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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File No. 1-7170
IMCO RECYCLING INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
75-2008280
(I.R.S. Employer Identification No.)
5215 North O'Connor Blvd., Suite 940
Central Tower at Williams Square
Irving, Texas 75039
(Address of principal executive offices)
(972) 869-6575
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of business on May 2, 1997.
COMMON STOCK, $0.10 PAR VALUE, 12,532,865
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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MARCH 31, DECEMBER 31,
1997 1996
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(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 811 $ 5,070
Accounts receivable 49,202 33,655
Inventories 15,291 11,847
Deferred income taxes 1,445 1,462
Other current assets 2,401 1,282
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Total Current Assets 69,150 53,316
Property and equipment, net 119,538 86,308
Intangible assets
Excess acquisition cost over the fair value of net assets
acquired, net of accumulated amortization of $2,520
and $4,607, respectively. 54,745 9,362
Patents, net 156 171
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54,901 9,533
Investments in affiliates 15,166 14,187
Other assets, net 4,068 1,363
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$ 262,823 $ 164,707
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 23,928 $ 14,351
Accrued liabilities 4,333 2,192
Short-term debt 4,264 2,000
Current maturities of long-term debt 7,096 2,124
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Total Current Liabilities 39,621 20,667
Long-term debt 110,181 48,202
Other long-term liabilities 6,701 1,647
Deferred income taxes 5,914 5,856
Minority interest 4,484 -
STOCKHOLDERS' EQUITY
Preferred stock; par value $.10; 8,000,000 shares authorized;
none issued - -
Common stock; par value $.10; 20,000,000 shares authorized;
12,637,966 issued at March 31, 1997; 12,017,914 issued at
December 31, 1996 1,264 1,202
Additional paid-in capital 34,579 27,553
Retained earnings 61,356 61,021
Treasury stock, at cost; 105,101 shares at March 31, 1997;
118,551 shares at December 31, 1996 (1,277) (1,441)
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Total Stockholders' Equity 95,922 88,335
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$ 262,823 $ 164,707
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IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(in thousands, except per share data)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1996
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Revenues $82,528 $50,718
Cost of sales 72,376 42,828
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Gross profit 10,152 7,890
Selling, general and administrative expense 4,578 2,981
Interest expense 1,716 610
Interest income (70) (144)
Equity in (earnings) loss of affiliates (30) (307)
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Income before provision for income taxes, minority
interest and extraordinary item 3,958 4,750
Provision for income taxes 1,583 1,787
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Income before minority interest and extraordinary item 2,375 2,963
Minority interest, net of provision for income taxes 95 -
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Income before extraordinary item 2,280 2,963
Extraordinary item 1,318 -
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Net earnings $ 962 $ 2,963
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Net earnings per common share:
Income before extraordinary item $ 0.18 $ 0.24
Extraordinary item (0.10) -
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Net earnings $ 0.08 $ 0.24
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Dividends declared per common share $ 0.05 $ 0.05
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Weighted average common and common equivalent
shares outstanding 12,645 12,393
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IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
FOR THE THREE MONTHS
ENDED MARCH 31,
--------------------
1997 1996
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OPERATING ACTIVITIES
Income before extraordinary item $ 2,280 $ 2,963
Depreciation and amortization 3,837 2,776
Provision for deferred income taxes 75 47
Equity in earnings of affiliates (30) (307)
Minority interest 158 -
Other noncash charges 64 249
Changes in operating assets and liabilities
(excluding investing and financing transactions):
Accounts receivable (1,654) (1,902)
Inventories 1,337 (145)
Other current assets (658) (186)
Accounts payable and accrued liabilities 3,543 319
Accrued landfill closure costs 114 (164)
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NET CASH FROM OPERATING ACTIVITIES 9,066 3,650
INVESTING ACTIVITIES
Payments for property and equipment (12,008) (2,256)
Acquisition of IMSAMET, Inc., net of cash acquired (58,251) -
Other (1,591) (80)
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NET CASH USED BY INVESTING ACTIVITIES (71,850) (2,336)
FINANCING ACTIVITIES
Net repayments of short-term borrowings (4,087) -
Proceeds from issuance of long-term debt 112,097 -
Repayments of long-term debt (48,337) (532)
Debt issuance costs (2,147) -
Dividends paid (627) (589)
Other 1,626 127
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NET CASH FROM (USED BY) FINANCING ACTIVITIES 58,525 (994)
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Net (decrease) increase in cash and cash equivalents (4,259) 320
Cash and cash equivalents at January 1 5,070 8,678
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Cash and cash equivalents at March 31 $ 811 $ 8,998
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SUPPLEMENTARY INFORMATION
Cash payments for interest $ 2,193 $ 123
Cash payments for income taxes $ 200 $ 1,053
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IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. The accompanying financial statements include
the accounts of IMCO Recycling Inc. and all of its subsidiaries (the "Company").
All significant intercompany accounts and transactions have been eliminated.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1996. Certain reclassifications have been made to prior
year statements to conform to the current year presentation.
NOTE B - INVENTORIES
The components of inventories are:
(In thousands)
MARCH 31, DECEMBER 31,
1997 1996
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Finished goods $11,231 $ 8,642
Raw materials 3,751 2,974
Supplies 309 231
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$15,291 $11,847
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NOTE C - ACQUISITIONS
In January 1997, the Company acquired all of the outstanding common stock of
IMSAMET, Inc. ("IMSAMET"), a wholly owned subsidiary of EnviroSource Inc.,
for approximately $58,000,000 in cash, not including acquisition costs.
IMSAMET operates and owns or has a majority interest in three aluminum
recycling plants located in Post Falls, Idaho; Wendover, Utah and Goodyear,
Arizona. In addition, IMSAMET has a 50% interest in a joint venture
facility, adjacent to the Utah plant, which uses a proprietary process to
reclaim materials from salt cake. The acquisition was accounted for using
the purchase method of accounting. Accordingly, the purchase price was
allocated to the net assets acquired based on their estimated fair values.
The estimated excess of the purchase price over the fair value of net assets
acquired is $39,000,000 and is being amortized over forty years on a
straight-line basis.
