<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 10, 1997.
REGISTRATION NO. 333-36833
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
IMCO RECYCLING INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<C> <C>
DELAWARE 75-2008280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5215 NORTH O'CONNOR BLVD., SUITE 940 DON V. INGRAM
CENTRAL TOWER AT WILLIAMS SQUARE CHAIRMAN OF THE BOARD
IRVING, TEXAS 75039 IMCO RECYCLING INC.
(972) 869-6575 5215 NORTH O'CONNOR BLVD., SUITE 940
(Address, including zip code, and telephone CENTRAL TOWER AT WILLIAMS SQUARE
number, including IRVING, TEXAS 75039
area code, of registrant's principal executive (972) 869-6575
offices) (Name, address, including zip code, and telephone
number,
including area code, of agent for service)
</TABLE>
---------------------
Copies to:
<TABLE>
<C> <C>
MARC H. FOLLADORI VINCENT J. PISANO
HAYNES AND BOONE, L.L.P. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
1000 LOUISIANA STREET, SUITE 4300 919 THIRD AVENUE
HOUSTON, TEXAS 77002-5019 NEW YORK, NEW YORK 10022-3897
(713) 547-2000 (212) 735-3000
</TABLE>
---------------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the Registration Statement becomes effective.
---------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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 statement 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 effective 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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
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
PRELIMINARY PROSPECTUS DATED OCTOBER 10, 1997
PROSPECTUS
- ---------------------
3,000,000 SHARES
[IMCO LOGO]
IMCO RECYCLING INC.
COMMON STOCK
------------------------
On October 9, 1997, the last reported sale price of the common stock, par
value $0.10 per share (the "Common Stock"), of IMCO Recycling Inc. (the
"Company") on the New York Stock Exchange was $19 1/4 per share. The Common
Stock trades on the New York Stock Exchange under the symbol "IMR."
------------------------
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>
===============================================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- ---------------------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
===============================================================================================================
</TABLE>
(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $500,000.
(3) The Company has granted the several Underwriters an option to purchase up to
an additional 450,000 shares of Common Stock at the Price to Public, less
the Underwriting Discount, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1997.
------------------------
MERRILL LYNCH & CO. RAYMOND JAMES & ASSOCIATES, INC.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
[PICTURES HERE]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SUCH TRANSACTIONS MAY INCLUDE STABILIZING TRANSACTIONS, THE PURCHASE OF COMMON
STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR
A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 4
[PICTURE]
IMCO recently completed construction of this 150 million pound per year
aluminum recycling facility in Coldwater, Michigan. The new plant provides metal
for use by the auto industry and other customers.
[PICTURE]
About 30 percent of IMCO's annual processing volume is provided to the
transportation sector, particularly manufacturers of auto and truck components.
This is the largest and fastest-growing aluminum market. At the Uhrichsville,
Ohio facility, turnings from production of forged aluminum auto wheels are
recycled and returned to manufacturers.
[PICTURE]
IMCO's new Coldwater, Michigan plant utilizes technically advanced recycling
furnaces which are much larger than conventional types. Because of their size,
better heat utilization and melting efficiency, they are expected to
significantly increase production per man-hour.
[PICTURE]
IMCO specializes in providing customers with just-in-time delivery of molten
metal which reduces customers' energy and capital expense, metal loss and
equipment downtime. Over 50 percent of the company's annual processing volume
is delivered in molten form.
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information appearing elsewhere in this Prospectus or incorporated by
reference herein. All information herein giving effect to the offering made
hereby (the "Offering") assumes no exercise of the Underwriters' over-allotment
option. Except where the context otherwise requires, the term "Company" as used
herein refers to IMCO Recycling Inc. and its subsidiaries.
THE COMPANY
The Company is the largest aluminum recycler in the United States and
believes that it is the largest aluminum recycler in the world. The Company's
principal business is the processing of secondary aluminum, which includes used
aluminum beverage cans ("UBCs"), scrap and dross (a by-product of aluminum
production). The Company converts UBCs, scrap and dross into molten metal in
furnaces at facilities owned and/or operated by the Company. The Company then
delivers the processed aluminum to customers in molten form or ingots. The
Company recovers magnesium in a similar process and also recycles zinc. Most of
the Company's processing capacity is utilized to recycle customer-owned
materials, for which the Company charges a fee (a service called "tolling").
During fiscal 1996, approximately 82% of the Company's total pounds of metal
processed involved tolling of aluminum. The balance of the Company's business
involves the purchase of scrap and dross for processing and recycling by the
Company for subsequent resale ("buy/sell" business).
The Company's business has benefited from the trend to include recycled
aluminum in finished products as well as the growth in the production and
recycling of UBCs and the increasing utilization of aluminum in automotive
(including automobiles and trucks) components. Over the past two decades, U.S.
production of recycled aluminum has risen 184% while total U.S. aluminum supply
has increased only 82%. Recycled aluminum now constitutes approximately 34% of
overall aluminum supply, compared to 22% in 1976.
The Company's customers include some of the world's major aluminum
producers and aluminum fabricators, diecasters, extruders and other processors.
Most of the metal processed by the Company is used to produce products for the
transportation, packaging and construction industries, which constitute the
three largest aluminum markets. Much of the Company's recent growth has been
directed toward serving the transportation sector, which has been the largest
and fastest-growing aluminum market in recent years due to the increasing use of
aluminum in automotive components.
GROWTH STRATEGY
The Company's strategy is to participate in sectors of the nonferrous
metals recycling industry in which it believes it can provide customers with a
technology-based, value-added service and in which it can develop significant
market share. The Company believes that it has been successful in
differentiating its aluminum recycling services from those of its competitors
through (1) operational and design technologies that produce higher metal
recovery yields, (2) the strategic location of facilities in close proximity to
customers, providing for both stronger ties to its customers and greater
convenience and accessibility for its customers, (3) the ability to deliver
recycled aluminum in molten form for just-in-time delivery, thereby saving
customers the expense of remelting aluminum ingots and (4) advanced
environmental technology and practices, including dedicated disposal facilities
and a proprietary process used by the Company to recover aluminum from by-
products of the recycling process. To achieve its objectives, the Company
focuses on internal expansion as well as growth through strategic acquisitions,
vertical integration of its aluminum operations and services, operational
efficiencies through technological innovation, customer service and
environmental efficiencies.
Strategic Expansion. Since 1993, the Company has increased its number of
facilities and capacity through acquisitions of existing facilities,
construction of new facilities, and expansion of existing facilities. As of
March 31, 1993, the Company owned and operated five recycling plants, which had
an aggregate annual processing capacity of 735 million pounds of aluminum and 50
million pounds of other metals. As of August 31, 1997, the Company owned and
operated 15 recycling and processing plants, which have an
1
<PAGE> 6
aggregate annual processing capacity of 2,055 million pounds of aluminum and 50
million pounds of other metals. In addition, the Company owns a 50% interest in
an aluminum recycling joint venture in Germany, which has an annual melting
capacity of 280 million pounds and is constructing an aluminum recycling
facility in Swansea, Wales, which will have an annual melting capacity of 100
million pounds. The Company expects that currently planned expansions of
existing facilities will add approximately 145 million pounds of annual
processing capacity during 1998. See "Business -- Growth of Business." Expansion
of the Company's network of facilities in the U.S. has enabled the Company to
allocate processing work among its facilities, thereby maximizing utilization of
capacity and absorbing excess demand. The Company intends to continue to expand
its business by targeting growing markets, such as the automotive market,
constructing additional aluminum recycling facilities, expanding and improving
its existing facilities and acquiring or partnering with similar recycling
businesses or other metals processors. See "Recent Developments -- Pending
Alchem Acquisition" below. In addition, the Company plans to continue seeking
foreign sites for its recycling facilities where market conditions warrant.
Vertical Integration. The Company also seeks business opportunities that
combine its traditional recycling services with downstream processing operations
that more directly serve manufacturers and other end-users. For example, the
Company's acquisition of Rock Creek Aluminum, Inc. in early 1997 expanded the
Company's scope of activities from solely recycling operations to include the
mechanical processing of aluminum dross and scrap into deoxidization agents,
desulphurizers and slag conditioners to be sold to steel producers for use in
steel production. Further, the proposed acquisition of Alchem Aluminum, Inc., if
completed, will permit the Company to expand from molten metal deliveries to the
Alchem facility to the manufacture and sale of specification aluminum alloy
products for automotive equipment manufacturers. See "Recent Developments"
below.
Technological Innovation. The Company's facilities and equipment have been
continually improved and updated through plant modernization programs, including
technological advancements designed to improve operational efficiencies. Between
January 1, 1992 and June 30, 1997, the Company made capital expenditures and
joint venture investments totaling $99 million in new plant and equipment
(excluding acquisitions of existing companies or facilities). These investments
have increased the Company's productivity, market share and total processing
capacity. During 1994 and 1995, the Company's facilities operated at greater
than 100% of their aggregate stated capacities. For the first eight months of
1997, the Company's capacity utilization rate was reduced to an average of
approximately 94%, primarily as a result of the addition of new capacity and the
commencement of operations at the Coldwater, Michigan facility. In August 1997,
the Company's facilities operated at 98% of their aggregate stated capacity.
Customer Service. The Company is dedicated to maintaining customer
satisfaction and seeks to develop new methods and processes to better serve its
customers. The Company believes it provides its customers with the highest level
of service by offering (1) higher metal recovery rates, (2) a higher quality of
metal recovered, (3) advanced environmental technology and practices and (4)
conveniently located facilities. By December 1997, the Company expects to have
the capability to provide 74% of its processed aluminum in molten form. Through
long-term relationships with primary producers and other customers, the Company
maximizes its production capabilities while providing customers with a reliable
source for their product requirements. As of August 31, 1997, approximately 45%
of the Company's annual aluminum processing capacity was subject to multi-year
contracts, which generally contain price escalators directly related to
production costs, such as labor and natural gas expenses.
Environmental Efficiencies. The Company is developing a "closed loop"
production system in which virtually all materials used in the recycling process
are reclaimed or consumed, thus greatly reducing the need for and expense of
landfilling. Management believes that considerable progress has been made in
this area through the operation of its Kentucky salt cake processing plant and
its patented wet-milling process employed to recycle salt cake at both its
Arizona facility and the SALTS joint venture. While no assurances can be given
that an economically efficient closed loop recycling system will be developed
for all of the Company's facilities and processes, management believes that
continued progress toward this goal is desirable for the Company's customers due
to the opportunities for cost savings and further assurances of environmental
safety. In addition,
2
<PAGE> 7
customers benefit from the enhanced environmental facilities employed by the
Company, such as the lined landfill at its Morgantown, Kentucky facility, which
is built to hazardous waste standards. See "Business -- The Recycling Process."
GROWTH OF BUSINESS
By implementing its growth strategy, the Company has (1) increased its
customer base, (2) expanded the geographic scope of its services, both
domestically and abroad and (3) enhanced its technological leadership in the
secondary aluminum recycling industry. Principal events in this regard since
1994 have been:
- The acquisition in 1994 of Metal Resources, Inc. and subsequent expansion
of its Loudon, Tennessee aluminum recycling facility.
- The acquisitions in 1995 of Metal Mark, Inc. and its aluminum recycling
facilities in Chicago Heights, Illinois and Sikeston, Missouri and the
Ravenswood Aluminum, Inc. aluminum recycling facility in Bedford,
Indiana.
- The establishment in 1996 of the Company's aluminum recycling joint
venture in Germany, the Company's first international venture.
- The construction in 1996 of the Company's salt cake processing facility
at Morgantown, Kentucky.
- The construction in 1996 and 1997 of an aluminum recycling facility in
Coldwater, Michigan.
- The acquisitions in January 1997 of IMSAMET, Inc., which owns three
aluminum processing and recycling facilities and Rock Creek Aluminum,
Inc., which owns two aluminum processing facilities.
- The construction in 1997 of the Company's aluminum recycling facility in
Swansea, Wales.
- The proposed acquisition of Alchem Aluminum, Inc., which operates a
secondary aluminum production facility.
See "Business -- Growth of Business."
RECENT DEVELOPMENTS
IMSAMET and Rock Creek Acquisitions. In January 1997, the Company completed
the acquisitions of IMSAMET, Inc. ("IMSAMET") and Rock Creek Aluminum, Inc.
("Rock Creek"). IMSAMET owns or has a majority interest in three aluminum
recycling plants located in Idaho, Arizona and Utah, and owns a 50% interest in
a facility in Utah that uses a proprietary process to reclaim materials from
salt cake. IMSAMET's recycling facilities have a combined annual melting
capacity of 420 million pounds. Rock Creek operates two facilities in Ohio that
utilize milling, shredding, blending, testing and packaging equipment to process
various types of raw materials, including aluminum dross and scrap, into
deoxidation agents, desulphurizers and slag conditioners for use in the steel
industry. Rock Creek's facilities have a total annual processing capacity of
approximately 150 million pounds.
Pending Alchem Acquisition. On September 18, 1997, the Company announced
that it had entered into a non-binding letter of intent to acquire all of the
capital stock of Alchem Aluminum, Inc. ("Alchem"), in exchange for cash and
1,208,339 shares of Common Stock (the "Alchem Acquisition"). Alchem is a
producer of specification aluminum alloys for automotive manufacturers and their
suppliers. Completion of the Alchem Acquisition will permit the Company to
increase its participation in the automotive industry, broaden its customer base
and expand its product range to include specification alloys. If the acquisition
is completed, the Company estimates that approximately 30% of its annual
domestic capacity will be dedicated to supplying the transportation sector. The
acquisition is expected to increase the Company's total annual processing
capacity in 1998 to approximately 2.6 billion pounds.
The shares of Common Stock to be issued to the Alchem shareholders will be
contractually restricted from resale for periods of up to three years, and the
Company plans to agree to grant the Alchem shareholders certain registration
rights with respect to such shares of Common Stock. The amount of cash to be
paid will be
3
<PAGE> 8
determined by deducting the aggregate amount of Alchem's obligations for
borrowed money outstanding as of the closing date of the acquisition from
$26,250,000. As of September 30, 1997, the amount of Alchem's indebtedness for
borrowed money outstanding was $13,416,000.
Alchem has been operating its facility located in Coldwater, Michigan since
1972. Alchem and the Company have also been operating under a joint venture
agreement entered into in October 1995 to construct and operate an aluminum
recycling plant adjacent to Alchem's processing plant in Coldwater. This joint
venture plant began operating in February 1997 and is expected to reach full
capacity in October 1997. Alchem's facility has an annual processing capacity of
180 million pounds; the joint venture facility with the Company has an annual
capacity of 150 million pounds. For its fiscal year ended October 31, 1996,
Alchem had net sales of $112 million. For the six months ended June 30, 1997,
Alchem had net sales of $74 million. The Alchem Acquisition is expected to close
in November 1997; however, there can be no assurance of when or whether it will
be completed. See "Business -- Pending Alchem Acquisition."
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock Offered by the
Company.................................... 3,000,000
Shares of Common Stock to be Outstanding:
after the Offering......................... 15,543,343(1)(2)
after the Offering and the Alchem
Acquisition............................. 16,751,682(1)(2)
Use of Proceeds.............................. To reduce outstanding indebtedness under the Company's
senior credit facility. See "Use of Proceeds."
New York Stock Exchange Symbol............... "IMR"
</TABLE>
- ---------------
(1) Based on the number of shares of Common Stock outstanding at September 30,
1997.
(2) Excludes 2,036,995 shares of Common Stock reserved for issuance under the
Company's stock option and incentive plans as of September 30, 1997.
4
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary consolidated financial and
operating data for the Company (i) on an historical basis for each of the three
years in the period ended December 31, 1996 and for the six months ended June
30, 1996 and 1997 and (ii) on a pro forma basis for the year ended December 31,
1996 and as of and for the six months ended June 30, 1997 reflecting pro forma
adjustments for the effects of the IMSAMET and Rock Creek acquisitions, the
Alchem Acquisition and the Offering. The historical summary consolidated
financial data for and as of the end of each of the three years in the period
ended December 31, 1996, have been derived from the audited consolidated
financial statements of the Company. The historical summary consolidated
financial data of the Company as of June 30, 1997 and for the six-month periods
ended June 30, 1996 and 1997 have been derived from the Company's unaudited
consolidated financial statements. This information should be read in
conjunction with "Summary Pro Forma Financial Data," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Pro Forma Condensed Consolidated Financial
Statements and the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, FOR THE SIX MONTHS ENDED JUNE 30,
------------------------------------------ ----------------------------------
PRO FORMA PRO FORMA
1994 1995 1996 1996(5) 1996 1997 1997(5)
-------- -------- -------- --------- -------- ----------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND POUNDS PROCESSED DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA(1):
Revenues................................ $101,116 $141,167 $210,871 $408,936 $101,183 $159,127 $231,807
Cost of sales(2)........................ 78,478 110,228 185,333 363,550 85,486 136,850 203,135
-------- -------- -------- -------- -------- -------- --------
Gross profit............................ 22,638 30,939 25,538 45,386 15,697 22,277 28,672
Selling, general and administrative..... 6,440 10,027 11,774 20,849 5,869 8,799 11,195
Interest expense........................ 1,014 1,073 3,421 6,670 1,590 3,659 3,052
Interest income......................... (154) (424) (623) (643) (382) (179) (183)
Nonrecurring litigation expense(3)...... 1,635 -- -- -- -- -- --
Equity in (earnings) loss of joint
venture............................... -- (100) 114 (36) (423) (90) (90)
-------- -------- -------- -------- -------- -------- --------
Earnings before provision for income
taxes, minority interests and
extraordinary item.................... 13,703 20,363 10,852 18,546 9,043 10,088 14,698
Provision for income taxes.............. 5,232 7,893 4,132 7,326 3,482 4,033 5,879
-------- -------- -------- -------- -------- -------- --------
Earnings before minority interests and
extraordinary item.................... 8,471 12,470 6,720 11,220 5,561 6,055 8,819
Minority interests...................... -- -- -- (319) -- (208) (208)
-------- -------- -------- -------- -------- -------- --------
Earnings before extraordinary item...... 8,471 12,470 6,720 $ 10,901 5,561 5,847 $ 8,611
======== ========
Extraordinary item(4)................... -- -- -- -- (1,318)
-------- -------- -------- -------- --------
Net earnings............................ $ 8,471 $ 12,470 $ 6,720 $ 5,561 $ 4,529
======== ======== ======== ======== ========
Earnings per common share before
extraordinary item.................... $ 0.73 $ 1.03 $ 0.55 $ 0.64 $ 0.45 $ 0.46 $ 0.51
Net earnings per common share........... $ 0.73 $ 1.03 $ 0.55 $ 0.45 $ 0.36
Dividends declared per common share..... $ 0.10 $ 0.105 $ 0.20 $ 0.10 $ 0.10
Weighted average common shares
outstanding........................... 11,644 12,108 12,309 17,135 12,387 12,732 16,940
OTHER OPERATING DATA(1):
Depreciation and amortization........... $ 7,367 $ 9,353 $ 11,316 $ 17,542 $ 5,673 $ 7,773 $ 8,777
Capital expenditures.................... $ 6,646 $ 15,538 $ 16,711 $ 19,647 $ 4,480 $ 19,026 $ 20,571
Pounds of metal processed (in
millions)............................. 1,013 1,323 1,451 1,941 739 922 1,009
Percent of total pounds processed:
Tolled aluminum....................... 93% 92% 82% 77% 85% 82% 76%
Purchased aluminum.................... 3% 5% 15% 21% 12% 16% 22%
Magnesium and zinc.................... 4% 3% 3% 2% 3% 2% 2%
</TABLE>
Footnotes on following page
5
<PAGE> 10
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1997
------------------------------- ------------------------
1994 1995 1996 ACTUAL PRO FORMA(5)
------- -------- -------- -------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Working capital...................................... $17,303 $ 27,998 $ 32,649 $ 35,368 $ 58,555
Total assets......................................... 96,791 139,877 164,707 267,421 328,951
Total long-term debt................................. 11,860 29,754 48,202 115,391 95,332
Stockholders' equity................................. 68,290 83,276 88,335 98,888 169,788
</TABLE>
- ---------------
(1) The Company's results of operations and financial position have been
affected by acquisitions of existing facilities and companies during the
periods presented above. See Note B of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
(2) During the third quarter of 1996, the Company recorded a charge to cost of
sales of $4,177,000 resulting from management's decision to close the
Company's Corona, California plant and to accelerate the closure of the
first cell of the Company's landfill in Morgantown, Kentucky.
(3) Consists of a nonrecurring charge related to settlement of a lawsuit and
related legal expenses.
(4) During the first quarter of 1997, the Company recorded an extraordinary
charge of $1,318,000 (net of taxes) resulting from the refinancing of
substantially all of the Company's outstanding debt in connection with the
acquisitions of IMSAMET and Rock Creek.
(5) The pro forma summary consolidated financial information for the year ended
December 31, 1996 gives effect to the IMSAMET and Rock Creek Acquisitions,
the Alchem Acquisition and the Offering, assuming such transactions were
consummated on January 1, 1996. The pro forma summary consolidated financial
information for the six months ended June 30, 1997 gives effect to the
Alchem Acquisition and the Offering, assuming such transactions were
consummated on January 1, 1996. The pro forma summary consolidated balance
sheet information has been prepared assuming the Alchem Acquisition and the
Offering were consummated on that date. See "Summary Pro Forma Financial
Data" and the Pro Forma Condensed Consolidated Financial Statements included
elsewhere in this Prospectus.
6
<PAGE> 11
FORWARD-LOOKING STATEMENTS
Certain information contained in or incorporated by reference into this
Prospectus may be deemed to be forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and is subject to the "Safe Harbor" provisions of those
sections. This information includes, without limitation, statements concerning
future revenues, future earnings, future costs, future margins and future
expenses; pending or future acquisitions or corporate combinations (including
the Alchem Acquisition), plans for domestic or international expansion, and
anticipated technological advances; future capabilities of the Company to
achieve "closed loop recycling" on a commercially efficient basis, prospects for
the Company's joint venture partners to purchase a portion of the Company's
interests, and future or extensions of existing long-term supply contracts with
its customers; the outcome of and any liabilities resulting from any claims,
investigations or proceedings against the Company or its subsidiaries; future
levels of dividends (if any), the future mix of business, future asset
recoveries, and future operations, future demand, future industry conditions,
future capital expenditures, and future financial condition. These statements
are based on current expectations and involve a number of risks and
uncertainties. Although the Company believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to be correct.
When used in or incorporated by reference into this Prospectus, the words
"anticipate," "estimate," "expect," "may," "project" and similar expressions are
intended to be among the statements that identify forward-looking statements.
Important factors that could affect the Company's actual results and cause
actual results to differ materially from those results that might be projected,
forecast, estimated or budgeted by the Company in such forward-looking
statements include, but are not limited to, the following: fluctuations in
operating levels at the Company's facilities, the mix of buy/sell business as
opposed to tolling business, retention and financial condition of major
customers, effects of future costs, collectibility of receivables, the inherent
unpredictability of adversarial or administrative proceedings, effects of
environmental and other governmental regulations, currency exchange
fluctuations, the price of and demand for aluminum on world markets and future
levels and timing of capital expenditures.
These statements are further qualified by the following: any estimates of
future operating rates at the Company's plants are based on current expectations
by management of the Company of future levels of volumes and prices for the
Company's services or metal, and are subject to fluctuations in customer demand
for the Company's services and prevailing conditions in the metal markets, as
well as certain components of the Company's cost of operations, including energy
and labor costs. Many of the factors affecting revenues and, costs are outside
of the control of the Company, including general economic and financial market
conditions and governmental regulation and factors involved in administrative
and other proceedings. The future mix of buy/sell vs. tolling business is also
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.
7
<PAGE> 12
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The Common Stock trades on the New York Stock Exchange (trading symbol:
"IMR"). On September 26, 1997, the outstanding shares of Common Stock were held
of record by 517 stockholders. The following table sets forth, for the fiscal
quarters indicated, the high and low sales prices for the Common Stock, as
reported on the New York Stock Exchange composite tape for the periods
indicated, and the dividends declared per share during the periods indicated.
<TABLE>
<CAPTION>
PRICE RANGE
------------- DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C>
1995
First Quarter............................................ $163/8 $133/8 $ --
Second Quarter........................................... 191/4 151/4 0.035
Third Quarter............................................ 233/4 177/8 0.035
Fourth Quarter........................................... 241/2 201/2 0.035
1996
First Quarter............................................ $245/8 $181/2 $0.05
Second Quarter........................................... 243/8 175/8 0.05
Third Quarter............................................ 181/4 15 0.05
Fourth Quarter........................................... 173/4 143/8 0.05
1997
First Quarter............................................ $ 17 $135/8 $0.05
Second Quarter........................................... 187/8 133/4 0.05
Third Quarter............................................ 201/16 173/8 0.05
Fourth Quarter (through October 9, 1997)................. 193/4 18 --
</TABLE>
On October 9, 1997, the closing price of the Common Stock on the New York
Stock Exchange was $19 1/4 per share.
Dividends as may be determined by the Board of Directors may be declared
and paid on the Common Stock from time to time out of funds legally available
therefor. The credit agreement governing the Company's senior credit facility
(the "Credit Agreement") limits the aggregate annual amount of cash dividends
the Company can pay. The current limitations are as follows: $3.5 million per
year for 1997 and 1998, $4.0 million per year for 1999 and 2000, and $6.0
million per year after 2000. The Company intends to continue paying dividends on
its Common Stock, although future dividend declarations are at the discretion of
the Company's Board of Directors and will depend upon the Company's level of
earnings, cash flow, financial requirements, economic and business conditions
and other relevant factors, including the restrictions contained in the
Company's long-term debt instruments. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note F of Notes to Consolidated Financial Statements included
elsewhere in this Prospectus.
8
<PAGE> 13
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered hereby
at an assumed public offering price of $19 per share are estimated to be
approximately $53,650,000 ($61,772,500 if the Underwriters' over-allotment
option is exercised in full), after deducting underwriting discounts and
commissions and estimated Offering expenses to be paid by the Company.
The Company intends to apply the net proceeds from the Offering to reduce
outstanding indebtedness under the Credit Agreement, which was originally
incurred in January 1997 to finance the IMSAMET acquisition and to refinance
outstanding indebtedness. Indebtedness under the Credit Agreement bears a
fluctuating interest rate based on LIBOR or the prime rate, plus a credit margin
that is based on the Company's ratio of total debt to earnings before interest,
taxes, depreciation and amortization. As of September 30, 1997, the effective
interest rate under the Credit Agreement was 7.5% per annum. The terms of the
Credit Agreement currently provide for a term loan, which has a final maturity
of seven years, and a revolving loan, which has a final maturity of five years.
The aggregate principal amount of indebtedness outstanding under the Credit
Agreement as of September 30, 1997 was $107,855,000. The terms of the Credit
Agreement are currently being renegotiated. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
9
<PAGE> 14
CAPITALIZATION
The following table sets forth (i) the historical consolidated
capitalization of the Company as of June 30, 1997, (ii) the pro forma
consolidated capitalization of the Company as of June 30, 1997 after giving
effect to the Alchem Acquisition and (iii) the pro forma consolidated
capitalization of the Company giving effect to the Alchem Acquisition, as
adjusted to give effect to the sale of 3,000,000 shares of Common Stock offered
hereby at an assumed public offering price of $19 per share and the application
of the estimated net proceeds therefrom as described under "Use of Proceeds."
See "Summary Pro Forma Financial Data" and the Pro Forma Condensed Consolidated
Financial Statements included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
---------------------------------------
PRO FORMA PRO FORMA
FOR THE AS ADJUSTED
ALCHEM FOR THE
ACTUAL ACQUISITION OFFERING
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Current maturities of long-term debt................ $ 7,614 $ 273 $ 273
======== ======== ========
Long-term debt(1)................................... $115,391 $148,982 $ 95,332
Stockholders' equity:
Preferred stock, $.10 par value; 8,000,000 shares
authorized; none issued........................ -- -- --
Common Stock, $.10 par value; 20,000,000 shares
authorized; 12,639,744 shares issued,
13,848,083 shares issued pro forma and
16,848,083 shares issued, pro forma as
adjusted(2).................................... 1,264 1,385 1,685
Additional paid-in capital........................ 34,605 51,734 105,084
Retained earnings................................. 64,296 64,296 64,296
Treasury shares at cost; 105,101 shares held...... (1,277) (1,277) (1,277)
-------- -------- --------
Total stockholders' equity................ 98,888 116,138 169,788
-------- -------- --------
Total capitalization...................... $221,893 $265,393 $265,393
======== ======== ========
</TABLE>
- ---------------
(1) See Note F of Notes to Consolidated Financial Statements for information
concerning the Company's long-term debt.
(2) Excludes 2,036,995 shares of Common Stock reserved for issuance under the
Company's stock option and incentive plans as of September 30, 1997. Of
these shares, 808,625 are subject to options that were exercisable as of
September 30, 1997. See Note H of Notes to Consolidated Financial Statements
for information concerning stock options.
