shall be deemed
to be completed five (5) Business Days after the same shall have been so
deposited in the U.S. mails, or, at Payee's option, by service upon Borrower in
any other manner provided under the rules of any such courts. Within thirty
(30) days after such service, Borrower shall appear in answer to such process,
failing which Borrower shall be deemed in default and judgment may
2
<PAGE> 3
be entered by Payee against Borrower for the amount of the claim and other
relief requested.
BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (3) ARISING UNDER THIS NOTE OR (4) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS BETWEEN BORROWER AND
PAYEE IN RESPECT OF THIS NOTE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE.
BORROWER AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY.
The execution and delivery of this Note has been authorized by the
Board of Directors and by any necessary vote or consent of the stockholders of
Borrower. Borrower hereby authorizes Payee to complete this Note in any
particulars according to the terms of the loan evidenced hereby.
This Note shall be binding upon the successors and assigns of Borrower
and inure to the benefit of Payee and its successors, endorsees and assigns.
Whenever used herein, the term "Borrower" shall be deemed to include its
successors and permitted assigns and the term "Payee" shall be deemed to
include its successors, endorsees and permitted assigns. If any term or
provision of this Note shall be held invalid, illegal or unenforceable, the
validity of all other terms and provisions hereof shall in no way be affected
thereby.
ATTEST:
/s/ JOHN R. BURT TITANIUM METALS CORPORATION
- ----------------------------
Assistant Secretary
By: /s/ ROBERT E. MUSGRAVES
--------------------------
Corporate Seal Title: V.P. - Administration
-----------------------
3
<PAGE> 1
EXHIBIT 10.29
FIRST AMENDMENT TO SUBORDINATION AGREEMENT
THIS FIRST AMENDMENT TO SUBORDINATION AGREEMENT (this
"Amendment") is made and entered into as of May 31, 1996, by and between the
undersigned, IMI KYNOCH LTD., a company organized under the laws of England and
Wales ("IMI Kynoch"), having an address at P. O. Box 216, Witton, Birmingham,
England B6 7BA and CONGRESS FINANCIAL CORPORATION (CENTRAL), an Illinois
corporation ("Congress"), having an address at 100 South Wacker Drive, Suite
1940, Chicago, Illinois, 60606.
WITNESSETH:
WHEREAS, IMI Kynoch and Congress are parties to that certain
Subordination Agreement, dated as of February 15, 1996 (as amended by this
Amendment and as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "Subordination Agreement"; capitalized terms
used and not defined herein shall have the meanings assigned to them in the
Subordination Agreement, as amended hereby);
WHEREAS, Titanium Metals Corporation, a Delaware corporation
("TIMET"), and Congress are parties to that certain Amended and Restated Loan
and Security Agreement dated as of March 24, 1995 (as amended as of September
29, 1995 and February 15, 1996, the "Existing Loan Agreement," as further
amended by the Loan Agreement Amendment (as defined below), and as the same may
be further amended, restated, supplemented or otherwise modified from time to
time in the future, the "Amended Loan Agreement");
WHEREAS, TIMET and Congress, contemporaneously with the
execution and delivery of this Amendment, are entering into that certain
Amendment to Amended and Restated Loan and Security Agreement, dated as of the
date hereof (the "Loan Agreement Amendment"), pursuant to which, among other
things, Congress is extending the term of the Existing Loan Agreement to
December 31, 1997 (and providing that in the event the IPO Event (as defined in
the Amended Loan Agreement) occurs on or prior to December 31, 1997, such term
shall be further extended to December 31, 1998) and amending the definition of
"Maximum Credit" contained therein so that the dollar amount of such Maximum
Credit is $105,000,000 as of the date hereof;
WHEREAS, Congress has required as a condition to entering into
the Loan Agreement Amendment that IMI Kynoch enter into an amendment to the
Subordination Agreement as more fully described herein;
WHEREAS, IMI Kynoch has granted its consent to such amendment
upon the terms and conditions contained herein; and
<PAGE> 2
WHEREAS, IMI Kynoch acknowledges that the loans or other
extensions of financial accommodation or credit to or for the account of TIMET
are of value to IMI Kynoch.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by IMI Kynoch, and in
order to induce Congress now or from time to time hereafter to make loans or
extend credit or any other financial accommodations to or for the benefit of
TIMET, or to grant such renewals or extensions thereof as Congress may deem
advisable, and to better secure Congress in respect of the foregoing, IMI
Kynoch hereby agrees with Congress as hereinafter set forth:
1. Loan Agreement. All references in the Subordination
Agreement to the Loan Agreement shall mean the Amended Loan Agreement. IMI
Kynoch hereby consents to the execution, delivery and performance of each of
TIMET and Congress of the Loan Agreement Amendment and the Amended Loan
Agreement and IMI Kynoch expressly agrees and acknowledges that all
"Obligations" under the Amended Loan Agreement shall constitute "Senior
Obligations" under and as defined in the Subordination Agreement.