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The preliminary allocation of the purchase price of IMSAMET is as follows (in
thousands):
Working capital $ 4,674
Property and equipment 22,857
Goodwill 38,971
Other noncurrent assets 914
Noncurrent liabilities (7,176)
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Total $60,240
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The following table sets forth pro forma results of operations of the combined
entities of the Company and IMSAMET for the quarter ended March 31, 1996,
assuming the acquisition had been consummated on January 1, 1996. The pro forma
combined information is presented for comparative purposes only and does not
purport to represent the actual results which would have occurred had the
acquisition been consummated on such date or of future results of the combined
companies under the ownership and management of the Company (in thousands,
except per share amounts):
Revenues $59,731
Gross profit $ 9,313
Income before extraordinary item $ 2,518
Income per common share before extraordinary item $ 0.20
The table above reflects certain pro forma adjustments including additional
depreciation expense as a result of the increased basis of the fixed assets
acquired, additional amortization expense related to the goodwill recorded, a
reduction in general and administrative expenses for the elimination of
duplicate corporate offices, additional interest expense related to debt
incurred on the acquisition (see NOTE D) and adjustments for related income
taxes and minority interest.
Also in January 1997, the Company acquired all of the outstanding common
stock of Rock Creek Aluminum, Inc. ("Rock Creek") in exchange for 618,137
shares of the Company's common stock. The acquisition was accounted for
using the purchase method of accounting. The estimated excess of the purchase
price over the fair value of net assets acquired is $6,000,000 and is being
amortized over forty years on a straight-line basis. Rock Creek owns and
operates three Ohio facilities located in Cleveland, Elyria and Rock Creek.
These facilities utilize milling, blending, testing and packaging equipment
to process various types of raw materials, including aluminum dross and
scrap, various minerals and slags. The historical results of operations of
Rock Creek were not material compared to the Company's results of operations.
NOTE D - LONG-TERM DEBT AND EXTRAORDINARY LOSS ON EARLY DEBT RETIREMENT
In connection with the January 1997 acquisitions, the Company entered into a new
$125,000,000 syndicated credit agreement ("Credit Agreement") with certain
lenders, including Merrill Lynch & Co. and an affiliate (syndication agent) and
Texas Commerce Bank National Association ("TCB"--administrative agent). The
Company received $110,000,000 at the closing and used
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approximately $61,000,000 in connection with the acquisitions. The remaining
$49,000,000 of the proceeds was used to retire substantially all of its
outstanding debt as of December 31, 1996. The early debt retirement generated
an extraordinary loss of $1,318,000 (net of income taxes) in the first
quarter of 1997.
The Credit Agreement provides for $125,000,000 of senior secured credit
facilities consisting of a $105,000,000 term loan and a $20,000,000 revolving
credit agreement. Of the $20,000,000 revolving credit agreement, $4,000,000 is
to be used, as needed, by the Company for standby letters of credit. As of
March 31, 1997, the Company had $6,100,000 in total borrowings outstanding under
the revolving credit facility. At March 31, 1997, the Company had $1,800,000 of
standby letters of credit outstanding. The credit facilities bear a fluctuating
interest rate based on LIBOR or the prime rate, plus a credit margin which is
based on the Company's rate of total debt to earnings before interest, taxes,
depreciation and amortization. The term loan has a final maturity of seven
years, and the revolving credit agreement has a final maturity of five years.
The new Credit Agreement imposes certain restrictions, including: (i) certain
prohibitions on additional indebtedness, subject to certain exceptions, (ii)
maintenance of certain financial ratios, and (iii) limitations on investments,
dividends, and capital expenditures. The annual limitations on cash dividends
are as follows: $3,500,000 for 1997 and 1998, $4,000,000 for 1999 and 2000 and
$6,000,000 after 2000. The Credit Agreement is secured by substantially all of
the Company's assets, a first lien mortgage on seven plant facilities and a
pledge of the capital stock of substantially all of the Company's subsidiaries.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is in the resource recovery industry and provides recycling services
for primary manufacturers of metal. The Company's principal activity involves
the recycling of aluminum and aluminum scrap and by-products. The Company also
recycles magnesium and zinc. The Company's financial performance has
historically been largely determined by the volume of metal it processes. The
largest portion of the Company's business is the processing of customer-owned
material for a fee (a service called "tolling"). In addition to tolling, the
Company also purchases material for processing and resale ("buy/sell
business"). Tolling operations do not expose the Company to the risk of
commodity price fluctuations and impose relatively low working capital demands
since the Company does not own the material being processed. Both the Company's
tolling fees per pound recycled and the selling price of metal it owns, recycles
and sells for its own account are included in revenues. Variations in the mix
between these two types of transactions can cause revenue amounts to change
significantly from period to period while generally not significantly affecting
total gross profit, because both types of transactions have historically had
approximately the same level of profitability.
The following table shows the total pounds of metal melted, the percentage of
total pounds melted represented by tolled metal, total revenues and total gross
profit.
In thousands, except percentages:
THREE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
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Pounds of metal melted 432,434 366,965
Percentage of pounds tolled 81% 88%
Revenues $ 82,528 $ 50,718
Gross profit $ 10,152 $ 7,890
ACQUISITIONS
In January 1997, the Company completed the acquisitions of IMSAMET and Rock
Creek. See NOTE C and NOTE D of "NOTES TO CONSOLIDATED FINANCIAL STATEMENTS"
in PART I. IMSAMET owns or has a majority interest in three aluminum
recycling plants located in Post Falls, Idaho; Wendover, Utah and Goodyear,
Arizona; which together have an annual melting capacity of approximately 440
million pounds. In addition, IMSAMET owns a 50% interest in a joint venture
facility, adjacent to the Utah plant, which uses a proprietary process to
reclaim materials from salt cake.
Rock Creek operates three facilities in Cleveland, Elyria and Rock Creek, Ohio.
These facilities manufacture a variety of aluminum products and manufacture
products that are eventually used as metallurgical additions in the steel making
process such as slag conditioners, deoxidizers, steel desulfurizers and hot
topping compounds. Rock Creek utilizes milling, shredding,
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blending, testing and packaging equipment to process various types of raw
materials, including aluminum dross and scrap, various minerals and slags.