10
<PAGE> 15
SUMMARY PRO FORMA FINANCIAL DATA
The following tables set forth summary historical and pro forma
consolidated statements of earnings data for the Company for the year ended
December 31, 1996 and the six months ended June 30, 1997, and summary historical
and pro forma balance sheet data as of June 30, 1997. Such information has been
derived from the Pro Forma Condensed Consolidated Financial Statements and the
Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
For the Year Ended December 31, 1996
<TABLE>
<CAPTION>
PRO FORMA FOR
THE IMSAMET PRO FORMA
AND THE PRO FORMA FOR AS ADJUSTED
COMPANY ROCK CREEK THE ALCHEM FOR THE
HISTORICAL ACQUISITIONS(1) ACQUISITION(2) OFFERING(3)
---------- --------------- --------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues................................... $210,871 $298,475 $408,936 $408,936
Cost of sales.............................. 185,333 261,011 363,550 363,550
-------- -------- -------- --------
Gross profit............................... 25,538 37,464 45,386 45,386
Selling, general and administrative
expense.................................. 11,774 16,823 20,849 20,849
Interest expense........................... 3,421 9,068 10,984 6,670
Interest income............................ (623) (623) (643) (643)
Equity in earnings of affiliates........... 114 (36) (36) (36)
-------- -------- -------- --------
Earnings before provision for income taxes
and minority interests................... 10,852 12,232 14,232 18,546
Provision for income taxes................. 4,132 4,832 5,622 7,326
-------- -------- -------- --------
Earnings before minority interests......... 6,720 7,400 8,610 11,220
Minority interests, net of provision for
income taxes............................. -- (319) (319) (319)
-------- -------- -------- --------
Net earnings............................... $ 6,720 $ 7,081 $ 8,291 $ 10,901
======== ======== ======== ========
Net earnings per common share.............. $ 0.55 $ 0.55 $ 0.59 $ 0.64
Weighted average common and common
equivalent shares outstanding............ 12,309 12,927 14,135 17,135
</TABLE>
For the Six Months Ended June 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FOR AS ADJUSTED
COMPANY THE ALCHEM FOR THE
HISTORICAL ACQUISITION(4) OFFERING(5)
------------- -------------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues.............................................. $159,127 $231,807 $231,807
Cost of sales......................................... 136,850 203,135 203,135
-------- -------- --------
Gross profit.......................................... 22,277 28,672 28,672
Selling, general and administrative expense........... 8,799 11,195 11,195
Interest expense...................................... 3,659 4,670 3,052
Interest income....................................... (179) (183) (183)
Equity in earnings of affiliates...................... (90) (90) (90)
-------- -------- --------
Earnings before provision for income taxes, minority
interests and extraordinary item.................... 10,088 13,080 14,698
Provision for income taxes............................ 4,033 5,232 5,879
-------- -------- --------
Earnings before minority interests and extraordinary
item................................................ 6,055 7,848 8,819
Minority interests, net of provision for income
taxes............................................... (208) (208) (208)
-------- -------- --------
Earnings before extraordinary item.................... $ 5,847 $ 7,640 $ 8,611
======== ======== ========
Net earnings per common share before extraordinary
item................................................ $ 0.46 $ 0.55 $ 0.51
Weighted average common and common equivalent shares
outstanding......................................... 12,732 13,940 16,940
</TABLE>
Footnotes on following page
11
<PAGE> 16
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
as of June 30, 1997
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA AS
FOR THE ADJUSTED
COMPANY ALCHEM FOR THE
HISTORICAL ACQUISITION(6) OFFERING(7)
---------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents............................. $ 2,781 $ 3,814 $ 3,814
Accounts receivable................................... 46,927 63,182 63,182
Inventories........................................... 16,596 35,163 35,163
Deferred income taxes................................. 1,567 1,567 1,567
Other current assets.................................. 2,128 2,449 2,449
--------- -------- --------
Total current assets.......................... 69,999 106,175 106,175
Property and equipment, net............................. 120,022 132,136 132,136
Intangible assets....................................... 57,288 69,611 69,611
Investments in affiliates............................... 14,704 14,759 14,759
Other assets, net....................................... 5,408 6,270 6,270
--------- -------- --------
$ 267,421 $328,951 $328,951
========= ======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable...................................... $ 21,860 $ 40,944 $ 40,944
Accrued liabilities................................... 5,157 6,403 6,403
Current maturities of long-term debt.................. 7,614 273 273
--------- -------- --------
Total current liabilities..................... 34,631 47,620 47,620
Long-term debt.......................................... 115,391 148,982 95,332
Other long-term liabilities............................. 6,838 6,838 6,838
Deferred income taxes................................... 6,214 7,714 7,714
Minority interests...................................... 5,459 1,659 1,659
Stockholders' equity.................................... 98,888 116,138 169,788
--------- -------- --------
$ 267,421 $328,951 $328,951
========= ======== ========
</TABLE>
- ---------------
(1) Reflects pro forma adjustments to the historical statement of earnings data
for the IMSAMET and Rock Creek acquisitions as if such transactions had been
consummated on January 1, 1996.
(2) Reflects pro forma adjustments to the historical statement of earnings data
for the IMSAMET and Rock Creek acquisitions and the Alchem Acquisition as if
such transactions had been consummated on January 1, 1996. This data has
been derived using financial information for Alchem for its fiscal year
ended October 31, 1996.
(3) Reflects pro forma adjustments to the historical statement of earnings data
for the IMSAMET and Rock Creek acquisitions, the Alchem Acquisition and the
Offering as if such transactions had been consummated on January 1, 1996.
This data has been derived using financial information for Alchem for its
fiscal year ended October 31, 1996.
(4) Reflects pro forma adjustments to the historical statement of earnings data
for the Alchem Acquisition as if such transaction had been consummated on
January 1, 1996.
(5) Reflects pro forma adjustments to the historical statement of earnings data
for the Alchem Acquisition and the Offering as if such transactions had been
consummated on January 1, 1996.
(6) Reflects pro forma adjustments to the historical balance sheet data for the
Alchem Acquisition as if such transaction had been consummated on June 30,
1997.
(7) Reflects pro forma adjustments to the historical balance sheet data for the
Alchem Acquisition and the Offering as if such transactions had been
consummated on June 30, 1997.
12
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following historical selected consolidated financial data for and as of
the end of each of the five years in the period ended December 31, 1996, have
been derived from the audited consolidated financial statements of the Company.
The historical selected consolidated financial data of the Company for the
six-month periods ended and as of June 30, 1996 and 1997 have been derived from
the Company's unaudited consolidated financial statements. Such unaudited
consolidated financial statements, in the opinion of management, reflect all
adjustments, consisting of normal recurring accruals, considered necessary to
present fairly such information for those periods and the Company's financial
condition as of such dates. Results for the six-month period ended June 30, 1997
are not necessarily indicative of results to be expected for the year ending
December 31, 1997. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Summary Pro Forma Financial Data" and the Consolidated Financial
Statements and the Pro Forma Condensed Consolidated Financial Statements
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------------------------------------------- -------------------------------
PRO PRO
FORMA FORMA
1992 1993 1994 1995 1996 1996(5) 1996 1997 1997(5)
------- ------- -------- -------- -------- --------- -------- -------- ---------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA(1):
Revenues..................... $60,223 $74,216 $101,116 $141,167 $210,871 $408,936 $101,183 $159,127 $231,807
Cost of sales(2)............. 44,783 57,452 78,478 110,228 185,333 363,550 85,486 136,850 203,135
------- ------- -------- -------- -------- -------- -------- -------- --------
Gross profit................. 15,440 16,764 22,638 30,939 25,538 45,386 15,697 22,277 28,672
Selling, general and
administrative expenses.... 5,092 5,023 6,440 10,027 11,774 20,849 5,869 8,799 11,195
Interest expense............. 1,026 897 1,014 1,073 3,421 6,670 1,590 3,659 3,052
Interest income.............. (439) (299) (154) (424) (623) (643) (382) (179) (183)
Nonrecurring litigation
expense(3)................. -- -- 1,635 -- -- -- -- -- --
Equity in (earnings) loss of
joint venture.............. -- -- -- (100) 114 (36) (423) (90) (90)
------- ------- -------- -------- -------- -------- -------- -------- --------
Earnings before provision for
income taxes, minority
interests and extraordinary
item....................... 9,761 11,143 13,703 20,363 10,852 18,546 9,043 10,088 14,698
Provision for income taxes... 2,286 3,121 5,232 7,893 4,132 7,326 3,482 4,033 5,879
------- ------- -------- -------- -------- -------- -------- -------- --------
Earnings before minority
interests and extraordinary
item....................... 7,475 8,022 8,471 12,470 6,720 11,220 5,561 6,055 8,819
Minority interests........... -- -- -- -- -- (319) -- (208) (208)
------- ------- -------- -------- -------- -------- -------- -------- --------
Earnings before extraordinary
item....................... 7,475 8,022 8,471 12,470 6,720 $ 10,901 5,561 5,847 $ 8,611
======== ========
Extraordinary item(4)........ -- -- -- -- -- -- (1,318)
------- ------- -------- -------- -------- -------- --------
Net earnings................. $ 7,475 $ 8,022 $ 8,471 $ 12,470 $ 6,720 $ 5,561 $ 4,529
======= ======= ======== ======== ======== ======== ========
Earnings per common share
before extraordinary
item....................... $ 0.67 $ 0.70 $ 0.73 $ 1.03 $ 0.55 $ 0.64 $ 0.45 $ 0.46 $ 0.51
Net earnings per common
share...................... $ 0.67 $ 0.70 $ 0.73 $ 1.03 $ 0.55 $ 0.45 $ 0.36
Dividends declared per common
share...................... -- -- $ 0.10 $ 0.105 $ 0.20 $ 0.10 $ 0.10
Weighted average common and
common equivalent shares
outstanding................ 11,199 11,524 11,644 12,108 12,309 17,135 12,387 12,732 16,940
OTHER OPERATING DATA(1):
Depreciation and
amortization............... $ 4,425 $ 6,201 $ 7,367 $ 9,353 $ 11,316 $ 17,542 $ 5,673 $ 7,773 $ 8,777
Capital spending............. $15,008 $11,939 $ 6,646 $ 15,538 $ 16,711 $ 19,647 $ 4,480 $ 19,026 $ 20,571
</TABLE>
Footnotes on following page
13
<PAGE> 18
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE 30, 1997
----------------------------------------------- ----------------------
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(5)
------- ------- ------- ------- ------- ------- ------------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(1):
Working capital............................... $11,319 $ 9,129 $17,303 $27,998 $32,649 $35,368 $ 58,555
Total assets.................................. 68,871 79,427 96,791 139,877 164,707 267,421 328,951
Total long-term debt.......................... 10,500 8,000 11,860 29,754 48,202 115,391 95,332
Stockholders' equity.......................... 48,910 57,056 68,290 83,276 88,335 98,888 169,788
</TABLE>
- ---------------
(1) The Company's results of operations and financial position have been
affected by acquisitions of existing facilities and companies during the
periods presented above. See Note B of Notes to Consolidated Financial
Statements included elsewhere in this Prospectus.
(2) During the third quarter of 1996, the Company recorded a charge to cost of
sales of $4,177,000 resulting from management's decision to close the
Company's Corona, California plant and to accelerate the closure of the
first cell of the Company's landfill in Morgantown, Kentucky.
(3) Consists of a nonrecurring charge related to settlement of a lawsuit and
related legal expenses.
(4) During the first quarter of 1997, the Company recorded an extraordinary
charge of $1,318,000 (net of taxes) resulting from the refinancing of
substantially all of the Company's outstanding debt in connection with the
acquisitions of IMSAMET and Rock Creek.
(5) The pro forma consolidated financial information for the year ended December
31, 1996 gives effect to the IMSAMET and Rock Creek acquisitions, the Alchem
Acquisition and the Offering, assuming such transactions were consummated on
January 1, 1996. The pro forma consolidated financial information for the
six months ended June 30, 1997 gives effect to the Alchem Acquisition and
the Offering, assuming such transactions were consummated on January 1,
1996. The pro forma consolidated balance sheet information has been prepared
assuming the Alchem Acquisition and the Offering were consummated on that
date. See "Summary Pro Forma Financial Data" and Pro Forma Condensed
Consolidated Financial Statements included elsewhere in this Prospectus.
14
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto included elsewhere in this
Registration Statement.
GENERAL
Most of the Company's processing consists of aluminum, magnesium and zinc
tolled for its customers. To a lesser extent, the Company's processing consists
of buy/sell business, which involves purchases of scrap metal and dross for
processing and resale. 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. Tolling revenues reflect only the processing cost and the Company's
profit margin. Accordingly, the tolling business generally produces lower
revenues and costs of sales than does the buy/sell business. Changes in the mix
of these two businesses from time to time can cause revenues to vary
significantly from period to period while not significantly affecting gross
profit, since both types of business generally produce approximately the same
gross profit per pound of metal processed.
During the 1990s, aluminum inventories on the worldwide commodity exchanges
have fluctuated from severe excesses to relatively balanced positions. In times
of excess, aluminum prices declined, negatively affecting the profitability of
the major aluminum producers who are some of the Company's largest customers.
Environments of low profitability for the Company's customers have inhibited,
during those times, the Company's ability to pass cost increases through to its
customers. In early 1994, worldwide inventories of aluminum began falling for a
number of reasons, including an increase in demand for aluminum, particularly in
the United States, and consequently prices for aluminum began to rise. During
1995, worldwide aluminum prices declined from their 1994 levels, particularly in
the fourth quarter, and continued to fall until the end of 1996. For the first
six months of fiscal 1997, the U.S. domestic aluminum industry has benefited
from increases in aluminum prices and an increase in demand. It is not possible
to predict the future price of aluminum or the level of worldwide inventories of
aluminum and whether, or to what extent, such factors will affect the Company's
future business.
The following table sets forth for the periods indicated the total pounds
of material processed (aluminum, magnesium and zinc); the percentage of total
pounds processed represented by (i) tolled aluminum, (ii) purchased aluminum and
(iii) magnesium and zinc; total revenues and total gross profits:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------- ---------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C>
Pounds Processed.................. 1,012,574 1,323,382 1,451,408 739,045 922,314
Percent of Total Pounds Processed:
Tolled Aluminum................. 93% 92% 82% 85% 82%
Purchased Aluminum.............. 3% 5% 15% 12% 16%
Magnesium and Zinc.............. 4% 3% 3% 3% 2%
Revenues.......................... $ 101,116 $ 141,167 $ 210,871 $ 101,183 $ 159,127
Gross Profits..................... $ 22,638 $ 30,939 $ 25,538 $ 15,697 $ 22,277
</TABLE>
RESULTS OF OPERATIONS
Six Months Ended June 30, 1997 vs. Six Months Ended June 30, 1996
Production. During the six months ended June 30, 1997, the pounds of metal
processed by the Company increased 25% to 922 million pounds, compared to the
739 million pounds processed during the six months ended June 30, 1996. Aluminum
processing at the Company's newest joint venture 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 its Bedford,
15
<PAGE> 20
Indiana plant, the Company's other aluminum plants processed approximately the
same amount of material in the six months ended June 30, 1997 as they processed
in the six months ended June 30, 1996.
Revenues. During the six months ended June 30, 1997, revenues increased 57%
to $159,127,000, compared to revenues of $101,183,000 during the six months
ended June 30, 1996. The acquisitions of IMSAMET and Rock Creek and operations
at the new Coldwater, Michigan plant accounted for 86% of the revenue increase
for the six month period ended June 30, 1997. The remainder of the increase was
due primarily to the combination of higher aluminum selling prices and higher
levels of buy/sell business for the Company's other aluminum plants. As
discussed above, an increase in buy/sell business generally results in a much
higher increase in revenue than would be produced by a similar increase in
tolling business. During 1997, the Company has had additional metal for sale due
to the operation of its salt cake processing facilities in Morgantown, Kentucky
(constructed in 1996) and Goodyear, Arizona (acquired in 1997). The increase in
buy/sell business during the six months ended June 30, 1997 also resulted in
higher inventory levels during that period. Tolling activity represented 83% of
the Company's total pounds melted during the six months ended June 30, 1997, as
compared to 84% during the six months ended June 30, 1996.
Gross Profit. During the six months ended June 30, 1997, gross profits
increased 42% to $22,277,000, compared to gross profits of $15,697,000 during
the six months ended June 30, 1996. The acquisitions of IMSAMET and Rock Creek
in January 1997 and the new Coldwater plant accounted for approximately 80% of
the increase in gross profits for the six months ended June 30, 1997. In
addition, gross profits during the six months ended June 30, 1997 were higher
due to the elimination of the operating loss at the Company's Corona, California
plant, which was closed in the third quarter of 1996, and higher aluminum
prices, which increased margins from the Company's buy/sell business.
SG&A Expenses. During the six months ended June 30, 1997, selling, general
and administrative expenses increased 50% to $8,799,000, compared to $5,869,000
during the six months ended June 30, 1996. The $2,930,000 increase was due
principally to higher employee, professional, consulting and goodwill
amortization expenses associated with the IMSAMET and Rock Creek acquisitions.
Interest Expense. During the six months ended June 30, 1997, interest
expense increased 130% to $3,659,000, compared to interest expense of $1,590,000
during the six months ended June 30, 1996. The increase in interest expense was
primarily attributable to the additional debt outstanding in the first six
months of 1997 (due to borrowings in January 1997 to fund the IMSAMET
acquisition) as compared to the same period of 1996. See "-- Liquidity and
Capital Resources" below.
Extraordinary Item. In connection with the acquisitions of IMSAMET and Rock
Creek in January 1997, the Company borrowed funds under the Credit Agreement.
See "Liquidity and Capital Resources" below. A portion of the sums borrowed
under the Credit Agreement was used to retire substantially all of the Company's
outstanding indebtedness prior to its stated maturity. This early debt
retirement generated an extraordinary loss of $1,318,000 (net of income taxes of
$878,000) for the first quarter of 1997. There was no extraordinary item in
1996.
Net Earnings. During the six months ended June 30, 1997, earnings before
provision for income taxes, minority interests and extraordinary item increased
12% to $10,088,000, compared to $9,043,000 during the six months ended June 30,
1996. This increase in earnings was primarily the result of higher gross
profits, which were in turn partially offset by the increases in selling,
general and administrative expenses and interest expense. During the six months
ended June 30, 1997, the Company's effective income tax rate was 40%, compared
to 39% during the six months ended June 30, 1996. For the six months ended June
30, 1997, net earnings decreased 19% to $4,529,000, compared to $5,561,000 for
the six months ended June 30, 1996, due principally to the extraordinary item in
the first quarter of 1997.
Fiscal Year 1996 vs. Fiscal Year 1995
Production. During 1996, the pounds of metal processed by the Company
increased 10% to 1,451 million pounds, compared to 1,323 million pounds
processed in 1995. Increases from the Bedford and Metal Mark
16
<PAGE> 21
facilities (which were acquired during the fourth quarter of 1995) were the
principal reasons for the increase in production volumes.
Revenues. During 1996, revenues increased 49% to $210,871,000, compared to
revenues of $141,167,000 in 1995. The percentage increase in revenues was
greater than the relative increase in volumes processed due to higher levels of
buy/sell business during 1996 as compared to 1995. The increased levels of
buy/sell business were principally attributable to the Metal Mark facilities
acquired in October 1995, which have historically maintained an approximate
one-to-one ratio of tolling to buy/sell business.
Gross Profit. During 1996, gross profits decreased 17% to $25,538,000,
compared to gross profits of $30,939,000 in 1995. During the third quarter of
1996, the Company recorded charges in cost of sales totaling $4,177,000,
resulting from management decisions to close the Company's Corona, California
recycling facility and to accelerate the closure of the first cell of the
Company's dedicated solid waste landfill in Morgantown, Kentucky. The Corona
facility had operated far below its capacity and had recorded losses throughout
1996 due to a precipitous decline in demand for aluminum from the Far East, the
plant's largest market.
Before these third quarter charges to cost of sales, 1996's gross profits
of $29,715,000 were 4% lower than 1995's gross profits. This decline was due to
higher energy and salt cake disposal costs and because the Company's Corona and
Bedford plants experienced lower operating rates than anticipated. In addition,
gross profits were affected negatively by a decline in industry conditions
during 1996.
SG&A Expenses. During 1996, selling, general and administrative costs
increased 17% to $11,774,000, compared to $10,027,000 in 1995. This increase
occurred as a result of the addition of key personnel required to manage the
Company's accelerated growth since 1994 and because of the added selling,
general and administrative costs associated with acquisitions in 1995.
Interest. During 1996, interest expense increased 219% to $3,421,000,
compared to interest expense of $1,073,000 in 1995. This increase was the result
of additional long-term debt outstanding during 1996 which was incurred to fund
the Company's fourth quarter 1995 acquisitions of the Metal Mark and Bedford
facilities, the first quarter 1996 investment in the Company's joint venture in
Germany and the 1996 construction of the new Coldwater, Michigan facility.
Interest income rose to $623,000 compared to $424,000 in 1995. This increase was
due to higher average balances of invested cash during 1996.
Net Earnings. During 1996, the Company's income before income taxes
decreased 47% to $10,852,000, compared to $20,363,000 in 1995. As discussed
above, approximately 44% of this decrease was due to the additional third
quarter charges to costs of sales of $4,177,000, resulting from management
decisions to close the Company's Corona, California facility and to accelerate
the closure of the first cell of the Company's landfill in Morgantown, Kentucky.
Excluding these items, 1996's net income before income taxes would have been
$15,029,000, or 26% lower than 1995's net income before income taxes. This 26%
percentage decline was greater than the 4% decline in gross profits (excluding
the third quarter charges to cost of sales) due to the higher selling, general
and administrative expenses and the higher interest expense.
The Company's lower income before income taxes caused the tax expense
provision to fall to $4,132,000 in 1996 compared to $7,893,000 in 1995. The
effective tax rate was approximately 38% in 1996 compared to 39% in 1995.
Fiscal Year 1995 vs. Fiscal Year 1994
Production. During 1995, the pounds of metal processed by the Company
increased 31% to 1,323 million pounds, compared to the 1,013 million pounds
processed in 1994. Increases from the Bedford and Metal Mark plants acquired
late in 1995, and the Loudon plant which was acquired in September of 1994 and
expanded in 1995, along with increased volume from all plant locations,
accounted for the higher production.
Revenues. During 1995, revenues increased 40% to $141,167,000, compared to
revenues of $101,116,000 in 1994. The percentage increase in revenues was
greater than the percentage increase in volumes processed because the level of
buy/sell business was slightly greater in 1995 as compared to 1994.
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Gross Profit. During 1995, gross profits increased 37% to $30,939,000,
compared to $22,638,000 in 1994. Most of this increase was attributed to the
increased pounds processed during 1995.
SG&A Expenses. During 1995, selling, general and administrative costs
increased 56% to $10,027,000, compared to $6,440,000 in 1994. This increase
occurred because of the addition of key personnel required to manage the
Company's accelerated growth and because of selling, general and administrative
costs associated with acquisitions accomplished during 1995.
Interest. Interest expense was approximately the same amount in 1995 as it
was in 1994. During 1995, interest income increased 175% to $424,000, compared
to $154,000 in 1994; this increase was due to higher average balances invested
in cash.
Net Earnings. During 1995, income before income taxes increased 49% to
$20,363,000, compared to $13,703,000 in 1994. During 1994, the Company recorded
nonrecurring litigation expenses related to a lawsuit which reduced 1994's
income before taxes by $1,635,000. Excluding this item, the increase for 1995
would have been approximately 33%, or an amount similar to the percentage
increases recorded in volumes processed and gross profits.
In 1995, the Company's increased income before income tax and higher tax
rates caused income tax expense to rise 51% to $7,893,000, compared to
$5,232,000 in 1994. The effective tax rate was approximately 39% in 1995
compared to 38% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations from internally
generated cash, its working capital credit facilities and funds from long-term
borrowings.
Cash Flows
Cash Flows from Operations. During the six months ended June 30, 1997,
operations provided $16,870,000 of cash, compared to the $1,102,000 of cash used
during the six months ended June 30, 1996. Changes in the components of
operating assets and liabilities (excluding those attributable to investing and
financing transactions) were the principal reasons for this difference. In the
six months ended June 30, 1997, changes in operating assets and liabilities
provided $2,013,000 in cash, while in the six months ended June 30, 1996,
changes in operating assets and liabilities used $12,386,000 in cash. This
condition was attributable to an increase in the Company's buy/sell business,
which resulted in a significant usage of cash during the six months ended June
30, 1996. Income before noncash charges increased $3,573,000 during the six
months ended June 30, 1997 compared to the six months ended June 30, 1996, which
also increased 1997's net cash provided from operating activities. As of June
30, 1997, the relationship of current assets to current liabilities, or current
ratio, was 2.02 to 1, compared to 2.58 to 1 as of December 31, 1996.
Operations provided cash of $6,744,000 in 1996, compared with $25,716,000
in 1995. Decreased earnings, along with an increase in working capital
requirements in 1996, were the primary factors causing the decline in cash
provided from operations. Changes in operating assets and liabilities resulted
in a net use of cash of $15,291,000 in 1996, compared to providing cash of
$2,591,000 in 1995. The 1996 decline was principally the result of increased
buy/sell activities which caused an increase in inventory levels and accounts
receivable. As of December 31, 1996, the Company's current ratio was 2.58 to 1
as compared to 2.41 to 1 as of December 31, 1995.
Working capital fluctuates as the mix of buy/sell business and tolling
business changes for the reasons discussed above. The Company's working capital
requirements are expected to increase for the remainder of 1997 and in 1998 due
to anticipated higher levels of buy/sell business and increased processing
volumes due to the IMSAMET and Rock Creek acquisitions and, if completed, the
Alchem Acquisition (See "-- Effects of the Alchem Acquisition"), and the initial
operations at the two new plants in Coldwater, Michigan and Swansea, Wales.
Nonetheless, the Company believes that, after giving effect to the Offering, 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.
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Cash Flows from Investing Activities. During the six months ended June 30,
1997, net cash used by investing activities increased 358% to $79,020,000,
compared to $17,270,000 for the six months ended June 30, 1996. The increase in
net cash used in the six months ended June 30, 1997 was primarily due to the
Company's first quarter 1997 acquisition of IMSAMET. In addition, during the six
months ended June 30, 1997, the total payments for property, plant and equipment
increased 325% to $19,026,000, compared to $4,480,000 for the six months ended
June 30, 1996.
During 1996, net cash used by investing activities decreased 17% to
$30,345,000, compared to $36,406,000 in 1995.
During 1996, capital spending for property, plant and equipment (excluding
acquisitions), increased 8% to $16,711,000, compared to $15,538,000 in 1995. The
construction of the new facility in Coldwater, Michigan was the most significant
capital spending project in 1996. Capital spending in 1995 was primarily for
construction of a new salt cake processing facility and a landfill expansion,
both in Morgantown, Kentucky. In 1996, the Company also invested approximately
$14,000,000 in the VAW-IMCO joint venture in Germany. In 1995, the acquisitions
of Bedford and Metal Mark required $20,137,000.
Capital expenditures for property, plant and equipment in 1997 are expected
to total approximately $35,000,000. Major projects include the construction of
the new aluminum recycling facilities in Coldwater, Michigan and Swansea, Wales,
the expansion of the Company's Loudon, Tennessee facility, the relocation of the
Company's zinc recycling facility, the purchase of various environmental
equipment and the expansion of the Company's landfill in Morgantown, Kentucky.
Cash Flows from Financing Activities. For the six months ended June 30,
1997, net cash provided from financing activities increased 219% to $59,861,000,
compared to $18,729,000 for the six months ended June 30, 1996. In connection
with its January 1997 acquisitions, the Company entered into the Credit
Agreement, borrowing $110,000,000 at the closing; the Company used approximately
$61,000,000 for the IMSAMET and Rock Creek acquisitions and $49,000,000 to
retire substantially all of the Company's then-outstanding debt. Financing
activities also included cash payments of $1,253,000 in dividends during the six
months ended June 30, 1997.
During 1996, financing activities provided $19,993,000 in net cash,
compared to $16,514,000 during 1995. On May 8, 1996, the Company received net
proceeds of approximately $5,569,000 from the issuance of $5,740,000 principal
amount of Solid Waste Disposal Facilities Revenue Bonds (Series 1996) 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. The indebtedness under the 1996 bonds bears
interest at the rate of 7.65% per annum and matures on May 1, 2016. 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 second landfill cell in Morgantown and
additional construction costs of its salt cake processing facility in
Morgantown. The indebtedness under the 1997 bonds bears interest at the rate of
7.45% per annum and matures on May 1, 2022.
In September 1995, the Company borrowed $5,000,000 under a variable rate
converting revolving loan, pursuant to terms it had previously negotiated with a
commercial lending institution, in order to take advantage of expansion
opportunities and to acquire the Bedford and Metal Mark facilities. As of
December 31, 1996 the interest rate thereunder was 6.75%. In addition, in
November 1995, the Company borrowed $15,000,000 of unsecured debt, representing
half of the commitment the Company received from a private placement of notes.
The remaining $15,000,000 of notes were issued on April 1, 1996 with the
proceeds primarily used to fund the Company's investment in the VAW-IMCO joint
venture. The notes issued in 1995 and 1996 had fixed annual interest rates of
7.28% and 7.41%, respectively. Both of these notes were paid in full in January
1997 with funds borrowed under the Credit Agreement described below.
In 1995, the Company increased its borrowing limit to $10,000,000 under a
restated revolving credit facility (the "Revolving Facility"). On May 31, 1996,
the Company further increased its limit to $12,000,000. Under the Revolving
Facility, the Company had a subfacility for the issuance of standby letters of
credit. To
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meet working capital needs, on December 30, 1996, the Company drew $2,000,000
under this revolving facility at an interest rate of 8.25%. This debt was also
subsequently repaid in January 1997.
The January 1997 Credit Agreement provides for up to $125,000,000 of senior
secured credit facilities consisting of a $105,000,000 term loan and a
$20,000,000 revolving credit facility. Of the $20,000,000 revolving credit
facility, $4,000,000 may be used, as needed, by the Company for standby and
commercial letters of credit. As of June 30, 1997, the Company had $97,965,000
in total borrowings outstanding under the term loan and $13,100,000 in total
borrowings outstanding under the revolving credit facility. The term loan has a
fixed maturity of seven years, and the revolving credit facility has a final
maturity of five years.
As of June 30, 1997, the Company had standby letters of credit outstanding
under the Credit Agreement and with another commercial bank in the aggregate
amounts of $1,752,000 and $1,044,000, respectively.