2. Amendments. Immediately upon the satisfaction of
each of the conditions precedent set forth in Section 3 hereof, the
Subordination Agreement is hereby amended as follows:
a. Section 1: "Excess Availability Test". The
definition of "Excess Availability Test" in Section 1 of the
Subordination Agreement is hereby amended and restated in its entirety
to read as follows:
"Excess Availability Test" shall be met if
the Excess Availability, at the time of determination and
after giving effect to the payment in question, will equal at
least $7,500,000.
b. Section 1: "Permitted Principal Payments".
Clause (i) of the definition of "Permitted Principal Payments" in
Section 1 of the Subordination Agreement is hereby amended by adding
the following proviso after the semi-colon (";") that appears therein:
provided, however, that if the IPO Event occurs, then
contemporaneously with the receipt by TIMET (and in no event
more than 30 days after the receipt by TIMET) of the proceeds
from the public offering comprising the IPO Event, then
Borrower may repay in full all principal of and interest on
the Subordinated Debt; provided, further, that the aggregate
amount of principal and interest which may
2
<PAGE> 3
be repaid on the Tremont Note and the Subordinated Debt
pursuant to the immediately preceding proviso may not exceed
$43,000,000;
c. Section 1: "Required Consolidated Net
Income". The definition of "Required Consolidated Net Income" in
Section 1 of the Subordination Agreement is hereby amended and
restated in its entirety to read as follows:
"Required Consolidated Net Income"
shall mean $1.
d. Section 1: New Definitions. The following
additional definitions shall be added to Section 1 of the
Subordination Agreement immediately following the definition of
"Tremont Note" that appears therein:
"Average Book Availability" shall mean,
for any calendar quarter, the arithmetic mean of the
Book Availability for each day in such calendar
quarter.
"Book Availability", at any time, shall
mean the amount, as determined by Congress and
maintained on its books and records in accordance
with and pursuant to the terms of the Loan Agreement,
equal to: (a) the lesser of: (i) the amount of the
Revolving Loans available to TIMET as of such time
based on the applicable lending formulas multiplied
by the Net Amount of Eligible Domestic Accounts, the
Net Amount of Eligible Foreign Accounts and the Value
of Eligible Inventory, as applicable, and as
determined by Congress pursuant to the terms of the
Loan Agreement, and subject to the sublimits and
Availability Reserves from time to time established
by Congress thereunder and (ii) the Maximum Credit at
such time (less the then outstanding principal amount
of the Term Loans), minus (b) the sum of (i) the
amount of all then outstanding and unpaid Obligations
(but not including for this purpose the then
outstanding principal amount of the Term Loans) and
(ii) the aggregate amount of Loans and Letter of
Credit Accommodations (each as defined in the
Castings Loan Agreement) under the Castings Loan
Agreement.
"Excess Availability" shall mean, at
the end of any calendar quarter, the lesser of (i)
Book Availability at such time minus the sum of (a)
the aggregate amount of all Specified Payables at
such time; plus (b) accruals for any tax liabilities
that are owing within the next ninety (90) days; plus
(c) accruals for any Specified Liabilities that are
owing during the next twelve (12) month period or
(ii) Average Book Availability for the calendar
quarter ending at such time.