In addition, Rock Creek manufactures a wide range of proprietary briquetted
products and offers toll briquetting services. Rock Creek's facilities have
a total annual capacity of approximately 150 million pounds.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
PRODUCTION: The Company melted 18% more metal for the first quarter of 1997
than it did in the first quarter of 1996. Aluminum processing at the Company's
newest plant in Coldwater, Michigan (which began production in March 1997) and
the IMSAMET facilities (which were acquired in January 1997) were the primary
reasons for the increased production. With the exception of the Bedford, Indiana
plant, the Company's other aluminum plants processed approximately the same
amount of material in both quarters. The Bedford facility's processing volume
declined due to a lack of UBC's to process at a profitable level. However, in
March, the Company installed and began operating a new furnace in Bedford and is
currently in the process of modifying this plant's existing furnaces. Both of
these changes will enable the Bedford facility to process a wider variety of
aluminum scrap such as dross, lessen its dependence on UBC processing and
participate in the auto component market.
REVENUES: Revenues increased 63% in the first quarter of 1997 compared to the
first quarter of 1996; the acquisitions of IMSAMET and Rock Creek and the new
Coldwater, Michigan plant accounted for 76% of this increase in revenues. The
remainder of the increase was primarily due to higher buy/sell business for the
aluminum plants (exclusive of those plants acquired or built in the first
quarter of 1997). As discussed above, increases in buy/sell business will
generally result in a much higher increase in revenue than would an increase in
tolling. The Company's buy/sell business revenues include the cost of the
metal, the processing cost, and the Company's profit margin in the selling
price; whereas, revenues associated with tolling only include the processing
cost and the Company's profit margin. In 1997, the Company expects to have
additional metal for sale due to operation of its salt cake processing
facilities in Morgantown, Kentucky (built in 1996) and Goodyear, Arizona
(acquired in 1997). The salt cake processing facilities process much of the
Company's salt cake generated from its aluminum recycling plants and recover
additional amounts of aluminum for resale. Tolling activity represented 81% of
the Company's pounds melted for the first quarter 1997 as compared to 88% for
the first quarter of 1996. Prior to 1997, materials processed for Rock Creek at
the Company's Uhrichsville, Ohio facility were classified as tolling business,
but after the Company acquired Rock Creek in January 1997, these pounds are now
classified as buy/sell business.
GROSS PROFIT: Gross profits of $10,152,000 and $7,890,000 for the first
quarters of 1997 and 1996, respectively, increased $2,262,000 or 29% in the
first quarter of 1997. The January 1997 acquisitions of IMSAMET and Rock Creek
accounted for 88% of the increase. In addition, the elimination of the
operating loss at the Company's Corona, California plant, which was permanently
closed in 1996, and higher aluminum prices, which improved the Company's
buy/sell business (particularly at the Morgantown salt cake processing
facility), also contributed to the higher gross profit in 1997.
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SG&A EXPENSES: Selling, general and administrative expenses of $4,578,000 and
$2,981,000 for the first quarters of 1997 and 1996, respectively, show an
increase of $1,597,000 due primarily to employee severance accruals and higher
employee, professional, consulting and selling costs associated with the 1997
acquisitions.
INTEREST: Net interest was an expense of $1,646,000 for the first quarter of
1997 which was 250% higher than 1996 first quarter net interest expense of
$466,000. The increase in net interest expense was primarily due to a 132%
increase in the amount of total debt outstanding in the first quarter of 1997 as
compared to the first quarter of 1996. See "LIQUIDITY AND CAPITAL RESOURCES"
below.
EXTRAORDINARY ITEM: In connection with the January 1997 acquisitions, the
Company entered into a new Credit Agreement. A portion of the proceeds were
used to retire substantially all of the Company's outstanding debt as of
December 31, 1996. The early debt retirement generated an extraordinary loss of
$1,318,000 (net of income taxes of approximately $850,000) in the first quarter
of 1997.
NET INCOME: Income before the provision for income taxes, minority interest and
the extraordinary item was $3,958,000 for the first quarter of 1997 compared to
$4,750,000, for the first quarter of 1996, as the increase in gross profit was
offset by the increases in selling, general, administrative expense and interest
expense. The Company's effective income tax rate was 40% for the first quarter
of 1997 compared to 38% for the first quarter of 1996. Net income decreased to
$962,000 for the first quarter of 1997 compared to $2,963,000 for the first
quarter of 1996, due principally to the extraordinary item in the first quarter
of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Operations provided cash of $9,066,000 and $3,650,000 during the first quarter
of 1997 and 1996, respectively. Changes in the components of operating assets
and liabilities (excluding investing and financing transactions) accounted for
the majority of the difference. In the first quarter of 1997, changes in
operating assets and liabilities generated $2,682,000 of cash, while in the
first quarter of 1996, changes in operating assets and liabilities used
$2,078,000 of cash. Most of this net change in operating assets and liabilities
was due to the increase in processing volumes during the first quarter of 1997
which caused accounts payable to rise. Income before the extraordinary item for
the first quarter of 1997, as discussed above, decreased to $2,280,000 compared
to $2,963,000 for the first quarter of 1996, thereby decreasing net cash
provided from operating activities. However, offsetting this decline was an
increase in noncash charges of $1,339,000, most of which related to an increase
in depreciation and amortization.
Net cash used by investing activities was $71,850,000 and $2,336,000 for the
first quarters of 1997 and 1996, respectively. The increase was primarily due
to the first quarter 1997 acquisition of IMSAMET. In addition, the Company's
total cash payments for property, plant and equipment in the first quarter of
1997 were $12,008,000, compared to $2,256,000 spent in the first quarter of
1996. Capital expenditures for 1997 are expected to be approximately
$34,000,000. The major projects include the construction of new aluminum
recycling facilities in Coldwater, Michigan and Swansea, Wales, the relocation
of the zinc recycling facility, the purchase of various environmental equipment
and the expansion of an existing Company-owned landfill.
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Net cash provided from financing activities was $58,525,000 in the first quarter
of 1997 compared to $994,000 net cash used by from financing activities during
the first quarter of 1996. In connection with the January 1997 acquisitions,
the Company entered into a new $125,000,000 syndicated credit agreement ("Credit
Agreement") with certain lenders, including Merrill Lynch & Co. and an affiliate
(syndication agent) and TCB (administrative agent). The Company received
$110,000,000 at the closing and used approximately $61,000,000 for acquisitions.