The Credit Agreement 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") with the administrative agent for the lending syndicate in April
1997. Under the terms of the agreement governing the Rate Cap Transaction, the
floating interest rate for 40% of the term loan borrowings under the Credit
Agreement is capped at 8% per annum. The costs associated with this Rate Cap
Transaction will be amortized as interest expense over the four year term of the
agreement.
The Credit Agreement imposes certain restrictions, including: (i) certain
prohibitions on additional indebtedness and limitations on acquisitions, subject
to certain exceptions, (ii) maintenance of certain financial ratios and (iii)
limitations on investments, dividends and capital expenditures. The current
limitations on cash dividends are as follows: $3,500,000 per year for 1997 and
1998, $4,000,000 per year for 1999 and 2000 and $6,000,000 per year after 2000.
The Credit Agreement is secured by substantially all of the Company's assets, a
first lien mortgage on seven facilities and a pledge of the capital stock of
substantially all of the Company's subsidiaries. Substantially all of the
Company's subsidiaries have also guaranteed the indebtedness under the Credit
Agreement.
The Company is in the process of renegotiating the terms of the Credit
Agreement. See "-- Effects of the Alchem Acquisition" below.
Other
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 to
cover the future selling prices on a portion of the aluminum generated by the
Company's salt cake processing facility in Morgantown. These contracts are
settled in the month of the corresponding production. The contracts did not have
a significant effect on the Company's results of operations for the six months
ended June 30, 1997.
On May 8, 1997, Harvard Industries, Inc. announced that it and its
wholly-owned subsidiary, Doehler-Jarvis, Inc. ("Doehler-Jarvis"), had filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. The Company sells
aluminum to Doehler-Jarvis. As of June 30, 1997, the Company had $3,530,000 of
outstanding unsecured receivables from Doehler-Jarvis (net of reflected
reserves). While the Company currently believes that Harvard's bankruptcy will
not have a material adverse effect on the Company's financial position or
results of operations, no assurance can be given as to the amount and timing of
the Company's ultimate recovery, if any, of its claims. The Company's revenues
from Doehler-Jarvis totaled $12,955,000 and $17,490,000 for the six months ended
June 30, 1997 and the year ended December 31, 1996, respectively. The Company
believes that the loss of this customer will not have a material adverse effect
on the Company's financial position or results of operations.
Effects of the Alchem Acquisition
The closing of the Offering is not conditioned upon the closing of the
Alchem Acquisition, which is subject to the conditions contained in the letter
of intent and will be subject to the conditions contained in the
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proposed definitive acquisition agreement for such acquisition. Although the
Company believes that such conditions will be fully satisfied on or before the
closing date of the Alchem Acquisition, many of these conditions are beyond the
control of the Company and there can be no assurance of when or whether the
Alchem Acquisition will occur. See "Business -- Pending Alchem Acquisition."
Since a high percentage of Alchem's business is buy/sell business and not
tolling, the Company expects to experience higher levels of buy/sell business
relative to tolling following the Alchem Acquisition. These higher levels of
buy/sell business are expected to increase the Company's working capital
requirements and subject the Company to a greater degree to risks associated
with price fluctuations in the aluminum market. At this time, the Company
estimates that, after giving effect to the Alchem Acquisition, its percentage of
annual total pounds processed represented by aluminum tolling transactions
should decrease from approximately 82% to approximately 77%.
If the closing of the Alchem Acquisition does not occur, the financial
condition and business of the Company will be materially different than if the
acquisition is completed. See the Pro Forma Condensed Consolidated Financial
Statements included elsewhere in this Prospectus.
Both the January 1997 acquisitions and indebtedness incurred to finance the
acquisitions and refinance the existing Company debt resulted in higher working
capital requirements and increased debt service requirements for the Company. In
addition, certain covenants contained in the Credit Agreement restrict the
aggregate amount of expenditures for acquisitions and investments, as well as
future capital expenditures in any fiscal year, that the Company may make.
However, the Company is in the process of renegotiating the terms of the
Credit Agreement with its lenders. The Company expects to amend and restate the
Credit Agreement resulting in a reducing revolving credit facility of up to
$175,000,000, which will permit the Alchem Acquisition and consolidate the
unpaid amount of the outstanding indebtedness under the current term facility
and the current revolving facility. The Company anticipates that the maximum
amount of commitments available under the facility will be reduced annually
beginning in 1999 by amounts increasing from $20 million in 1999 to $75 million
in 2003. The Company also expects that the pricing and the terms of many of the
financial and other covenants of the Credit Agreement will be renegotiated. It
is anticipated that indebtedness under the amended and restated Credit Agreement
will bear interest, at the Company's option, at fluctuating interest rates based
upon an alternate base rate (which may be the prime rate), or a rate based upon
the applicable LIBOR rate plus a credit margin which will be based upon the
Company's ratio of total debt to total capitalization. Effectiveness of the
amendment and restatement is expected to be subject to, among other matters, the
condition that the Company receives not less than $45 million of gross proceeds
from the Offering and the conditions that (i) the aggregate purchase price for
the Alchem Acquisition not exceed $49.25 million (excluding fees and expenses)
and (ii) the amounts of debt of Alchem to be assumed and/or repaid and the
amount of cash consideration to be paid by the Company in the Alchem Acquisition
will not exceed $23 million and $9 million, respectively. Although the Company
expects to amend and restate the Credit Agreement in November 1997, no
definitive agreement to do so has yet been executed, and no assurances can be
given regarding the terms of such amendment or that the Credit Agreement will be
amended and restated by November 1997, or at all. See "Use of Proceeds."
The Company expects to fund the cash portion of the consideration for the
Alchem Acquisition and to repay all or a portion of the Alchem indebtedness from
borrowings under the amended and restated Credit Agreement.
Following the Alchem Acquisition, the Company plans to continue to pursue
acquisitions that meet its criteria and continue the construction of new
facilities and expansion of its existing plants, where demand and market
conditions warrant. The Company does not currently anticipate any significant
change in its estimated 1997 capital budget for property, plant and equipment of
$35 million. The Company believes that its sources of liquidity will continue to
be adequate to fund its cash requirements.
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BUSINESS
The Company is the largest aluminum recycler in the United States and
believes that it is the largest aluminum recycler in the world. The Company's
principal business is the processing of secondary aluminum, which includes used
aluminum beverage cans ("UBCs"), scrap and dross (a by-product of aluminum
production). The Company converts UBCs, scrap and dross into molten metal in
furnaces at facilities owned and/or operated by the Company. The Company then
delivers the processed aluminum to customers in molten form or ingots. The
Company recovers magnesium in a similar process and also recycles zinc. Most of
the Company's processing capacity is utilized to recycle customer-owned
materials, for which the Company charges a fee (a service called "tolling").
During fiscal 1996, approximately 82% of the Company's total pounds of metal
processed involved tolling of aluminum. The balance of the Company's business
involves the purchase of scrap and dross for processing and recycling by the
Company for subsequent resale ("buy/sell" business).
The Company's business has benefited from the trend to include recycled
aluminum in finished products as well as the growth in the production and
recycling of UBCs and the increasing utilization of aluminum in automotive
(including automobiles and trucks) components. Over the past two decades, U.S.
production of recycled aluminum has risen 184% while total U.S. aluminum supply
has increased only 82%. Recycled aluminum now constitutes approximately 34% of
overall aluminum supply, compared to 22% in 1976.
The Company's customers include some of the world's major aluminum
producers and aluminum fabricators, diecasters, extruders and other processors.
Most of the metal processed by the Company is used to produce products for the
transportation, packaging and construction industries, which constitute the
three largest aluminum markets. Much of the Company's recent growth has been
directed toward serving the transportation sector, which has been the largest
and fastest-growing aluminum market in recent years due to the increasing use of
aluminum in automotive components.
The Company is a Delaware corporation with its principal executive offices
located at 5215 North O'Connor Blvd., Suite 940, Irving, Texas 75039. Its
telephone number is (972) 869-6575.
GROWTH STRATEGY
The Company's strategy is to participate in sectors of the nonferrous
metals recycling industry in which it believes it can provide customers with a
technology-based, value-added service and in which it can develop significant
market share. The Company believes that it has been successful in
differentiating its aluminum recycling services from those of its competitors
through (1) operational and design technologies that produce higher metal
recovery yields, (2) the strategic location of facilities in close proximity to
customers, providing for both stronger ties to its customers and greater
convenience and accessibility for its customers, (3) the ability to deliver
recycled aluminum in molten form for just-in-time delivery, thereby saving
customers the expense of remelting aluminum ingots and (4) advanced
environmental technology and practices, including dedicated disposal facilities
and a proprietary process used by the Company to recover aluminum from by-
products of the recycling process. To achieve its objectives, the Company
focuses on internal expansion as well as growth through strategic acquisitions,
vertical integration of its aluminum operations and services, operational
efficiencies through technological innovation, customer service and
environmental efficiencies.
Strategic Expansion. Since 1993, the Company has increased its number of
facilities and capacity through acquisitions of existing facilities,
construction of new facilities, and expansion of existing facilities. As of
March 31, 1993, the Company owned and operated five recycling plants, which had
an aggregate annual processing capacity of 735 million pounds of aluminum and 50
million pounds of other metals. As of August 31, 1997, the Company owned and
operated 15 recycling and processing plants, which have an aggregate annual
processing capacity of 2,055 million pounds of aluminum and 50 million pounds of
other metals. In addition, the Company owns a 50% interest in an aluminum
recycling joint venture in Germany, which has an annual melting capacity of 280
million pounds and is constructing an aluminum recycling facility in Swansea,
Wales, which will have an annual melting capacity of 100 million pounds. The
Company expects that currently planned expansions of existing facilities will
add approximately 145 million pounds of annual processing capacity during 1998.
See "Business -- Growth of Business." Expansion of the Company's network
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of facilities in the U.S. has enabled the Company to allocate processing work
among its facilities, thereby maximizing utilization of capacity and absorbing
excess demand. The Company intends to continue to expand its business by
targeting growing markets, such as the automotive market, constructing
additional aluminum recycling facilities, expanding and improving its existing
facilities and acquiring or partnering with similar recycling businesses or
other metals processors. See "Recent Developments -- Pending Alchem Acquisition"
below. In addition, the Company plans to continue seeking foreign sites for its
recycling facilities where market conditions warrant.
Vertical Integration. The Company also seeks business opportunities that
combine its traditional recycling services with downstream processing operations
that more directly serve manufacturers and other end-users. For example, the
Company's acquisition of Rock Creek Aluminum, Inc. in early 1997 expanded the
Company's scope of activities from solely recycling operations to include the
mechanical processing of aluminum dross and scrap into deoxidization agents,
desulphurizers and slag conditioners to be sold to steel producers for use in
steel production. Further, the proposed acquisition of Alchem Aluminum, Inc., if
completed, will permit the Company to expand from molten metal deliveries to the
Alchem facility to the manufacture and sale of specification aluminum alloy
products for automotive equipment manufacturers. See "Recent Developments"
below.
Technological Innovation. The Company's facilities and equipment have been
continually improved and updated through plant modernization programs, including
technological advancements designed to improve operational efficiencies. Between
January 1, 1992 and June 30, 1997, the Company made capital expenditures and
joint venture investments totaling $99 million in new plant and equipment
(excluding acquisitions of existing companies or facilities). These investments
have increased the Company's productivity, market share and total processing
capacity. During 1994 and 1995, the Company's facilities operated at greater
than 100% of their aggregate stated capacities. For the first eight months of
1997, the Company's capacity utilization rate was reduced to an average of
approximately 94%, primarily as a result of the addition of new capacity and the
commencement of operations at the Coldwater, Michigan facility. In August 1997,
the Company's facilities operated at 98% of their aggregate stated capacity.
Customer Service. The Company is dedicated to maintaining customer
satisfaction and seeks to develop new methods and processes to better serve its
customers. The Company believes it provides its customers with the highest level
of service by offering (1) higher metal recovery rates, (2) a higher quality of
metal recovered, (3) advanced environmental technology and practices and (4)
conveniently located facilities. By December 1997, the Company expects to have
the capability to provide 74% of its processed aluminum in molten form. Through
long-term relationships with primary producers and other customers, the Company
maximizes its production capabilities while providing customers with a reliable
source for their product requirements. As of August 31, 1997, approximately 45%
of the Company's annual aluminum processing capacity was subject to multi-year
contracts, which generally contain price escalators directly related to
production costs, such as labor and natural gas expenses.
Environmental Efficiencies. The Company is developing a "closed loop"
production system in which virtually all materials used in the recycling process
are reclaimed or consumed, thus greatly reducing the need for and expense of
landfilling. Management believes that considerable progress has been made in
this area through the operation of its Kentucky salt cake processing plant and
its patented wet-milling process employed to recycle salt cake at both its
Arizona facility and the SALTS joint venture. While no assurances can be given
that an economically efficient closed loop recycling system will be developed
for all of the Company's facilities and processes, management believes that
continued progress toward this goal is desirable for the Company's customers due
to the opportunities for cost savings and further assurances of environmental
safety. In addition, customers benefit from the enhanced environmental
facilities employed by the Company, such as the lined landfill at its
Morgantown, Kentucky facility, which is built to hazardous waste standards. See
"Business -- The Recycling Process."
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GROWTH OF BUSINESS
Since 1992, the Company has grown its number of plant facilities and
capacity through acquisitions of existing facilities, construction of new
facilities and expansions of existing facilities. Beginning in 1994, this growth
strategy was accelerated.
In September 1994, the Company purchased its aluminum recycling facility in
Loudon, Tennessee. In September 1995, the Company purchased all of the assets of
an aluminum recycling facility in Bedford, Indiana from Ravenswood Aluminum Inc.
In addition, in October 1995, the Company acquired Metal Mark, Inc. ("Metal
Mark"), which owned and operated aluminum recycling facilities located in
Chicago Heights, Illinois and Sikeston, Missouri. Metal Mark's principal
businesses are processing aluminum dross for domestic automotive producers and
manufacturers of castings for the automotive industry, and recycling aluminum
automotive scrap.
In December 1995, the Company formed a joint venture, VAW-IMCO GuSS und
Recycling GmbH ("VAW-IMCO"), with VAW aluminium AG, the largest aluminum company
in Germany. The Company has a 50% interest in this German venture, which owns
and operates two recycling and foundry alloy facilities. The plants principally
serve the European automotive markets.
In January 1996, the Company completed the construction of a salt cake
processing facility which is located adjacent to the Company's Morgantown,
Kentucky plant. This facility processes salt cake, a by-product generated from
the Company's aluminum recycling plants, through the use of materials separation
technology, and recovers additional amounts of aluminum for resale that would
otherwise be landfilled. See "-- Environmental Matters."
In 1996, the Company began construction of an aluminum recycling facility
in Coldwater, Michigan in a joint venture with Alchem. The Company is the 75%
managing member of the venture, which has a long-term supply agreement for the
delivery of hot metal to Alchem, the 25% member. See "-- Pending Alchem
Acquisition." The Coldwater plant started production during the first quarter of
1997 and will be equipped for full capacity in October 1997. The Company also
has recently entered into a commitment to construct with Alchem a joint venture
facility at the Company's Loudon, Tennessee site. This facility, which is
expected to begin production in March 1998, will supply molten metal to an
automobile brake component manufacturer under a long-term scrap management,
tolling and supply agreement.
In 1997, the Company also commenced construction of an aluminum recycling
facility in Swansea, Wales, U.K. Construction of the Wales facility is expected
to be completed in December 1997. The plant site is adjacent to a plant owned by
a subsidiary of Aluminum Company of America, Inc. ("Alcoa"), which will be its
principal customer under a long-term tolling agreement.
In 1997, the Company began expansion programs at its Sapulpa and Loudon
facilities as well as at one of the VAW-IMCO facilities in Germany. These
expansions, when completed in 1998, are expected to result in an additional 145
million pounds of processing capacity per year.
In January 1997, the Company completed the acquisitions of IMSAMET and Rock
Creek. IMSAMET owns or has a majority interest in three aluminum recycling
plants located in Idaho, Arizona and Utah, and owns a 50% interest in a Utah
facility that uses a proprietary process to reclaim materials from salt cake.
IMSAMET's recycling facilities together have an annual melting capacity of 420
million pounds. Rock Creek operates two facilities in Ohio that utilize milling,
shredding, blending, testing and packaging equipment to process various types of
raw materials, including aluminum dross and scrap, into aluminum products used
as metallurgical additions in the steel making process. Rock Creek's facilities
have a total annual processing capacity of approximately 150 million pounds.
At August 31, 1997, the Company owned and operated 15 domestic processing
and recycling plants located in 11 states that have an aggregate annual melting
capacity of 2,055 million pounds of aluminum and approximately 50 million pounds
of other metals. As noted above, in addition to these wholly owned facilities,
the Company is a 50% owner of VAW-IMCO, which has a total annual processing
capacity of 280 million pounds of aluminum.
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<PAGE> 29
PENDING ALCHEM ACQUISITION
On September 18, 1997, the Company announced that it had entered into a
non-binding letter of intent to acquire in a privately-negotiated transaction
all of the capital stock of Alchem, in exchange for cash and 1,208,339 shares of
Common Stock. The amount of cash to be paid will be determined by deducting from
$26,250,000 the aggregate amount of Alchem's obligations for borrowed money
outstanding as of the closing date of the acquisition. At September 30, 1997,
the amount of Alchem's indebtedness for borrowed money outstanding was
$13,416,000. A total of 150,000 shares of Common Stock will be held in escrow by
the Company for three years from the closing date of the acquisition as
potential recourse for the Company for breaches of representations and covenants
by the Alchem shareholders. All shares of Common Stock to be issued in
connection with the Alchem Acquisition will be contractually restricted from
resale for periods of up to three years. Pursuant to the terms of the definitive
acquisition agreement to be entered into by Alchem, the Alchem shareholders and
the Company, up to 350,000 shares of Common Stock may be transferred after one
year from the closing date, up to an additional 350,000 shares may be
transferred after two years from the closing date and all remaining shares may
be transferred three years after the closing date. In addition, the Company
plans to grant "piggyback" registration rights beginning in 1998 and rights to
one demand registration commencing after the third anniversary of the closing
date to the Alchem shareholders with regard to the shares of Common Stock issued
in connection with the Alchem Acquisition. The Company intends to account for
the Alchem Acquisition using the purchase method of accounting.
Alchem is a producer of specification aluminum alloys for automotive
manufacturers and their suppliers and has been operating its facility located in
Coldwater, Michigan, since 1972. Alchem and the Company have also been operating
under a joint venture agreement entered into in 1995 to construct and operate an
aluminum recycling plant adjacent to Alchem's processing facility in Coldwater.
This plant began operating in February 1997 and is expected to reach full
capacity in October 1997. Alchem's facility has an annual melting capacity of
180 million pounds; the joint venture facility with the Company has an annual
capacity of 150 million pounds. For its fiscal year ended October 31, 1996,
Alchem had net sales of $112 million. For the six months ended June 30, 1997,
Alchem had net sales of $74 million.
The Alchem Acquisition will permit the Company to increase its
participation in the automotive industry, broaden its customer base and expand
its product range to include specification alloys. When the acquisition is
completed, it is estimated that approximately 30% of the Company's annual
domestic capacity will be supplied to the transportation sector. The acquisition
is expected to increase the Company's total 1998 processing capacity to
approximately 2.6 billion pounds.
The closing of the Offering is not conditioned upon the closing of the
Alchem Acquisition, which will be subject to the conditions contained in the
letter of intent and in the definitive acquisition agreement to be entered into
in connection with the acquisition. Although the Company believes that such
conditions will be fully satisfied on or before the anticipated closing date of
the Alchem Acquisition in November 1997, many of these conditions are beyond the
control of the Company and there can be no assurance of when or whether the
closing of the Alchem Acquisition will occur. Closing conditions will include
the satisfaction of usual and customary closing conditions, including the
absence of any injunction or other legal restraint, the consent of third parties
and governmental entities, the accuracy in all material respects of the
representations and warranties made in the definitive acquisition agreement and
the performance of pre-closing agreements.
Upon the closing of the Alchem Acquisition, it is expected that William
Warshauer, the principal shareholder of Alchem, his family and certain
affiliates of Alchem will own approximately 1.2 million shares of Common Stock,
or 8.7 % of the outstanding shares of Common Stock (7.2% after giving effect to
the Offering). See "Principal Stockholders."
If the closing of the Alchem Acquisition does not occur, the financial
condition and business of the Company will be materially different than if the
acquisition is completed. See the Pro Forma Condensed Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
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<PAGE> 30
PRODUCTS AND SERVICES
The Company recycles aluminum and delivers the recycled metal to customers
as molten aluminum or ingots. The Company's customers include some of the major
United States aluminum producers and aluminum diecasters, extruders and other
processors of aluminum products. A principal element of the Company's strategic
plan calls for entering into new markets, specifically the expanding aluminum
automotive components market. The Company entered this market with the
acquisition of Metal Mark in 1995 and the formation of the VAW-IMCO joint
venture in 1996. In October 1997, the Company completed construction of the
Coldwater, Michigan joint venture plant, which also serves this market.
The Company's facilities and equipment have been continually improved and
updated through plant and equipment upgrades and modernization programs. Between
January 1, 1992 and June 30, 1997, the Company made capital and joint venture
investments totaling $99 million in new plant and equipment (excluding
acquisitions of existing firms or facilities). These investments have enabled
the Company to increase its productivity, market share and total processing
capacity.
In addition, the Company plans to increase its emphasis on seeking foreign
sites for its recycling facilities where market conditions warrant. General
political and economic conditions in these countries could affect the overall
financial prospects of the Company. Foreign operations are generally subject to
several risks, including foreign currency exchange rate fluctuations, strict
environmental regulations, changes in the methods and amounts of taxation,
foreign exchange controls and government restrictions on the repatriation of
hard currency.
The Company's business has benefited from the trend to include recycled
materials in finished products, and in particular, from the growth in the use
and recycling of UBCs. The recycling of UBCs in the United States has increased
because of numerous economic, legislative and environmental factors. According
to industry estimates, the number of aluminum beverage cans produced has
increased from 34.7 billion in 1979 to an annual average of approximately 100
billion for each of 1994, 1995 and 1996, and the number of UBCs recycled
increased from 8.5 billion to approximately 60 billion during the same period.
The Company's principal customers include Alcoa, Kaiser Aluminum & Chemical
Corporation ("Kaiser"), Commonwealth Industries, Inc. ("Commonwealth"), Alumax
Inc. and Ravenswood Aluminum Corporation ("Ravenswood"), all of which use
aluminum recycled by the Company to produce can sheet, building construction
materials or automotive products.
The Company also recycles magnesium dross for primary magnesium producers.
In addition, it produces a line of magnesium anodes that are recycled from
post-consumer scrap and sold to end users and independent distributors for
corrosion protection of steel structures.
The Company believes that Interamerican Zinc, Inc., a subsidiary of the
Company ("IZI"), is the largest recycler of hot-dip zinc dross for continuous
galvanizers in the U.S. IZI's principal customers during 1996 and 1997 consisted
of most of the major U.S. steel companies.
The Company's Rock Creek subsidiary manufactures a variety of aluminum
products and manufactures products that are eventually used as metallurgical
additions in the steel making process such as slag conditioners, deoxidizers,
steel desulphurizers and hot topping compounds. Rock Creek utilizes milling,
shredding, blending, testing and packaging equipment to process various types of
raw materials, including aluminum dross and scrap, into aluminum products for
the steel industry. In addition, Rock Creek manufactures a wide range of
proprietary briquetted products and offers toll briquetting services.
SALES AND LONG-TERM CONTRACTS
The Company's principal customers (see "-- Products and Services") use
recycled aluminum to produce can sheet, building, automotive and other products.
The Company provides products and services to a number of primary and
fabricating facilities of Alcoa. For the first six months of 1997 and for 1996,
1995 and 1994, Alcoa accounted for approximately 10%, 13%, 23% and 30%,
respectively, of the Company's total revenues. Commonwealth accounted for
approximately 7%, 8%, 9% and 12% of revenues for the first six months of 1997
26
<PAGE> 31
and for 1996, 1995 and 1994, respectively. The loss of either Alcoa or
Commonwealth as customers would have a material adverse effect upon the business
of the Company and its future operating results.
Customarily, agreements with customers in the aluminum recycling industry
have been short-term. These usually result from a bidding process where aluminum
producers and metal traders offer to sell materials or to have materials tolled.
Consequently, the Company historically has maintained no significant backlog of
orders. However, the Company has secured some longer term commitments for its
recycling services with Alcoa, Commonwealth, Alchem, Aluminium Norf GmbH
("AluNorf"), Kaiser, Wise Metals Recycling LLC ("Wise Metals"), PBR Automotive
USA LLC and Ravenswood. As of August 31, 1997, approximately 45% of the
Company's annual aluminum processing capacity was subject to multi-year
contracts.
The Company has entered into a 10-year supply contract with Commonwealth's
Uhrichsville plant to process all of that facility's scrap aluminum, UBCs and
dross at the Company's Uhrichsville plant. The agreement expires in 2002. See
"-- Properties." In 1994, the Company entered into a three-year processing
agreement with Alcoa under which the Company's Rockwood plant provides secondary
metal for Alcoa's Alcoa, Tennessee facility. This agreement was modified in 1995
to reflect greater volumes and to include the Company's Loudon plant as an
approved supplier under the terms of the contract. This agreement will extend
for additional one year terms at the end of each contract year unless terminated
by either party. If terminated by either party, the agreement will continue in
effect until the second anniversary date of the last day of the contract year
during which the termination notice was given.
The Company has also entered into a similar supply agreement with an
English subsidiary of Alcoa pursuant to which the Company's Swansea facility
will provide Alcoa's adjacent facility with secondary tolled aluminum. The
agreement has a five-year primary term, to commence when initial operations
begin at the Company plant, with provisions for automatic three-year extensions.
In July 1997, the Company entered into a five and one-half year tolling
agreement with Wise Metals to deliver ten million pounds of molten and ingot
aluminum per month to supply ARCO Aluminum, Inc.'s Kentucky rolling mill.
The Company's Post Falls, Idaho facility is subject to a processing
contract to supply, on a tolling basis, molten and ingot aluminum deliveries of
recycled can sheet and other aluminum scrap to Kaiser's nearby Trentwood,
Washington aluminum fabrication mill. The term of this agreement expires in June
1998, but the Company is negotiating and expects to secure a two-year extension
of the term of this agreement. In September 1997, the VAW-IMCO joint venture
entered into a five-year agreement with AluNorf to process 22,000 metric tons of
dross per year.
Certain of these agreements contain cross-indemnity provisions, including
provisions obligating the Company to indemnify the supplier for certain
environmental liabilities that the supplier may incur in connection with the
transactions contemplated by the agreements.
These agreements also typically contain escalation provisions that are
intended to cover changes in certain of the Company's processing costs. The
Company may seek similar dedicated long-term arrangements with customers in the
future. Increased emphasis on dedicated facilities to customers and dedicated
contracts with customers carries the inherent risk of increased dependence on a
single or few customers with respect to a particular Company facility. In such
cases, the loss of such a customer could have a material adverse effect on the
Company's financial condition and results of operation, and any timely
replacement of volumes attributable to such a customer could prove difficult.
The primary metals industry and the metals recycling industry are subject
to cyclical fluctuations, depending upon the availability and price of
unprocessed scrap metal and the level of demand in the metal consuming
industries. Temporary reductions in can stock production by one of the Company's
customers have previously affected the Company's results of operations, and no
assurances can be given that such conditions will not recur.
THE RECYCLING PROCESS
The raw material received for aluminum processing is loaded into furnaces
where natural gas heat is applied along with a flux mixture (salt and potash).
Some of the Company's aluminum facilities operate
27
<PAGE> 32
rotary furnaces, which feature significantly more flexible capabilities than
reverberatory furnaces and can process UBCs, dross and various types of aluminum
scrap. The Company believes that its rotary furnaces are more efficient and
cleaner than, and provide rates of recovery superior to, conventional rotary
furnaces.
Materials are melted in the furnaces, and the recovered metal is poured
directly into an ingot mold or hot metal crucible for delivery to customers.
Magnesium is recycled by the same method in a rotary furnace at the Sapulpa,
Oklahoma plant. Many of the Company's plants deliver molten aluminum in
crucibles directly to their customers' manufacturing facilities. By December
1997, the Company expects to have the capability to provide 74% of its processed
aluminum in molten form. The molten aluminum is poured directly into the
customer's furnace, saving the customer the time and expense of remelting
aluminum ingots. The Company normally charges an additional fee for
transportation and handling of molten aluminum. The Sapulpa, Oklahoma, Goodyear,
Arizona, Wendover, Utah and the Metal Mark plants are restricted, due to the
geographical locations of their customers, to delivering the aluminum in ingot
form.
The aluminum recycling process from the Company's rotary furnaces produces
a by-product called "salt cake," which is formed from the contaminants and
coatings on aluminum scrap and dross and the salts added during the aluminum
recycling process. Salt cake is composed of salts, metallic aluminum, aluminum
oxide and small amounts of other materials. The by-product of processing
materials through reverberatory furnaces is dross.
The Company currently disposes of its salt cake and certain airborne
contaminants ("baghouse dust") in landfills that are used exclusively by the
Company or that are permitted specifically to handle the types of materials
generated by the Company. Salt cake is not currently listed as a "hazardous
waste" under the Resource Conservation and Recovery Act of 1976 ("RCRA") or as a
"hazardous substance" under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"). The Company has built and
operates a lined landfill at its Morgantown facility, the design of which
exceeds current requirements for disposal of salt cake and meets RCRA Subchapter
"C" hazardous waste standards.
In 1996, the Company completed the construction of a facility adjacent to
its Morgantown plant to further process the salt cake through the use of
materials separation technology and extract additional aluminum that is left
after the melting process. The Company believes that this salt cake processing
facility is a critical step needed for "closed loop recycling," involving no or
minimal waste disposal. The facility's process involves crushing the salt cake
and separating the aluminum out of the salt cake. The residual product is then
landfilled in the Company's Morgantown landfill. See "-- Environmental Matters."