3
<PAGE> 4
"Specified Liabilities" shall mean all
liabilities for taxes (other than tax liabilities
described in clause (b) of the definition of "Excess
Availability"), assessments, royalty payments,
insurance, contractual bonus arrangements, term debt
principal amortization (other than the Term Loans) or
capital expenditures, which are owing by TIMET, which
will require a payment, individually or in the
aggregate, of at least $100,000 when due and which
are not reasonably expected to be funded from third
party sources as shown in TIMET's business plan.
"Specified Payables" shall mean, at any
specified date, the then outstanding and unpaid trade
payables of TIMET which are more than ten (10) days
past due as of the preceding business day except for
any such payables which (i) are identified to
Congress and approved for purposes of exclusion from
this definition by Congress as being excluded from
"Specified Payables" (which approval shall not be
unreasonably withheld) and (ii) are either (a) not
being paid because of unresolved disputes with
respect thereto, or (b) not being paid because of
agreements with the obligee of the payable which
permit the deferral of payment.
e. Section 10. Section 10 of the Subordination
Agreement is hereby amended by deleting all words appearing after the
semi-colon (";") that appears therein and by replacing the semi-colon
(";") with a period (".").
3. Conditions to Effectiveness of Amendment. The
effectiveness of this Amendment is subject to the satisfaction of the following
conditions precedent:
a. Amendment. Congress shall have received a duly
executed counterpart of this Amendment from IMI Kynoch.
b. Loan Agreement Amendment. Congress shall have
received a duly executed counterpart of the Loan Agreement Amendment
from TIMET.
4. Miscellaneous.
a. Effect; Ratification. The amendment set forth
herein is effective solely for the purposes set forth herein and shall
be limited precisely as written, and shall not be deemed to (i) be a
consent to any amendment, waiver or modification of any other term or
condition of the Subordination Agreement or (ii) prejudice any right
or rights that Congress may now have or may have in the future under
or in connection with the
4
<PAGE> 5
Subordination Agreement. Each reference in the Subordination
Agreement to "this Agreement", "herein", "hereof" and words of like
import shall mean the Subordination Agreement as amended hereby. This
Amendment shall be construed in connection with and as part of the
Subordination Agreement and all terms, conditions, representations,
warranties, covenants and agreements set forth in the Subordination
Agreement, except as herein amended or waived, are hereby ratified and
confirmed and shall remain in full force and effect.
b. Counterparts. This Amendment may be executed in
any number of counterparts, each such counterpart constituting an
original but all together one and the same instrument.
c. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AMENDMENT AND ANY DISPUTE ARISING OUT OF THE
RELATIONSHIP BETWEEN THE PARTIES HERETO, WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW).
[SIGNATURE PAGE FOLLOWS]
5
<PAGE> 6
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered as of the date first above written.
IMI KYNOCH LTD.
By: /s/ JOHN O'SHEA
--------------------------------
Name: John O'Shea
------------------------------
Title: Director
-----------------------------
Acknowledged and accepted in
Chicago, Illinois this 31st day
of May, 1996:
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By: /s/ WILLIAM BLOOM
--------------------------------
Name: William Bloom
------------------------------
Title: Senior V.P.
-----------------------------
TITANIUM METALS CORPORATION hereby accepts and acknowledges
receipt of a copy of, the foregoing First Amendment to Subordination Agreement
(the "Amendment") this 31st day of May, 1996, and agrees that it will not pay
any of the Subordinated Debt (as such term is defined in that certain
Subordination Agreement, dated as of February 15, 1996, as amended by the
Amendment, and as the same may be amended, restated, supplemented or otherwise
modified from time to time, the "Subordination Agreement") or grant any
security therefor, except as the Subordination Agreement provides. In the
event of a breach by IMI Kynoch of any of the provisions of the Subordination
Agreement, or by the holder of any Subordinated Debt of any of the provisions
of the Subordination Agreement, all of the Senior Obligations (as such term is
defined in the Subordination Agreement) shall, without presentment, demand,
protest or notice of any kind, become immediately due and payable, unless
Congress shall otherwise elect in writing.