The remaining $49,000,000 of the proceeds was used to retire substantially all
of its outstanding debt as of December 31, 1996. The Credit Agreement provides
for $125,000,000 of senior secured credit facilities consisting of a
$105,000,000 term loan and a $20,000,000 revolving credit agreement. Of the
$20,000,000 revolving credit agreement, $4,000,000 is to be used, as needed, by
the Company for standby letters of credit. As of March 31, 1997, the Company
had $6,100,000 in total borrowings outstanding under the revolving credit
facility. In March 1997, the Company had $1,800,000 of standby letters of
credit outstanding.
The credit facilities bear a fluctuating interest rate based on LIBOR or the
prime rate, plus a credit margin which is based on the Company's rate of total
debt to earnings before interest, taxes, depreciation and amortization. In
order to reduce the floating interest rate exposure on the term loan, the
Company entered into an interest rate cap transaction ("Rate Cap Transaction")
agreement with TCB on April 7, 1997. Under the terms of the Rate Cap
Transaction agreement, the floating interest rate for 40% of the term loan
borrowings under the new Credit Agreement is capped at 8%. The costs associated
with this Rate Cap Transaction will be amortized as interest expense over the
four year term of the agreement. The term loan has a final maturity of seven
years, and the revolving credit agreement has a final maturity of five years.
The new Credit Agreement imposes certain restrictions, including: (i) certain
prohibitions on additional indebtedness, subject to certain exceptions, (ii)
maintenance of certain financial ratios, and (iii) limitations on investments,
dividends, and capital expenditures. The annual limitations on cash dividends
are as follows: $3,500,000 for 1997 and 1998, $4,000,000 for 1999 and 2000 and
$6,000,000 after 2000. The Credit Agreement is secured by substantially all of
the Company's assets, a first lien mortgage on seven plant facilities and a
pledge of the capital stock of substantially all of the Company's subsidiaries.
Financing activities also included a cash payment of $627,000 in dividends
during the first quarter of 1997.
On May 8, 1996, the Company borrowed the net proceeds of approximately
$5,569,000 from the issuance of $5,740,000 principal amount of Solid Waste
Disposal Facilities Revenue Bonds by the City of Morgantown, Kentucky. These
bonds were issued in connection with the Company's construction of its salt cake
processing plant in Morgantown, which was completed in January 1996. In April
1997, the Company received additional net proceeds of $4,450,000 from the
issuance of $4,600,000 of Solid Waste Disposal Facilities Revenue Bonds (Series
1997) by the City of Morgantown, Kentucky. These bonds were issued in
connection with the Company's expansion of its landfill in Morgantown and
additional construction costs of its salt cake processing facility in
Morgantown. The 1997 bonds bear a 7.45% interest rate and mature on May 1,
2022.
In an effort to minimize the effect of volatility of the price of aluminum on
the Company's operations, during the first quarter of 1997, the Company
entered into forward sale contracts and a series of put and call option
contracts with a metals broker. These contracts cover the future selling
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prices on a portion of the aluminum to be generated by the Company's salt
cake processing facility, and are settled in the month of the corresponding
production. The contracts did not have a significant impact on the Company's
results of operations for the quarter ended March 31, 1997.
At March 31, 1997, the relationship of current assets to current liabilities,
or current ratio, was 1.75 to 1, compared to 2.58 to 1 at December 31, 1996.
Working capital will fluctuate as the mix of buy/sell business and tolling
business changes relative to the total business, for the reasons discussed
above.
On May 8, 1997, Harvard Industries, Inc. ("Harvard") announced that it had
filed for protection under Chapter 11 of the U.S. Bankruptcy Code. The
Company sells aluminum to Doehler-Jarvis, Inc. ("Doehler-Jarvis"), a
subsidiary of Harvard. As of May 8, 1997, the Company had $3,915,000 of
outstanding unsecured receivables from Doehler-Jarvis ($4,750,000 at March
31, 1997). Harvard has indicated that it intends to pay 100% of all
pre-petition claims by vendors. While the Company currently believes that
its exposure regarding Harvard's bankruptcy will not be material, no
assurance can be given as to the amount and timing of the Company's ultimate
recovery concerning its claims. The Company's revenues from Doehler-Jarvis
totaled $8,838,000 and $17,490,000 for the quarter ended March 31, 1997 and
the year ended December 31, 1996, respectively. The majority of these
revenues were from buy/sell business, and, in the first quarter of 1997,
represented approximately 3% the Company's processing volumes. Therefore,
the Company believes that the loss of this customer would not have a material
effect on the Company's financial position or results of operations.
Both the acquisitions and the indebtedness incurred to finance these
acquisitions and refinance existing Company debt in January 1997 have
resulted in higher working capital requirements and increased debt service
requirements for the Company. In addition, certain covenants contained in
the Company's Credit Agreement restrict the aggregate amounts of expenditures
for acquisitions and investments, as well as future capital expenditures in
any fiscal year, that the Company may incur which may have the result of
restricting the Company's alternatives for financing and implementing future
growth opportunities. SEE "PART II, ITEM 2--CHANGES IN SECURITIES."
Nonetheless, the Company believes that its cash on hand, the availability of
funds under its credit facilities and its anticipated internally generated
funds will be sufficient to fund its current needs and meet its obligations
for the foreseeable future.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share," which is
required to be adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per share and
to restate all prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options will be
excluded. The impact of SFAS No. 128 on the calculation of earnings per share
for the quarters ended March 31, 1997 and 1996 will not be material.
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CAUTIONARY STATEMENT FOR PURPOSES OF FORWARD-LOOKING STATEMENTS
Certain information contained herein in ITEM 2.--"MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" may be deemed to
be forward-looking statements within the meaning of The Private Securities
Litigation Reform Act of 1995 and are subject to the "Safe Harbor" provision
in that enacted legislation. These statements are based on current
expectations and involve a number of risks and uncertainties. Actual results
could differ materially from those described in the forward-looking
statements as a result of various factors including, but not limited to the
following: expectations of operating levels at the Company's facilities,
expectations of the future mix of buy/sell business as opposed to tolling
business, retention and financial condition of major customers, effects of
future costs, the price of aluminum on world markets, currency exchange
fluctuations and future levels and timing of capital expenditures. Such
statements are qualified by the following:
Estimates of future operating rates at the Company's plants are based
on current expectations by management of the Company of future levels
of volumes and prices for the Company's services or metal, and are
subject to fluctuations in customer demand for the Company's services
and prevailing conditions in the metal markets, as well as certain
components of the Company's cost of operations, including energy
costs. Many of the factors affecting revenues and costs are outside
of the control of the Company, including severe weather conditions
such as those that prevailed in the first quarter of 1996, currency
exchange rates and general economic and financial market conditions.