The Company's IMSAMET facilities also recycle salt cake and other
by-products from the aluminum recycling process. The IMSAMET Arizona facility
processes aluminum scrap and turnings and recycles concentrates from purchased
dross and salt cake. These concentrates are first treated in the facility's
patented wet milling process, which reduces the volume of material handled, thus
allowing for more efficient utilization of capacity. Aluminum oxide, a
by-product of the wet milling process, is further treated and sold for use in
the production of cement.
Located near the Bonneville Salt Flats, the IMSAMET Utah facility processes
aluminum concentrates from the adjacent 50% owned joint venture, Solar Aluminum
Technology Services ("SALTS"), and produces ingot. The SALTS facility recycles
salt cake from the IMSAMET Idaho and Utah plants into aluminum concentrates,
aluminum oxide and salt brine. The clear brine is delivered to the venture's
partner, where its chemical content is recycled for multiple uses, including
reuse as a flux.
In IZI's zinc recycling process, dross is first melted in an electric
induction furnace and then transferred to a reactor which removes the impurities
(iron and zinc oxide, which are sold as a by-product). The remaining molten zinc
is poured into a reverberatory holding furnace in which it is blended and then
cast into ingots, which are returned to customers. IZI holds patent rights to
its process in the United States and 13 other countries.
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<PAGE> 33
PROPERTIES
Recycling and Processing Facilities. The following is a summary of the
Company's owned and/or operated facilities:
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
ANNUAL ANNUAL
MELTING PROCESSING
NUMBER CAPACITY CAPACITY MOLTEN
OF (MILLION (MILLION YEAR YEAR MATERIALS DELIVERY
PLANT ACREAGE FURNACES LBS.) LBS.) BUILT ACQUIRED PROCESSED CAPABILITY
----- ------- -------- --------- ---------- ----- -------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
MAJORITY OWNED FACILITIES:
Sapulpa, OK................. 64 7 170 -- 1962 -- Alum/Mag No
Rockwood, TN................ 238 6 220 -- 1985 -- Alum Yes
Morgantown, KY.............. 552(a) 6 220 -- 1989 -- Alum Yes
Coldwater, MI (Zinc)........ (b) 2 40 -- -- 1992 Zinc No
Uhrichsville, OH............ 42 10 360 -- 1992 -- Alum Yes
Loudon, TN.................. 173 3 180 -- -- 1994 Alum Yes
Bedford, IN................. 19 3 185 -- -- 1995 Alum Yes
Chicago Hts., IL............ 9 2 100 -- -- 1995 Alum No
Sikeston, MO................ 31 3 60 -- -- 1995 Alum No
Morgantown, KY.............. (a) (d) (d) 400 1996 -- Salt Cake (d)
Post Falls, ID.............. 49 4 280 -- -- 1997 Alum Yes
Goodyear, AZ................ 40(c) 4 70(f) 168 -- 1997 Alum/Salt Cake No
Wendover, UT................ 160(c) 2 70 -- -- 1997 Alum No
Elyria, OH.................. 12 (e) (e) 50 -- 1997 Alum (e)
Rock Creek, OH.............. 11 (e) (e) 100 -- 1997 Alum (e)
Coldwater, MI............... 75 3 150(f) -- 1997 -- Alum Yes
----- ---
Consolidated Capacity (as
of
August 31, 1997)........ 2,105 718
FACILITIES UNDER CONSTRUCTION:
Swansea, Wales, UK.......... 5(c) 2 100 -- 1997 -- Alum Yes
----- ---
Expected Consolidated
Capacity (as of January
1, 1998)................ 2,205 718
50% OWNED FACILITIES:
VAW-IMCO, Germany........... 29 13 280(g) -- -- 1996 Alum Yes
SALTS, Wendover, UT......... 40 (d) (d) 168 -- 1997 Salt Cake (d)
----- ---
Total Capacity............ 2,485 886
===== ===
</TABLE>
- ---------------
(a) The acreage at Morgantown, Kentucky includes both the aluminum and salt cake
processing facilities as well as landfill cells.
(b) The Company's former Adrian, Michigan facility had been leased by IZI. This
lease expired in September 1997. This facility was relocated to a
Company-owned site adjacent to the Coldwater, Michigan joint venture
facility in September 1997.
(c) This acreage is leased.
(d) These facilities process salt cake only.
(e) These facilities process aluminum products for use in the steel industry.
(f) Represents 100% of the capacity of these facilities. The Goodyear, Arizona
facility is 70% owned by the Company and the Coldwater, Michigan aluminum
recycling facility is 75% owned by the Company.
(g) Represents 100% of the capacity of the two VAW-IMCO facilities.
The average operating rates for all of the Company's facilities for 1994,
1995 and 1996 were 101%, 106%, and 92%, respectively, of stated capacity. The
lower operating rate during 1996 was due principally to the effect of the
closure of the Company's Corona, California facility during the third quarter of
1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Commonwealth has a currently exercisable option to acquire up to a 49%
equity interest in the Uhrichsville plant at a price equal to the equity
percentage amount to be specified by Commonwealth, multiplied by the depreciated
book value of the plant, or the subsidiary owning the plant, plus a premium to
compensate the Company for its recycling technology. The option price may be
above or below the fair value of the Uhrichsville plant. Should Commonwealth
exercise its option, there can be no assurance that the
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<PAGE> 34
production or earnings attributable to the purchased interest could be replaced,
and the Company's net earnings and cash flow could be adversely affected.
In 1996, the Company began its 50% participation in the VAW-IMCO joint
venture in Germany. The venture owns and operates two recycling and foundry
alloy facilities located at Grevenbroich and Toging, Germany. Annual melting
capacity for these two plants is approximately 280 million pounds.
The Company's new aluminum recycling facility in Coldwater, Michigan is 75%
owned by the Company and 25% owned by Alchem, the facility's primary customer.
The facility contains three furnaces with a total annual capacity of 150 million
pounds and will primarily serve the automotive market. The Company is the
operator of the facility and delivers molten aluminum to Alchem. Alchem
currently has certain rights to purchase additional equity interests in the
venture, not to exceed 40% of the total joint venture equity, if the facility is
expanded or if Alchem increases its supply commitments. See "-- Pending Alchem
Acquisition."
In 1997, the Company began constructing an aluminum recycling facility in
Swansea, Wales, U.K. Construction of the Wales facility is expected to be
completed in December 1997. The facility will have two furnaces and will have an
annual capacity of 100 million pounds, approximately 53 million of which are
dedicated to a multi-year contract with Alcoa. See "-- Sales and Long Term
Contracts."
Solid Waste Disposal Facilities. The Company completed a new landfill cell
adjacent to its plant in Morgantown, Kentucky in 1996. All of the waste
generated from the salt cake processing facility at the Morgantown site is
deposited in this landfill. Management anticipates that this new landfill cell,
which is designed to be expanded several times throughout its life, will serve
the Company's landfilling needs for the majority of the salt cake generated by
facilities currently owned by the Company in the Eastern United States. In late
1997, the Company expects to begin construction on the first expansion phase of
this landfill cell. The Company also owns a landfill at its Sapulpa, Oklahoma
plant which is estimated to have three years useful life remaining. The IMSAMET
Arizona facility recycles its own salt cake and sells the by-products to third
parties, and the Utah and Idaho facilities ship their salt cake to the 50%-owned
SALTS joint venture for further processing. See "-- The Recycling Process."
Administrative Facilities. In Irving, Texas, the Company leases
approximately 21,700 square feet of office space for certain of its executive,
financial and management functions. This lease expires in January 2000.
The Company believes that its plants and equipment are maintained in good
operating condition. Substantially all of the properties and equipment at the
Company's plants are mortgaged to secure its senior indebtedness.
OPERATIONS
In its aluminum tolling operations, the Company accepts UBCs, dross and
scrap owned by its customers and processes this material for a tolling charge
per pound of incoming weight. In order to retain control of their metal
supplies, customers have typically desired to toll, rather than sell, their
scrap materials. Tolling requires no metal inventory to be purchased or held by
the Company. In addition, tolling limits the Company's exposure to the risk of
fluctuating metal prices since the Company does not own the material being
processed. The Metal Mark acquisition and the operation of the Morgantown,
Kentucky salt cake processing facility have changed the Company's historical
ratio of tolling to buy/sell business. Only about 50% of Metal Mark's business
has traditionally involved tolling; the remainder is buy/sell business. The
Alchem Acquisition will further increase the Company's percentage of buy/sell
business. "See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Effects of the
Alchem Acquisition."
When purchasing metals in the open market for its buy/sell business, the
Company attempts to reduce the risk of fluctuating metal prices by arranging for
the sale of the aluminum anticipated to be recovered and by avoiding large
inventories of ingot or scrap material except to the extent necessary to allow
its plants to
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<PAGE> 35
operate without interruption. See also "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
The Company constantly seeks improvements in operational efficiencies at
its existing plants and at its acquired facilities through technological
advancements, automation of its operational procedures, and modifications in
processing and material throughput methods. For example, the Wendover, Utah
plant for the first six months of 1996 (prior to the Company's acquisition)
recorded a net operating loss of approximately $400,000 on processing volumes of
25.5 million pounds. For the first six months of 1997, this same plant recorded
a net operating profit of $100,000 on processing volumes of 26.6 million pounds,
which profit the Company believes, is largely due to the Company's
implementation of operational efficiencies at the plant following its
acquisition.
The Company's production network of plants have generally achieved high
overall operating rates due to strong demand for the Company's recycling
services and the strategic location of many of the Company's plants nearby major
customers' production facilities. Expansion of the Company's network of
facilities in the U.S. has enabled the Company to allocate processing work among
its facilities, thereby maximizing utilization of available capacity and taking
advantage of excess demand.
The Company also believes that its advanced scrap preparation equipment and
recycling technologies have also increased the demand for its services by
producing higher recovery rates for the aluminum processed and better quality of
its recycled aluminum than many of its competitors.
COMPETITION
The aluminum recycling industry is fragmented and highly competitive. The
Company believes that its position as the largest U.S. recycler of secondary
aluminum is a positive competitive factor. The principal factors of competition
in the industry are price, recovery rates, environmental and safety regulatory
compliance, and services (e.g., the ability to deliver molten aluminum). Freight
costs also limit the geographic areas in which the Company can compete
effectively.
The major aluminum producers, some of which are the Company's largest
customers, have generally discontinued processing dross, instead focusing their
resources on other aspects of aluminum production. UBCs and other scrap are
processed by both the secondary recycling industry and the major producers. The
Company competes both with other secondary recyclers and their customers when
purchasing and processing scrap for the buy/sell business.
The amount of the Company's tolling business can also vary depending upon
the extent that the major aluminum producers' used metal materials are
internally recycled. The aluminum producers generally vary their rate of
internal recycling depending upon furnace availability, inventory levels, the
price of aluminum, and their own internal demand for metal. The major aluminum
producers are larger and have greater financial resources than the Company. A
decision by these producers to expand their recycling operations could reduce
demand for certain of the Company's products and services.
SOURCE AND AVAILABILITY OF RAW MATERIALS AND ENERGY
Except as noted below, the Company has historically not had, and does not
anticipate having, difficulties in obtaining raw materials for its operations.
In the case of buy/sell business, the primary sources of aluminum and magnesium
for recycling are dross and scrap, which are purchased from both the major
aluminum producers and metal traders.
Prior to 1996, fluctuations in market prices for both aluminum and
magnesium had not significantly affected the availability of these metals to the
Company. However, during 1996, the Company had difficulty obtaining significant
quantities of UBCs to operate at a profitable level at its Corona, California
and Bedford, Indiana facilities, because these plants were then designed to
process only UBC material. As a result, management decided to close the Corona
facility in 1996. At the Bedford facility, the Company has modified one of the
existing furnaces and installed an additional furnace which will enable it to
process a greater variety of aluminum scrap in the future, including processing
for the automotive industry.
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<PAGE> 36
The availability of zinc dross is dependent upon the demand for galvanized
steel, which has historically paralleled fluctuations in customer demand in the
automotive, appliance and construction industries.
The Company's operations are fueled by natural gas, which represents the
second largest component of operating costs. In an effort to acquire the most
favorable natural gas costs, the Company has, at times, secured long-term supply
commitments for its natural gas requirements. Occasionally, when deemed
necessary, the Company purchases its natural gas on a spot-market basis. Most of
the Company's long-term supply contracts with its customers contain provisions
to reflect fluctuations in natural gas prices. The Company may, from time to
time, fix its natural gas costs by entering into supply or hedging agreements
with its suppliers. The Company understands that most of its competitors'
operations also are fueled by natural gas; therefore, it believes that increases
in the prices for natural gas do not adversely affect the Company's competitive
position. The Company believes it will continue to have access to adequate
energy supplies to meet its needs for the foreseeable future.
SEASONALITY
UBC collections have historically been highest in the summer months and
lowest in the winter months. Therefore, the Company has at times experienced
lower volumes during the winter. In recent years, however, the Company's
processing volumes have fluctuated mostly due to its startup of additional
capacity rather than the seasonality of UBC collections.
TRANSPORTATION
The Company receives UBCs, dross and scrap, and ships its recycled metal by
both rail and truck. Most of the Company's plants own their own rail siding or
have access to rail lines nearby. The Company owns and leases various trucks and
trailers to support its business. Customarily, the transportation costs of scrap
materials to be tolled are paid by the Company's customers, while the
transportation costs of aluminum and magnesium purchased and sold by the Company
may be paid either by customers or the Company.
EMPLOYEES
As of June 30, 1997, the Company had 1,250 employees, consisting of 265
employees engaged in administrative and supervisory activities and 985 employees
engaged in production and maintenance. The production and maintenance employees
at the Rockwood plant are represented by the United Steelworkers of America
under a five-year collective bargaining agreement that expires in August 2000.
The production and maintenance workers at the Uhrichsville plant are represented
by the United Mine Workers of America under an agreement that expires on
November 30, 1998. The production and maintenance workers at the Bedford plant
are represented by the International Brotherhood of Electrical Workers under an
agreement that expires in April 2000. The production and maintenance workers at
the Sikeston plant are represented by the United Steelworkers of America under
an agreement which expires in March 2001. Labor relations with employees have
been satisfactory.
As of September 30, 1997 Alchem employed 195 employees, 48 of whom were
engaged in administrative and supervisory activities and 147 of whom were
engaged in production and maintenance. None of the Alchem employees are
represented by a union.
ENVIRONMENTAL MATTERS
The Company's operations, like those of other basic industries are subject
to federal, state, local and foreign laws, regulations and ordinances that (i)
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for solid and hazardous wastes, and (ii) impose liability for the costs of
cleaning up, and certain damages resulting from, past spills, disposals, or
other releases of hazardous substances (together, "Environmental Laws"). It can
be anticipated that more rigorous Environmental Laws will be enacted that could
require the Company to make substantial expenditures in addition to those
referred to herein, including future regulations, under the Federal Clean Air
Act ("CAA") and otherwise, which are expected to impose stricter emission
requirements
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<PAGE> 37
on the aluminum industry. While the Company believes that current pollution
control measures at most of the emission sources at its facilities will meet
these anticipated future requirements, additional measures at some of the
Company's facilities may be required.
The Company's operations may generate certain discharges and emissions,
including in some cases off-site dust and odors, which are subject to the CAA
and other Environmental Laws. From time to time, operations of the Company have
resulted or may result in certain noncompliance with applicable requirements
under Environmental Laws. In addition, historical or current operations at or in
the vicinity of the Company's facilities may have resulted in soil or
groundwater contamination. However, based on environmental investigations
conducted by the Company and its consultants and certain indemnities associated
with the Company's acquisitions, the Company believes that any such
noncompliance or liability under current Environmental Laws would not have a
material adverse effect on the Company's financial position.
In 1996, the Company entered into a settlement agreement with the Missouri
Department of Natural Resources ("MDNR") pertaining to certain air violations at
its Sikeston facility. Since entering into the settlement agreement, the Company
has received additional notices of violation from the MDNR, which relate to
fugitive dust emissions from its truck loading and unloading operations and
certain other air compliance matters. In addition, the Company recently
responded to a request for information from the United States Environmental
Protection Agency regarding air issues at the Sikeston facility. Since
purchasing the Sikeston facility in 1995, the Company has made significant
upgrades to the air pollution control equipment located at the facility. There
can be no assurance, however, that future violations will not occur or that the
violations identified by the MDNR will not result in enforcement action against
the Company.
The processing of UBCs, dross and scrap generates solid waste in the form
of salt cake and baghouse dust. Currently, such material is either disposed of
at off-site landfills or at the Company's permitted Sapulpa and Morgantown
disposal sites. For example, the Rockwood, Loudon and Bedford plants currently
dispose of the majority of their solid waste by transporting it to the
Morgantown plant where the Company, in 1996, began operating a salt cake
processing facility which prepares salt cake for landfilling. At the
Uhrichsville plant, under the Company's supply agreement with Commonwealth, the
disposal of all salt cake generated by the Company as a result of its processing
for Commonwealth is the responsibility of Commonwealth. Salt cake from all other
material processed at the Uhrichsville plant is either shipped to the Morgantown
plant for disposal or landfilled with a local solid waste management firm. In
1996, the Chicago Heights and Sikeston plants disposed of the majority of their
salt cake with third-party landfills; however, a portion of their salt cake was
shipped to Morgantown. The IMSAMET Arizona facility recycles its own salt cake
and sells the by-products to third parties, and the Utah and Idaho facilities
ship their salt cake to the 50%-owned SALTS joint venture for further
processing. See "The Recycling Process."
If salt cake were ever classified as a hazardous waste or substance under
RCRA or CERCLA, the Company's handling and disposal of salt cake would be
required to be modified. To dispose of its salt cake, the Company may then be
required to take other actions including obtaining a RCRA Subchapter "C" permit
for its Morgantown landfill, obtaining other permits (including transportation
permits), and consider landfilling additional amounts of salt cake with third
parties not under the Company's direct control. Based on current annual
processing volumes and remaining landfill capacity, the estimated remaining life
of the landfill at the Sapulpa plant is three years. The Company has constructed
a new landfill cell at its Morgantown plant and estimates its remaining useful
life to be approximately eighteen months. Later this year, the Company expects
to begin construction on its first expansion phase at this landfill cell and
estimates that once completed, this expansion cell will have a remaining useful
life of approximately five years. A planned second expansion is expected to
provide an additional ten years of useful life. Landfill closure costs for the
Company-owned landfills are currently estimated to exceed $4,000,000. The
Company is currently providing for this expenditure by accruing, on a current
basis, these estimated costs as the landfills are used.
In addition, the Company may incur liability for off-site disposals of salt
cake and other materials. In that regard, the Illinois Environmental Protection
Agency ("IEPA") recently notified IZI that it may be a potentially responsible
party ("PRP") pursuant to the Illinois Environmental Protection Act for the
cleanup of contamination at a site in Marion County, Illinois to which IZI,
among others, in the past sent zinc oxide
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<PAGE> 38
for processing and resale. IZI has joined a group of PRPs that is planning to
negotiate with the IEPA regarding the cleanup of the site. Although the site has
not been fully investigated and final cleanup costs not yet determined, based on
current cost estimates and information regarding the amount and type of
materials sent to the site by IZI, the Company does not believe, although there
can be no assurance, that its liability at this site will have a material
adverse effect on its financial position.
Due to relatively high costs and limited coverage, the Company does not
carry environmental impairment liability insurance. The Company made capital
expenditures for environmental control facilities of approximately $3.8 million
in 1996, most of which was for landfill capacity additions. Estimated
environmental expenditures for 1997 and 1998, which primarily relate to the
Company's landfills and air pollution control projects, are approximately $6.3
million and $4.8 million, respectively.
34
<PAGE> 39
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth in the table below are the names, ages and positions of the
directors and executive officers of the Company. The Board of Directors is
divided into three classes that are elected by stockholders for staggered
three-year terms. Executive officers are appointed by the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Don V. Ingram........................ 62 Chairman of the Board of Directors and Chief
Executive Officer
Richard L. Kerr...................... 55 President and Chief Operating Officer
Paul V. Dufour....................... 58 Executive Vice President -- Finance and
Administration, Chief Financial Officer and
Secretary
Thomas W. Rogers..................... 50 Senior Vice President, Marketing and Sales
C. Lee Newton........................ 54 Senior Vice President, Operations
John J. Fleming...................... 57 Director
Don Navarro.......................... 52 Director
Thomas A. James...................... 55 Director
J.M. Brundrett....................... 72 Director
Ralph L. Cheek....................... 67 Director
Jack C. Page......................... 72 Director
</TABLE>
Set forth below are descriptions of the backgrounds of the executive
officers and directors of the Company and their principal occupations for the
past five years.
Don V. Ingram has served as a director of the Company since 1988 and as
Chairman of the Board since 1994. He was elected Chief Executive Officer of the
Company in February 1997. Mr. Ingram played the major role in the formation of
the Company in 1986. Mr. Ingram has been owner and President since 1984 of
Summit Partners Management Co., a private investment management company in
Dallas. Mr. Ingram serves as a director of Profco Resources Ltd., a Canadian oil
and gas exploration and production company ("Profco").
Richard L. Kerr was elected President in February 1997. Previously, he had
served as Executive Vice President since July 1988 and Chief Operating Officer
since 1991. In 1994, he became President of the Company's Metals Division. Mr.
Kerr joined International Metal Co., a predecessor of the Company, in April
1984, and became Executive Vice President of International Metal Co. in April
1987.
Paul V. Dufour has served as Vice President, Chief Financial Officer and
Secretary of the Company since March 1987. He was promoted to Senior Vice
President in May 1988 and to Executive Vice President in October 1994. He is
principally responsible for the Company's financial and administrative
functions.
Thomas W. Rogers has served as Senior Vice President of the Company since
July 1988. Previously, Mr. Rogers was employed as Plant Manager of the Sapulpa,
Oklahoma plant beginning in October 1986.
C. Lee Newton became Senior Vice President of the Company in 1993. Mr.
Newton was named Vice President in 1990 and was the General Manager of the
Morgantown, Kentucky plant from 1989 to 1993. He was originally employed by the
Company as Plant Manager of its Rockwood, Tennessee plant in 1987.
John J. Fleming has served as a director since May 1989. Mr. Fleming is
Chairman and Chief Executive Officer of Profco. Mr. Fleming served as Chairman
and Chief Executive Officer from 1987 until March 1991 of CanCapital
Corporation, a Canadian merchant banking and oil and gas exploration and
production company headquartered in Calgary, Alberta, Canada.
Don Navarro has served as a director since June 1986. Mr. Navarro is
president of The Navarro Group, a company which provides business and management
services to public and private companies, specializing in
35
<PAGE> 40
helping organizations develop, refine and implement strategic plans. Mr. Navarro
also serves as a director of Pizza Inn, Inc.
Thomas A. James has served as a director since May 1995. Since 1969, Mr.
James has been the Chairman of the Board of Directors and Chief Executive
Officer of both Raymond James & Associates, Inc., one of the underwriters in
this Offering, and its parent company, Raymond James Financial, Inc. Mr. James
also serves as director and officer of various affiliated entities. He is a
director of Arbor Health Care Company, the Heritage Family of Funds and World of
Science, Inc.
J. M. Brundrett, a retired Doctor of Veterinary Medicine, has served as a
director since March 1985. Prior to his election to the Board, Dr. Brundrett
served on the Creditors' Committee in connection with the reorganization
proceedings for Pioneer Texas Corporation, a predecessor of the Company. Dr.
Brundrett is a private investor in real estate and securities.
Ralph L. Cheek has served as a director since May 1987. Mr. Cheek served as
Chairman, President and Chief Executive Officer of the Company and its
predecessors from 1987 to August 1994. Previously, Mr. Cheek held various
positions with Kaiser Aluminum and Chemical Corporation, most recently as Vice
President -- Europe and Vice President -- Pacific Northwest.
Jack C. Page has served as a director since November 1991. Mr. Page is an
independent management consultant with experience in conducting organizational,
marketing, management and computer studies in both the private and public
sectors. Before founding his own consulting business in 1972, Mr. Page headed
the Dallas and Mexico City offices of Booz, Allen & Hamilton, Inc., an
international consulting firm.
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<PAGE> 41
PRINCIPAL STOCKHOLDERS
The following table sets forth as of August 31, 1997, certain information
with regard to the beneficial ownership of the Company's Common Stock by (i) all
persons known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock of the Company, (ii) each director of the Company and
(iii) all executive officers and directors as a group. Upon the closing of the
Alchem Acquisition, it is expected that William Warshauer, the primary
shareholder of Alchem, his family and certain affiliates of Alchem will own
approximately 1.2 million shares of Common Stock or 8.7% of the outstanding
shares of Common Stock (7.2% after giving effect to the Offering). See also
"Business -- Pending Alchem Acquisition."
<TABLE>
<CAPTION>
TOTAL PERCENT
BENEFICIAL OF
OWNERSHIP(1) SHARES
------------ ----------
<S> <C> <C>
Don V. Ingram............................................... 1,272,894(2) 10.1%
2200 Ross Ave., Suite 4500-E, L.B. 170,
Dallas, TX 75201
FMR Corp.................................................... 982,100(3) 7.8
82 Devonshire Street, Boston, MA 02109
Mellon Bank Corporation..................................... 754,000(4) 6.0
One Mellon Bank Center, Pittsburgh, PA 15258
Chancellor LGT Asset Management, Inc........................ 728,800(5) 5.8
50 California Street, San Francisco, CA 94111
J. M. Brundrett............................................. 21,759 *
Ralph L. Cheek.............................................. 71,689 *
John J. Fleming............................................. 25,627 *
Thomas A. James............................................. 8,633(6) *
Don Navarro................................................. 8,159 *
Jack C. Page................................................ 7,259 *
Paul V. Dufour.............................................. 254,376 2.0
Richard L. Kerr............................................. 138,380 1.1
C. Lee Newton............................................... 136,691 1.1
Thomas W. Rogers............................................ 122,700 *
All Executive Officers and Directors as a group
(13 persons, including those individuals named above)..... 2,115,767(7) 16.1%
</TABLE>
- ---------------
* Less than 1%
(1) Except as otherwise indicated, the persons named in the table possess sole
voting and investment power with respect to all shares of Common Stock shown
as beneficially owned by them. Includes shares of Common Stock that may be
acquired pursuant to stock options exercisable within 60 days of August 31,
1997 and shares of Common Stock held by wives and minor children of such
persons and corporations in which such persons hold a controlling interest.
(2) Includes 991,688 shares owned by Mr. Ingram directly, 78,141 shares owned by
Mr. Ingram's wife and 160,000 shares held by trusts and custodial accounts
created for the benefit of Mr. Ingram's children and relatives (of which Mr.
Ingram is trustee).
(3) Information with respect to beneficial ownership of shares of Common Stock
by FMR Corp. is based solely upon the latest report of FMR Corp. on Schedule
13G dated February 14, 1997 as filed with the Securities and Exchange
Commission. According to that report, FMR Corp. has sole power to vote or to
direct the vote for 527,500 shares and sole power to dispose or to direct
the disposition of 982,100 shares.
(4) Information with respect to beneficial ownership of shares of Common Stock
by Mellon Bank Corporation is based solely upon the latest report of Mellon
Bank Corporation on Schedule 13G dated January 30, 1997 as filed with the
Securities and Exchange Commission. According to that report, Mellon Bank
Corporation or certain of its direct or indirect subsidiaries has sole and
shared power to vote or to direct the vote for 750,000 shares and 2,000
shares, respectively, and sole and shared power to dispose or to direct the
disposition of 150,000 shares and 604,000 shares, respectively.
(5) Information with respect to beneficial ownership of shares of Common Stock
by Chancellor LGT Asset Management, Inc. is based solely upon the latest
report of Chancellor Asset Management, Inc. on Schedule 13G dated February
7, 1997 as filed with the Securities and Exchange Commission.
(6) Does not include shares owned by Raymond James Financial, Inc. or its
subsidiaries of which Mr. James is Chairman of the Board and Chief Executive
Officer.
(7) Includes outstanding options under the Corporation's stock option plans
granted to officers and directors of the Corporation which are exercisable
within 60 days of August 31, 1997.
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<PAGE> 42
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock, $0.10 par value and 8,000,000 shares of preferred stock, $0.10
par value ("Preferred Stock"). As of September 30, 1997, there were 12,543,343
shares of Common Stock issued and outstanding, and no shares of Preferred Stock
had been issued.
Each outstanding share of Common Stock is entitled to one vote on all
matters submitted to a vote of stockholders, including the election of
directors. The holders of Common Stock do not have cumulative voting rights.
Dividends may be paid to holders of Common Stock when, as and if declared by the
Board of Directors out of funds legally available therefor. Holders of Common
Stock have no conversion, redemption or preemptive rights. All shares of Common
Stock, when validly issued and fully paid, will be non-assessable. In the event
of any liquidation, dissolution or winding up of the Company, holders of Common
Stock are entitled to share ratably in the assets of the Company remaining after
provision for payment of creditors and after the liquidation preference, if any,
of any Preferred Stock outstanding at the time.
The Company is authorized to issue Preferred Stock from time to time, in
one or more series with such rights, preferences, privileges and restrictions,
including dividend rights, voting rights, conversion rights, terms of redemption
and liquidation preferences as may be fixed or designated by the Board of
Directors without any further vote or action by the stockholders. Under certain
circumstances, the issuance of such Preferred Stock may render more difficult or
tend to discourage a merger, tender offer or proxy contest, the assumption of
control by a holder of a large block of the Company's securities or the removal
of incumbent management. The Board of Directors of the Company, without
stockholder approval, may issue Preferred Stock with voting and conversion
rights and dividend and liquidation preferences that could adversely affect the
holders of Common Stock. No shares of Preferred Stock are outstanding, and the
Company currently has no plans to issue any Preferred Stock.