TITANIUM METALS CORPORATION
By: /s/ ROBERT E. MUSGRAVES
--------------------------------
Name: Robert E. Musgraves
------------------------------
Title: V.P. - Administration
-----------------------------
S-1
<PAGE> 1
EXHIBIT 10.30
FIRST AMENDMENT TO AMENDED AND
RESTATED SUBORDINATION AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED SUBORDINATION
AGREEMENT (this "Amendment") is made and entered into as of May 31, 1996, by
and between the undersigned, TREMONT CORPORATION, a Delaware corporation
("Tremont"), having an address at 1999 Broadway, Suite 4300, Denver, Colorado,
80202 and CONGRESS FINANCIAL CORPORATION (CENTRAL), an Illinois corporation
("Congress"), having an address at 100 South Wacker Drive, Suite 1940, Chicago,
Illinois, 60606.
WITNESSETH:
WHEREAS, Tremont and Congress are parties to that certain
Amended and Restated Subordination Agreement, dated as of February 15, 1996 (as
amended by this Amendment and as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Subordination
Agreement"; capitalized terms used and not defined herein shall have the
meanings assigned to them in the Subordination Agreement, as amended hereby);
WHEREAS, Titanium Metals Corporation, a Delaware corporation
("TIMET"), and Congress are parties to that certain Amended and Restated Loan
and Security Agreement dated as of March 24, 1995 (as amended as of September
29, 1995 and February 15, 1996, the "Existing Loan Agreement," as further
amended by the Loan Agreement Amendment (as defined below), and as the same may
be further amended, restated, supplemented or otherwise modified from time to
time in the future, the "Amended Loan Agreement");
WHEREAS, TIMET and Congress, contemporaneously with the
execution and delivery of this Amendment, are entering into that certain
Amendment to Amended and Restated Loan and Security Agreement, dated as of the
date hereof (the "Loan Agreement Amendment"), pursuant to which, among other
things, Congress is extending the term of the Existing Loan Agreement to
December 31, 1997 (and providing that in the event the IPO Event (as defined in
the Amended Loan Agreement) occurs on or prior to December 31, 1997, such term
shall be further extended to December 31, 1998) and amending the definition of
"Maximum Credit" contained therein so that the dollar amount of such Maximum
Credit is $105,000,000 as of the date hereof;
WHEREAS, Congress has required as a condition to entering into
the Loan Agreement Amendment that Tremont enter into an amendment to the
Subordination Agreement as more fully described herein;
WHEREAS, Tremont has granted its consent to such amendment
upon the terms and conditions contained herein; and
<PAGE> 2
WHEREAS, Tremont acknowledges that the loans or other
extensions of financial accommodation or credit to or for the account of TIMET
are of value to Tremont.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged by Tremont, and in
order to induce Congress now or from time to time hereafter to make loans or
extend credit or any other financial accommodations to or for the benefit of
TIMET, or to grant such renewals or extensions thereof as Congress may deem
advisable, and to better secure Congress in respect of the foregoing, Tremont
hereby agrees with Congress as hereinafter set forth:
1. Loan Agreement. All references in the Subordination
Agreement to the Loan Agreement shall mean the Amended Loan Agreement. Tremont
hereby consents to the execution, delivery and performance of each of TIMET and
Congress of the Loan Agreement Amendment and the Amended Loan Agreement and
Tremont expressly agrees and acknowledges that all "Obligations" under the
Amended Loan Agreement shall constitute "Senior Obligations" under and as
defined in the Subordination Agreement.
2. Amendment -- Section 1: "Permitted Principal
Payments". Immediately upon the satisfaction of each of the conditions
precedent set forth in Section 3 hereof, the definition of "Permitted Principal
Payments" in Section 1 of the Subordination Agreement is hereby amended by
adding the following proviso after the words "attributable to such offering)"
that appear therein:
provided, however, that if the IPO Event occurs, then
contemporaneously with the receipt by TIMET (and in no event
more than 30 days after the receipt by TIMET) of the proceeds
from the public offering comprising the IPO Event, then
Borrower may repay in full all principal of and interest on
the Subordinated Debt; provided, further, that the aggregate
amount of principal and interest which may be repaid on the
IMI Sub Note and the Subordinated Debt pursuant to the
immediately preceding proviso may not exceed $43,000,000;
3. Conditions to Effectiveness of Amendment. The
effectiveness of this Amendment is subject to the satisfaction of the following
conditions precedent:
a. Amendment. Congress shall have received a duly
executed counterpart of this Amendment from Tremont.