The future mix of buy/sell vs. tolling business is dependent on
customers' needs and overall demand, world and U.S. market conditions
then prevailing in the respective metal markets, and the operating
levels at the Company's various facilities at the relevant time.
REVIEW BY INDEPENDENT ACCOUNTANTS
The Company's independent accountants, Ernst & Young LLP, have reviewed the
Company's consolidated financial statements at March 31, 1997, and for the
three months then ended prior to filing, and their report is included herein.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
The credit facilities established pursuant to the Credit Agreement discussed
under PART I, ITEM 2.--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - "LIQUIDITY AND CAPITAL RESOURCES" of this
Form 10-Q contain covenants, representations and warranties by the Company and
its guarantor subsidiaries, including (i) limitations on the ability to dispose
of assets of the Company and subsidiaries or equity interest of subsidiaries,
(ii) limitations on acquisitions of unaffiliated businesses other than certain
scheduled specified transactions and additional unscheduled acquisitions not to
exceed $25,000,000 in the aggregate, (iii) restrictions on liens and
indebtedness permitted to be incurred or assumed by the Company or its
Page 13
<PAGE>
subsidiaries, other than as otherwise scheduled or permitted under the Credit
Agreement, and (iv) restrictions on investments by the Company or its
subsidiaries, except as permitted under the Credit Agreement.
The Credit Agreement also contains limitations on the Company's ability to
declare and pay dividends in cash or property; however, if there is no default
under the Credit Agreement, then the Company is permitted to make cash dividend
payments on its capital stock in an aggregate amount of up to $3,500,000 in 1997
and in 1998, $4,000,000 in 1999 and in 2000, and $6,000,000 in each fiscal year
thereafter. No assurances can be given as to any future levels of dividends, if
any, which may be declared or paid; decisions concerning the declaration and
payment of dividends are made by the Company's Board of Directors and will be
based upon the Company's level of earnings, cash flow, financial requirements,
and economic and business conditions then prevailing, as well as other relevant
factors. The Credit Agreement further contains provisions restricting the
amounts of capital expenditures that the Company and its subsidiaries may make
in any fiscal year ($38,000,000 in 1997 and $20,000,000 for each fiscal year
thereafter). Finally, the Credit Agreement requires the Company to comply with
certain financial covenants and ratios, including Leverage Ratio requirements,
an interest coverage ratio, and a covenant requiring that certain minimum net
worth amounts be maintained. See NOTE D--"LONG-TERM DEBT AND EXTRAORDINARY LOSS
ON EARLY DEBT RETIREMENT" in PART I of this Form 10-Q.
The Company paid $626,643 in dividends during the first quarter of 1997.
In January 1997, the Company acquired all of the outstanding common stock of
Rock Creek Aluminum, Inc. in exchange for 618,137 shares of the Company's common
stock. The market value of the shares of the Company's common stock issued in
this transaction was approximately $9,500,000. These shares were issued
directly to the former shareholders of Rock Creek Aluminum in reliance upon an
exemption from the registration requirements of the Securities Act of 1933, as
amended ("Securities Act"), promulgated under Section 4(2) of the Securities
Act. During the quarter ended March 31, 1997, the Company made no other sales
of its equity securities that were not registered under the Securities Act.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included herein:
10.1 Registration Rights Agreement dated as of January 21, 1997 among
IMCO Recycling Inc. and the former shareholders of Rock Creek
Aluminum, Inc.
15.1 Acknowledgment letter regarding unaudited financial information
from Ernst & Young LLP.
27 Financial Data Schedule
Page 14
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(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated as of January 21,
1997 under "Item 2--Acquisition or Disposition of Assets" and
"Item 5--Other Events" reporting the purchase of the stock of IMSAMET,
Inc. and the acquisition of Rock Creek Aluminum. Such current Report on
Form 8-K was amended by the Company's for 8-K/A-1 dated April 4, 1997
and Form 8-K/A-2 dated April 4, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMCO Recycling Inc.
Date: May 12, 1997 By: /s/ ROBERT R. HOLIAN
-----------------------------------
Robert R. Holian
Vice President and Controller
(Principal Accounting Officer)
Page 15
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INDEPENDENT ACCOUNTANTS' REVIEW REPORT
Stockholders and
Board of Directors
IMCO Recycling Inc.
We have reviewed the accompanying consolidated balance sheet of IMCO
Recycling Inc. as of March 31, 1997, and the related consolidated statements
of earnings and cash flows for the three-month periods ended March 31, 1997
and 1996. These financial statements are the responsibility of the Company's
management.
We conducted our reviews 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, which
will be performed for the full year with the objective of expressing an
opinion regarding the financial statements taken as a whole. Accordingly, we
do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of IMCO Recycling Inc. as of
December 31, 1996, and the related consolidated statements of earnings,
stockholders' equity, and cash flows for the year ended December 31, 1996,
(not presented herein), and in our report dated January 30, 1997, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1996, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has
been derived.
Dallas, Texas
May 12, 1997
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("AGREEMENT") is made and entered into
as of January 21, 1997, by and between IMCO Recycling Inc., a Delaware
corporation (the "COMPANY"), and the Purchasers (as defined below).
RECITALS
WHEREAS, the Company and the Purchasers have entered into a Stock Purchase
Agreement dated January 21, 1997 (the "PURCHASE AGREEMENT"), pursuant to which
the Company has acquired all of the issued and outstanding capital stock of Rock
Creek Aluminum, Inc., an Ohio corporation ("ROCK CREEK"); and
WHEREAS, pursuant to the Purchase Agreement, each of the Purchasers has
acquired shares (collectively, the "SHARES") of the Company's common stock, $.10
par value ("COMMON STOCK"); and
WHEREAS, the Company wishes to grant each of the Purchasers certain
registration rights in respect of that portion of the Shares held thereby.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein and in the Purchase Agreement, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"PURCHASERS" shall mean the owners of Common Stock identified on the
signature page hereof, each of whom is referred to individually herein as a
"PURCHASER" and a transferee of Registrable Securities from a Purchaser,
provided such transfer complies with Section 3.2 of this Agreement.