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203") which contains certain restrictions on the ability of an
"interested stockholder" (defined as a stockholder owning 15% or more of a
corporation's voting stock) to engage in a "business combination" with such
corporation. For purposes of Section 203, "business combination" is defined
broadly to include mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Because the Company has not
amended its Certificate of Incorporation or Bylaws to prohibit the application
of Section 203, such section may inhibit an interested stockholder's ability to
acquire additional shares of Common Stock or otherwise engage in a business
combination with the Company.
The Company's Certificate of Incorporation and Bylaws contain provisions
(i) limiting the personal liability of its directors for monetary damages
resulting from breaches of their duty of care to the extent permitted by Section
102(b)(7) of the Delaware General Corporation Law, and (ii) making
indemnification of the Company's directors and officers mandatory to the fullest
extent permitted by the Delaware General Corporation Law, including
circumstances in which indemnification is otherwise discretionary.
The Board of Directors of the Company is divided into three classes that
are elected for staggered three-year terms. The holders of a majority of the
outstanding voting stock may remove a director with or without cause. The number
of directors to constitute the entire Board of Directors may be determined only
by the Board of Directors. Any new director elected or chosen to fill a vacancy
will serve for the remainder of the full term of the class in which such vacancy
occurred, rather than until the next election of directors. These provisions of
the Company's Certificate of Incorporation further provide that the affirmative
vote of holders of 60% of the Company's outstanding voting stock is required to
amend these provisions as well as related provisions of the Company's Bylaws.
The provisions of the Company's Certificate of Incorporation and Bylaws
summarized in certain of the preceding paragraphs may be deemed to have an
anti-takeover effect and may delay, defer or prevent a tender offer or takeover
attempt that a stockholder might consider in such stockholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by stockholders.
The Transfer Agent and Registrar for the Company's Common Stock is Chase
Mellon Securities Trust Company.
38
<PAGE> 43
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement"), the Company has agreed to sell to each of the
Underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Raymond James & Associates, Inc. ("Raymond James") are acting as representatives
(the "Representatives"), has severally agreed to purchase from the Company the
number of shares of Common Stock set forth below opposite their respective names
at the public offering price less the underwriting discount set forth on the
cover page of this Prospectus. In the Purchase Agreement, the several
Underwriters have agreed, subject to the terms and conditions set forth therein,
to purchase all of the shares of Common Stock being sold pursuant to the
Purchase Agreement if any of the shares of Common Stock being sold pursuant to
the Purchase Agreement are purchased.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Raymond James & Associates, Inc. ...........................
---------
Total.......................................... 3,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters
initially propose to offer the shares of Common Stock to the public at the
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of $ per share on sales to certain other dealers. After the
Offering, the public offering price, concession and discount may be changed.
The Company has granted to the Underwriters an option, exercisable for 30
days after the date of the Offering, to purchase up to 450,000 additional shares
of Common Stock solely to cover over-allotments, if any, at the public offering
price set forth on the cover page hereof less the underwriting discount. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of the option shares that the number of shares of Common Stock to be
purchased initially by that Underwriter bears to the total number of shares to
be purchased initially by the Underwriters.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended,
or to contribute to payments the Underwriters may be required to make in respect
thereof.
The Company, each of its directors and each of its executive officers have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock,
without the prior consent of Merrill Lynch, for a period of 120 days from the
date of this Prospectus, except that the Company may, without such consent,
grant options or issue shares of Common Stock upon the exercise of outstanding
options pursuant to the Company's stock option and incentive plans.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of Common Stock.
39
<PAGE> 44
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of the Prospectus, the Representatives may
reduce that short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Merrill Lynch has from time to time provided investment banking and
financing services to the Company, for which it has received customary
compensation, and may continue to do so in the future.
Thomas A. James, who is a member of the Company's board of directors, is
also the Chairman of Raymond James. Because of Mr. James' directorships and
executive positions, the National Association of Securities Dealers, Inc.
("NASD") may view the Offering as a participation by Raymond James, an NASD
member, in the distribution in a public offering of the securities of its
affiliate. As a result, the Offering is being made pursuant to the provisions of
Rule 2720 of the NASD's Conduct Rules. In accordance with such Rule 2720, the
Underwriters will not make sales of Common Stock offered hereby to customers'
discretionary accounts without the prior specific written approval of such
customers.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Haynes and Boone, L.L.P., Houston, Texas. Certain legal
matters will be passed upon for the Underwriters by Skadden, Arps, Slate,
Meagher and Flom LLP, New York, New York.
40
<PAGE> 45
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1995, and for each of the three years in the period ended December 31,
1996, appearing in this Prospectus and in the Registration Statement, have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
appearing elsewhere herein and are included in reliance upon such report given
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of IMSAMET, Inc. as of December 31,
1996 and for the year then ended appearing in the Company's Current Report on
Form 8-K dated January 21, 1997, as amended, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The Balance Sheets of Alchem Aluminum, Inc. as of October 31, 1996 and
1995, and the related Statements of Income and Retained Earnings and Cash Flows
for the years then ended, incorporated by reference in this Prospectus and
elsewhere in the Registration Statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report with respect
thereto, and are incorporated by reference herein in reliance upon the authority
of said firm as experts in accounting and auditing in giving said report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"), which can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following regional
offices of the Commission: Chicago Regional Office, 500 W. Madison Street, Suite
1400, Chicago, Illinois 60661, and New York Regional Office, 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. In
addition, such documents may be inspected and printed from the Commission's
internet site located at http://www.sec.gov. Such reports, proxy statements, and
other information may also be inspected at the offices of the New York Stock
Exchange at 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments thereto, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and such securities, reference
is made to such Registration Statement and to the exhibits thereto. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
or incorporated by reference herein are not necessarily complete, and in each
instance reference is made to the copy of such document so filed for a more
complete description of the matter involved. Each such statement is qualified in
its entirety by such reference.
41
<PAGE> 46
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission, are
incorporated herein by reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996;
(2) The Company's Quarterly Report on Form 10-Q for the three months
ended March 31, 1997;
(3) The Company's Quarterly Report on Form 10-Q for the three and six
months ended June 30, 1997;
(4) The Company's Current Report on Form 8-K dated January 21, 1997, as
amended by Current Report on Form 8-K/A-1 dated April 4, 1997 and Current Report
on Form 8-K/A-2 dated April 4, 1997;
(5) The Company's Current Report on Form 8-K dated October 1, 1997, as
amended by Current Report on Form 8-K/A-1 dated October 9, 1997; and
(6) The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed under Section 12 of the Exchange Act
dated June 27, 1991.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering made hereby shall be deemed to be incorporated
by reference in this Prospectus and to be a part hereof from the date of the
filing of such documents. Any statement contained in this Prospectus, in a
supplement to this Prospectus or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed supplement to this Prospectus or in any document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents unless such exhibits are specifically
incorporated by reference in such documents. Requests for such copies should be
directed to: IMCO Recycling Inc., 5215 North O'Connor Blvd., Suite 940, Central
Tower at Williams Square, Irving, Texas 75039, Attention: Paul V. Dufour,
Executive Vice President -- Finance and Administration, Chief Financial Officer
and Secretary (Telephone: (972) 869-6575).
42
<PAGE> 47
IMCO RECYCLING INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pro Forma Condensed Consolidated Financial Statements:
Pro Forma Condensed Consolidated Statements of Earnings
for the year ended December 31, 1996................... F-3
Pro Forma Condensed Consolidated Statements of Earnings
for the six months ended June 30, 1997................. F-4
Pro Forma Condensed Consolidated Unaudited Balance Sheets
at June 30, 1997....................................... F-5
Notes to Pro Forma Condensed Consolidated Financial
Statements............................................. F-6 to F-8
Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors......... F-9
Consolidated Balance Sheets at December 31, 1995 and 1996,
and June 30, 1997 (unaudited).......................... F-10
Consolidated Statements of Earnings for the three years
ended December 31, 1996, and for the six months ended
June 30, 1996 and 1997 (unaudited)..................... F-11
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, and for the six months ended
June 30, 1996 and 1997 (unaudited)..................... F-12
Consolidated Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1996, and for
the six months ended June 30, 1997 (unaudited)......... F-13
F-14 to
Notes to Consolidated Financial Statements................ F-25
</TABLE>
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
F-1
<PAGE> 48
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying unaudited Pro Forma Condensed Consolidated Financial
Statements have been prepared by recording pro forma adjustments to the
historical consolidated financial statements of the Company. The Pro Forma
Consolidated Balance Sheet as of June 30, 1997 has been prepared as if the
Alchem Acquisition and the Offering were consummated on June 30, 1997. The Pro
Forma Consolidated Statements of Earnings for the year ended December 31, 1996
and for the six months ended June 30, 1997 have been prepared as if the
acquisitions of IMSAMET Inc. ("IMSAMET") and Rock Creek Aluminum, Inc. ("Rock
Creek"), the Alchem Acquisition and the Offering had been consummated on January
1, 1996.
The Pro Forma Condensed Consolidated Statement of Earnings for the year
ended December 31, 1996 has been derived from (i) the historical audited
consolidated financial statements of the Company for the year ended December 31,
1996, included elsewhere in this Prospectus, (ii) the historical audited
consolidated financial statements of IMSAMET for the year ended December 31,
1996, incorporated by reference in this Prospectus, (iii) the historical
unaudited financial statements of Rock Creek for the year ended December 31,
1996 and (iv) the audited financial statements of Alchem for its fiscal year
ended October 31, 1996.
The Pro Forma Condensed Consolidated Statement of Earnings for the six
months ended June 30, 1997 and the Pro Forma Condensed Consolidated Balance
Sheet at June 30, 1997 have been derived from (i) the historical unaudited
consolidated financial statements of the Company as of and for the six-month
period ended June 30, 1997, included elsewhere in this Prospectus, and (ii) the
historical unaudited financial statements of Alchem for the eight month period
ended June 30, 1997.
The Pro Forma Condensed Consolidated Financial Statements are not
necessarily indicative of the financial position or results of operations that
would have occurred had the transactions been effected on the assumed dates.
Additionally, future results may vary significantly from the results reflected
in the Pro Forma Consolidated Statements of Earnings due to normal fluctuations
in operating levels, changes in prices, future transactions and other factors.
These statements should be read in conjunction with the Company's Consolidated
Financial Statements and related notes thereto included elsewhere in this
Prospectus.
F-2
<PAGE> 49
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR IMSAMET AND ROCK CREEK ACQUISITIONS
----------------------------------------------------------------
IMSAMET ROCK CREEK
------------------------ ------------------------
COMPANY PRO FORMA PRO FORMA PRO
HISTORICAL HISTORICAL ADJUSTMENTS HISTORICAL ADJUSTMENTS FORMA
---------- ---------- ----------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues...................... $210,871 $37,399 $54,072 ($3,867)B1 $298,475
Cost of sales................. 185,333 31,116 $(1,272)A1 49,501 (3,867)B1 261,011
200A2
-------- ------- ------- ------- ------- --------
Gross profit.................. 25,538 6,283 1,072 4,571 -- 37,464
Selling, general and
administrative expense...... 11,774 2,336 (902)A3 2,846 145B2 16,823
624A4
Interest expense.............. 3,421 1,533 3,508A5 606 9,068
Interest income............... (623) -- -- (623)
Equity in earnings of
affiliates.................. 114 (150) -- (36)
-------- ------- ------- ------- ------- --------
Earnings before provision for
income taxes and minority
interests................... 10,852 2,564 (2,158) 1,119 (145) 12,232
Provision for income taxes.... 4,132 745 (430)A6 26 359B3 4,832
-------- ------- ------- ------- ------- --------
Earnings before minority
interests................... 6,720 1,819 (1,728) 1,093 (504) 7,400
Minority interests, net of
provision for income
taxes....................... -- (316) (3)A7 -- (319)
-------- ------- ------- ------- ------- --------
Net earnings.................. $ 6,720 $ 1,503 $(1,731) $ 1,093 $ (504) $ 7,081
======== ======= ======= ======= ======= ========
Net earnings per common
share....................... $ 0.55 $ 0.55
======== ========
Weighted average common and
common equivalent shares
outstanding................. 12,309 618B4 12,927
======== ======= ========
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
-------------------------------------
HISTORICAL
PRO FORMA AS ADJUSTED
YEAR FOR THE OFFERING
ENDED -------------------------------
OCTOBER 31, PRO FORMA PRO PRO FORMA
1996 ADJUSTMENTS FORMA ADJUSTMENTS PRO FORMA
----------- ----------- -------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
Revenues...................... $111,938 $(1,477)C3 $408,936 $408,936
Cost of sales................. 101,965 (1,477)C3 363,550 363,550
300C4
1,751C1
-------- ------- -------- --------
Gross profit.................. 9,973 (2,051) 45,386 45,386
Selling, general and
administrative expense...... 3,737 289C5 20,849 20,849
Interest expense.............. 660 1,256C6 10,984 $(4,314)D1 6,670
Interest income............... (20) (643) (643)
Equity in earnings of
affiliates.................. -- (36) (36)
-------- ------- -------- ------- --------
Earnings before provision for
income taxes and minority
interests................... 5,596 (3,596) 14,232 4,314 18,546
Provision for income taxes.... -- 790C7 5,622 1,704D2 7,326
-------- ------- -------- ------- --------
Earnings before minority
interests................... 5,596 (4,386) 8,610 2,610 11,220
Minority interests, net of
provision for income
taxes....................... -- (319) (319)
-------- ------- -------- ------- --------
Net earnings.................. $ 5,596 $(4,386) $ 8,291 $ 2,610 $ 10,901
======== ======= ======== ======= ========
Net earnings per common
share....................... $ 0.59 $ 0.64
======== ========
Weighted average common and
common equivalent shares
outstanding................. 1,208C10 14,135 3,000D3 17,135
======= ======== ======= ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-3
<PAGE> 50
IMCO RECYCLING, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
-------------------------------------
HISTORICAL PRO FORMA PRO FORMA
EIGHT ADJUSTMENT EIGHT
MONTHS TO CONFORM MONTHS
ENDED INVENTORY ENDED
COMPANY JUNE 30, ACCOUNTING JUNE 30,
HISTORICAL 1997 METHODS(C1) 1997
---------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues.......................................... $159,127 $90,626 $90,626
Cost of sales..................................... 136,850 85,203 (2,453) 82,750
-------- ------- ------- -------
Gross profit...................................... 22,277 5,423 2,453 7,876
Selling, general and administrative expense....... 8,799 2,848 2,848
Interest expense.................................. 3,659 471 471
Interest income................................... (179) (4) (4)
Equity in earnings of affiliates.................. (90) -- --
-------- ------- ------- -------
Earnings before provision for income taxes,
minority interests and extraordinary item....... 10,088 2,108 2,453 4,561
Provision for income taxes........................ 4,033 -- --
-------- ------- ------- -------
Earnings before minority interests and
extraordinary item.............................. 6,055 2,108 2,453 4,561
Minority interests, net of provision for income
taxes........................................... (208) -- --
-------- ------- ------- -------
Earnings before extraordinary item................ $ 5,847 $ 2,108 $ 2,453 $ 4,561
======== ======= ======= =======
Net earnings per common share before extraordinary
item............................................ $ 0.46
========
Weighted average common and common equivalent
shares outstanding.............................. 12,732
========
<CAPTION>
PRO FORMA FOR THE ALCHEM ACQUISITION
-------------------------------------
OTHER PRO FORMA PRO FORMA AS ADJUSTED
ADJUSTMENTS FOR THE OFFERING
----------------------- PRO FORMA ------------------------
ELIMINATE SIX
TWO MONTHS MONTHS
ENDED ENDED
DECEMBER 31, JUNE 30, PRO FORMA
1996(C2) OTHER 1997 ADJUSTMENTS PRO FORMA
------------ ------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues.......................................... $(16,263) $(1,683)C3 $231,807 $231,807
Cost of sales..................................... (14,932) (1,683)C3 203,135 203,135
150C4
-------- ------- -------- --------
Gross profit...................................... (1,331) (150) 28,672 28,672
Selling, general and administrative expense....... (598) 146C5 11,195 11,195
Interest expense.................................. (81) 621C6 4,670 $(1,618)D1 3,052
Interest income................................... (183) (183)
Equity in earnings of affiliates.................. (90) (90)
-------- ------- -------- ------- --------
Earnings before provision for income taxes,
minority interests and extraordinary item....... (652) (917) 13,080 1,618 14,698
Provision for income taxes........................ 1,199C7 5,232 647D2 5,879
-------- ------- -------- ------- --------
Earnings before minority interests and
extraordinary item.............................. (652) (2,116) 7,848 971 8,819
Minority interests, net of provision for income
taxes........................................... (208) (208)
-------- ------- -------- ------- --------
Earnings before extraordinary item................ $ (652) $(2,116) $ 7,640 $ 971 $ 8,611
======== ======= ======== ======= ========
Net earnings per common share before extraordinary
item............................................ $ 0.55 $ 0.51
======== ========
Weighted average common and common equivalent
shares outstanding.............................. 1,208C10 13,940 3,000D3 16,940
======= ======== ======= ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-4
<PAGE> 51
IMCO RECYCLING INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA AS ADJUSTED
PRO FORMA FOR THE ALCHEM ACQUISITION FOR THE OFFERING
------------------------------------ -----------------------
COMPANY PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS PRO FORMA
---------- ---------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents............ $ 2,781 $ 1,033 $ 26,250C8 $ 3,814 $ 53,650D3 $ 3,814
(12,942)C11 (53,650)D4
(13,308)C10
Accounts receivable.................. 46,927 16,603 (348)C12 63,182 63,182
Inventories.......................... 16,596 13,648 4,919C14 35,163 35,163
Deferred income taxes................ 1,567 -- 1,567 1,567
Other current assets................. 2,128 321 2,449 2,449
-------- ------- -------- -------- -------- --------
Total current assets.......... 69,999 31,605 4,571 106,175 -- 106,175
Property and equipment, net............ 120,022 9,114 3,000C14 132,136 132,136
Intangible assets, net................. 57,288 158 2,000C13 69,611 69,611
10,165C14
Investments in affiliates.............. 14,704 3,855 30,558C10 14,759 14,759
(30,558)C14
(3,800)C15
Other assets, net...................... 5,408 862 6,270 6,270
-------- ------- -------- -------- -------- --------
$267,421 $45,594 $ 15,936 $328,951 $ -- $328,951
======== ======= ======== ======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable..................... $ 21,860 $19,432 $ (348)C12 $ 40,944 $ 40,944
Accrued liabilities.................. 5,157 746 500C13 6,403 6,403
Current maturities of long-term
debt............................... 7,614 955 (955)C11 273 273
(7,341)C9
-------- ------- -------- -------- -------- --------
Total current liabilities..... 34,631 21,133 (8,144) 47,620 $ -- 47,620
Long-term debt......................... 115,391 11,987 26,250C8 148,982 $(53,650)D4 95,332
7,341C9
(11,987)C11
Other long-term liabilities............ 6,838 -- 6,838 6,838
Deferred income taxes.................. 6,214 -- 1,500C13 7,714 7,714
Minority interests..................... 5,459 -- (3,800)C15 1,659 1,659
Stockholders' equity................... 98,888 12,474 17,250C10 116,138 53,650D3 169,788
(12,474)C14
-------- ------- -------- -------- -------- --------
$267,421 $45,594 $ 15,936 $328,951 $ -- $328,951
======== ======= ======== ======== ======== ========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
F-5
<PAGE> 52
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
A. PRO FORMA ADJUSTMENTS FOR THE IMSAMET ACQUISITION
In January 1997, the Company acquired all of the outstanding capital stock
of IMSAMET, a wholly owned subsidiary of EnviroSource, Inc., for approximately
$58,000,000 in cash, not including acquisition costs. The purchase price was
funded through borrowings under the Company's long-term senior debt facility
agreement (the "Credit Agreement"). The acquisition was accounted for using the
purchase method of accounting. The pro forma adjustments to the historical
statement of earnings to reflect the IMSAMET acquisition as if it had been
consummated on January 1, 1996 are as follows:
A1. To reverse management fees charged to IMSAMET by its former
parent.
A2. To reflect additional depreciation expense based on the fair value
of the assets acquired. Pro forma depreciation is computed on a
straight-line basis over the estimated useful lives of the assets acquired.
A3. To eliminate expenses related to the IMSAMET corporate office,
which would not have been incurred.
A4. To record the net increase in amortization expense resulting from
goodwill acquired and from debt issuance costs incurred to obtain the
Credit Agreement. Goodwill is amortized on a straight-line basis over a
40-year life, and debt issuance costs are amortized over the seven-year
term of the Credit Agreement.
A5. To adjust interest expense to (i) eliminate interest expense on
the existing debt of the Company which was retired ($3,120,000), (ii)
eliminate interest expense incurred by IMSAMET on debt to its former parent
($1,533,000), and (iii) record interest expense on borrowings under the
Credit Agreement ($7,927,000). Pro forma interest expense on borrowings
under the Credit Agreement was computed using the applicable LIBOR rate
plus 1.5%. An increase of .125% in the assumed interest rate would increase
pro forma interest expense related to the IMSAMET acquisition by $138,000
for the year ended December 31, 1996.
A6. To adjust income tax expense based on the combined effective
federal and state income tax rates.
A7. To adjust minority interests related to additional depreciation
expense.
B. PRO FORMA ADJUSTMENTS FOR THE ROCK CREEK ACQUISITION
In January 1997, the Company acquired, in a privately negotiated
transaction, all of the outstanding capital stock of 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 pro forma adjustments to the
historical statement of earnings to reflect the Rock Creek acquisition as if it
had been consummated on January 1, 1996 are as follows:
B1. To eliminate sales and cost of sales for transactions between Rock
Creek and the Company.
B2. To adjust amortization expense for the goodwill acquired. Goodwill
is amortized on a straight-line basis over a 40-year life.
B3. To adjust income tax expense based on the combined effective
federal and state income tax rates.
B4. To reflect the issuance of 618,137 shares of the Company's common
stock in the transaction.
F-6
<PAGE> 53
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
C. PRO FORMA ADJUSTMENTS FOR THE ALCHEM ACQUISITION
In September 1997, the Company announced that it had entered into a
non-binding letter of intent to acquire, in a privately negotiated transaction,
all of the capital stock of Alchem in exchange for cash and 1,208,339 shares of
common stock. The amount of cash to be paid will be determined by deducting the
aggregate amount of Alchem's obligations for borrowed money outstanding as of
the closing date of the acquisition from $26,250,000. At June 30, 1997, the
amount of Alchem's indebtedness for borrowed money outstanding was $12,942,000.
Assuming that such amount of Alchem indebtedness is outstanding at the closing
date, the total cash to be paid by the Company to Alchem would be $13,308,000.
The cash portion of the acquisition price and the repayment of Alchem's
indebtedness is assumed to be funded by borrowings under the proposed $175
million reducing revolving credit facility ("Reducing Revolving Facility"). The
acquisition, which is expected to close in November 1997, will be accounted for
using the purchase method of accounting. The pro forma adjustments to the
historical financial statements for the pending Alchem Acquisition are as
follows:
C1. To adjust cost of sales to conform Alchem's accounting policy for
inventory (LIFO) to a method approximating the Company's accounting policy
(average cost).
C2. To eliminate the results of Alchem's operations for the two months
ended December 31, 1996 to conform with the Company's interim accounting
period.
C3. To eliminate sales and cost of sales for transactions between
Alchem and the Company and Rock Creek.
C4. To reflect additional depreciation expense based on the fair value
of the assets acquired. Pro forma depreciation is computed on a
straight-line basis over the estimated useful lives of the assets acquired.
C5. To adjust amortization expense for the goodwill acquired and
Alchem's debt issuance costs written-off. Goodwill is amortized on a
straight-line basis over a 40 year life.
C6. To record the net increase in interest expense due to assumed
borrowings of $26,250,000 under the Reducing Revolving Facility using the
applicable LIBOR rate plus 1.5%, less interest expense on the Alchem
indebtedness retired. An increase of .125% in the assumed interest rate
would increase pro forma interest expense related to the Alchem Acquisition
by $32,000 and $16,000 for the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively.
C7. To adjust income tax expense based on the combined effective
federal and state income tax rates.
C8. To record borrowings of $26,250,000 under the Reducing Revolving
Facility to fund the cash portion of the purchase price and repayment of
Alchem's indebtedness.
C9. To reclassify the current portion of borrowings under the Credit
Agreement to long-term pursuant to the proposed terms of the Reducing
Revolving Facility.
C10. To record the acquisition of the capital stock of Alchem for
1,208,339 shares of the Company's common stock and $13,308,000 in cash. The
shares of common stock to be issued were valued at $19.0344 per share
(which is the average closing price for the Company's common stock for the
20 consecutive trading days preceding September 15, 1997, the date of the
letter of intent), less a 25% discount to reflect the contractual
restrictions on the resale of such shares. The actual amount of cash to be
paid will be determined by subtracting Alchem's actual outstanding
obligations for borrowed money at the date of closing from $26,250,000.
F-7
<PAGE> 54
IMCO RECYCLING INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
C11. To record the repayment of the Alchem indebtedness.
C12. To eliminate accounts receivable and accounts payable between
Alchem and the Company.
C13. To record the accrual of severance pay, deferred income taxes and
other merger related costs.
C14. To adjust assets and liabilities under the purchase method of
accounting based on the Company's purchase price. The Company's purchase
price has been allocated to the consolidated assets and liabilities of
Alchem based on preliminary estimates of fair values with the remaining
purchase price allocated to goodwill. The information presented herein may
differ from the actual purchase price allocation.
The preliminary allocation of the purchase price included in the pro
forma balance sheet is summarized as follows (in thousands):
<TABLE>
<S> <C>
Working capital................................. $ 14,891
Property and equipment.......................... 12,114
Goodwill........................................ 12,323
Other noncurrent assets......................... 4,717
Noncurrent liabilities.......................... (13,487)
--------
Total........................................... $ 30,558
========
</TABLE>
C15. To eliminate Alchem's investment and the Company's minority
interest in the joint venture for the Coldwater, Michigan aluminum
recycling plant.
D. PRO FORMA ADJUSTMENTS FOR THE OFFERING
The Pro Forma Condensed Consolidated Financial Statements assume the
issuance of 3,000,000 shares of the Company's common stock pursuant to the
Offering at a price of $19.00 per share resulting in net proceeds to the Company
of $53,650,000. The pro forma adjustments to the historical financial statements
for the Offering are as follows:
D1. To reduce interest expense due to the use of the proceeds of the
Offering to repay long-term debt. See Note D4. Interest expense on the
remaining outstanding borrowings under the Credit Agreement was computed
using the applicable LIBOR rate plus .75%. An increase of .125% in the
assumed interest rate would increase pro forma interest expense by $90,000
and $45,000 for the year ended December 31, 1996 and the six months ended
June 30, 1997, respectively.
D2. To record additional income tax expense based on the reduction in
interest expense resulting from the repayment of long-term debt.
D3. To record the issuance of 3,000,000 shares of common stock at
$19.00 per share, less the estimated underwriting discount and transaction
costs of $3,350,000.
D4. To record the use of proceeds from the Offering to repay long-term
debt.
F-8
<PAGE> 55
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Stockholders and
Board of Directors
IMCO Recycling Inc.