2
<PAGE> 3
b. Loan Agreement Amendment. Congress shall have
received a duly executed counterpart of the Loan Agreement Amendment
from TIMET.
4. Miscellaneous.
a. Effect; Ratification. The amendment set forth
herein is effective solely for the purposes set forth herein and shall
be limited precisely as written, and shall not be deemed to (i) be a
consent to any amendment, waiver or modification of any other term or
condition of the Subordination Agreement or (ii) prejudice any right
or rights that Congress may now have or may have in the future under
or in connection with the Subordination Agreement. Each reference in
the Subordination Agreement to "this Agreement", "herein", "hereof"
and words of like import shall mean the Subordination Agreement as
amended hereby. This Amendment shall be construed in connection with
and as part of the Subordination Agreement and all terms, conditions,
representations, warranties, covenants and agreements set forth in the
Subordination Agreement, except as herein amended or waived, are
hereby ratified and confirmed and shall remain in full force and
effect.
b. Counterparts. This Amendment may be executed in
any number of counterparts, each such counterpart constituting an
original but all together one and the same instrument.
c. GOVERNING LAW. THE VALIDITY, INTERPRETATION AND
ENFORCEMENT OF THIS AMENDMENT AND ANY DISPUTE ARISING OUT OF THE
RELATIONSHIP BETWEEN THE PARTIES HERETO, WHETHER IN CONTRACT, TORT,
EQUITY OR OTHERWISE, SHALL BE GOVERNED BY THE INTERNAL LAWS OF THE
STATE OF ILLINOIS (WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF
LAW).
[SIGNATURE PAGE FOLLOWS]
3
<PAGE> 4
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered as of the date first above written.
TREMONT CORPORATION
By: /s/ ROBERT E. MUSGRAVES
--------------------------------
Name: Robert E. Musgraves
------------------------------
Title: V.P.
-----------------------------
Acknowledged and accepted in
Chicago, Illinois this 31st day
of May, 1996:
CONGRESS FINANCIAL CORPORATION (CENTRAL)
By: /s/ WILLIAM BLOOM
--------------------------------
Name: William Bloom
------------------------------
Title: Senior V.P.
-----------------------------
TITANIUM METALS CORPORATION hereby accepts and acknowledges
receipt of a copy of, the foregoing First Amendment to Amended and Restated
Subordination Agreement (the "Amendment") this 31st day of May, 1996, and
agrees that it will not pay any of the Subordinated Debt (as such term is
defined in that certain Amended and Restated Subordination Agreement, dated as
of February 15, 1996, as amended by the Amendment, and as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"Subordination Agreement") or grant any security therefor, except as the
Subordination Agreement provides. In the event of a breach by Tremont of any
of the provisions of the Subordination Agreement, or by the holder of any
Subordinated Debt of any of the provisions of the Subordination Agreement, all
of the Senior Obligations (as such term is defined in the Subordination
Agreement) shall, without presentment, demand, protest or notice of any kind,
become immediately due and payable, unless Congress shall otherwise elect in
writing.
TITANIUM METALS CORPORATION
By: /s/ ROBERT E. MUSGRAVES
--------------------------------
Name: Robert E. Musgraves
------------------------------
Title: V.P. - Administration
-----------------------------
S-1
<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. 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 31, 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 31, 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 31, 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 reports 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 and our review of the pro forma condensed consolidated
statement of operations of Titanium Metals Corporation for the three-month
period ended March 31, 1996, are included in this Registration Statement.
Pursuant to Rule 436(c) under the Securities Act of 1933, these reports 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 31, 1996