"REGISTRABLE SECURITIES" shall mean (i) the Shares and any and all
shares of Common Stock issued or issuable at any time or from time to time
in respect of which the Company has previously or may in the future grant
in writing registration rights (collectively, the "REGISTRABLE COMMON");
and (ii) any Common Stock issued or issuable at any time or from time to
time in
<PAGE>
respect of the Shares or the Registrable Common upon a stock split, stock
dividend, recapitalization or other similar event involving the Company.
The terms "REGISTER," "REGISTERED", and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, other than Selling
Expenses (as defined below), incurred by the Company in complying with
Section 2.1 hereof, including, without limitation, all registration,
qualification and filing fees, exchange listing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky
fees and expenses and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean only the underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered by a Purchaser and all fees and disbursements of counsel for
such Purchaser.
"UNDERWRITTEN PUBLIC OFFERING" shall mean a public offering in which
the Common Stock is offered and sold on a firm commitment basis through one
or more underwriters, all pursuant to an underwriting agreement between the
Company and such underwriters.
2. REGISTRATION RIGHTS.
2.1 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. Subject to the terms hereof, if at any
time or from time to time prior to the expiration of two years from the
date of this Agreement (except as otherwise provided in Section 3.2), the
Company shall determine to register any of its Common Stock, for its own
account relating to an Underwritten Public Offering, the Company shall:
2
<PAGE>
(i) promptly, but in any event at least 30 days before the
Company files a registration statement pursuant to an Underwritten
Public Offering, give to each Purchaser written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in the underwriting
involved therein, such Registrable Securities as each Purchaser may
request in a writing delivered to the Company within 20 days after
each Purchaser's receipt of the Company's written notice delivered
pursuant to Section 2.1(a)(i) above.
(b) UNDERWRITING. The right of each Purchaser to registration
pursuant to Section 2.1 shall be conditioned upon such Purchaser's
participation in such underwriting, and the inclusion of Registrable
Securities in the underwriting shall be limited to the extent provided
herein. Each Purchaser and all other stockholders proposing to distribute
their securities through such underwriting shall (together with the Company
and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Company.
Subject only to the provisions of Section 2.1(c) below, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the managing underwriter may limit
some or all of the Registrable Securities that may be included in the
registration and underwriting as follows: the number of Registrable
Securities that may be included in the registration and underwriting by
each Purchaser shall be determined by multiplying the number of shares of
Registrable Securities of all selling shareholders of the Company which the
managing underwriter is willing to include in such registration and
underwriting, times a fraction, the numerator of which is the number of
Registrable Securities requested to be included in such registration and
underwriting by each Purchaser, and the denominator of which is the total
number of Registrable Securities which all selling shareholders of the
Company have requested to have included in such registration and
underwriting. To facilitate the allocation of shares in accordance with
the above provisions, the Company may round the number of shares allocable
to any such person to the nearest 100 shares. If any Purchaser disapproves
of the terms of any such underwriting, it may elect to withdraw therefrom
by written notice to the Company and the managing underwriter, delivered
not less than seven days before the effective date.
3
<PAGE>
(c) SUBORDINATION OF REGISTRATION RIGHTS. Notwithstanding any other
provision of this Section 2.1 to the contrary, the registration rights
granted pursuant hereto are expressly subordinate in all respects to the
registration rights previously granted by the Company to each of Merrill
Lynch Interfunding Inc., a Delaware corporation, Don V. Ingram, a resident
of Dallas County, Texas, and PTX Partners, a Texas limited partnership
(collectively, the "EXISTING HOLDERS"), pursuant to that certain Amended
and Restated Registration Agreement, dated September 30, 1988 (the "1988
AGREEMENT"). In the event that the managing underwriter of any
underwriting shall inform the Company of its intention to limit the number
of Registrable Securities to be included in any registration and
underwriting pursuant to Section 2.1(b) above, all Registrable Securities
held by the Existing Holders who have notified the Company of their intent
to include their Registrable Securities in such registration and
underwriting pursuant to Section 2.1(a)(ii) above, shall be included in
such registration and underwriting (subject to the terms of the 1988
Agreement), before the Purchasers shall be permitted to include any of
their Shares in such registration and underwriting. In the event that
additional Registrable Securities are available for inclusion in such
registration and underwriting after the inclusion of the Existing Holders'
Registrable Securities, then the number of Registrable Securities to be
included in such registration and underwriting by the Purchasers shall be
determined by multiplying the number of shares of Registrable Securities
remaining after the inclusion of the Existing Holders' Registrable
Securities which the managing underwriter is willing to include in such
registration and underwriting, times a fraction, the numerator of which is
the number of Registrable Securities requested to be included in such
registration and underwriting by each Purchaser, and the denominator of
which is the total number of Registrable Securities which all Purchasers
have requested to have included in such registration and underwriting.
4
<PAGE>
(d) RIGHT TO TERMINATE REGISTRATION. The Company shall have the right to
terminate or withdraw any registration initiated by it under this Section 2.1
prior to the effectiveness of such registration whether or not any Purchaser has
elected to include its Registrable Securities in such registration, provided,
however, that in such event, the Company shall promptly pay all reasonable
out-of-pocket costs and expenses of the Purchasers (including, without
limitation, all reasonable fees and disbursements of one law firm chosen to
represent the Purchasers) incurred in connection with such terminated
registration.
(e) NO OTHER REGISTRATION RIGHTS. Except (i) as set forth in the
first sentence of Section 2.1(c) hereof, (ii) the rights granted pursuant
to the Registration Rights Agreement, dated as of October 1, 1995, between
the Company and the former stockholders of Alumar Associates, Inc., (iii)
the rights granted pursuant to the Registration Rights Agreement, dated as
of September 20, 1994, between the Company and the former stockholders of
Phoenix Smelting Corporation, and (iv) except for rights granted pursuant
to this Agreement, the Company has not previously entered into or become a
party to, nor is it bound by any agreement with respect to its capital
stock which grants registration rights to any person or entity.
2.2 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with all registrations pursuant to Section 2.1 shall be borne by
the Company. Unless otherwise stated herein, all Selling Expenses relating
to securities registered on behalf of any Purchaser shall be borne by such
Purchaser.