We have audited the accompanying consolidated balance sheets of IMCO
Recycling Inc. and subsidiaries as of December 31, 1995 and 1996, and the
related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1996. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
IMCO Recycling Inc. and subsidiaries at December 31, 1995 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
ERNST & YOUNG LLP
Dallas, Texas
January 30, 1997
F-9
<PAGE> 56
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Assets
Current assets
Cash and cash equivalents............................... $ 8,678 $ 5,070 $ 2,781
Accounts receivable..................................... 27,442 33,655 46,927
Inventories............................................. 9,146 11,847 16,596
Deferred income taxes................................... 1,298 1,462 1,567
Other current assets.................................... 1,353 1,282 2,128
-------- -------- --------
Total current assets............................ 47,917 53,316 69,999
Property and equipment, net............................... 78,769 86,308 120,022
Intangible assets
Excess of acquisition cost over the fair value of net
assets acquired, net of accumulated amortization of
$3,866, $4,607 and $2,970 at December 31, 1995, 1996
and June 30, 1997, respectively...................... 10,968 9,362 57,148
Patents, net............................................ 233 171 140
-------- -------- --------
Total intangible assets......................... 11,201 9,533 57,288
Investments in joint ventures............................. -- 14,187 14,704
Other assets, net......................................... 1,990 1,363 5,408
-------- -------- --------
$139,877 $164,707 $267,421
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable........................................ $ 10,691 $ 14,351 $ 21,860
Accrued liabilities..................................... 7,059 2,192 5,157
Short-term debt......................................... -- 2,000 --
Current maturities of long-term debt.................... 2,169 2,124 7,614
-------- -------- --------
Total current liabilities....................... 19,919 20,667 34,631
Long-term debt............................................ 29,754 48,202 115,391
Other long-term liabilities............................... 1,412 1,647 6,838
Deferred income taxes..................................... 5,516 5,856 6,214
Minority interests........................................ -- -- 5,459
Commitments and contingencies............................. -- -- --
Stockholders' equity
Preferred stock; par value $.10; 8,000,000 shares
authorized; none issued.............................. -- -- --
Common stock; par value $.10; 20,000,000 shares
authorized; 11,964,911 issued at December 31, 1995;
12,017,914 issued at December 31, 1996; 12,639,744
issued at June 30, 1997.............................. 1,196 1,202 1,264
Additional paid-in capital.............................. 27,282 27,553 34,605
Retained earnings....................................... 56,672 61,021 64,296
Treasury stock, at cost; 207,972 shares at December 31,
1995; 118,551 shares at December 31, 1996; 105,101
shares at June 30, 1997.............................. (1,874) (1,441) (1,277)
-------- -------- --------
Total stockholders' equity...................... 83,276 88,335 98,888
-------- -------- --------
$139,877 $164,707 $267,421
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE> 57
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues.................................... $101,116 $141,167 $210,871 $101,183 $159,127
Cost of sales............................... 78,478 110,228 185,333 85,486 136,850
-------- -------- -------- -------- --------
Gross profit........................... 22,638 30,939 25,538 15,697 22,277
Selling, general and administrative
expense................................... 6,440 10,027 11,774 5,869 8,799
Interest expense............................ 1,014 1,073 3,421 1,590 3,659
Interest income............................. (154) (424) (623) (382) (179)
Nonrecurring litigation expense............. 1,635 -- -- -- --
Equity in (earnings) loss of affiliates..... -- (100) 114 (423) (90)
-------- -------- -------- -------- --------
Earnings before provision for income taxes,
minority interests and extraordinary
item...................................... 13,703 20,363 10,852 9,043 10,088
Provision for income taxes.................. 5,232 7,893 4,132 3,482 4,033
-------- -------- -------- -------- --------
Earnings before minority interests and
extraordinary item........................ 8,471 12,470 6,720 5,561 6,055
Minority interests, net of provision for
income taxes.............................. -- -- -- -- (208)
-------- -------- -------- -------- --------
Earnings before extraordinary item.......... 8,471 12,470 6,720 5,561 5,847
Extraordinary item.......................... -- -- -- -- (1,318)
-------- -------- -------- -------- --------
Net earnings........................... $ 8,471 $ 12,470 $ 6,720 $ 5,561 $ 4,529
======== ======== ======== ======== ========
Net earnings per common share:
Income before extraordinary item.......... $ 0.73 $ 1.03 $ 0.55 $ 0.45 $ 0.46
Extraordinary item........................ -- -- -- -- (0.10)
-------- -------- -------- -------- --------
Net earnings........................... $ 0.73 $ 1.03 $ 0.55 $ 0.45 $ 0.36
======== ======== ======== ======== ========
Dividends declared per common share......... $ 0.10 $ 0.105 $ 0.20 $ 0.10 $ 0.10
======== ======== ======== ======== ========
Weighted average common and common
equivalent shares outstanding............. 11,644 12,108 12,309 12,387 12,732
======== ======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE> 58
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------- -------------------
1994 1995 1996 1996 1997
--------- --------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Income before extraordinary item............ $ 8,471 $ 12,470 $ 6,720 $ 5,561 $ 5,847
Depreciation and amortization............... 7,367 9,353 11,316 5,673 7,773
Provision for deferred income taxes......... 1,859 1,167 176 448 254
Equity in (earnings) loss of affiliates..... -- (100) 114 (423) (90)
Provision for doubtful accounts............. -- -- -- 15 590
Other noncash charges....................... 647 235 132 10 483
Provision for plant closure................. -- -- 3,577 -- --
Changes in operating assets and liabilities
(excluding investing and financing
transactions):
Accounts receivable....................... (5,829) 3,330 (6,282) (721) 71
Inventories............................... 95 (1,756) (3,728) (6,661) 32
Other current assets...................... (121) (546) 72 (294) (654)
Accounts payable and accrued
liabilities............................ 553 1,383 (4,289) (4,424) 2,314
Accrued landfill closure costs............ 572 180 (1,064) (286) 250
-------- -------- -------- -------- --------
Net cash from (used by) operating
activities...................... 13,614 25,716 6,744 (1,102) 16,870
INVESTING ACTIVITIES
Payments for property and equipment......... (6,646) (15,538) (16,711) (4,480) (19,026)
Acquisition of IMSAMET, Inc., net of cash... -- -- -- -- (58,272)
Acquisitions and investments in joint
ventures.................................. (5,325) (20,137) (13,681) (13,240) --
Other....................................... (997) (731) 47 450 (1,722)
-------- -------- -------- -------- --------
Net cash used by investing
activities...................... (12,968) (36,406) (30,345) (17,270) (79,020)
FINANCING ACTIVITIES
Net proceeds from (repayments of) short-term
borrowings................................ (1,800) -- 2,000 -- (8,351)
Proceeds from issuance of long-term debt.... 5,000 20,000 20,517 20,475 123,591
Principal payments of long-term debt........ (2,751) (1,477) (2,162) (1,061) (54,106)
Debt issuance costs......................... -- -- -- -- (2,165)
Dividends paid.............................. -- (2,371) (2,371) (1,183) (1,253)
Other....................................... 94 362 2,009 538 2,145
-------- -------- -------- -------- --------
Net cash from financing
activities...................... 543 16,514 19,993 18,769 59,861
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................... 1,189 5,824 (3,608) 397 (2,289)
Beginning cash and cash equivalents......... 1,665 2,854 8,678 8,678 5,070
-------- -------- -------- -------- --------
Ending cash and cash equivalents............ $ 2,854 $ 8,678 $ 5,070 $ 9,075 $ 2,781
======== ======== ======== ======== ========
SUPPLEMENTARY INFORMATION
Cash payments for interest.................. $ 1,271 $ 1,357 $ 3,083 $ 1,355 $ 4,797
Cash payments for income taxes.............. $ 3,411 $ 6,440 $ 7,440 $ 6,398 $ 1,991
</TABLE>
See Notes to Consolidated Financial Statements.
F-12
<PAGE> 59
IMCO RECYCLING INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------- PAID-IN RETAINED ------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
---------- ------ ---------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1993............... 11,501,708 $1,150 $20,059 $ 38,102 (334,537) $(2,255)
Net earnings.................... -- -- -- 8,471 -- --
Cash dividend................... -- -- -- (1,152) -- --
Litigation agreement............ -- -- 67 -- 25,000 185
Exercise of stock options....... -- -- 20 -- 19,735 (81)
Purchase of Phoenix Smelting.... 254,990 26 3,207 -- 44,892 333
Tax benefit from the exercise of
nonqualified stock options.... -- -- 158 -- -- --
---------- ------ ------- -------- -------- -------
DECEMBER 31, 1994............... 11,756,698 1,176 23,511 45,421 (244,910) (1,818)
Net earnings.................... -- -- -- 12,470 -- --
Cash dividend................... -- -- -- (1,219) -- --
Exercise of stock options....... -- -- 234 -- 36,938 (56)
Purchase of Alumar Associates... 208,213 20 3,354 -- -- --
Tax benefit from the exercise of
nonqualified stock options.... -- -- 183 -- -- --
---------- ------ ------- -------- -------- -------
DECEMBER 31, 1995............... 11,964,911 1,196 27,282 56,672 (207,972) (1,874)
Net earnings.................... -- -- -- 6,720 -- --
Cash dividend................... -- -- -- (2,371) -- --
Issuance of common stock for
services...................... 3,003 1 51 -- -- --
Exercise of stock options....... -- -- (586) -- 89,421 433
Tax benefit from the exercise of
nonqualified stock options.... -- -- 806 -- -- --
Exercise of warrants............ 50,000 5 -- -- -- --
---------- ------ ------- -------- -------- -------
DECEMBER 31, 1996............... 12,017,914 1,202 27,553 61,021 (118,551) (1,441)
Net earnings (unaudited)........ -- -- -- 4,529 -- --
Cash dividend (unaudited)....... -- -- -- (1,254) -- --
Issuance of common stock for
services (unaudited).......... 3,493 -- 53 -- -- --
Exercise of stock options
(unaudited)................... 200 -- (139) -- 13,450 164
Tax benefit from the exercise of
nonqualified stock options
(unaudited)................... -- -- 75 -- -- --
Purchase of Rock Creek
(unaudited)................... 618,137 62 7,063 -- -- --
---------- ------ ------- -------- -------- -------
JUNE 30, 1997 (UNAUDITED)....... 12,639,744 $1,264 $34,605 $ 64,296 (105,101) $(1,277)
========== ====== ======= ======== ======== =======
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<PAGE> 60
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation:
The accompanying consolidated interim 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 upon
consolidation. Investments in affiliated companies, owned 50% or less, are
recorded by the Company on the equity method.
The Company's principal business involves the owning and operating of
aluminum recycling facilities. The Company recycles scrap material for a fee and
returns the material to its customers, some of whom are the world's largest
aluminum companies. The Company also buys scrap on the open market and recycles
and sells it.
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, the
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 those estimates.
Interim Financial Information:
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information 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 of the Company's financial position
at June 30, 1997 and the results of its operations and cash flows for the six
months ended June 30, 1996 and 1997 have been included. Operating results for
the six months ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the year ending December 31, 1997.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amount
approximates fair value because of the short maturity of those instruments.
Inventories:
Inventories are stated at the lower of average cost or market.
Credit Risk:
A majority of the Company's accounts receivable are due from companies in
the aluminum industry. Credit is extended based on evaluation of the customers'
financial condition and, generally, collateral is not required. Credit losses
are within management's expectations and historically have been very low.
F-14
<PAGE> 61
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
Property and Equipment:
Property and equipment are stated at cost. Major renewals and improvements
are capitalized, while maintenance and repairs are expensed when incurred.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets.
Landfill closure costs are currently estimated to be in excess of
$4,000,000 and are being accrued as space in the landfills are used. Landfill
costs are depreciated as space in the landfill is used.
The Company reviews its property and equipment for impairment when changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Impairment is measured as the amount by which the carrying amount
of the asset exceeds the estimated fair value of the asset less disposal costs.
Interest is capitalized in connection with the construction of major
facilities. Capitalized interest costs for 1994, 1995 and 1996 were $309,000,
$438,000 and $237,000, respectively.
Amortization of Intangibles:
The excess of original acquisition cost over the fair value of net assets
acquired is amortized on a straight-line basis over their expected life,
currently from 7 to 40 years. Management regularly reviews the remaining
goodwill with consideration toward recovery through future operating results.
Goodwill is evaluated by the Company on an undiscounted basis. Deferred debt
issuance costs, included in other assets, are being amortized over the term of
the long-term debt based upon the average amount of debt outstanding. Patents
are amortized over their remaining legal lives.
Net Earnings Per Share:
Earnings per common share are based upon the weighted average number of
common and common equivalent shares outstanding in each period. Common
equivalent shares relate solely to outstanding warrants and stock options.
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 effect of SFAS No. 128 on the calculation of earnings per share
for the three years ended December 31, 1996 and the six month periods ended June
30, 1996 and 1997 is not expected to be material.
Stock-Based Compensation:
The Company follows Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25") and related interpretations in
accounting for its employee stock options. Under APB 25, if the exercise price
of employee stock options equals the market price of the underlying stock on the
date of grant, no compensation expense is recorded.
Prior Year Reclassifications:
Certain reclassifications have been made to prior year statements to
conform to the current year presentation.
F-15
<PAGE> 62
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
NOTE B -- ACQUISITIONS AND INVESTMENTS
In September 1994, the Company acquired all of the capital stock of Phoenix
Smelting Corporation, which operated an aluminum recycling facility in Loudon,
Tennessee, through its wholly owned subsidiary, Metal Resources, Inc.
("Loudon"). The value of the transaction, which was accounted for as a purchase,
was approximately $10,000,000, including the Company's repayment of
approximately $5,100,000 of debt and the issuance of 299,882 shares of the
Company's common stock.
In September 1995, the Company purchased all of the assets of an aluminum
recycling facility located in Bedford, Indiana from a private aluminum company.
The transaction was accounted for as a purchase for approximately $8,500,000 in
cash.
In October 1995, the Company acquired all of the capital stock of Alumar
Associates, Inc., which owned Metal Mark, Inc. Metal Mark, Inc. owned and
operated three aluminum recycling plants located in Chicago Heights, Illinois;
Sikeston, Missouri; and Pittsburg, Kansas and owned 50% of a fourth facility in
East Chicago, Indiana. The value of the transaction, which was accounted for as
a purchase, was approximately $16,745,000, including the assumption of
$8,245,000 of long-term debt of Alumar. The remainder of the purchase price
consisted of $4,000,000 in cash and 208,213 shares of the Company's common
stock.
During 1996, the Company began construction of an aluminum recycling
facility in Coldwater, Michigan through its joint venture, IMCO Recycling of
Michigan L.L.C. The Company is a 75% managing member of the venture, which will
have a long-term supply agreement for the delivery of molten metal to its 25%
member, Alchem Aluminum, Inc. The Company's share of the total cost of the plant
is expected to be approximately $12,000,000, of which approximately $7,200,000
had been expended as of December 31, 1996. The plant commenced operations in
February 1997.
In May 1996, the Company contributed approximately $14,000,000 for a 50%
interest in VAW-IMCO GuSS und Recycling GmbH, a joint venture in Germany. This
joint venture was formed to own and operate two aluminum recycling facilities
previously owned by VAW aluminium AG, an aluminum products manufacturing company
in Germany. The plants primarily serve the European automotive market.
In January 1997, the Company acquired all of the capital 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 being amortized over forty years on a
straight-line basis.
The preliminary allocation of the purchase price of IMSAMET is as follows:
<TABLE>
<S> <C>
Working capital............................................. $ 4,674
Property and equipment...................................... 19,852
Goodwill.................................................... 41,976
Other noncurrent assets..................................... 914
Noncurrent liabilities...................................... (7,176)
-------
Total............................................. $60,240
=======
</TABLE>
F-16
<PAGE> 63
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
Also in January 1997, the Company acquired in a privately-negotiated
transaction all of the capital 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 was $6,000,000
and is being amortized over forty years on a straight-line basis. Rock Creek
owns and operates two Ohio facilities located in 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 following table sets forth pro forma results of operations of the
combined entities of the Company IMSAMET and Rock Creek for the year ended
December 31, 1996, assuming the acquisitions 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:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
(UNAUDITED)
<S> <C>
Revenues.................................................... $298,475
Gross profit................................................ $ 37,464
Net earnings................................................ $ 7,081
Net earnings per common share............................... $ 0.55
</TABLE>
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 and adjustments for related income taxes and
minority interests.
NOTE C -- INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------ ------- --------
<S> <C> <C> <C>
Finished goods........................................ $6,839 $ 8,642 $13,477
Raw materials......................................... 1,986 2,974 2,708
Supplies.............................................. 321 231 411
------ ------- -------
$9,146 $11,847 $16,596
====== ======= =======
</TABLE>
F-17
<PAGE> 64
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
NOTE D -- PROPERTY AND EQUIPMENT
The components of property and equipment are:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
-------- --------
<S> <C> <C>
Land, buildings and improvements............................ $ 58,280 $ 68,890
Production equipment and machinery.......................... 49,236 55,102
Office furniture, equipment and other....................... 4,242 4,907
-------- --------
111,758 128,899
Accumulated depreciation.................................... (32,989) (42,591)
-------- --------
$ 78,769 $ 86,308
======== ========
</TABLE>
Depreciation expense for 1994, 1995 and 1996 was $6,750,000, $8,590,000 and
$10,249,000, respectively.
Estimated useful lives for buildings and improvements range from 15 to 39
years, machinery and equipment range from 3 to 15 years and office furniture and
equipment range from 3 to 10 years.
In March 1992, the Company entered into an agreement with Commonwealth
Industries, Inc. ("Commonwealth"), formerly Barmet Aluminum Corporation, to
construct, own and operate the Uhrichsville plant adjacent to Commonwealth's
rolling mill in Uhrichsville, Ohio and to supply Commonwealth with all of its
recycled aluminum needs. The Uhrichsville plant, including costs for capitalized
interest and for the 1994 expansion, cost approximately $20,750,000.
Commonwealth has an option to acquire up to a 49% equity interest in the
Company's subsidiary that owns the Uhrichsville plant.
NOTE E -- INCOME TAXES
The provision for income taxes was as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................... $2,690 $5,241 $3,587
State................................................. 683 1,485 369
------ ------ ------
3,373 6,726 3,956
Deferred:
Federal............................................... 1,955 1,678 7
State................................................. (96) (511) 169
------ ------ ------
1,859 1,167 176
------ ------ ------
$5,232 $7,893 $4,132
====== ====== ======
</TABLE>
F-18
<PAGE> 65
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
The income tax expense computed by applying the federal statutory tax rate
to earnings before income taxes differed from the provision for income taxes as
follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Income taxes at the federal statutory rate.............. $4,659 $7,127 $3,690
Goodwill amortization, nondeductible.................... 59 91 168
State income taxes, net................................. 387 633 355
Other, net.............................................. 127 42 (81)
------ ------ ------
Provision for income taxes.............................. $5,232 $7,893 $4,132
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Deferred tax liabilities:
Accelerated depreciation.................................. $7,902 $8,139
Federal effect of state income taxes...................... 516 473
Other..................................................... 199 224
------ ------
Total deferred tax liabilities.................... 8,617 8,836
Deferred tax assets:
Net operating loss carryforwards.......................... 919 1,130
Tax credit carryforwards.................................. 1,709 1,470
Expenses not currently deductible:
Accrued landfill closure costs......................... 593 188
Accrued vacation....................................... 396 326
Accrued stock option expense........................... 322 178
Accrued environmental expenses......................... 447 323
Other accruals......................................... -- 804
Federal effect of state income taxes...................... 473 488
Other..................................................... 230 91
------ ------
Total deferred tax assets......................... 5,089 4,998
Valuation allowance......................................... (690) (556)
------ ------
Net deferred tax assets........................... 4,399 4,442
------ ------
Net deferred tax liability........................ $4,218 $4,394
====== ======
</TABLE>
At December 31, 1996, the Company had a $556,000 valuation allowance to
reduce certain deferred tax assets to amounts that are more likely to be
realized. The allowance includes $237,000 net operating loss assets generated by
the Loudon facility prior to its acquisition by the Company. The majority of the
remaining $319,000 relates to the Company's ability to utilize state investment
tax credits generated by the Company's Corona, California facility, which was
closed in 1996.
At December 31, 1996, the Company had $1,470,000 of unused income tax
credit carryforwards, $168,000 of which expire in 1998, $96,000 of which expire
in 2010, and $1,206,000 of which do not expire. The
F-19
<PAGE> 66
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
unused tax credits are comprised of $838,000 in state investment tax credits and
$632,000 in various federal income tax credits.
At December 31, 1996, the Company had approximately $1,472,000 of unused
net operating loss carryforwards for federal purposes, which expire in the year
2008, and had approximately $8,776,000 for state purposes which expire in 2008
to 2011. The majority of the net operating loss carryforwards were generated by
the Loudon facility.
NOTE F -- LONG-TERM DEBT AND CREDIT LINE
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
11.18% MONY Senior Notes................................. $ 8,000 $ 8,000 $ --
7.28% MONY Senior Notes.................................. 15,000 15,000 --
7.41% MONY Senior Notes.................................. -- 15,000 --
7.65% Morgantown, Kentucky Solid Waste Disposal
Facilities Revenue Bonds (Series 1996)................. -- 5,526 5,526
7.45% Morgantown, Kentucky Solid Waste Disposal
Facilities Revenue Bonds (Series 1997)................. -- -- 4,495
Variable Rate Term Loan.................................. 3,750 2,750 --
Variable Rate Converting Revolving Loan.................. 4,750 3,750 --
1997 Variable Rate Term Loan............................. -- -- 97,965
1997 Variable Rate Revolving Loan........................ -- -- 13,100
Other.................................................... 423 300 1,919
------- ------- --------
Subtotal............................................ 31,923 50,326 123,005
Less current maturities.................................. 2,169 2,124 7,614
------- ------- --------
Total.......................................... $29,754 $48,202 $115,391
======= ======= ========
</TABLE>
In 1995, the Company increased its short-term working capital line of
credit borrowing limit to $10,000,000 under a restated revolving credit facility
(the "Revolving Facility"). On May 31, 1996, the Company further increased its
limit to $12,000,000. Under the Revolving Facility, the Company had a
subfacility for the issuance of standby letters of credit. To meet working
capital needs, on December 30, 1996, the Company borrowed $2,000,000 under this
Revolving Facility at an interest rate of 8.25%.
The 7.65% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue
Bonds (Series 1996) are due on May 1, 2016. The bonds were issued in 1996 in
conjunction with the Company's construction of its salt cake processing plant in
Morgantown, Kentucky. The bonds were issued at a 1% discount, which is being
amortized over the life of the bonds.
The 7.45% Morgantown, Kentucky Solid Waste Disposal Facilities Revenue
Bonds (Series 1997) are due on May 1, 2022. The bonds were issued in April 1997
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 Variable Rate Term Loan and the Variable Rate Converting Revolving Loan
had fluctuating interest rates based on the Company's ratio of total debt to
earnings before interest, tax, depreciation and amortization. The interest rate
on the Variable Rate Term Loan was 6.8125% and 6.75% at December 31, 1995 and
1996,
F-20
<PAGE> 67
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
respectively. The interest rate on the Variable Rate Converting Revolving Loan
was 6.875% and 6.75% at December 31, 1995 and 1996, respectively.
In connection with the January 1997 acquisitions (Note B), the Company
entered into a new $125,000,000 credit agreement ("Credit Agreement") with
certain lenders, including Merrill Lynch & Co. (as syndication agent) and Texas
Commerce Bank National Association (as 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 repay all of
the MONY Senior Notes, the Variable Rate Term Loan, the Variable Rate Converting
Revolving Loan and $2,000,000 in borrowings outstanding under the Revolving
Facility. The early debt retirement generated a loss of $1,318,000 (net of
income taxes), which is reported as an extraordinary item in the six months
ended June 30, 1997.
The Credit Agreement provides for $125,000,000 of senior secured credit
facilities consisting of a $105,000,000 term loan ("1997 Variable Rate Term
Loan"), with a final maturity of seven years, and a $20,000,000 revolving credit
agreement ("1997 Variable Rate Revolving Loan"), with a final maturity of five
years. 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. Borrowings under the
credit facilities bear a fluctuating interest rate based on LIBOR or the prime
rate, plus a credit margin that 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 1997 Variable
Rate Term Loan, the Company entered into an interest rate cap transaction ("Rate
Cap Transaction") agreement with Texas Commerce Bank 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 Credit Agreement is capped at 8% per
annum. The costs associated with the Rate Cap Transaction will be amortized as
interest expense over the four year term of the agreement.
The Credit Agreement imposes certain restrictions, including: (i) a
prohibition of certain other indebtedness, (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 per
year, after the year 2000. The Credit Agreement is secured by substantially all
of the Company's assets, as well as a pledge of the capital stock of
substantially all of the Company's subsidiaries.
At June 30, 1997, the Company had standby letters of credit outstanding
with Texas Commerce Bank National Association and American National Bank and
Trust Company in the amounts of $1,752,000 and $1,044,000, respectively.
Scheduled maturities of long-term debt subsequent to June 30, 1997 are as
follows:
<TABLE>
<S> <C>
Remainder of 1997........................................... $ 2,693
1998........................................................ 9,928
1999........................................................ 14,341
2000........................................................ 16,341
2001........................................................ 17,341
2002........................................................ 31,441
After 2002.................................................. 30,920
--------
Total............................................. $123,005
========
</TABLE>
The fair value of the Company's debt approximates its carrying value.
F-21
<PAGE> 68
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
NOTE G -- EMPLOYEE BENEFIT PLANS
The Company has a profit-sharing retirement plan covering most of its
employees who meet defined service requirements. Contributions are determined
annually by the Board of Directors and may be as much as 15% of covered
salaries. Contributions for 1994, 1995 and 1996 were $1,039,000, $1,331,000 and
$1,366,000, respectively.
In July 1996, the Company amended and restated the profit-sharing
retirement plan to allow elective contributions as described in the Internal
Revenue Code Section 401(k). Subject to certain dollar limits, employees may
contribute a percentage of their salaries to this plan, and the Company will
match a portion of the employees' contributions. The Company's match of employee
contributions totaled $189,000 for 1996.
NOTE H -- STOCK OPTION PLANS
In 1990, the Company adopted an amended and restated stock option plan.
This plan provides for the granting of nonqualified and incentive stock options.
The number of shares of common stock authorized for issuance under the plan is
1,200,000 shares. Options granted under the plan have various vesting periods
and are exercisable for a period of 10 years from the date of grant, although
options may expire earlier because of termination of employment.
In 1992, the Company adopted the 1992 Stock Option Plan, which provides for
the granting of nonqualified and incentive stock options to employees, officers,
consultants and nonemployee members of the Board of Directors. Options granted
to employees under this plan have various vesting periods. Annually, nonemployee
directors will be granted nonqualified stock options exercisable after six
months from the date of grant, equal to that number of shares determined by
dividing the annual director fee amount by the fair market value of a share of
common stock as of the date of grant. All options granted under this plan, once
vested, are exercisable for a period of up to 10 years from the date of grant,
although options may expire earlier because of termination of employment or
service.
In 1996, the Company adopted the Annual Incentive Program, which provides
certain of the Company's key employees with annual incentive compensation tied
to the achievement of pre-established and objective performance goals. This plan
provides for the granting of stock options to key management employees, pursuant
to the plan formula, in the event that the Company's return on total assets (as
defined in the plan) for any bonus year exceeds 15%. Nonqualified and incentive
stock options may be granted, and the terms of the plan concerning the stock
options are substantially the same as the corresponding terms of the 1992 Stock
Option Plan.
The 1992 Stock Option Plan and the 1996 Annual Incentive Program allow for
the payment of all or a portion of the exercise price and tax withholding
obligations in shares of the Company's common stock delivered and/or withheld.
Such payment or withholding will be valued at fair market value as of the date
of exercise. Participants making use of this feature will automatically be
granted a reload stock option to purchase a number of shares equal to the number
of shares delivered and/or withheld. When a reload stock option is granted, a
portion of the shares issued to the participant will be designated as restricted
stock for a period of five years, although the restriction may be removed
earlier under certain circumstances. Reload stock options have an exercise price
equal to the fair market value as of the date of exercise of the original
options and will expire on the same date as the original options.
F-22
<PAGE> 69
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
In 1994, 1995 and 1996 the Company acquired from employees and placed in
the treasury, 27,665, 40,652 and 48,806 shares, respectively, pursuant to
provisions of the Company's stock option plan. Such shares were tendered or
withheld in satisfaction of those employees' federal and state withholding taxes
on compensation resulting from the exercise of nonqualified stock options and
for the aggregate exercise cost of certain of the options. Transactions under
the option plans are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding Jan. 1..... 833,555 $ 8.63 1,172,402 $10.19 1,291,364 $12.05
Options granted................ 389,847 13.17 200,473 22.55 395,422 16.25
Options exercised.............. (47,400) 7.29 (77,590) 11.09 (138,227) 6.00
Options forfeited.............. (3,600) 13.63 (3,921) 13.55 (6,600) 17.64
--------- --------- ---------
Options outstanding at Dec.
31........................... 1,172,402 10.19 1,291,364 12.05 1,541,959 13.65
========= ========= =========
Options exercisable at Dec.
31........................... 580,355 7.00 714,991 8.19 776,732 11.17
========= ========= =========
Options available for grant at
Dec. 31...................... 38,198 391,646 499,821
========= ========= =========
</TABLE>
Information related to options outstanding at December 31, 1996, is
summarized below:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
---------------------------------- OPTIONS EXERCISABLE
WEIGHTED --------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- --------------- --------- ----------- -------- -------- ---------
<C> <C> <S> <C> <C> <C>
$0.10 8,850 1 Year.. $ 0.10 8,850 $ 0.10
$4.57-$7.55 349,100 4 Years.. 6.51 349,100 6.51
$12.38-$14.75 596,114 7 Years.. 13.36 309,526 13.42
$16.25-$23.75 587,895 10 Years.. 18.38 109,256 22.21
--------- -------
1,541,959 776,732
========= =======
</TABLE>
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation" requires disclosure of pro forma net earnings and net
earnings per common share information computed as if the Company had accounted
for its employee stock options granted subsequent to December 31, 1995 under the
fair value method set forth in SFAS No. 123. The fair value of the Company's
outstanding stock options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted average
assumptions:
<TABLE>
<CAPTION>
1995 1996
----- -----
<S> <C> <C>
Expected option life in years............................... 4.0 3.9
Risk-free interest rate..................................... 5.59% 6.11%
Volatility factor........................................... 0.242 0.305
Dividend yield.............................................. 0.89% 1.22%
</TABLE>
F-23
<PAGE> 70
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. For purposes of
pro forma disclosures, the estimated fair value of the options is amortized to
expense over the option's vesting period. In addition, because SFAS No. 123 is
applicable only to options granted subsequent to December 31, 1994, the pro
forma information does not reflect the pro forma effect of all previous stock
option grants of the Company. Therefore, the pro forma information is not
necessarily indicative of future amounts until SFAS No. 123 is applied to all
outstanding stock options.
The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1996
------- ------
<S> <C> <C>
Net earnings -- as reported................................. $12,470 $6,720
Net earnings -- pro forma................................... $12,455 $6,406
Net earnings per common share -- as reported................ $ 1.03 $ 0.55
Net earnings per common share -- pro forma.................. $ 1.03 $ 0.52
Weighted-average fair value of options granted during the
year...................................................... $ 5.88 $ 4.83
</TABLE>
NOTE I -- OPERATIONS
During 1994, 1995 and 1996, sales to Aluminum Company of America ("Alcoa")
totaled 30%, 23% and 13%, respectively, of revenues. Sales to Commonwealth
totaled 12% of revenues in 1994. No other customer accounted for more than 10%
of revenues in 1994, 1995 and 1996. The loss of Alcoa or Commonwealth would have
a material adverse effect upon the business of the Company and its future
operating result. However, a significant portion of the processing for these
customers is performed pursuant to long-term agreements.
During the third quarter of 1996, the Company recorded a charge to cost of
sales of $3,577,000 resulting from management's decision to close the Company's
Corona, California aluminum recycling plant.
On May 8, 1997, Harvard Industries, Inc. ("Harvard") announced that it and
its wholly-owned subsidiary, Doehler-Jarvis, Inc. ("Doehler-Jarvis") had filed
for protection under Chapter 11 of the U.S. Bankruptcy Code. The Company sells
aluminum to Doehler-Jarvis. At June 30, 1997, the Company had $3,530,000 of
outstanding unsecured receivables from Doehler-Jarvis, net of related reserves.
While the Company currently believes that Harvard's bankruptcy will not have a
material adverse effect on the Company's financial position or results of
operations, no assurance can be given as to the amount and timing of the
Company's ultimate recovery of its claims. The Company's revenues from
Doehler-Jarvis totaled $17,490,000 and $12,955,000 for the year ended December
31, 1996 and the six months ended June 30, 1997, respectively. The Company
believes that the loss of this customer will not have a material adverse effect
on the Company's financial position or results of operations.
The Company's operations, like those of other basic industries are subject
to federal, state, local and foreign laws, regulations and ordinances that (i)
govern activities or operations that may have adverse environmental effects,
such as discharges to air and water, as well as handling and disposal practices
for solid and hazardous wastes and (ii) improve liability for the costs of
cleaning up, and certain damages resulting from, past spills, disposals, or
other releases of hazardous substances (together, "Environmental Laws"). It
F-24
<PAGE> 71
IMCO RECYCLING INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997 IS UNAUDITED)
(DOLLARS IN TABLES ARE IN THOUSANDS, EXCEPT SHARE DATA)
can be anticipated that more rigorous laws and regulations will be enacted that
could require the Company to make substantial expenditures in addition to those
referred to herein.
From time to time, operations of the Company have resulted or may result in
certain noncompliance with applicable requirements under Environmental Laws.
However, the Company believes that any such noncompliance under current
Environmental Laws would not have a material adverse effect on the Company's
financial position.
The Illinois Environmental Protection Agency ("IEPA") recently notified IZI
that it may be a potentially responsible party ("PRP") pursuant to the Illinois
Environmental Protection Act for the cleanup of contamination at a site in
Marion County, Illinois to which IZI, among others, sent zinc oxides for
processing and resale in the past. IZI has joined a group of PRPs which is
planning to negotiate with the IEPA regarding the cleanup of the site. Although
the site has not been fully investigated and final cleanup costs have not yet
been determined, based on current cost estimates and information regarding the
amount and type of materials sent to the site by IZI, the Company does not
believe, although there can be no assurance, that its liability at this site
will have a material adverse effect on its financial position.
NOTE J -- QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL YEAR
--------- -------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
1995:
Revenues............................. $30,746 $29,725 $32,105 $48,591 $141,167
Gross profit......................... 7,435 7,315 7,783 8,406 30,939
Income before tax.................... 4,824 4,933 5,543 5,063 20,363
Net earnings......................... 2,894 2,959 3,327 3,290 12,470
Earnings per common share............ 0.24 0.25 0.27 0.27 1.03
1996:
Revenues............................. $50,718 $50,465 $53,689 $55,999 $210,871
Gross profit......................... 7,890 7,807 2,625 7,215 25,538
Income (loss) before tax............. 4,750 4,293 (1,005) 2,814 10,852
Net earnings (loss).................. 2,963 2,598 (798) 1,958 6,720
Earnings (loss) per common share..... 0.24 0.21 (0.07) 0.16 0.55
</TABLE>
During the third quarter of 1996, the Company recorded a charge of
$4,177,000 resulting from management decisions to close the Company's Corona,
California aluminum recycling plant and to accelerate the closure of the first
cell of the Company's landfill in Morgantown, Kentucky.
F-25
<PAGE> 72
[GRAPHIC-IMCO CAN RECYCLING LOOP]
IMCO is a major supplier of recycled metal to can stock producers. Starting at
the bottom of the can cycle loop, aluminum scrap is recycled and delivered in
molten and ingot forms to producers who provide can stock to can plants. After
use by consumers, the majority of beverage cans are returned for recycling and
the process begins again. Can stock producers return dross for recycling and
can plants return scrap from their manufacturing process.
<PAGE> 73
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE COMMON
STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Forward-Looking Statements............ 7
Price Range of Common Stock and
Dividends........................... 8
Use of Proceeds....................... 9
Capitalization........................ 10
Summary Pro Forma Financial Data...... 11
Selected Consolidated Financial
Data................................ 13
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 15
Business.............................. 22
Management............................ 35
Principal Stockholders................ 37
Description of Capital Stock.......... 38
Underwriting.......................... 39
Legal Matters......................... 40
Experts............................... 41
Available Information................. 41
Incorporation of Certain Documents by
Reference........................... 42
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
3,000,000 SHARES
[IMCO LOGO]
IMCO RECYCLING INC.
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
MERRILL LYNCH & CO.
RAYMOND JAMES &
ASSOCIATES, INC.
, 1997
======================================================
<PAGE> 74
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following itemized table sets forth those expenses payable by the
Company in connection with the offer and sale of the securities offered hereby:
<TABLE>
<S> <C>
Securities and Exchange Commission filing fee............... $ 19,350
NASD filing fee............................................. 6,883
NYSE listing fee............................................ 12,075
Printing and engraving expenses............................. 500*
Legal fees and expenses..................................... 150,000*
Accounting fees and expenses................................ 100,000*
Blue sky fees and expenses.................................. 5,000*
Transfer agent fees and expenses............................ 1,000*
Printing expenses........................................... 150,000*
Miscellaneous fees and expenses............................. 55,192*
--------
Total............................................. $500,000*
========
</TABLE>
- ---------------
* Estimated
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has authority under Article 145 of the General Corporation Law
of the State of Delaware to indemnify its officers, directors, employees and
agents to the extent provided in such statute. Article Eighth of the Company's
Certificate of Incorporation and Article VI of the Company's Bylaws provide for
indemnification of the Company's officers, directors, employees and agents.
Article 102 of the General Corporation Law of the State of Delaware and
Article Eighth of the Company's Certificate of Incorporation permit the
limitation of directors' personal liability to the corporation or its
stockholders for monetary damages for breach of fiduciary duties as a director
except in certain situations including the breach of a director's duty of
loyalty or acts or omissions not made in good faith.
Reference is also made to the indemnification provisions of Section 6 of
the Purchase Agreement filed as Exhibit 1.1 hereto under which the Underwriters
have agreed to indemnify the Company, its directors and officers and certain
other persons against certain liabilities, including liabilities under the
Securities Act of 1933, with respect to information furnished in writing to the
Company for use in this Registration Statement.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <S>
*1.1 -- Form of Purchase Agreement.
+ 5.1 -- Opinion of Haynes and Boone, L.L.P., with respect to the
validity of the issuance of the securities hereunder.
*15.1 -- Acknowledgement Letter of Ernst & Young LLP.
*23.1 -- Consent of Ernst & Young LLP.
+23.2 -- Consent of Haynes and Boone, L.L.P. (included in Exhibit
5.1).
*23.3 -- Consent of Arthur Andersen LLP.
+24.1 -- Power of Attorney, set forth on the signature page
hereof.
</TABLE>
- ---------------
* Filed herewith
+ Previously filed
(b) Financial Statement Schedules
Not applicable.
II-1
<PAGE> 75
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") 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.
The undersigned registrant hereby undertakes that (1) for purposes of
determining any liability under the Act, 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 Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and (2) for the
purpose of determining any liability under the Act, 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.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the registrant's annual
report pursuant to section 13(a) or section 15(d) of the Securities and Exchange
Act of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement 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.
II-2
<PAGE> 76
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Irving, State of Texas, on October 9, 1997.
IMCO RECYCLING INC.
By /s/ PAUL V. DUFOUR
-----------------------------------
Paul V. Dufour
Executive Vice President -- Finance
and
Administration, Chief Financial
Officer and Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME CAPACITIES DATE
---- ---------- ----
<C> <S> <C>
DON V. INGRAM* Chairman of the Board of October 9, 1997
- ----------------------------------------------------- Directors and Chief
Don V. Ingram Executive Officer
RICHARD L. KERR* President and Chief October 9, 1997
- ----------------------------------------------------- Operating Officer
Richard L. Kerr
/s/ PAUL V. DUFOUR Executive Vice President -- October 9, 1997
- ----------------------------------------------------- Finance and
Paul V. Dufour Administration, Chief
Financial Officer and
Secretary (Principal
Financial Officer)
</TABLE>
II-3
<PAGE> 77
<TABLE>
<CAPTION>
NAME CAPACITIES DATE
- ------------------------------------------------------ ---------------------------------- ----------------------
<C> <S> <C>
JOHN J. FLEMING* Director October 9, 1997
- ------------------------------------------------------
John J. Fleming
DON NAVARRO* Director October 9, 1997
- ------------------------------------------------------
Don Navarro
Director October 9, 1997
- ------------------------------------------------------
Thomas A. James
J.M. BRUNDRETT* Director October 9, 1997
- ------------------------------------------------------
J.M. Brundrett
RALPH L. CHEEK* Director October 9, 1997
- ------------------------------------------------------
Ralph L. Cheek
JACK C. PAGE* Director October 9, 1997
- ------------------------------------------------------
Jack C. Page
ROBERT R. HOLIAN* Vice President and Controller October 9, 1997
- ------------------------------------------------------ (Principal Accounting Officer)
Robert R. Holian
*By: /s/ PAUL V. DUFOUR
-----------------------------------------------
Paul V. Dufour
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 78
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
*1.1 -- Form of Purchase Agreement.
+5.1 -- Opinion of Haynes and Boone, L.L.P., with respect to the
validity of the issuance of the securities hereunder.
*15.1 -- Acknowledgement Letter of Ernst & Young LLP.
*23.1 -- Consent of Ernst & Young LLP.
+23.2 -- Consent of Haynes and Boone, L.L.P. (included in Exhibit
5.1).
*23.3 -- Consent of Arthur Andersen LLP.
+24.1 -- Power of Attorney, set forth on the signature page
hereof.
</TABLE>
- ---------------
* Filed herewith
+ Previously filed
<PAGE> 1
IMCO RECYCLING INC.
(a Delaware corporation)
3,000,000 Shares of Common Stock
PURCHASE AGREEMENT
Dated: October [__], 1997
<PAGE> 2
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Representations and Warranties by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Compliance with Registration Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Incorporated Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
No Material Adverse Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Good Standing of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Good Standing of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Authorization of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Authorization and Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Absence of Defaults and Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Absence of Labor Dispute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Absence of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Accuracy of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Possession of Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Absence of Further Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Possession of Licenses and Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Unlawful Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Disclosure of Relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Officer's Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 2. Sale and Delivery to Underwriters; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Initial Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Option Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Denominations; Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Compliance with Securities Regulations and Commission Requests . . . . . . . . . . . . . . . . . . . . . . . 10
Filing of Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Delivery of Registration Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Delivery of Prospectuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Continued Compliance with Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Blue Sky Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Rule 158 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Restriction on Sale of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Reporting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4. Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
Page
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<S> <C>
SECTION 5. Conditions of Underwriters' Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Effectiveness of Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Opinion of Counsel for Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Opinion of Counsel for Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Accountant's Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Bring-down Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Approval of Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
No Objection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Lock-up Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Conditions to Purchase of Option Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Opinion of Counsel for Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Opinion of Counsel for Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Bring-down Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Additional Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 6. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Indemnification of Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Indemnification of Company, Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Actions against Parties; Notification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Settlement without Consent if Failure to Reimburse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 7. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8. Representations, Warranties and Agreements to Survive Delivery . . . . . . . . . . . . . . . . . . . 18
SECTION 9. Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Termination; General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 10. Default by One or More of the Underwriters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 11. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 12. Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 13. GOVERNING LAW AND TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 14. Effect of Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
ii
<PAGE> 4
IMCO RECYCLING INC.
(a Delaware corporation)
3,000,000 Shares of Common Stock
(Par Value $.10 Per Share)
PURCHASE AGREEMENT
October [__], 1997
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
as Representative(s) of the several Underwriters
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
IMCO Recycling Inc., a Delaware corporation (the "Company"), confirms
its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters," which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch and Raymond James & Associates, Inc. are acting
as representatives (in such capacity, the "Representative(s)"), with respect to
the issue and sale by the Company and the purchase by the Underwriters, acting
severally and not jointly, of the respective numbers of shares of Common Stock,
par value $.10 per share, of the Company ("Common Stock") set forth in said
Schedule A, and with respect to the grant by the Company to the Underwriters,
acting severally and not jointly, of the option described in Section 2(b)
hereof to purchase all or any part of 450,000 additional shares of Common Stock
to cover over-allotments, if any. The aforesaid 3,000,000 shares of Common
Stock (the "Initial Securities") to be purchased by the Underwriters and all or
any part of the 450,000 shares of Common Stock subject to the option described
in Section 2(b) hereof (the "Option Securities") are hereinafter called,
collectively, the "Securities."
The Company understands that the Underwriters propose to make a public
offering of the Securities as soon as the Representative(s) deem advisable
after this Agreement has been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-3 (No. 333-36833) covering the
registration of the Securities under the Securities Act of 1933, as amended
(the "1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company shall
either (i) prepare and file a prospectus in accordance with the provisions of
Rule 430A ("Rule 430A") of the rules and regulations of the Commission under
the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule
424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely
upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term
sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule
424(b). The information included in such prospectus or in such Term Sheet, as
the case may be, that was omitted from such registration statement at the time
it became
<PAGE> 5
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was
used after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto, schedules thereto, if any, and the
documents incorporated by reference therein pursuant to Item 12 of Form S-3
under the 1933 Act, at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration
Statement" shall include the Rule 462(b) Registration Statement. The final
prospectus, including the documents incorporated by reference therein pursuant
to Item 12 of Form S-3 under the 1933 Act, in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is
herein called the "Prospectus." If Rule 434 is relied on, the term
"Prospectus" shall refer to the preliminary prospectus dated October 10, 1997
and the documents incorporated by reference therein pursuant to Item 12 of Form
S-3 under the 1933 Act, together with the Term Sheet and all references in this
Agreement to the date of the Prospectus shall mean the date of the Term Sheet.
For purposes of this Agreement, all references to the Registration Statement,
any preliminary prospectus, the Prospectus or any Term Sheet or any amendment
or supplement to any of the foregoing shall be deemed to include the copy filed
with the Commission pursuant to its Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included" or "stated" in the
Registration Statement, any preliminary prospectus or the Prospectus (or other
references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the Securities Exchange Act of 1934 (the "1934 Act") which
is incorporated by reference in the Registration Statement, such preliminary
prospectus or the Prospectus, as the case may be.
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The
Company represents and warrants to each Underwriter as of the date
hereof, as of the Closing Time referred to in Section 2(c) hereof, and
as of each Date of Delivery (if any) referred to in Section 2(b)
hereof, and agrees with each Underwriter, as follows:
(i) Compliance with Registration Requirements.
The Company meets the requirements for use of Form S-3 under
the 1933 Act. Each of the Registration Statement and any Rule
462(b) Registration Statement has become effective under the
1933 Act and no stop order suspending the effectiveness of the
Registration Statement or any Rule 462(b) Registration
Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are
pending or, to the knowledge of the Company, are contemplated
by the Commission, and any request on the part of the
Commission for additional information has been complied with.
At the respective times the Registration Statement,
any Rule 462(b) Registration Statement and any post-effective
amendments thereto became effective and at the Closing Time
(and, if any Option Securities are purchased, at the Date of
Delivery), the Registration Statement, the Rule 462(b)
Registration Statement and any amendments and
2
<PAGE> 6
supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933
Act Regulations and did not and will not contain an untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading. Neither the Prospectus nor
any amendments or supplements thereto, at the time the
Prospectus or any such amendment or supplement was issued and
at the Closing Time (and, if any Option Securities are
purchased, at the Date of Delivery), included or will include
an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under
which they were made, not misleading. If Rule 434 is used, the
Company will comply with the requirements of Rule 434. The
representations and warranties in this subsection shall not
apply to statements in or omissions from the Registration
Statement or Prospectus made in reliance upon and in
conformity with information furnished to the Company in
writing by any Underwriter through Merrill Lynch expressly for
use in the Registration Statement or Prospectus.
Each preliminary prospectus and the prospectus filed
as part of the Registration Statement as originally filed or
as part of any amendment thereto, or filed pursuant to Rule
424 under the 1933 Act, complied when so filed in all material
respects with the 1933 Act Regulations and each preliminary
prospectus and the Prospectus delivered to the Underwriters
for use in connection with this offering was identical to the
electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Incorporated Documents. The documents
incorporated or deemed to be incorporated by reference in the
Registration Statement and the Prospectus, at the time they
were or hereafter are filed with the Commission, complied and
will comply in all material respects with the requirements of
the 1934 Act and the rules and regulations of the Commission
thereunder (the "1934 Act Regulations"), and, when read
together with the other information in the Prospectus, at the
time the Registration Statement became effective, at the time
the Prospectus was issued and at the Closing Time (and if any
Option Securities are purchased, at the Date of Delivery), did
not and will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading.
(iii) Independent Accountants. The accountants who
certified the financial statements included in or incorporated
by reference in the Registration Statement are independent
public accountants as required by the 1933 Act and the 1933
Act Regulations.
(iv) Financial Statements. The historical
financial statements included in the Registration Statement
and the Prospectus, together with the related notes, present
fairly the financial position of the Company and its
consolidated subsidiaries at the dates indicated and the
statements of earnings, stockholders' equity and cash flows of
the Company and its consolidated subsidiaries for the periods
specified; said financial statements have been prepared in
conformity with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods
involved. The supporting schedules, if any, included in the
Registration Statement present fairly in accordance with GAAP
the information required to be stated therein. The selected
financial data and the summary financial information included
in the Prospectus present accurately the information shown
therein and have been compiled on a basis consistent with that
of the audited financial statements and the unaudited
financial statements included or incorporated
3
<PAGE> 7
by reference in the Registration Statement. The pro forma
financial statements and the related notes thereto included in
the Registration Statement and the Prospectus present fairly
the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with
respect to pro forma financial statements and have been
properly compiled on the bases described therein, and the
assumptions used in the preparation thereof have been made on
a reasonable basis and the adjustments used therein are based
upon good faith estimates and assumptions believed by the
Company to be reasonable to give effect to the transactions
and circumstances referred to therein.
(v) No Material Adverse Change in Business.
Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, except as
otherwise stated therein, (A) there has been no material
adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the
Company and its subsidiaries considered as one enterprise,
regardless of whether arising in the ordinary course of
business (a "Material Adverse Effect"), (B) there have been no
transactions entered into by the Company or any of its
subsidiaries, other than those in the ordinary course of
business, that are material with respect to the Company and
its subsidiaries considered as one enterprise, and (C) except
for regular quarterly dividends on the Common Stock in amounts
per share that are consistent with past practice, there has
been no dividend or distribution of any kind declared, paid or
made by the Company on any class of its capital stock.
(vi) Good Standing of the Company. The Company
has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of
Delaware and has corporate power and authority to own, lease
and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under this Agreement; and the Company is duly
qualified as a foreign corporation to transact business and is
in good standing in each other jurisdiction in which such
qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing
would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each
"significant subsidiary" (as such term is defined in Rule 1-02
of Regulation S-X) of the Company and each subsidiary listed
on Schedule C hereto (each a "Subsidiary" and collectively,
the "Subsidiaries") has been duly organized and is validly
existing as a corporation, partnership, limited partnership,
limited liability company or other entity, in good standing
under the laws of the jurisdiction of its incorporation,
organization or formation, has corporate, partnership, limited
partnership, limited liability company, or other entity, as
applicable, power and authority to own, lease and operate its
properties and to conduct its business as described in the
Prospectus and is duly qualified as a foreign corporation,
partnership, limited partnership, limited liability company or
other entity to transact business and is in good standing in
each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to
qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in (or
incorporated by reference in) the Registration Statement, all
of the issued and outstanding capital stock or other equity
interests of each such Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and (except
as otherwise disclosed in Schedule C hereto) is owned by the
Company, directly or through Subsidiaries, free and clear of
any security interest, mortgage, pledge, lien, encumbrance,
claim or equity; none of the outstanding shares of capital
stock or other equity interests of any Subsidiary was issued
in violation of the preemptive or similar
4
<PAGE> 8
rights of any securityholder of such Subsidiary. All the
"significant subsidiaries" (as such term is defined in Rule
1-02 of Regulation S-X) of the Company are the subsidiaries
listed on Schedule C hereto.
(viii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in
the Prospectus in the column entitled "Actual" under the
caption "Capitalization" (except for subsequent issuances, if
any, pursuant to this Agreement, pursuant to reservations,
agreements, arrangements or employee benefit plans referred
to in the Prospectus or pursuant to the exercise of convertible
securities or options referred to in the Prospectus). The
shares of issued and outstanding capital stock of the Company
have been duly authorized and validly issued and are fully
paid and non-assessable; none of the outstanding shares of
capital stock of the Company was issued in violation of the
preemptive or other similar rights of any securityholder of
the Company.
(ix) Authorization of Agreement. This Agreement
has been duly authorized, executed and delivered by the
Company.
(x) Authorization and Description of Securities.
The Securities have been duly authorized for issuance and sale
to the Underwriters pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement
against payment of the consideration set forth herein, will be
validly issued, fully paid and non-assessable; the Common
Stock conforms to all statements relating thereto contained in
the Prospectus and such description conforms to the rights set
forth in the instruments defining the same; no holder of the
Securities will be subject to personal liability solely by
reason of being such a holder; and the issuance of the
Securities is not subject to the preemptive or other similar
rights of any securityholder of the Company.
(xi) Absence of Defaults and Conflicts. Neither
the Company nor any of its Subsidiaries is in violation of its
charter, by-laws, partnership agreement, limited liability
company agreement or other governing document, or in default
in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease
or other agreement or instrument to which the Company or any
of its Subsidiaries is a party or by which it or any of them
may be bound, or to which any of the property or assets of the
Company or any Subsidiary is subject (collectively,
"Agreements and Instruments") except for such defaults that
would not result in a Material Adverse Effect; and the
execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein and in
the Registration Statement (including without limitation the
issuance and sale of the Securities and the use of the
proceeds from the sale of the Securities as described in the
Prospectus under the caption "Use of Proceeds") and compliance
by the Company with its obligations hereunder have been duly
authorized by all necessary corporate action and do not and
will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach
of, or default or Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any
Subsidiary pursuant to, the Agreements and Instruments (except
for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse
Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or any
Subsidiary or any applicable law, statute, rule, regulation,
judgment, order, writ or decree of any government, government
instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or any of
their assets, properties or operations. As used herein, a
"Repayment
5
<PAGE> 9
Event" means any event or condition which gives the holder of
any note, debenture or other evidence of indebtedness (or any
person acting on such holder's behalf) the right to require
the repurchase, redemption or repayment of all or a portion of
such indebtedness by the Company or any Subsidiary.
(xii) Absence of Labor Dispute. No labor dispute
with the employees of the Company or any Subsidiary exists or,
to the knowledge of the Company or any of its Subsidiaries, is
imminent, and neither the Company nor any Subsidiary is aware
of any existing or imminent labor disturbance by the employees
of any of the principal suppliers, manufacturers, customers or
contractors of the Company or any Subsidiary, which, in either
case, may reasonably be expected to result in a Material
Adverse Effect.
(xiii) Absence of Proceedings. There is no action,
suit, proceeding, inquiry or investigation before or brought
by any court or governmental agency or body, domestic or
foreign, now pending, or, to the knowledge of the Company,
threatened, against or affecting the Company or any
Subsidiary, which is required to be disclosed in the
Registration Statement (other than as disclosed therein), or
which might reasonably be expected to result in a Material
Adverse Effect, or which might reasonably be expected to
materially and adversely affect the properties or assets
thereof or the consummation of the transactions contemplated
in this Agreement or in the Registration Statement or the
performance by the Company of its obligations hereunder; the
aggregate of all pending legal or governmental proceedings to
which the Company or any Subsidiary is a party or of which any
of their respective property or assets is the subject that are
not described in the Registration Statement, including
ordinary routine litigation incidental to the business, could
not reasonably be expected to result in a Material Adverse
Effect.
(xiv) Accuracy of Exhibits. There are no contracts
or documents that are required to be described in the
Registration Statement, the Prospectus or the documents
incorporated by reference therein or to be filed as exhibits
thereto (as of the respective times at which they were filed)
which have not been so described and filed as required.
(xv) Possession of Intellectual Property. The
Company and its Subsidiaries own or possess, or can acquire on
reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks,
service marks, trade names or other intellectual property
(collectively, "Intellectual Property") necessary to carry on
the business now operated by them, and neither the Company nor
any of its Subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with
asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render
any Intellectual Property invalid or inadequate to protect the
interest of the Company or any of its Subsidiaries therein,
and which infringement or conflict (if the subject of any
unfavorable decision, ruling or finding) or invalidity or
inadequacy, singly or in the aggregate, would result in a
Material Adverse Effect.
(xvi) Absence of Further Requirements. No filing
with, or authorization, approval, consent, license, order,
registration, qualification or decree of, any court or
governmental authority or agency is necessary or required for
the performance by the Company of its obligations hereunder,
in connection with the offering, issuance or sale of the
Securities hereunder or the consummation of the transactions
contemplated by this Agreement or by the Registration
Statement, except such as have been already obtained
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<PAGE> 10
or as may be required under the 1933 Act or the 1933 Act
Regulations or state securities laws. No holder of securities
of the Company has the right (that has not been waived) to
cause the Company to include such holder's securities in the
Registration Statement.
(xvii) Possession of Licenses and Permits. The
Company and its Subsidiaries possess such material permits,
licenses, approvals, consents and other material
authorizations (collectively, "Governmental Licenses") issued
by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now
operated by them; the Company and its Subsidiaries are in
compliance with the terms and conditions of all such
Governmental Licenses, except where the failure so to comply
would not, singly or in the aggregate, have a Material Adverse
Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such
Governmental Licenses or the failure of such Governmental
Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of
its Subsidiaries has received any notice of proceedings
relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding,
would result in a Material Adverse Effect.
(xviii) Title to Property. The Company and its
Subsidiaries have good and defensible title to all real
property owned by the Company and its Subsidiaries and good
title to all other properties owned by them, in each case,
free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind
except such as (a) are described in the Prospectus or (b) do
not, singly or in the aggregate, materially affect the value
of such property and do not interfere with the use made and
proposed to be made of such property by the Company or any of
its Subsidiaries; and all of the leases and subleases material
to the business of the Company and its Subsidiaries,
considered as one enterprise, and under which the Company or
any of its Subsidiaries holds properties described in the
Prospectus, are in full force and effect, and neither the
Company nor any Subsidiary has any notice of any material
claim of any sort that has been asserted by anyone adverse to
the rights of the Company or any Subsidiary under any of the
leases or subleases mentioned above, or affecting or
questioning the rights of the Company or such Subsidiary to
the continued possession of the leased or subleased premises
under any such lease or sublease.
(xix) Environmental Matters. Except as would not,
singularly or in the aggregate, have a Material Adverse Effect
on the Company and its Subsidiaries, or otherwise require
disclosure in the Registration Statement, (i) none of the
Company or any of its Subsidiaries is in violation of any
federal, state or local laws and regulations relating to
pollution or protection of human health or the environment,
including, without limitation, laws and regulations relating
to emissions, discharges, releases or threatened releases of
toxic or hazardous substances, materials or wastes, or
petroleum and petroleum products ("Materials of Environmental
Concern"), or otherwise relating to the protection of human
health, the environment or the use, treatment, storage,
disposal, transport or handling of Materials of Environmental
Concern (collectively, "Environmental Laws"), which violation
includes, but is not limited to, noncompliance with, or lack
of, any permits or other environmental authorizations, and
(ii) (A) none of the Company or any of its Subsidiaries has
received any communication (written or oral), whether from a
governmental authority or otherwise, alleging any such
violation or noncompliance, and there are no circumstances,
either past, present or that are reasonably foreseeable, that
may lead to any such violation in the future, (B) there is no
pending or, to the best
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<PAGE> 11
knowledge of the Company, threatened claim, action,
investigation or notice (written or oral) by any person or
entity alleging potential liability for investigatory,
cleanup, or governmental response costs, or natural resources
or property damages, or personal injuries, attorney's fees or
penalties relating to (x) the presence, or release into the
environment, of any Materials of Environmental Concern at any
location owned or operated by the Company or any of its
Subsidiaries now or in the past, or (y) circumstances forming
the basis of any violation or potential violation, of any
Environmental Law (collectively, "Environmental Claims"), and
(C) to the best knowledge of the Company, there are no past or
present actions, activities, circumstances, conditions, events
or incidents that could form the basis of any Environmental
Claim against the Company or any of its Subsidiaries or
against any person or entity for whose acts or omissions the
Company or any of its Operating Subsidiaries is or may
reasonably be expected to be liable, either contractually or
by operation of law. In the ordinary course of business, the
Company and each of its operating Subsidiaries, as
appropriate, (i) conduct a periodic review of the business,
operations and properties of the Company and each of its
operating Subsidiaries with regard to compliance with
applicable Environmental Laws, in the course of which, or as a
result of which, the Company has identified and evaluated
associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for
cleanup, closure of properties or compliance with Environmental
Laws or any permit, license or approval, and any related
constraints on operating activities) and (ii) have conducted
environmental investigations of, and have reviewed reasonably
available information regarding, the business, properties and
operations of the Company and each of its operating
Subsidiaries, and, in connection with Phase I environmental
studies of certain existing facilities and of acquired
businesses, of other properties within the vicinity of their
business, properties and operations, as appropriate for the
circumstances of each such property and operation; on the basis
of such reviews, investigations and inquiries, the Company has
reasonably concluded that, except as disclosed in the
Registration Statement, any costs and liabilities associated
with such matters would not have, singularly or in the
aggregate, a Material Adverse Effect on the Company and its
Subsidiaries, taken as a whole, or otherwise require disclosure
in the Registration Statement.
(xx) Unlawful Payments. Neither the Company nor
any of its Subsidiaries has at any time during the last five
years (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution
in violation of law, or (ii) made any payment to any foreign,
United States or state governmental officer or official, or
other person charged with similar public of quasi-public
duties, other than payments required or permitted by the laws
of the United States of America.