2.3 COMPANY'S OBLIGATIONS IN REGISTRATION. In the case of each
registration, qualification or compliance effected by the Company pursuant
to this Agreement the Company will keep each Purchaser advised in writing
as to the initiation of each registration, qualification and compliance and
as to the completion thereof. At its expense, the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its commercially reasonable best
efforts to cause such registration statement to become and remain effective
with respect to a registration statement filed regarding an Underwritten
Public Offering, for the lesser of (i) 90 days or (ii) until the
distribution described in such registration statement has been completed;
and
5
<PAGE>
(b) Furnish to each underwriter such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such
underwriter may reasonably request in order to facilitate the public sale
of the shares by such underwriter, and promptly furnish to each underwriter
and Purchaser notice of any stop-order or similar notice issued by the
Commission or any state agency charged with the regulation of securities,
and notice of any NASDAQ or securities exchange listing; and
(c) Furnish prospectuses, including preliminary prospectuses and
amendments and supplements thereto, to the Purchasers electing to sell any
of their Registrable Securities pursuant to Section 2.1 hereof, all in
accordance with applicable securities laws; and
(d) Notify the Purchasers in the event that the Company becomes aware
that a prospectus relating to the Registrable Securities contains a
materially untrue statement or omits to state a material fact; and
(e) Apply to register or otherwise qualify the Registrable Securities
offered by the Purchasers or any of them under all applicable blue sky laws
of any state.
2.4 INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Purchaser, each of its officers and directors and
partners, and each person controlling each Purchaser within the meaning of
Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement,
against all expenses, claims, losses, damages or liabilities (or actions in
respect thereof) to the extent to which such person or entity is subject,
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, to the extent such expenses, claims, losses,
damages or liabilities (or proceedings in respect thereof) arise out of or
are based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or arise
out of or are based on any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading, or any violation by the Company of the Securities Act
6
<PAGE>
or any rule or regulation promulgated under the Securities Act applicable
to the Company in connection with any such registration, qualification or
compliance, and the Company will reimburse each Purchaser, each of its
officers and directors and partners, and each person controlling each
Purchaser for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, PROVIDED, HOWEVER, that the indemnity
contained herein shall not apply to amounts paid in settlement of any
claim, loss, damage, liability or expense if settlement is effected without
the consent of the Company (which consent shall not unreasonably be
withheld); PROVIDED, FURTHER, that the Company will not be liable in any
such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company expressly for
inclusion in such registration by such Purchaser or such controlling person
specifically for use therein. Notwithstanding the foregoing, insofar as the
foregoing indemnity relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on file
with the Commission at the time the registration statement becomes
effective or in the final prospectus filed with the Commission pursuant to
the applicable rules of the Commission or in any supplement or addendum
thereto, the indemnity agreement herein shall not inure to the benefit of
any underwriter or (if there is no underwriter) any Purchaser if a copy of
the final prospectus filed pursuant to such rules, together with all
supplements and addenda thereto, was not furnished to the person or entity
asserting the loss, liability, claim or damage at or prior to the time such
furnishing is required by the Securities Act.
(b) To the extent permitted by law, each Purchaser will, severally
but not jointly, if securities held by such Purchaser are included in the
securities as to which such registration, qualification or compliance is
being effected pursuant to the terms hereof, indemnify and hold harmless
the Company, each of its directors and officers, each person who controls
the Company within the meaning of Section 15 of the Securities Act, and
each other person selling the Company's securities covered by such
registration statement, each of such person's officers and directors and
each person controlling such persons within the meaning of Section 15 of
the Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) to the extent to which such person or entity is
subject, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any
7
<PAGE>
such registration statement, prospectus, offering circular or other
document, or arising out of or based on any omission (or alleged omission)
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, or any violation by such
Purchaser of any rule or regulation promulgated under the Securities Act
applicable to such Purchaser and relating to action or inaction required
of such Purchaser in connection with any such registration, qualification
or compliance, and will reimburse the Company, such other persons, such
directors, officers, persons or control persons for any legal or other
expenses reasonably incurred in connection with investigating or defending
any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with information furnished to the Company by
such Purchaser expressly for inclusion in such registration; PROVIDED,
HOWEVER, that the indemnity contained herein shall not apply to amounts
paid in settlement of any claim, loss, damage, liability or expense if
settlement is effected without the consent of the Purchaser (which consent
shall not be unreasonably withheld); and PROVIDED, FURTHER, that the maximum
liability of any Purchaser under this Section 2.4(b) shall be limited to the
aggregate amount of all sales proceeds actually received by such Purchaser
upon the sale of such Purchaser's Registrable Securities in connection with
such registration. Notwithstanding the foregoing, insofar as the foregoing
indemnity relates to any such untrue statement (or alleged untrue
statement) or omission (or alleged omission) made in the preliminary
prospectus but eliminated or remedied in the amended prospectus on file
with the Commission at the time the registration statement becomes
effective or in the final prospectus filed pursuant to applicable rules of
the Commission or in any supplement or addendum thereto, the indemnity
agreement herein shall not inure to the benefit of the Company, any
underwriter or any other person if a copy of the final prospectus filed
pursuant to such rules, together with all supplements and addenda thereto,
was not furnished to the person or entity asserting the loss, liability,
claim or damage at or prior to the time such furnishing is required by the
Securities Act.
(c) Each party entitled to indemnification under this Section 2.4
(the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any action or proceeding
commenced against, or written demand made on any such party in respect of
which indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of
8
<PAGE>
any such claim or any litigation resulting therefrom, provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Agreement unless the
failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action and provided further, that the
Indemnifying Party shall not assume the defense for matters as to which
there is a conflict of interest or as to which the Indemnifying Party is
asserting separate or different defenses, which defenses are inconsistent
with the defenses of the Indemnified Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release
from all liability in respect to such claim or litigation. No Indemnified
Party shall consent to entry of any judgment or enter into any settlement
without the consent of each Indemnifying Party.
(d) If the indemnification provided for in this Section 2.4 is
unavailable to an Indemnified Party in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Party,
in lieu of indemnifying such Indemnified Party, shall contribute to the
amount paid or payable by such Indemnified Party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and all stockholders offering securities in the offering (the
"SELLING STOCKHOLDERS") on the other from the offering of the Company's
securities, or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company on the one hand and the Selling
Stockholders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Selling Stockholders on the other
shall be the net proceeds from the offering (before deducting expenses)
received by the Company on the one hand and the Selling Stockholders on the
other. The relative fault of the Company on the one hand and the Selling
Stockholders on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of material fact or
the
9
<PAGE>
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Selling Stockholders and the parties'
relevant intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission. The Company and the Selling
Stockholders agree that it would not be just and equitable if contribution
pursuant to this Section 2.4(d) were based solely upon the number of
entities from whom contribution was requested or by any other method of
allocation which does not take account of the equitable considerations
referred to above in this Section 2.4(d). The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages and liabilities
referred to above in this Section 2.4(d) shall be deemed to include any
legal or other expenses reasonably incurred by such Indemnified Party in
connection with investigating or defending any such action or claim, subject
to the provisions of Section 2.4(c) hereof. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act).
2.5 CERTAIN INFORMATION. Each Purchaser agrees, with respect to any
Registrable Securities included in any registration, to furnish to the
Company such information regarding such Purchaser, the Registrable
Securities and the distribution proposed by such Purchaser as the Company
may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in Section
2.1.
2.6 RULE 144 REPORTING. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time
permit the sale of the Restricted Securities (used herein as defined in
Rule 144 under the Securities Act) to the public without registration, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times
during which the Company is subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT");
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act (at all times during which the Company is subject to such reporting
requirements); and
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(c) So long as any Purchaser owns any Restricted Securities, to
furnish to such Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule
144 and with regard to the Securities Act and the Exchange Act (at all
times during which the Company is subject to such reporting requirements),
a copy of the most recent annual or quarterly report of the Company, and
such other non-confidential reports and documents of the Company and other
non-confidential information in the possession of or reasonably obtainable
by the Company as such Purchaser may reasonably request in availing itself
of any rule or regulation of the Commission allowing Purchaser to sell any
such securities without registration.
3. MISCELLANEOUS.
3.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the internal laws of the State of Delaware.
3.2 NO TRANSFER; TERMINATION. The registration rights contemplated
herein are not transferable, except (i) by operation of law and by the laws
of descent and distribution; (ii) to any member of a Purchaser's immediate
family; or (iii) to any trust, partnership or other entity as to which all
of the beneficiaries or partners consist of a Purchaser or members of such
Purchaser's immediate family. The registration rights granted herein shall
terminate, and the registration rights will not be exercisable by any
Purchaser (or such Purchaser's lawful transferees pursuant to this Section
3.2) after said termination date, on the earlier of (i) the second
anniversary date of this Agreement, or (ii) at such time as all shares of
Registrable Securities held by such Purchaser may immediately be sold under
Rule 144 (as amended from time to time) during any 90-day period.
3.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to
the subject hereof. This Agreement, or any provision hereof, may be
amended, waived, discharged or terminated only upon the written consent of
the Company and those Purchasers who are the record holders of at least
majority of the Shares issued pursuant to the Purchase Agreement.
11
<PAGE>
3.4 NOTICES. All notices or other communications which are required
or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when delivered in person, transmitted by
telecopier or mailed by registered or certified first class mail, postage
prepaid, return receipt requested to the parties hereto at the address set
forth below (as the same may be changed from time to time by notice
similarly given) or the last known business or residence address of such
other person as may be designated by either party hereto in writing.
If to the Purchasers:
At their respective addresses set forth
next to each signature below
If to the Company:
IMCO Recycling Inc.
5215 North O'Connor Blvd., Suite 940
Irving, Texas 75039
Attention: Chief Executive Officer
3.5 DELAYS OR OMISSIONS. Except as expressly provided herein, no
delay or omission to exercise any right, power or remedy accruing to any
party to this Agreement shall impair any such right, power or remedy of
such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind
or character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this agreement, must be in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies,
either under this Agreement or by law or otherwise afforded to any party to
this Agreement, shall be cumulative and not alternative.
3.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall
constitute one instrument.
12
<PAGE>
3.7 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision.
13
<PAGE>
3.8 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in
construing or interpreting this Agreement.
IN WITNESS WHEREOF, the undersigned or each of their respective duly
authorized officers or representatives have executed this agreement effective
upon the date first set forth above.
COMPANY:
IMCO RECYCLING INC.,
a Delaware corporation
/s/ FRANK H. ROMANELLI
---------------------------------
Frank H. Romanelli, President and
Chief Executive Officer
PURCHASERS:
/s/ JAMES T. SKOCH
---------------------------------
James T. Skoch
Address:
2341 Georgia Drive
Westlake, Ohio 44145
/s/ WILLIAM L. WHITWORTH
---------------------------------
William L. Whitworth
Address:
12325 Stevens Creek Drive
Alpharetta, Georgia 30202
14
<PAGE>
/s/ WILLIAM T. BEARGIE
---------------------------------
William T. Beargie
Address:
3144 Dover Center Road
Westlake, Ohio 44145
/s/ RANDY L. COLLINS
---------------------------------
Randy L. Collins
Address:
5730 Birchwood Drive
Mentor, Ohio 44060
15
<PAGE>
Stockholders and
Board of Directors
IMCO Recycling Inc.
We are aware of the incorporation by reference in the Registration Statement
(Form S-8 No. 33-26641) pertaining to the Nonqualified Stock Option Plan of
IMCO Recycling Inc. and the related Prospectus, in the Registration Statement
(Form S-8 No. 33-34745) pertaining to the IMCO Recycling Inc. Amended and
Restated Stock Option Plan, and in the Registration Statement (Form S-8 No.
33-76780) pertaining to the IMCO Recycling Inc. 1992 Stock Option Plan, in
the Registration Statement (Form S-8 No. 333-00075) pertaining to the IMCO
Recycling Inc. Amended and Restated 1992 Stock Option Plan, and in the
Registration Statement (Form S-8 No. 333-07091) pertaining to the IMCO
Recycling Inc. Annual Incentive Plan of our report dated May 12, 1997
relating to the unaudited consolidated interim financial statements of IMCO
Recycling Inc. which are included in its Form 10-Q for the quarter ended
March 31, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933, our report is not a
part of the registration statements prepared or certified by accountants
within the meaning of Section 7 or 11 of the Securities Act of 1933.
May 12, 1997
Dallas, Texas
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