(xxi) ERISA. The Company is in compliance with all
applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and the
regulations and published interpretations thereunder, except
for such instances of non-compliance as have not resulted in
and could not reasonably be expected to result in a Material
Adverse Effect; no "reportable event" (as defined in ERISA and
the regulations and published interpretations thereunder) has
occurred with respect to any "employee benefit plan" (as
defined in ERISA and the regulations and published
interpretations thereunder) of the Company, for which the
notice requirement has not been waived by the Pension Benefit
Guaranty Corporation; and the Company has not incurred any
liability under Title IV of ERISA, and does not expect to incur
any such liability, that could have a Material Adverse Effect.
(xxii) Disclosure of Relationships. No
relationship, direct or indirect, exists between or among any
of the Company or any affiliate of the Company, on the one
hand,
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<PAGE> 12
and any director, officer, shareholder, customer or supplier
of any of them, on the other hand, which is required by the
1933 Act or by the 1933 Act Regulations to be described in the
Registration Statement or the Prospectus and which is not so
described or is not described as required.
(b) Officer's Certificates. Any certificate signed by
any officer of the Company or any of its Subsidiaries delivered to the
Representative(s) or to counsel for the Underwriters in connection
with the subject matter hereof shall be deemed a representation and
warranty by the Company to each Underwriter as to the matters covered
thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the
representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Company agrees to sell to
each Underwriter, severally and not jointly, and each Underwriter,
severally and not jointly, agrees to purchase from the Company, at the
price per share set forth in Schedule B, the number of Initial
Securities set forth in Schedule A opposite the name of such
Underwriter, plus any additional number of Initial Securities which
such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(b) Option Securities. In addition, on the basis of the
representations and warranties herein contained and subject to the
terms and conditions herein set forth, the Company hereby grants an
option to the Underwriters, severally and not jointly, to purchase up
to an additional 450,000 shares of Common Stock at the price per share
set forth in Schedule B, less an amount per share equal to any
dividends or distributions declared by the Company and payable on the
Initial Securities but not payable on the Option Securities. The
option hereby granted will expire 30 days after the date hereof and
may be exercised in whole or in part from time to time only for the
purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial Securities upon
notice by Merrill Lynch to the Company setting forth the number of
Option Securities as to which the several Underwriters are then
exercising the option and the time and date of payment and delivery
for such Option Securities. Any such time and date of delivery (a
"Date of Delivery") shall be determined by Merrill Lynch, but shall
not be later than seven full business days after the exercise of said
option, nor in any event prior to the Closing Time, as hereinafter
defined. If the option is exercised as to all or any portion of the
Option Securities, each of the Underwriters, acting severally and not
jointly, shall purchase that proportion of the total number of Option
Securities then being purchased which the number of Initial Securities
set forth in Schedule A opposite the name of such Underwriter bears to
the total number of Initial Securities, subject in each case to such
adjustments as Merrill Lynch in its discretion shall make to eliminate
any sales or purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and
delivery of certificates for, the Initial Securities shall be made at
the offices of Skadden, Arps, Slate, Meagher & Flom LLP, 1600 Smith
Street, Suite 4460, Houston, Texas 77002, or at such other place as
shall be agreed upon by the Representative(s) and the Company, at 9:00
A.M. (Eastern time) on the third (fourth, if the pricing occurs after
4:30 P.M. (Eastern time) on any given day) business day after the date
hereof (unless postponed in accordance with the provisions of Section
10 hereof), or such other time not later than ten business days after
such date as shall be agreed upon by the Representative(s) and the
Company (such time and date of payment and delivery being herein
called "Closing Time").
In addition, in the event that any or all of the Option
Securities are purchased by the Underwriters, payment of the purchase
price for, and delivery of certificates for, such Option
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<PAGE> 13
Securities shall be made at the above-mentioned offices, or at such
other place as shall be agreed upon by the Representative(s) and the
Company, on each Date of Delivery as specified in the notice from
Merrill Lynch to the Company.
Payment shall be made to the Company by wire transfer of
immediately available funds to a bank account designated by the
Company, against delivery to the Representative(s) for the respective
accounts of the Underwriters of certificates for the Securities to be
purchased by them. It is understood that each Underwriter has
authorized the Representative(s), for its account, to accept delivery
of, receipt for, and make payment of the purchase price for, the
Initial Securities and the Option Securities, if any, which it has
agreed to purchase. Merrill Lynch, individually and not as
representative of the Underwriters, may (but shall not be obligated
to) make payment of the purchase price for the Initial Securities or
the Option Securities, if any, to be purchased by any Underwriter
whose funds have not been received by the Closing Time or the relevant
Date of Delivery, as the case may be, but such payment shall not
relieve such Underwriter from its obligations hereunder.
(d) Denominations; Registration. Certificates for the
Initial Securities and the Option Securities, if any, shall be in such
denominations and registered in such names as the Representative(s)
may request in writing at least one full business day before the
Closing Time or the relevant Date of Delivery, as the case may be.
The certificates for the Initial Securities and the Option Securities,
if any, will be made available for examination and packaging by the
Representative(s) in The City of New York not later than 10:00 A.M.
(Eastern time) on the business day prior to the Closing Time or the
relevant Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with
each Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. Subject to the provisions of Section 3(b) hereof, the
Company shall comply with the requirements of Rule 430A or Rule 434,
as applicable, and shall notify the Representative(s) immediately, and
confirm the notice in writing, (i) when any post- effective amendment
to the Registration Statement shall become effective, or any
supplement to the Prospectus or any amended Prospectus shall have been
filed, (ii) of the receipt of any comments from the Commission, (iii)
of any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for
additional information, and (iv) of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration
Statement or of any order preventing or suspending the use of any
preliminary prospectus, or of the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, or of the
initiation or threatening of any proceedings for any of such purposes.
The Company shall effect promptly the filings necessary pursuant to
Rule 424(b) and shall take such steps as it deems necessary to
ascertain promptly whether the form of prospectus transmitted for
filing under Rule 424(b) was received for filing by the Commission
and, in the event that it was not, it shall promptly file such
prospectus. The Company shall make every reasonable effort to prevent
the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) Filing of Amendments. The Company shall give the
Representative(s) notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)), any Term Sheet or any amendment, supplement or revision
to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus, whether pursuant to the
1933 Act, the 1934 Act or otherwise, shall furnish the
Representative(s) with copies of any such documents a reasonable
amount of time prior to such
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<PAGE> 14
proposed filing or use, as the case may be, and shall not file or use
any such document to which the Representative(s) or counsel for the
Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representative(s) and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein and
documents incorporated or deemed to be incorporated by reference
therein) and signed copies of all consents and certificates of
experts, and will also deliver to the Representative(s), without
charge, a conformed copy of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) for each of the
Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the Underwriters will be identical to
the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) Delivery of Prospectuses. The Company has delivered
to each Underwriter, without charge, as many copies of each
preliminary prospectus as such Underwriter reasonably requested, and
the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company shall furnish to each
Underwriter, without charge, during the period when the Prospectus is
required to be delivered under the 1933 Act or the 1934 Act, such
number of copies of the Prospectus (as amended or supplemented) as
such Underwriter may reasonably request. The Prospectus and any
amendments or supplements thereto furnished to the Underwriters will
be identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(e) Continued Compliance with Securities Laws. The
Company shall comply with the 1933 Act and the 1933 Act Regulations
and the 1934 Act and the 1934 Act Regulations so as to permit the
completion of the distribution of the Securities as contemplated in
this Agreement and in the Prospectus. If at any time when a
prospectus is required by the 1933 Act to be delivered in connection
with sales of the Securities, any event shall occur or condition shall
exist as a result of which it is necessary, in the opinion of counsel
for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact
or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, or if it shall be
necessary, in the opinion of such counsel, at any such time to amend
the Registration Statement or amend or supplement the Prospectus in
order to comply with the requirements of the 1933 Act or the 1933 Act
Regulations, the Company shall promptly prepare and file with the
Commission, subject to Section 3(b), such amendment or supplement as
may be necessary to correct such statement or omission or to make the
Registration Statement or the Prospectus comply with such
requirements, and the Company shall furnish to the Underwriters such
number of copies of such amendment or supplement as the Underwriters
may reasonably request.
(f) Blue Sky Qualifications. The Company shall use its
best efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Representative(s) may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject.
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In each jurisdiction in which the Securities have been so qualified,
the Company shall file such statements and reports as may be required
by the laws of such jurisdiction to continue such qualification in
effect for a period of not less than one year from the effective date
of the Registration Statement and any Rule 462(b) Registration
Statement.
(g) Rule 158. The Company shall timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits
contemplated by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company shall use the net
proceeds received by it from the sale of the Securities in the manner
specified in the Prospectus under "Use of Proceeds."
(i) Listing. The Company shall use its best efforts to
effect the listing of the Securities on the New York Stock Exchange.
(j) Restriction on Sale of Securities. During a period
of 120 days from the date of the Prospectus, the Company shall not,
without the prior written consent of Merrill Lynch, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or
dispose of any share of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or file any
registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock,
whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to the Securities to be sold hereunder. Notwithstanding the
foregoing, (i) the Company may issue and sell shares of Common Stock
in connection with the Alchem Acquisition (as defined in the
Prospectus) and (ii) the Company may issue shares of Common Stock
pursuant to its stock option plans and its stock incentive plan and
upon the exercise of options granted under such plans.
(k) Reporting Requirements. The Company, during the
period when the Prospectus is required to be delivered under the 1933
Act or the 1934 Act, shall file all documents required to be filed
with the Commission pursuant to the 1934 Act within the time periods
required by the 1934 Act and the 1934 Act Regulations.
SECTION 4. Payment of Expenses.
(a) Expenses. The Company shall pay all expenses incident to
the performance of its obligations under this Agreement, including (i)
the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits) as originally filed and
of each amendment thereto, (ii) the preparation, printing and delivery
to the Underwriters of this Agreement, any Agreement among
Underwriters and such other documents as may be required in connection
with the offering, purchase, sale, issuance or delivery of the
Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any
stock or other transfer taxes and any stamp or other duties payable
upon the sale, issuance or delivery of the Securities to the
Underwriters, (iv) the fees and disbursements of the Company's
counsel, accountants and other advisors, (v) the qualification of the
Securities under securities laws in accordance with the provisions of
Section 3(f) hereof, including filing fees and the reasonable fees and
disbursements of counsel for the Underwriters in connection therewith
and
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<PAGE> 16
in connection with the preparation of a blue sky survey, if any, and
any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets
and of the Prospectus and any amendments or supplements thereto, (vii)
the preparation, printing and delivery to the Underwriters of copies
of the blue sky survey, if any, and any supplement thereto, (viii) the
fees and expenses of any transfer agent or registrar for the
Securities and (ix) the filing fees incident to, and the reasonable
fees and disbursements of counsel to the Underwriters in connection
with, the review by the National Association of Securities Dealers,
Inc. (the "NASD") of the terms of the sale of the Securities and (x)
the fees and expenses incurred in connection with the listing of the
Securities on the New York Stock Exchange.
(b) Termination of Agreement. If this Agreement is
terminated by the Representative(s) in accordance with the provisions
of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse
the Underwriters for all of their out-of-pocket expenses, including
the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5. Conditions of Underwriters' Obligations. The
obligations of the several Underwriters hereunder are subject to the accuracy
of the representations and warranties of the Company contained in Section 1
hereof or in certificates of any officer of the Company or any Subsidiary
delivered pursuant to the provisions hereof, to the performance by the Company
of its covenants and other obligations hereunder, and to the following further
conditions:
(a) Effectiveness of Registration Statement. The
Registration Statement, including any Rule 462(b) Registration
Statement, has become effective and at Closing Time no stop order
suspending the effectiveness of the Registration Statement shall have
been issued under the 1933 Act or proceedings therefor initiated or
threatened by the Commission, and any request on the part of the
Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriters. A
prospectus containing the Rule 430A Information shall have been filed
with the Commission in accordance with Rule 424(b) (or a post-
effective amendment providing such information shall have been filed
and declared effective in accordance with the requirements of Rule
430A) or, if the Company has elected to rely upon Rule 434, a Term
Sheet shall have been filed with the Commission in accordance with
Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the
Representative(s) shall have received the favorable opinion, dated as
of Closing Time, of Haynes and Boone, L.L.P., counsel for the Company,
in form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters to the effect set forth in Exhibit A hereto and
to such further effect as counsel to the Underwriters may reasonably
request.
(c) Opinion of Counsel for Underwriters. At Closing
Time, the Representative(s) shall have received the favorable opinion,
dated as of Closing Time, of Skadden, Arps, Slate, Meagher & Flom LLP,
counsel for the Underwriters, together with signed or reproduced
copies of such letter for each of the other Underwriters with respect
to the matters set forth in clauses (i), (ii), (v), (vi) (solely as to
preemptive or other similar rights arising by operation of law or
under the charter or by-laws of the Company), (viii) through (x),
inclusive, (xiii), (xv) (solely as to the information in the
Prospectus under "Description of Capital Stock") and the penultimate
paragraph of Exhibit A hereto. In giving such opinion such counsel
may rely, as to all matters governed by the laws of jurisdictions
other than the law of the State of New York, the federal law of the
United States and the General Corporation Law of the State of
Delaware, upon the opinions of counsel satisfactory to the
Representative(s). Such counsel may also state that, insofar as such
opinion
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<PAGE> 17
involves factual matters, they have relied, to the extent they deem
proper, upon certificates of officers of the Company and its
Subsidiaries and certificates of public officials.
(d) Officers' Certificate. At the Closing Time, there
shall not have been, since the date hereof or since the respective
dates as of which information is given in the Prospectus, any material
adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company and
its Subsidiaries considered as one enterprise, regardless of whether
arising in the ordinary course of business, and the Representative(s)
shall have received a certificate of the President or a Vice President
of the Company and of the chief financial or chief accounting officer
of the Company, dated as of the Closing Time, to the effect that (i)
there has been no such material adverse change, (ii) the
representations and warranties in Section 1(a) hereof are true and
correct with the same force and effect as though expressly made at and
as of the Closing Time, (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or are contemplated by the Commission.
(e) Accountant's Comfort Letter. At the time of the
execution of this Agreement, the Representative(s) shall have received
from each of Ernst & Young LLP and Arthur Andersen LLP a letter dated
such date, in form and substance satisfactory to the
Representative(s), together with signed or reproduced copies of such
letter for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained or incorporated by reference
in the Registration Statement and the Prospectus.
(f) Bring-down Comfort Letter. At Closing Time, the
Representative(s) shall have received from each of Ernst & Young LLP
and Arthur Andersen LLP a letter, dated as of the Closing Time, to the
effect that they reaffirm the statements made in the letter furnished
pursuant to subsection (e) of this Section, except that the specified
date referred to shall be a date not more than three business days
prior to Closing Time.
(g) Approval of Listing. At Closing Time, the Securities
shall have been approved for listing on the New York Stock Exchange,
subject only to official notice of issuance.
(h) No Objection. The NASD shall have confirmed that it
has not raised any objection with respect to the fairness and
reasonableness of the underwriting terms and arrangements.
(i) Lock-up Agreements. At the date of this Agreement,
the Representative(s) shall have received an agreement substantially
in the form of Exhibit B hereto signed by the persons listed on
Schedule D hereto.
(j) Conditions to Purchase of Option Securities. In the
event that the Underwriters exercise their option provided in Section
2(b) hereof to purchase all or any portion of the Option Securities,
the representations and warranties of the Company contained herein and
the statements in any certificates furnished by the Company or any
Subsidiary hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the Representative(s)
shall have received:
(i) Officers' Certificate. A certificate, dated
such Date of Delivery, of the President or a Vice President of
the Company and of the chief financial or chief accounting
14
<PAGE> 18
officer of the Company confirming that the certificate
delivered at the Closing Time pursuant to Section 5(d) hereof
remains true and correct as of such Date of Delivery.
(ii) Opinion of Counsel for Company. The
favorable opinion of Haynes and Boone, L.L.P., counsel for the
Company, in form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by
Section 5(b) hereof.
(iii) Opinion of Counsel for Underwriters. The
favorable opinion of Skadden, Arps, Slate, Meagher & Flom LLP,
counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date
of Delivery and otherwise to the same effect as the opinion
required by Section 5(c) hereof.
(iv) Bring-down Comfort Letter. A letter from
Ernst & Young LLP, in form and substance satisfactory to the
Representative(s) and dated such Date of Delivery,
substantially in the same form and substance as the letter
furnished to the Representative(s) pursuant to Section 5(f)
hereof, except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date not more
than five days prior to such Date of Delivery.
(k) Additional Documents. At the Closing Time and at
each Date of Delivery, counsel for the Underwriters shall have been
furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the
accuracy of any of the representations or warranties, or the
fulfillment of any of the conditions, herein contained; and all
proceedings taken by the Company in connection with the issuance and
sale of the Securities as herein contemplated shall be satisfactory in
form and substance to the Representative(s) and counsel for the
Underwriters.
(l) Termination of Agreement. If any condition specified
in this Section shall not have been fulfilled when and as required to
be fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities, on a Date of Delivery that is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the
Representative(s) by notice to the Company at any time at or prior to
the Closing Time or such Date of Delivery, as the case may be, and
such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof and except that Sections
1, 6, 7 and 8 hereof shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. The Company agrees
to indemnify and hold harmless each Underwriter and each person, if
any, who controls any Underwriter within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act against (i) any and all
loss, liability, claim, damage and expense whatsoever, as incurred,
arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any
amendment thereto), including the Rule 430A Information and the Rule
434 Information, if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or arising out
of any untrue statement or alleged untrue statement of a material fact
included in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; (ii) any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the
15
<PAGE> 19
extent of the aggregate amount paid in settlement of any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever, based upon any
such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 6(d) below)
any such settlement is effected with the written consent of the
Company; and (iii) any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever, based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under clauses (i) or (ii) above; provided,
however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of 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 by any Underwriter through Merrill Lynch
expressly for use in the Registration Statement (or any amendment
thereto), including the Rule 430A Information and the Rule 434
Information, if applicable, or any preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
(b) Indemnification of Company, Directors and Officers.
Each Underwriter severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act against any and all loss, liability, claim, damage and
expense described in the indemnity contained in subsection (a) of this
Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) in reliance upon and in conformity with written
information furnished to the Company by such Underwriter through
Merrill Lynch expressly for use in the Registration Statement (or any
amendment thereto) or such preliminary prospectus or the Prospectus
(or any amendment or supplement thereto).
(c) Actions against Parties; Notification. Each
indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced against
it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not materially
prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this
indemnity agreement. In the case of parties indemnified pursuant to
Section 6(a) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified
pursuant to Section 6(b) above, counsel to the indemnified parties
shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action;
provided, however, that counsel to the indemnifying party shall not
(except with the consent of the indemnified party) also be counsel to
the indemnified party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to
any local counsel) separate from their own counsel for all indemnified
parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle
or compromise or consent to the entry of any judgment with respect to
any litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under
this Section 6 or Section 7 hereof (regardless of whether the
indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional
release of each indemnified party from all liability arising out of
such litigation, investigation,
16
<PAGE> 20
proceeding or claim and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act by or on behalf of
any indemnified party.
(d) Settlement without Consent if Failure to Reimburse.
If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel, such indemnifying party agrees that it shall be
liable for any settlement of the nature contemplated by Section
6(a)(ii) (including without limitation that in the nature of Section
6(a)(ii) contemplated pursuant to Section 6(b)) effected without its
written consent if (i) such settlement is entered into more than 45
days after receipt by such indemnifying party of the aforesaid
request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have
reimbursed such indemnified party in accordance with such request
prior to the date of such settlement.
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein; then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the
offering of the Securities pursuant to this Agreement or (ii) if the allocation
provided by clause (i) 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
of the Underwriters on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand in connection with the offering of the
Securities pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the
Securities pursuant to this Agreement (before deducting expenses) received by
the Company and the total underwriting discount received by the Underwriters,
in each case as set forth on the cover of the Prospectus, or, if Rule 434 is
used, the corresponding location on the Term Sheet, bear to the aggregate
initial public offering price of the Securities as set forth on such cover.
The relative fault of the Company on the one hand and the Underwriters
on the other hand shall be determined by reference to, among other things,
whether any such untrue or alleged untrue statement of a material fact or
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter
17
<PAGE> 21
has otherwise been required to pay by reason of any such untrue or alleged
untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the number of Initial Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
Subsidiaries submitted pursuant hereto, shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of any
Underwriter or controlling person, or by or on behalf of the Company, and shall
survive delivery of the Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representative(s) may
terminate this Agreement, by notice to the Company, at any time at or
prior to Closing Time or the Date of Delivery, as the case may be, (i)
if there has been, since the time of execution of this Agreement or
since the respective dates as of which information is given in the
Prospectus, any material adverse change in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects
of the Company and its Subsidiaries considered as one enterprise,
regardless of whether arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the
financial markets in the United States, any outbreak of hostilities or
escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or
international political, financial or economic conditions, in each
case the effect of which is such as to make it, in the judgment of the
Representative(s), impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading
in any securities of the Company has been suspended or materially
limited by the Commission or the New York Stock Exchange, or if
trading generally on the American Stock Exchange or the New York Stock
Exchange or in the Nasdaq National Market has been suspended or
materially limited, or minimum or maximum prices for trading have been
fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the NASD or
any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated
pursuant to this Section, such termination shall be without liability
of any party to any other party except as provided in Section 4
hereof, and provided further that Sections 1, 6, 7 and 8 shall survive
such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one
or more of the Underwriters shall fail at the Closing Time or a Date of
Delivery to purchase the Securities which it or they are obligated to purchase
under this Agreement (the "Defaulted Securities"), the Representative(s) shall
have the right, within 24 hours thereafter, to make arrangements for one or
more of the non-defaulting Underwriters, or any other underwriters, to purchase
all, but not less than all, of the Defaulted Securities in such amounts as may
be agreed
18
<PAGE> 22
upon and upon the terms herein set forth; if, however, the Representative(s)
shall not have completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed
10% of the number of Securities to be purchased on such date, each of
the non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of
the number of Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after the
Closing Time, the obligation of the Underwriters to purchase and of
the Company to sell the Option Securities to be purchased and sold on
such Date of Delivery shall terminate without liability on the part of
any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement or, in the case of a Date of Delivery which is
after the Closing Time, which does not result in a termination of the
obligation of the Underwriters to purchase and the Company to sell the relevant
Option Securities, as the case may be, either the Representative(s) or the
Company shall have the right to postpone Closing Time or the relevant Date of
Delivery, as the case may be, for a period not exceeding seven days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements. As used herein, the term "Underwriter"
includes any person substituted for an Underwriter under this Section 10.
SECTION 11. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
mailed or transmitted by any standard form of telecommunication. Notices to
the Underwriters shall be directed to the Representative(s) at North Tower,
World Financial Center, New York, New York 10281-1201, attention of
[_____________]; and notices to the Company shall be directed to it at 5215
North O'Connor Blvd., Suite 940, Central Tower at Williams Square, Irving,
Texas 75039, attention of Paul V. Dufour.
SECTION 12. Parties. This Agreement shall each inure to the
benefit of and be binding upon the Underwriters and the Company and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Underwriters and the Company and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are
intended to be for the sole and exclusive benefit of the Underwriters and the
Company and their respective successors, and said controlling persons and
officers and directors and their heirs and legal representatives, and for the
benefit of no other person, firm or corporation. No purchaser of Securities
from any Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
[Remainder of page intentionally blank]
19
<PAGE> 23
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Company in accordance with its
terms.
Very truly yours,
IMCO RECYCLING INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------------------
Authorized Signatory
For themselves and as Representative(s) of the
other Underwriters named in Schedule A hereto.
20
<PAGE> 24
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
Name of Underwriter Securities
------------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . .
Raymond James & Associates, Inc. . . . . . . . . . . . . . . . . . . . . . . . . .
---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
=========
</TABLE>
Schedule A - Page 1
<PAGE> 25
SCHEDULE B
IMCO RECYCLING INC.
3,000,000 Shares of Common Stock
(Par Value $.10 Per Share)
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall be $_____________.
2. The purchase price per share for the Securities to be paid by
the several Underwriters shall be $_____________, being an amount equal to the
initial public offering price set forth above less $_____________ per share;
provided that the purchase price per share for any Option Securities purchased
upon the exercise of the over- allotment option described in Section 2(b) shall
be reduced by an amount per share equal to any dividends or distributions
declared by the Company and payable on the Initial Securities but not payable
on the Option Securities.
Schedule B - Page 1
<PAGE> 26
SCHEDULE C
List of Subsidiaries of the Company
Unless otherwise indicated, all the following entities are directly or
indirectly wholly-owned by the Company.
1. IMCO Investment Company, a Delaware corporation
2. Interamerican Zinc, Inc., a Delaware corporation
3. IMCO Recycling of Ohio Inc., a Delaware corporation
4. IMCO Management Partnership L.P., a Texas limited partnership
5. IMCO Energy Corp., a Delaware corporation
6. Phoenix Smelting Corporation, a Georgia corporation
7. IMCO Recycling of Loudon Inc., a Tennessee corporation
8. IMCO Recycling of Indiana Inc., a Delaware corporation
9. IMCO Recycling of Illinois Inc., a Delaware corporation
10. IMCO Indiana Partnership L.P., an Indiana limited partnership
11. Metal Mark, Inc., an Illinois corporation
12. VAW-IMCO GuB und Recycling GmbH, a private company with limited
liability organized under the laws of Germany (50% owned by the Company)
13. IMCO Recycling of Michigan L.L.C., a Delaware limited liability company
(75% owned by the Company)
14. IMCO Recycling (UK) Ltd., a private company limited by shares and
organized under the laws of England and Wales
15. IMCO Acquisition Inc., a Delaware corporation
16. IMSAMET, Inc., a Delaware corporation
17. Imsamet of Idaho, Inc., a Delaware corporation
18. Imsamet of Utah, Inc., a Delaware corporation
19. Imsamet of Arizona, an Arizona general partnership (70% owned by
IMSAMET, Inc.)
20. Solar Aluminum Technology Services, a Utah general partnership (50%
owned by IMSAMET, Inc.)
21. Rock Creek Aluminum, Inc., an Ohio corporation
Schedule C - Page 1
<PAGE> 27
SCHEDULE D
Persons Subject to Lock-Up
Don V. Ingram
Richard L. Kerr
Paul V. Dufour
Thomas W. Rogers
C. Lee Newton
John J. Fleming
Don Navarro
Thomas A. James
J.M. Brundrett
Ralph L. Cheek
Jack C. Page
Schedule D - Page 1
<PAGE> 28
EXHIBIT B
__________ __, 1997
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
RAYMOND JAMES & ASSOCIATES, INC.
as Representative(s) of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by IMCO Recycling Inc.
Dear Sirs:
The undersigned, a stockholder and an officer and/or director of IMCO
Recycling Inc., a Delaware corporation (the "Company"), understands that
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
("Merrill Lynch") and Raymond James & Associates, Inc. propose to enter into a
Purchase Agreement (the "Purchase Agreement") with the Company providing for
the public offering of shares (the "Securities") of the Company's common stock,
par value $.10 per share (the "Common Stock"). In recognition of the benefit
that such an offering will confer upon the undersigned as a stockholder and an
officer and/or director of the Company, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the undersigned agrees with each underwriter to be named in the Purchase
Agreement that, during a period of 120 days from the date of the Purchase
Agreement, the undersigned will not, without the prior written consent of
Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of, or otherwise
dispose of or transfer any shares of the Company's Common Stock or any
securities convertible into or exchangeable or exercisable for Common Stock,
whether now owned or hereafter acquired by the undersigned or with respect to
which the undersigned has or hereafter acquires the power of disposition (other
than bona fide gifts to donees to agree in writing to be bound by the terms
hereof), or file any registration statement under the Securities Act of 1933,
as amended, with respect to any of the foregoing or (ii) enter into any swap or
any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the Common
Stock, whether any such swap or transaction is to be settled by delivery of
Common Stock or other securities, in cash or otherwise.
Very truly yours,
Signature:
-------------------------------
Print Name:
-----------------------------
Exhibit B - Page 1
<PAGE> 1
EXHIBIT 15.1
Stockholders and Board of Directors
IMCO Recycling Inc.
We are aware of the incorporation by reference in Amendment No. 1 to the
Registration Statement (Form S-3 No. 333-36833) of IMCO Recycling Inc. for the
registration of 3,450,000 shares of its common stock of our reports dated May
12, 1997 and July 29, 1997 relating to the unaudited condensed consolidated
interim financial statements of IMCO Recycling Inc. that are included in its
Forms 10-Q for the quarters ended March 31, 1997 and June 30, 1997.
Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not a
part of the registration statement prepared or certified by accountants within
the meaning of Section 7 or 11 of the Securities Act of 1933.
ERNST & YOUNG LLP
October 9, 1997
Dallas, Texas
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the references to our firm under the caption "Experts" and to
the use of our report dated January 30, 1997 in Amendment No. 1 to the
Registration Statement (Form S-3 No. 333-36833) and related Prospectus of IMCO
Recycling Inc. for the registration of 3,450,000 shares of common stock.
We also consent to the incorporation by reference therein of our report
dated March 13, 1997, with respect to the consolidated financial statements of
IMSAMET, Inc. for the year ended December 31, 1996, included in the Current
Report on Form 8-K of IMCO Recycling Inc. dated January 21, 1997, as amended,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Dallas, Texas
October 9, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of IMCO Recycling, Inc. on Form
S-3/A-1 of our report dated December 9, 1996, on the financial statements of
Alchem Aluminum, Inc. as of October 31, 1996 and 1995, and for the years then
ended, included in IMCO Recycling, Inc.'s current report on Form 8-K/A dated
October 9, 1997, and to all references to our Firm included in this Registration
Statement.
ARTHUR ANDERSEN LLP
Toledo, Ohio,
October 8, 1997.